Stiglitz on the 90's

Louis Proyect lnp3 at
Wed Sep 18 09:23:05 MDT 2002

The Atlantic Monthly | October 2002

The Roaring Nineties

As the chairman of Bill Clinton's Council of Economic Advisers, and 
subsequently as the chief economist of the World Bank during the East Asian 
financial crisis, Joseph Sitglitz was deeply involved in many of the 
economic-policy debates of the past ten years. What did this experience 
tell him? That much of what we think we know about the prosperity of the 
1990s is wrong. Here is a revised history of the decade, by the winner of 
the 2001 Nobel Prize in Economics

by Joseph Stiglitz


At the height of the 1990s economic boom—a period of unprecedented 
growth—capitalism American-style seemed triumphant. After sluggishness in 
the 1970s and 1980s, productivity in the United States had risen sharply, 
to levels that exceeded even those of the boom following World War II. 
Globalization was in full swing, and in ways that redounded distinctly to 
the good of this country. The North American Free Trade Agreement (NAFTA) 
and the so-called Uruguay Round of international trade negotiations 
promised to bring untold benefits to our economy. The flow of capital to 
emerging markets had multiplied sixfold in just over six years—a remarkable 
increase, driven by the search for ever higher returns. U.S. 
representatives at G-7 meetings and elsewhere boasted of our success, 
preaching to the sometimes envious economic leaders of other countries that 
if they would only imitate us, they, too, would enjoy such prosperity. 
Asians were told to abandon the model that had seemingly served them so 
well for two decades but was now seen to be faltering. Sweden and other 
adherents of the welfare state appeared to be abandoning their models as 
well. The U.S. model reigned supreme. There was even talk of a radical New 
Economy, in which incomes would soar and the very idea of a business cycle 
would be relegated to history.

There is no question that the nineties were good years. Jobs were created, 
technology prospered, inflation fell, poverty was reduced. I served in the 
Clinton Administration from 1993 to 1997, and all of us who were involved 
in U.S. economic policy during those years benefited from a happy 
confluence of events. We eagerly claimed what credit we could for the 
prosperity; the American people, wanting to believe that the economic good 
times were a matter not just of luck but, rather, of good management, 
willingly gave credit to those responsible for shaping economic policy, in 
the hope that under the continued stewardship of such policymakers this 
prosperity could be prolonged.

But the recession of 2001 showed that even the putative best of economic 
management could not insulate the economy from downturns, and that the 
business cycle was not dead. The bursting of the stock-market bubble showed 
that New Economy rhetoric contained more than a little hype. And the Enron, 
Arthur Andersen, Merrill Lynch, and Adelphia scandals presented another 
side of American capitalism. Now the economy is setting new kinds of 
records: WorldCom's is the largest bankruptcy in history; the fall in the 
stock market is the largest in decades. As the market has plunged, those 
who confidently ploughed their savings into stocks have found their 
retirement incomes in jeopardy.

It would be nice for us veterans of the Clinton Administration if we could 
simply blame mismanagement by President George W. Bush's economic team for 
this seemingly sudden turnaround in the economy, which coincided so closely 
with its taking charge. But although there has been mismanagement, and it 
has made matters worse, the economy was slipping into recession even before 
Bush took office, and the corporate scandals that are rocking America began 
much earlier.

The history of the 1990s needs to be rewritten. How are we to assess that 
decade in light of what we are seeing today?


Louis Proyect

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