 Wow. I'm Bruce Chapmanoff from the Crawford School of Public Policy. Thank you so much for coming tonight. This is a very, very special geek from the Crawford School. This is the Crawford Irration. It's the most important public event that we do. I'll be chairing tonight's event as a representative of Professor Tom Compass, our director who apologises for not being here tonight. I start with welcome to country. We acknowledge and celebrate the first Australians on whose traditional lands we meet and pay our respects to the elders of the Ngunnawal people, past and present. We're very pleased you're here. And this crowd and this group and the enthusiasm for this event has been extraordinary. It was within a few hours that we reached 1500 registrations with a capacity of 1300. And I think it says something strong and profound about the hunger and interest for intelligent and informed and clear public policy. Tonight we have our favourite ever guest, Professor Joseph Stiglitz. He's visiting Australia as part of the Economic Society Eminent Speaker Series, and Crawford School is the major national sponsor. I'd like to acknowledge the ANU Public Policy Fellows and Distinguished Guests in attendance today. And to note a message from Tom Compass, which is the following. At Crawford School we strive to lead and shape today's public policy debates through research, professional education and policy engagement. Today's lecture is an excellent example of the types of events that we conduct to spur public debate and initiate important discussions relevant to Australia as well as the global community. Just a couple of points very quickly about Crawford and our mission and our institutions. We have a quarterly magazine known as ADVANCE and a flagship journal, Asia and the Pacific Policy Studies. The journal is supported by the Asia and Pacific Policy Society and works to position research on the region within the mainstream of public policy. I've been instructed to say that if you're not already a member of the Society, you are highly encouraged to sign up. Membership is free apart from the time it takes and available to anyone who'd like to be part of the growing public community and public policy community in our region. Again, thank you so much for coming. I think this event will be very, very special. It's now my pleasure to hand over to Professor Marnie Hughes-Warrington, the Deputy Vice Chancellor of the Australian National University who will introduce our speaker. Thank you. Thank you, Bruce. Your Excellencies, ladies and gentlemen, it's my great pleasure to introduce Professor Joseph Stiglitz, multiple Nobel Laureate to speak tonight on the global financial crisis. Professor Stiglitz is widely recognized as one of the world's leading economists. He's a university professor at Columbia University, New York, having previously taught at All Souls Oxford, Yale, MIT, Stanford and Princeton. Professor Stiglitz was the recipient of the 2001 Nobel Prize in Economics for his analysis of markets with asymmetric information, and he was a lead author of the 1995 report of the Intergovernmental Panel on Climate Change, which shared the Nobel Peace Prize. I asked him before whether he's worked out his fraction of the Peace Prize, and he said there is no algorithm as yet. Professor Stiglitz has also held many noteworthy positions, including Chairman of the Council of Economic Advisers during the Clinton Administration and Senior Vice President of the World Bank. In 2009, Professor Stiglitz was appointed by the President of the United Nations General Assembly to chair the Commission of Experts on Reform of the International Financial and Monetary System. In 2011, Times named Professor Stiglitz as one of the most 100 influential people in the world. He is now serving as President of the International Economic Association. Tonight, we are greatly honoured to have him with us to share his thoughts on the global financial crisis, to review the circumstances around the collapse of the global economy in 2008, and to look at whether the crisis has really been averted. Professor Stiglitz will speak for about 30 minutes or a bit more, and then we'll take questions moderated by Professor Bruce Chapman for the final time. Please join me in warmly welcoming Professor Joseph Stiglitz. Well, it's a real pleasure to be here again. The last visit to Australia, I learned that you're not supposed to call it the global financial crisis, but the North Atlantic financial crisis. And the reason, of course, is that your government responded to the events of 2008 with very strong measures which enabled Australia to avoid participating in the global financial crisis. So Australia and China and a number of other countries also avoided the global financial crisis. What I'm going to talk about is some of the lessons that we've learned from the global financial crisis. Try to explain why it is that six years after the crisis, seven years after the bubble broke that led to the crisis, the United States and Europe are really not back to health. I'll describe a little bit the state of our economies and try to extract from that some lessons, not only for economic policy, but for the way we think about the economy. As most of you know, the crisis that began in 2008 is the worst crisis that we've had in more than three quarters of a century. And the economics profession as a whole and the economic models which central banks and governments used didn't predict the crisis. Far worse than that, the models said it couldn't happen. The models that were used commonly by economists, as I say, by central banks, argued that markets were efficient and were stable and obviously efficient markets don't have bubbles. But obviously those models were wrong. And one of the things that should have come out of the crisis is the rethinking of those models and an attempt to understand why they were wrong and how we can make them better. Just to give