A graduate of Amherst College, Joseph E. Stiglitz received his PHD from MIT in 1967, became a full professor at Yale in 1970, and in 1979 was awarded the John Bates Clark Award, given biennially by the American Economic Association to the economist under 40 who has made the most significant contribution to the field. He has taught at Princeton, Stanford, MIT and was the Drummond Professor and a fellow of All Souls College, Oxford. He is now University Professor at Columbia University in New York and Chair of Columbia University's Committee on Global Thought. He is also the co-founder and Executive Director of the Initiative for Policy Dialogue at Columbia. Stiglitz helped create a new branch of economics, "The Economics of Information," exploring the consequences of information asymmetries and pioneering such pivotal concepts as adverse selection and moral hazard, which have now become standard tools not only of theorists, but of policy analysts. In 2001, he was awarded the Nobel Prize in economics for his analyses of markets with asymmetric information, and he was a lead author of the 1995 Report of the Intergovernmental Panel on Climate Change, which shared the 2007 Nobel Peace Prize. His most recent book, The Three Trillion Dollar War: The True Cost of the Iraq Conflict measures the war's opportunity cost to Americans.
Card: What’s your advice for fixing the economy in the long-term?
Stiglitz: The answer is in some sense, pretty easy. We have to go back to have better regulations, the financial sector has to go back to doing what it should have done. You know, it was doing innovations that were engaged in accounting gimmickry and regulatory arbitrage, getting around the regulations but it wasn’t producing the products that Americans really needed. They talked about managing risks, they create a risk. They didn’t create the risk products that would enable Americans to live in their homes. Three million Americans have already lost their homes and if you estimate, another 2 million Americans will lose their homes and many of these will lose their life savings. The financial system did not serve Americans well, they were gambling with each other. And now, all of us are going to be paying the consequences. We’re paying the consequences, in terms of lost homes, lost jobs, and now we, as the taxpayers, are picking up the tab for Freddie Mac… Fannie Mae, Freddie Mac, [Bernstein’s] and who knows what else would be going on. So, the fact is that we need stronger regulations and change the incentives in particular, to make these guys try to produce products that actually make our financial systems work well, algate capital well, manage risk well, which they weren’t doing before. Now you hear… hear all the time, “You can’t do that.” We have to be careful about overreacting, if you overreact, you will suppress the innovation, which is at the heart of America. The fact of the matter is, the kind of innovation that they did was innovation that did not make our economy stronger. The innovation that they did was enrich their pockets at the expense of the rest of us, that’s not the kind of innovation we want, we want the kind of innovation that really deals with the problems of America. Now, our financial markets had done that kind of innovation in the past, venture capital which helped finance Silicon Valley, is one of the innovations of American financial market so they had the capacity to do it but they lost the thread, they lost the way of doing what they should be doing and went into gambling, it’s the only way to describe it, with… with us having to pick up the consequences of their failures. So that’s the long run. I think we’re pretty clear about what we need to be doing on that, there will be a lot of people who [bail] a lot of money on the old system, even if their stock is going down, they… you know, they had their hundred million… couple of hundred million in safe quarters protected, they’re going to be resisting it but I think we really have to not listen to the same people who got us in the mess in the first place.