Nobel Prize-winning economist Joseph Stiglitz says that the current banking crisis in the United States demonstrates that the country’s economic system is fragile and can be hit by increasingly large and frequent economic storms. Large financial panics and recessions have periodically hit the US, and, according to Stiglitz, the resulting turbulence is not easy to eliminate from the economy. Moreover, the economist points out that the frequency of events that shake the economic system, together with the emergence of new risks, suggests that new financial dangers are on the horizon.
The growth of unregulated private markets, the widening gap between the US and China, and the financial consequences of climate change are some of the current volatile environments that could trigger new instabilities.
According to Stiglitz, the economic system alone does not correct itself when bombarded by all sorts of shocks, and it can also be difficult to achieve equilibrium. The last four US administrations have faced economic crises severe enough to warrant extraordinary government intervention. The article notes that decades after World War II, restrictions on global capital flows and strict regulation of national finances kept risks of instability in check. Over time, however, they softened, and in the last 30 years, with the end of the Cold War, “cross-border financial and production linkages” flourished, which, in addition to giving rise to greater profits, have generated greater risks that have been “less visible.”
The article also stresses that the economic calamities of recent years have erupted in rapid succession and that the three episodes have little in common. They follow periods of success that led investors and executives to believe that such favorable conditions would continue. Outrageous interest rates and a relatively calm geopolitical scenario are some of those antecedents.