you one example, a central focus of most central banks was on inflation. Some central banks like the European Central Bank had a mandate to focus only on inflation. And the idea was very simple. The view was that keeping inflation low and stable was necessary and almost sufficient for assuring economic prosperity. Because the view was that if the government did that, then markets would take care of everything else. Well, with that in mind, central bankers, United States and Europe, allowed a bubble to develop. They paid focusing just on inflation. They said, don't worry about these bubbles. They argued that you couldn't tell a bubble until after it broke and that the cost of fixing the bubble was less than the cost of interfering with the wonders of the marketplace. We now understand that that was wrong, that a single mind to focus on inflation was not sufficient to protect the economy. The losses from inflation were minuscule compared to the losses that we've incurred as a result of the crisis. And central banks in most parts of the world have shifted. United States, we focus on now on employment, growth, inflation, and financial stability. The underlying microeconomics was well understood well before the crisis. The idea, the fundamental idea that the advocates of this view, the view that markets are necessarily efficient and stable, go back to Adam Smith. Adam Smith's idea of an invisible hand. The invisible hand, the idea was that individuals in the pursuit of profits and their own self-interest would be led as if by an invisible hand to outcomes that would maximize the well-being of society as a whole. Well, now we understand and research that I had done has shown that the reason that the invisible hand often seemed invisible was that it wasn't there. That whenever there were imperfections of information, asymmetries of information in complete risk markets, that is always, there are market failures which systematically lead to economic inefficiencies. There are still governments that still don't understand this and that still believe that markets on their own are efficient in spite of the fact that they're historically over 200 years of examples of market failures and some of them like this recent crisis on a dramatic scale. I don't think anybody should or would claim that the pursuit of self-interest which is also called greed on the part of bankers led to the well-being of our society. It led to a global calamity. The central bankers who were well-informed about economics perhaps were as vulnerable to these fallacies as those who were not. Ben Bernanke after the crisis went so far as to say there was nothing wrong with the models that were used just their implementation. But I think he was fundamentally wrong. In fact he was so wrong that so misled by the models that even after the bubble broke he was asked will it have effects on the economy and he said no we've diversified risk. We spread risk in such a way that our economy is protected and we're stable. Now even the logic of that should have been obviously wrong clear that it was wrong. You just think about it if you have a disease if somebody say arrived in New York 50 people arrived in New York with the disease and you asked what are you going to do about these people all from say are carrying smallpox. The economist recommendation the economist who believe in this idea of diversification would say let's spread the risk. Let's send two of the people to each of the states around the country and that would diversify the risk. Well it's obvious that example shows that underlying their mind they have the wrong model. There are some instances where diversification works but there are some instances where that kind of diversification actually is a disaster and in this particular case spreading America's toxic mortgages around the world made what was would have been an American disaster into a global disaster. When I go to Europe I always thank the Europeans for actually having engaged in deregulation because they bought some 40 percent of our toxic mortgages. If they hadn't done it the American downturn would have been much worse so yes diversification helped us but obviously contributed to the euro crisis which has been very hard. The flaws in the reasoning of our central bankers our economic officials had many dimensions. One of them was a kind of incoherence after the crisis people at the IMF always talked about the risk of contagion contagion like a contagious disease but before the crisis they always talked about the benefits of diversification and they never put those two sides of the argument together and of course what they should have realized is that that if there's greater interdependence ex ante there's greater risk of contagion exposed. Now there are ways of dealing with that in the case of electricity networks when you make bring electricity networks together you can economize in in electrical generating capacity but you have the risk of a outage in one part of the system shutting down the whole system. In the United States we actually went through that experiment and a a outage in a small substation in Ohio brought down the whole east coast of the United States. Interesting experiment because the population went up nine months later but but in terms of electricity management it wasn't very good. Well we know what to deal with this we have circuit breakers the analogous thing in economics are capital controls or we call capital account management techniques but the IMF and the US Treasury opposed these very strongly. Finally finally they now understand after the crisis that those are good things in the IMF which in 1997 had tried to change the charter to force countries to liberalize their capital markets and not have these kinds of controls now says that they're a good thing. It's an interesting example of where thinking has changed in a dramatic way as a result of the crisis. Another example of the kind of