Joseph Stiglitz on Debt Restructuring

Joseph Stiglitz, winner of the Nobel Prize in economics, has written a piece on debt in Greece and worldwide. He points out that the austerity policies he warned against have triggered terrible consequences, in human terms as well as fiscal ones.

Austerity had failed repeatedly, from its early use under US President Herbert Hoover, which turned the stock-market crash into the Great Depression, to the IMF “programs” imposed on East Asia and Latin America in recent decades. And yet when Greece got into trouble, it was tried again.

In addition to the end of austerity, Stiglitz calls for debt-restructuring on a global scale.

Greece has also once again reminded us of how badly the world needs a debt-restructuring framework. Excessive debt caused not only the 2008 crisis, but also the East Asia crisis in the 1990s and the Latin American crisis in the 1980s. It continues to cause untold suffering in the US, where millions of homeowners have lost their homes.

 The renowned economist quickly dispenses with the idea that cancelling some debts would constitute a “moral hazard.” “If there is a moral hazard,” he writes, “it is on the part of the lenders–especially in the private sector–who have been bailed out repeatedly.”

Stiglitz also notes that the Allied Powers forgave Germany’s debt after World War II, a decision that fostered economic growth across Europe. Those facts also appeared in Syriza’s party program, which obtained a resounding endorsement from Greek voters on January 25. Since German chancellor Angela Merkel is the leading opponent of a renegotiated debt settlement for Greece, the point about Germany’s cancelled debts could hardly be more apt.

One odd aspect of Stiglitz’s approach, however, is his willingness to believe that the elites imposed the austerity regime on Greece (and other countries) due to error. For instance, he writes that “Greece’s current plight, including the massive run-up in the debt ratio, is largely the fault of the misguided troika[1] programs foisted on it.” Misguided? As I wrote in a previous post, austerity measures are part of an attempt by the rich to create new cheap labor zones and undercut wages everywhere.

You can read Stiglitz’s article at the Project Syndicate site.

[1] European Commission, European Central Bank, International Monetary Fund.