Roaring Nineties (Hardcover)

Stiglitz's, a neo-Keynesian economist, argues that the "roaring nineties" was the consequence of the forced retreat of the state from any direct involvement in the market. Without the moderating effect of state oversight, he argues, unscrupulous "self-regulating" individuals, companies and interest groups created a "boom" by manipulating the market to their advantage. Their methods included hype, hucksterism, flimflammery, illegal accounting practices and stock fraud, and ultimately caused the collapse of Enron, WorldCom, Nortel and scores of other companies. The bust eliminated over 8 trillion of stock value and profoundly affected the lives of millions of people worldwide.

Stiglitz traces the beginning of the state's retreat from market regulation to the Reagan presidency. Operating on the idealistic assumption that markets always allocate resources efficiently, free market ideologues gained an inordinate influence in the White House. They convinced successive presidents of both parties to withdraw the state from the market and to allow financial and other industries to regulate themselves.

According to Stiglitz this lapse of reason occurred because market fundamentalists were so blinded by their ideology they forgot the lessons of history. Time and again governments have been forced to play a regulatory role in the economy because markets do not always allocate resources efficiently or even rationally. From the tulip craze of fifteenth-century century to the high-tech bubble of the twentieth-century, markets often act with what Stiglitz calls "irrational exuberance". Ideologues like to forget that market bubbles burst, and that when they do, it is governments and taxpayers that are called upon to assist victims.

Stiglitz calls attention to the fact that the "roaring nineties" was financed through debt. Americans, Britons, Canadians and others, could have reduced their consumption of goods and services to increase savings for investment in the market. Rather than acting conservatively, we raised investment capital by borrowing heavily. (The United States, for example, borrowed nearly one billion dollars a day during the height of the boom.) By doing so, we not only made ourselves and the global economy vulnerable to collapse, we also diverted investment away areas necessary for sustainable growth, namely education and research and development.

My one complaint with "The Roaring Nineties" is that Stiglitz occasionally forgets his readership is international, and adopts a jingoistic and morally superior tone that will annoy many readers from outside the United States. For example, when he writes "...we had the opportunity to create a new international order based on American values..." he sounds more like an American imperialist of the nineteenth century than a Bank of Sweden prize-winning economist of the twenty-first century. It may surprise some Americans to learn that liberty is a universal value.

Nonetheless, Joseph Stiglitz's "The Roaring Nineties: A New History of the World's Most Prosperous Decade" is a well-written and thought provoking account of the boom and bust of the 1990s. A background in economics is most certainly not required to appreciate this book. Stiglitz's prose style is clear and accessible so anyone with a basic knowledge of current events and recent business history will understand, if not agree with, his argument.

The problem with Stiglitz's examples of why deregulation is bad, is that the markets were already bad prior to deregulation. The markets were deregulated because they were doing poorly. He describes the economic choices of Reagan as damaging the economic gains of Carter. Not in those words exactly, but real close. His reality is that we were recovering from bad decisions of the Reagan administration, not of previous administration. To be fair of course, all financial decisions and budgets during that period were solely up to the president, congress and the senate were not allowed to vote on those matters at all.(hint: they were democrat controlled and he is a democrat and they did pass the rules and budgets with Reagan)

He argues that the bubble of the 1990's was due to irrational exuberance. That the prices of stocks were driven up for no reason and Alan Greenspan spoke and the investors didn't listen. In all of his explanations he fails to mention that during this era of the internet, millions of people began investing in the stock market who had never done so before and wouldn't listen to Greenspan's speechs or react to them. They drove the market, Stiglitz missed the boat. You can't describe today's economy in relation to yesterday's economy, they are barely related by the same currency.

Stiglitz does manage to point to a characteristic of capitalism. However he does so with the resolve of a die hard socialist. In a free market, people compete for market share and it drives profits down. Some businesses actually fail and others survive. We knew that. His disdain of freemarkets is just exemplified by his discription of this phenomenon as a failure and an inefficiency. If competition drives profit down, isn't the consumer the winner?

The book argues for government control of markets. His view is that several really smart fellows such as himself are infinitely better equiped to dictate business and markets than the thousands of businessman who do it daily. He argues that the government made rules that allowed business to do bad things, so more control by this same government could fix those wrongs. He does understand that government helped companies like World Com steal money, he just argues that this same government group could now help them be honest. If a table spoon is bad, a gallon will cure?

It is another socialist view of economics. If you want another guy who says capitalism is bad, socialism is the fix, read this book. If you want a good review of real economics during the 1990's, don't bother.