intellectual incoherence has to do with with the discussion that Greenspan did after the crisis. He was asked to testify about what had happened and he said he was surprised. There was a flaw in his reasoning. He thought banks would be able to manage their risk would have the incentive to manage their risk better but I was surprised that he was surprised because if you looked at the incentive structures that banks bank managers had bank managers had incentives to act in a short sighted way with excessive risk taking and if they hadn't behaved badly we would have had to rewrite our microeconomics textbooks where the good news is that we don't. The one thing economists agree incentives matter and they had incentives to behave badly and guess what they behave badly but the consequence of course is that the economy the global economy has suffered enormously. So when it comes to the question who's the blame for the crisis obviously I think the banks have the most to blame they engaged in excessive risk taking they engaged in predatory discriminatory lending they engaged in a host of really bad practices market manipulation I'll come back to talk about that a little bit later the regulators should have stopped them from doing it we should understand that there's a history of 200 years of banks behaving this way and why you would think that they suddenly stopped behaving badly was a mystery the recent course is actually not that hard to understand after the Great Depression we passed and most other countries passed good regulations to stop the bad behavior banks and it worked and we have 35 years of economic stability not not a serious bank crisis around the world and then somehow the idea because we hadn't had any crisis for 35 years the idea spread that we didn't need regulation when the reason we didn't have for prices was because we had regulation the idea we didn't need regulation spread and guess what since 1980s since the Reagan facture era we've had more than a hundred financial crises so deregulation worked in the way predicted worked to create more volatility and it was only America's financial prices that was bigger and better than others when I'm in Australia always hear people say we're the biggest the best but this is a case and I'll cover a couple of others where America really did a better job so I blame first the banks I blame blame the regulators secondly because the regulators should have understood this and should have stopped the banks from behaving badly but I also blame economists or more particularly other economists because they promulgated ideas that both the banks and the regulators used that led them to to deregulation to the kinds of regulatory frameworks to the kinds of policies that led to the the problems that we had well it's not a surprise given that the models didn't really have a good conception of what was going on with the economy couldn't predict the crisis couldn't even predict the crisis as I said after the bubble broke that they weren't very good in responding to the crisis and the result is that the crisis has been long lasting it was hoped that if we acted forcefully in 2008 and 2009 that it would be like other crisis short-lived a little bit longer than the typical economic fluctuation but short-lived but we've had now a half decade more than a half decade of weak economy the United States the recession official began in 2007 we're now in 2014 and nobody would say we're back to health I'll describe the numbers very briefly Europe is even in worse shape in fact the only thing that makes America feel good is that things could be worse and we look at the other side of Atlantic we see that they are worse the fact is as I say at the beginning of the crisis we we said we wouldn't make the kind of mistakes that Japan made that led to the Japanese Malaise two decades of slow economic growth but then we proceeded to make mistakes that were even worse than Japan's and as I said we've already had more than a half decade of poor economic performance and no one really thinks that we'll be back to normal for a very long time one way to think about where we are today is to project back to the Great Depression the Great Depression began you might say officially with the stock market crash in 1929 in 1936 some people thought we were getting out of the Great Recession of the Great Depression the result of that was that that belief that we were getting out was the argument that we ought to cut back on the new deal mild doses of austerity to get our budget in better shape and guess what happened we went into a double dip and we didn't get out of the Great Depression until World War two it was government spending that got us out of the Great Depression it would have been great if we had used the government spending for investments in people infrastructure technology but we didn't have that choice we had to spend the money on armaments to protect our country but it was government spending and we shouldn't forget that it was government spending that got us out of the Great Depression well right now we've gone seven years into an economic malaise recession in Europe in some parts of Europe it's a depression and the only question is how long will it last and if we follow the wrong policies which some governments are advocating some policies some some parties are advocating it could last a very long time so let me describe briefly where we are and talk just a little even more briefly about where Europe is if we look at where the growth trend had been growth trend beginning say 1980 the period after 1980 let me emphasize was not a period of really strong economic growth it was marked markedly slower than the decades after World War two and that itself is an important lesson we began deregulating liberalizing all the privatizing and that was the period where our growth slowed down and it was also the period the period after World War two was a period of shared