Stiglitz's Economic Ignorance of History

As I stated in “Some Stiglitz Stunners,” which I posted yesterday, I didn’t have time to respond to all of the errors and misleading comments in the four quotes from Stiglitz.

Now I have a little more time.

One of the big misleading comments is his implication that the financial crisis was caused by deregulation. Economist Norbert Michel did a good job of taking this apart in a Heritage Foundation report in 2016. It’s titled “The Myth of Financial Market Deregulation,” April 28, 2016.

Also, Jeffrey Friedman did an excellent edited book on the crisis, What Caused the Financial Crisis? I did an extensive review of it in David R. Henderson, “The Roots of the 2008 Economic Collapse,” Policy Review, June 1, 2011.

Here’s one excerpt from my review:

Friedman argues that both questions can be answered by looking to government regulation. As to the crisis’s cause, he points to the U.S. government’s push, under the Community Reinvestment Act of 1995, to have banks lend money to low-income people who would, in many cases, have a slim chance of repaying the loans. Friedman draws on a chapter written by Peter Wallison, an economically literate lawyer at the American Enterprise Institute and an expert on financial regulation. Wallison explains that to make banks lend these substantial funds, federal regulators held up approval of bank mergers and acquisitions. Friedman adds that in 1995, the U.S. Department of Housing and Urban Development ordered two government-sponsored enterprises, Fannie Mae and Freddie Mac, to direct 42 percent of their mortgage financing to low- and moderate-income borrowers. In 1997, to help achieve that goal, Fannie Mae introduced a three-percent-down mortgage — the traditional mortgage had required a twenty-percent down payment. With only three percent down, an owner whose house value fell only a bit below the original price would be tempted to walk away from it.

I recommend reading my whole review and I recommend buying Friedman’s book.

Also, I would bet that Stiglitz has no knowledge of David Beito’s work on mutual aid societies. Beito showed that fraternal orders in the United States provided both old-age benefits and health services prior to the New Deal. Even earlier, the American Medical Association’s lobbying efforts had brought about legal restrictions undermining the ability of the fraternal orders to provide health services. You can find more in David Beito’s book From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890-1967.