The Oil and Glory interview: Joseph Stiglitz

Joseph Stiglitz stepped down as chief economist of the World Bank a decade ago after his outspoken criticism of Washington and International Monetary Fund economic policies left him afoul of powerful foes including then-Treasury Secretary Larry Summers.

Today, however, the Nobel laureate in economics is attracting attention as much of his economic doomsaying has proven correct. Among other things, Stiglitz opposed Russia's fast privatization of companies, which he said was predictably ripe for exploitation by a shrewd few who became massively wealthy; he said that laws and institutions should have been established before shedding companies.

This week, Stiglitz is in New York, talking about a United Nations Commission of Experts he has led to study the world financial crisis. The panel is issuing recommendations tomorrow. Oil and Glory caught up with Stiglitz this morning by phone from his Riverside Drive apartment.

Here is the story in Business Week.

And the edited interview:

Q – You are calling for a new global currency to replace the dollar. What is the crux of the idea?

A – The central idea is that the current system of depending on a single currency and the political and economic management of that currency is volatile. It’s inequitable because poor people are lending to the U.S. at low interest rates. In a global economy, you need a global reserve system, and that’s what we’ve proposed.

Q – Are you calling for outright replacement of the dollar, or complementing it with another reserve currency?

A – It’s a matter of moving to multiple currencies. Over time you would replace the dollar as a reserve currency. No one thinks it would happen overnight.

Q – Timothy Geithner, Ben Bernanke and President Obama himself yesterday all opposed the idea. Comment?

A – [Obama] has to say that. It doesn’t mean anything. If he were to say anything else, it would suggest he doesn’t have confidence in the dollar. It’s a little bit disappointing that he is not a little bit more open. He is worried as you might imagine that there is a bandwagon forming that there is something wrong with the dollar, with the balance sheet of the Fed. So they are putting on a brave face.

Q – You have been critical of the Geithner plan on toxic assets.

A – Very much so.

Q – Why?

A – The government is picking up the downside risk, and giving away the upside. There are incentives [for investors in the toxic assets] to delay resolving the mortgages. You don’t care about prices going down, because the government is picking up that risk, so you wait for the prices to go up. It’s totally distortive. It is designed to be a huge giveaway to the banks.

Q – You are also proposing replacing the G20 with a United Nations body. What’s this all about?

A – We are calling for a Global Economic Coordination Council. There is no rhyme or reason to the current system other than who President Bush invited to it. The new body would have more political legitimacy and a broader mandate. It could demand, for instance, that the World Bank and the IMF report to it and evaluate how they are performing.

Q – Why not fix the G20 rather than creating a new body? Is what you propose likely to happen?

A – Yes. [German Chancellor] Angela Merkel is strongly pushing the idea. People in the G20 are saying this is how we need to go.

Q – Do you feel vindicated regarding the alarms you raised in the 1990s over weaknesses in the global financial system and securitized mortgages [see here and here]?

A – Yeah. Yeah. I wish we had paid attention earlier so we didn’t have this mess. By and large most of what I said came true.

Q – One blog has dubbed you the “Chuckling Economist.” You do have humor. But I think they mean something else.

A – That’s funny. I’ll have to take a look at that.