prosperity what every group in our country grew saw their incomes increase but the people of the bottom saw their incomes increase the most and since 1980 only the top has seen their incomes grow but even looking at that very slow growth after 1980 under the ideas of deregulation and liberalization and so forth we are 15 more than 15 percent below where we would have been had we not had the crisis and the gap is still increasing so the total loss for the united states is in excess of five trillion dollars so anybody who talks to me about government waste i say no government has ever wasted resources on the scale of which america's financial private financial markets have wasted resources we still have almost not 20 million americans who would like a full-time job and can't get it now when i say 20 million i always feel when i talk about 20 million in china it seems like uh hardly anybody but when i talk about 20 million in australia it sounds like a lot of people so so i think australians can really understand when i say 20 million it's like the whole country is wandering around without a job labor the only reason the unemployment rate is as low as it is that labor force participation is lower than xbin in more than three decades is as low as xbin since women started entering the labor force the way we count unemployment is to ask people whether actively looking for a job but so many people have looked and looked for years and years and haven't found a job that they've given up looking but of course they're not employed it's just that they've given up looking for a job if we look at the growth that has occurred in the last seven years after the crisis 2007 2008 since then per person within the working age population you look across the advanced countries of the north Atlantic uh europe and america where you see is only the u.s in germany have had any economic growth and that economic growth has been truly paltry in any other circumstance it would be considered to be a disaster in the case of germany which is looked as the most successful country in europe it's under one percent but making things even worse is if you look at how it's distributed in germany the bottom 30 percent have seen their income decline in the united states officially the economic downturn was over in 2009 but since 2009 95 percent of all the increase in the income has gone to the top one percent which means the bottom 99 percent haven't heard about recovery and that increase in inequality was on top of an already high level of inequality the result is that today median income in the united states is lower than it was 25 years ago so for people in the middle there has been no increase in income for a quarter century and things are worsening some many of the demographic social demographic groups in our country so one social democratic group that i identify with is american males american males have an income that is lower median income that is lower than it was 40 years ago so if you want to understand why american politics sometimes looks strange why there are a lot of angry people it's totally understandable our economy has not been delivering our market economy has not been delivering in the way it should that is an important lesson because the countries that have tried to imitate american economic policies have succeeded in getting results similar to america and as you debate economic policies here you should think about that in europe as i say things are worse in countries like spain and and greece uh in fact in most of the countries per capita income adjusted for inflation is lower than it was at the onset of the crisis there's been zero economic growth on average let alone median the unemployment rate in i on average in europe is over 12 percent but in some countries like spain it's twice that and if you look at youth unemployment youth unemployment in spain is over 50 percent and in greece over 60 percent and gdp is down 25 percent from what it was in 2008 these countries are in depression when i was at the world bank and we described the east asia crisis i was told by the u.s treasury officials i won't name who not to use the word depression because they said it was depressing but that was the only way you could describe what was going on and that's the only way you could describe what is going now on in spain and greece can you imagine graduating from college worked hard doing everything right and told your prospects for a job are less than 50 percent year after year and it means that many of them to give you a really bleak prospect have to live with their parents for years and years until their 30s well the question i want to turn to now is why has the us and many other countries in europe not recovered and the basic answer is fairly simple it's a lack of aggregate demand and there are several reasons for this lack of aggregate demand one i've already mentioned austerity government cutbacks even the united states which has not talked about austerity very much has had a mild form of austerity we have 500 000 roughly 500 000 fewer public sector employees than we did in 2008 before the crisis if we had normal growth with the growth of our population we'd have some two million more employees so we've had cutbacks de facto of two and a half million no wonder with those magnitude of cutbacks the economy is not performing particularly because we haven't fixed the financial system and so we not only have cutbacks on the public side we have weaknesses in the private side but there's a second reason i want to emphasize and i've already hinted at and that's the fact that we have this growing and high level of inequality now how does high inequality affect uh economic performance it actually affects it in in a large number of ways it affects long-term economic growth it affects stability one of the ways though is a very simple one that those at the top don't spend as much money as those at the bottom those at the