Jail bankers, economist Stiglitz says

This video from the USA is called Joseph Stiglitz: “The Price of Inequality: How Today’s Divided Society Endangers our Future”.

By Ben Chu, The Independent daily in the UK:

Joseph Stiglitz: ‘Jail the Bankers’

07 July 2012

Joseph Stiglitz tells Ben Chu that rogue financiers have proven that regulation must get tougher.

Also See Below: Full Transcript of Interview

The Barclays Libor scandal may have shocked the British public, but Joseph Stiglitz saw it coming decades ago. And he’s convinced that jailing bankers is the best way to curb market abuses. A towering genius of economics, Stiglitz wrote a series of papers in the 1970s and 1980s explaining how when some individuals have access to privileged knowledge that others don’t, free markets yield bad outcomes for wider society. That insight (known as the theory of “asymmetric information”) won Stiglitz the Nobel Prize for economics in 2001.

And he has leveraged those credentials relentlessly ever since to batter at the walls of “free market fundamentalism.”

It is a crusade that has taken Stiglitz from Massachusetts Institute of Technology, to the Clinton White House, to the World Bank, to the Occupy Wall Street camp and now, to London, to promote his new book The Price of Inequality.

And kind fortune has engineered it so that Stiglitz’s UK trip has coincided with a perfect example of the repellent consequences of asymmetric information.

When traders working for Barclays rigged the Libor interest rate and flogged toxic financial derivatives – using their privileged position in the financial system to make profits at the expense of their customers – they were unwittingly proving Stiglitz right.

“It’s a textbook illustration,” Stiglitz said. “Where there are these asymmetries a lot of these activities are directed at rent seeking [appropriating resources from someone else rather than creating new wealth]. That was one of my original points. It wasn’t about productivity, it was taking advantage.”

Yet Stiglitz’s interest in the abuses of banks extends beyond the academic. He argues that breaking the economic and political power that has been amassed by the financial sector in recent decades, especially in the US and the UK, is essential if we are to build a more just and prosperous society. The first step, he says, is sending some bankers to jail. “That ought to change. That means legislation. Banks and others have engaged in rent seeking, creating inequality, ripping off other people, and none of them have gone to jail.”

Next, politicians need to stop spending so much time listening to the financial lobby, which, according to Stiglitz, demonstrates its spectacular economic ignorance whenever it claims that curbs on banks’ activities will damage the broader economy.

“How Inequality undermines Economies” by NewsWatch: here.

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