Stiglitz on the 90's
lnp3 at panix.com
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 booma period of unprecedented
growthcapitalism 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 yearsa 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
The history of the 1990s needs to be rewritten. How are we to assess that
decade in light of what we are seeing today?
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