bottom have no choice and they tend to spend a hundred percent of their income those at the top are able to save 10 15 20 percent of their income and so when you have redistribution from the bottom to the top which has been going on in the united states inequality reached a level not seen since the since the 1928 right before the great recession uh you're going to have weak aggregate demand unless the government monetary authorities do something about it and Bernanke and Greenspan did something about it they created a bubble it was a short-term palliative but it was clearly not sustainable because of that bubble those at the bottom 80 percent of america were consuming 110 percent of their income and that enabled the economy to keep going but as i said it was not sustainable and as one of my predecessors as chairman of the council of economic advisers once said that which is not sustainable won't be sustained so this inequality is actually one of the reasons that our economy this growing inequality is one of the reasons our economy is not doing very well and it's interesting at one point this might have been viewed as a radical position but today even the imf which is not known to be a radical organization has said that inequality is bad for economic growth and economic stability there's a third reason that uh there's a lack of aggregate demand or fundamental problem in our economy which is the need for structural transformation every economy is constantly needing a structural transformation but the challenges right now are particularly great and in some ways are similar to those that face the the economy the global economy 80 years ago before the great depression then the structural transformation was a movement from agriculture to manufacturing we were the victims of our own success in the 19th century some 70 percent of the population had to be engaged in agriculture and related activities in order to produce the food that we needed to survive now say in the united states two to three percent of the workforce produces more food than even an obese population can consume so that's a great success but it poses a problem all those people that were working agriculture have to move somewhere else and the problem is the markets don't do that kind of structural transformation on their own very well and for obvious reasons that are understandable that when incomes in the agriculture sector go down in the united states they went down in the period say 28 to 32 by more than 50 percent when incomes go down people don't have the resources to move to the urban sector to make the investments in in moving and in learning the skills that would make their productivity higher in manufacturing to facilitate this kind of structural transformation and so they were trapped in the rural sector and our economy was trapped in a recession depression and it was as I say government spending that got us out but the government spending was actually an industrial policy it helped our economy move from agriculture to industry the government after world war two gave everybody in our population free everybody who who had fought in the war which was essentially everybody free education free or free higher education and it was on that basis that we managed to become the industrial power that we we were we're now engaged in another kind of structural transformation but it's even a more difficult one we're going from manufacturing to a service sector economy it's more difficult because now there are all these global competitors global employment and manufacturing is going down but because of changing comparative advantage our share in that declining global employment is going to go down and that means we have to move into other sectors and among the sectors as I say it's going to be the service sector it's going to be the key sector but within the service sector the key areas are going to be education and health but education and health are two sectors which are for good reason largely associated with government finance but this is just the time when we're cutting back in government finance so government policy rather than facilitating the structural transformation are actually impeding it so in a way the recession has exacerbated all the problems it led to greater austerity led to greater inequality and impeded the ability of the government to facilitate the structural transformation the result of this is that the we are experiencing a prolonged economic downturn let me put it in one other way that may help crystallize the nature of our problem a lot of people back in 2008 bomb administration thought well we've had a bump our banks are a little sick all we need to do is give them a few trillion dollars make them feel better don't upset the bankers that would be you know that that would be very bad for economy because bankers aren't happy the economy's not going to be happy so we just say throw money at them don't don't don't scold them too much and put the banks in the hospital for 18 months and then the banks will be healthy and we can pick up where we left off in 2007 so the idea was we needed a short-term stimulus while the banks were temporarily weak and then once they're they get back to health the economy will pick up well that was obviously a wrong theory we gave the banks a lot of a lot of money the banks are healthier not perfect the government's still underwriting over 90 percent of all mortgages SME lending lending to small medium-sized enterprises still about 20 percent below the crisis so it's not like we're really back to health but their profits are pretty good they're giving paying big dividends even bigger bonuses but our economy is not back to health that should be pretty clear and the reason it's not back to health was in 2007 our economy was not well there were all these problems I've just described the problem of inequality the problem of structural transformation and there were some global