THE ROARING NINETIES – THE DEMYSTIFIED BOOM

Book Review of Joseph E. Stiglitz’ “The Roaring Nineties”

By parnass

[This book review published in parnass, June 2004 is translated from the German on the World Wide Web,  http://www.parnass.scram.de/printdetail.php?nr=1761.]

[“The Roaring Nineties” gives an insider’s view of the achievements and slips of the US. Joseph Stiglitz, a Michael Moore for economic intellectuals, comments on economic, political and social questions.]

A decade of unexpected economic boom continued until the bubble burst and billions of dollars were scattered to the winds. These were the last years of the past millennium in the US. In twelve chapters, Joseph Stiglitz, US economist and 2001 Nobel Prize winner, describes how this long lasting upswing occurred and what happened when illusions lost their magic spell. The professed democrat and economic advisor of president Bill Clinton harshly criticizes the economic philosophy of the republicans. Tax cuts, deregulation in the sense of privatization and retreat of the state have made the wealthy even richer without benefiting the lower income groups.

What caused this upswing in the “Golden Nineties”? Belief in the invincible strength of the US after the victorious end of the “Cold War”, investments in the “New Economy” and many other factors promoted the illusion of an endless upswing that could overcome the negative trademark of capitalism – the business cycle. However this was also a myth like the belief of many actors on “Wall Street” in Adam Smith’s thesis that the egoism of individuals advances the economic well being of the community.

Stiglitz, a white knight among black sheep of American businessmen, de-glorifies the beautiful appearance of the unwholesome boom and illustrates the criminal intrigues of a team of corporations and banks destroying the assets of many gullible small shareholders. In the case of the energy corporation “Enron”, the economics professor shows how economic captains sold their stock options for hundreds of millions of dollars when they knew that the corporation would soon face ruin. At the same time, they seduced small shareholders to buy shares of stock.

On stock options, Stiglitz explains how this means of compensation primarily helps the incomes of executives and creates an incentive for short-term increases in stock prices without creating the base necessary for sustainability.

On morality and the economy, Joseph Stiglitz urges more honesty and courage for truth. The author, a member of a generation marked by John F. Kennedy’s call to engagement for the state and community writes about how many of his students are only intent on individual pecuniary advancement and no longer look beyond the edge of the plate of their selfish goals.

What about the state? Economist Stiglitz distinguishes the state according to its internal and external effects and criticizes inconsistencies and contradictions in its perception. On one side, the US preaches privatization and opening of markets to foreign powers while simultaneously preventing free trading in its own markets for products from developing countries. This hypocrisy is not beneficial for the credibility and respect of the US, says the professor who taught at Yale, Princeton, Oxford and Stanford and since 2002 at Columbia University in New York. In the inner relation between the state and the free market, the author breaks with the opinion of “as little state as possible” dominant for a long time in the states. He seeks to restore the balance of the two actors.

State pensions are more secure than private pension funds that have brought many thousands of Americans into old age poverty. Only the state is concerned with promoting environmental consciousness since the economy hardly voluntarily supports the safeguarding of creation. State funds are necessary for investments in future technologies as the Internet demonstrated. This communication technology would not have been realized without the state, Stiglitz shows.

In his political future goal called “new democratic idealism”, the author shows how problems can be solved and “bubbles” prevented in the future. His ideas can be summarized in a phrase emphasized by Ludwig Erhard in the 1960s “Observe Moderation”.