On 'Freefall' (in the U.S. economy) a book by Joseph Stiglitz

Before moving on to something else I thought I should make a few comments on Stiglitz’s book about the 2008 Wall Street, Banking and Finance crash of the U.S. economy. It is an interesting book that reinforces many of the suspicions that one might have about the present U.S. corporate business environment.

The United States should man up to its substantial economic challenges if it is to hope to keep a comparative better standard of living than the rest of the world. And it must do so in a way that reduces consumption, increases efficiency, innovation and decreases the misery index for the poor and middle class. There are four primary challenges; 1) Reform the financial sector, Wall Street and banking breaking up ‘too big to fail’ banks on the way 2) Eliminate Bush II era tax cuts 3) Reduce federal spending, eliminate the public debt and better spend federal revenues 4) Create a sustainable self-reliant green energy policy.

Stiglitz’s Nobel Prize in economics might have been for his work on upgrading the Walrasian models ideas about market equilibrium-I don’t know, yet market equilibrium is not self-correcting as assumed in the neo-classical model. The market binges into the gutter without government regulation, perhaps from overdoses of irrational exuberance and the leverage of wealth and power detaching from neo-realism. The point of the free market is to serve the interests of the people. The emergent Chinese market may become a better model for real economic capitalism than that of the United States in the years ahead, as the latter is encumbered with extremist rhetoric about a perfect, unregulated utopian free market even as it piles up public debt and requires corporate welfare from public bail outs to function.

I am not at all optimistic that the United States will move toward more government regulation of Wall Street, banking and finance. President Obama in December 2010 was a cheerleader for extending Bush II era tax cuts. The financial class with high pay and bonuses don’t want higher taxes-they just want government bailouts and insider sweetheart deals from the Fed.

Stiglitz pointed out the financial sector took more than 40% of Wall Street profits before the crash, and that the manufacturing sector of the U.S. economy today is just 11.5%. Financial perfidy, too big to fail (or exist) banks and a complex web of risky financial products has made the health of the U.S economy problematic.

One amidst several remedies suggested by Stiglitz was creation of a world reserve currency. That did set me to wonder if an electronic currency signed on to by the world’s major players might not be instantly available and transparent.

Another idea was that of perfect information and perfect competition. Plainly it does not exist in the present business world. In the home mortgage crisis, in the securitization of mortgages where even the Chinese Government owned substantial numbers of Fanny Mae bonds, the average buyer may have had little understanding of the complex web of corporate and banking business existing below the surface affect everything from variable rate mortgages to employment.

If perfect information is not a fact modern corporatism, if obscure mathematically complex financial products are sold off exchanges, might not Internet search engines in some way move to bring perfect information absent from neoclassical models?

Improved Internet search engines can develop lists of ranked product prices. The lowest possible price of any given product available in a nation such as the U.S.A. could be assured by an Internet search theoretically. If a widget, or my science fiction book ‘St. Novilistricka Dimensions’, is available on the global market, an Internet search protocol might quickly discover the location of the lowest possible cost for a buyer; that at least seems something of an improvement over the neo-classical model.