problems I haven't had time to talk about so we papered over the problems by a bubble but now that we've taken away the bubble and hopefully we won't go back to create another bubble if we went back to 2007 without the bubble we would be a weak economy which is exactly where we are except our banking system our financial system is still not perfectly where it was and inequality has gotten worse and the ability to the ability of the government to deal with structural transformation has gotten worse and austerity has exacerbated the problem so let me conclude as I said the market economy as it's been functioning in the United States and Western Europe and many other countries is not working the way exposed to it's not delivering for most citizens there is a debate going on is it the laws of economics is it inevitable that the market economy should fail in the dramatic way that it has failed and it's not just a as I pointed out it's not just a couple years that it's not been working well median income for American is lower than it was 25 years ago that's a quarter century of stagnation well my view is it's not inevitable these failures of the growth and inequality is not in result of inexorable economic forces it's a result of politics and policies there are some countries that have managed to have lower levels of inequality Scandinavian countries they have the same laws of economics that apply up in those northern climes as apply in the United States and the UK but they've made different political choices and those choices have led to markedly different outcomes the genie coefficient standard measure of of inequality in Denmark is half of that of Australia and is even a smaller percentage of that of the United States and this represents a fundamental change in the way we think about inequality we used to say well yes inequality is bad but if we were to get rid of inequality it would reduce our growth impair our economic performance now we realize that inequality to the extent that it's grown the extremes that it's grown the manner in which it's grown actually is imposing a cost we are paying a high price for this inequality and as I say this is a view that is now becoming not just becoming a mainstream view a view that the IMF has been advocating so the lesson of this is that we ought to be working for shared prosperity the kind of shared prosperity that the United States had in the decades after World War II and just let me conclude because I know there are a lot of debates going on in Australia about these economic policies and reiterate what I said before the countries that have followed the American model have wound up with lower economic growth and more inequality and lower economic performance as it should be measured about by what happens to the typical citizen not what happens to Bill Gates or those at the very top but what happens to most citizens and I hope that as one looks back on these experiences of the global financial crisis and what we've learned in the last seven years that we take to heart the lessons that it's taught us and try to create an economic framework that will lead to more stable and more prosperous and more shared economic prosperity thank you we have about 15 minutes for questions and answers there will be microphones there are microphones at the front on either side and at the back so if you could go there if you have a question there are two principles please let us know your name and please keep it short so I'm having trouble kind of seeing out there but um do we have a question or a comment can you go to the microphone please that's that's the problem yeah hi up here okay but we're having trouble sorry up here hello okay please go ahead go ahead hi um my name's yen I'll keep it short um I wanted to ask a question um about university deregulation um Christopher Pine our education minister has recently said that we have a lot to learn from the American models of uh of higher education funding and deregulation of that in young our vice chancellor is kind of like the poster boy for deregulation of universities in Australia I'd like to know what you think about deregulation or whether or not our sector higher education sector can actually benefit from it why don't you go ahead on that one okay uh well first let me emphasize that most and almost in fact almost all of the successful universities in the United States are either state-run universities or not-for-profit universities the private universities private for profit do excel in one thing exploiting poor people it has been a constant struggle because we've known that they've been engaged in that kind of of exploitation for more than two decades when I was in the Clinton administration we tried to regulate these for-profit exploitive universities and you can see it in terms of the you know it wasn't very complex regulation we said in order to get government funding for uh student loans Pell grants you had to show that you graduated students not a very high demand that at least maybe 10% of your students graduated uh and that somebody got a job the answer was they thought that was a trusive uh uh regulation we had a minor regulation that said that 90% of the revenue no more than 90% of the government of the revenue could come from government so what did they do they were very good at circumvention what they did is they raised the tuition a little bit got government money and then used some of the money to give a rebates to the students which they called scholarship so there was no real source of money other than the government and they were just pretending to make give money back of money that they had overcharged uh on their education so there is almost universal agreement in the United States except among the lobbyists for these institutions that these have been a disaster and they've been particularly predatory on as I say people from poor families people who you know the one that really gets most Americans they've they've been really predatory against people leaving the military people fought for the country thought they were serving the country and then they come in and try to take advantage of these people who who are uh not well informed about the terrible success records of these schools so my view has been what just the opposite we we ought to be regulating more not less and the only thing that is stopping this regulation is the lobbyists for these institutions and it is really on the case of the United States a national shame what has what has been happening with these for-profit universities on the case of let me just say one other one other aspect which is a little bit related and that is the financing of education uh I talked a lot about how median income is stagnated and actually lower today than it was 25 years ago but one of the really sad effects of the crisis was that we had cutbacks in government support part of austerity was cutbacks in government support of education and universities had no choice but to raise tuition so poor Americans were caught in this bind between incomes going down and tuition going up the only way they could go to school to get a higher education was to borrow average American graduate from college I know these numbers seem small to you but has a debt of 25 30 thousand dollars that's the average but many of them have student debts of over a hundred thousand the banking the financial industry succeeded in passing a law that said if you borrow money to finance education you could never discharge that even in bankruptcy no matter what happens to you and if your parent cosigns the loan they can't discharge the debt even if you if their kid dies in an accident or from a disease the parent has to repay the debt and when I went around the United States talking about my book the price of inequality the most poignant stories were about were from parents who had gone through this kind of of experience so the result of all this is that an American student debt now is over 1.1 trillion dollars more than our student then all the credit card debt in the country it's weighing down our economy poor Americans face this dilemma do they take on this huge amount of debt or not get a college education but they know that if they don't get a college education their lifetime prospects are bleak meeting income of a young American who doesn't have a college who've just gone to high school uh has been actually plummeting it's about I can't remember the exact numbers about 20 30 percent below what it was a decade two decades ago and the result of this is for Americans Americans a young Americans lifetime prospects are more dependent on the income and education of his parents than in other advanced countries and that's because of the way we finance education and I gather there's some discussion of whether you should follow the American model and I find this strange I think I think we'll take a few at a time so let's start with a two from there and two from there and then we'll get Joe to respond collectible to the collection thank you over here political system most of the solutions you recommend the way I understand them our political suicide for example the very government in Australia who was applauded by you and others for avoiding the crisis was toppled and we are now in going backward on those recommendations so what's your solution for that other than maybe letting the evolution lead to our evolution is there another one from over there yes professor you mentioned the inability during the financial crisis for regulators and I assume policy advisors to to to understand what what was actually going on within the markets I wonder to what extent you believe now that we've that those regulators and policy advisors have learned those lessons and I'm thinking particularly about the advent of things like dark pools and high-speed trading some of those more opaque things which are going on at the moment yeah I think the the answer obviously is different policy makers have been better at learning the lessons some of that is related to how close they are to Wall Street for instance one of the major problems I think that that's associated with the crisis was the problem of too big to fail banks and the banks are too big to fail they know that undertaking risk is a one way bet if they win they get the profits that they lose the public picks up the losses because some some policy makers like Mervin King in the UK the head of the central bank there has argued very very strongly that if you're too big to fail you're too big to exist and said that they ought to be broken down and proposed various ways of of ring fencing and in the United States the policy makers most owned by Wall Street I don't know if that was the right word Bernanke and Geithner were not interested in too big to fail they said well that's not a problem they said well we'll develop good quote resolution processes as if that we solved the problem interestingly some of the some of the some of the regional central we have a regional the Federal Reserve has regional banks and some of the regional banks the one from Texas the one from Kansas City said we think banks ought to be banks not gambling casinos and that they ought to be engaged in the business of lending and that smaller banks are going to be better at that kind of process of lending this especially the smaller medium-sized enterprises and they were very strongly associated with with doing something about too big to fail they were also another example of this kind of what to do about the non-transparent derivatives the cds's those gambling instruments that led to the government having to bail out aig one company in the United States aig got a hundred and fifty billion dollars which again I don't know how much is whether that's a big money for Australia but it's a big money for the United States and that you know that's more money that we gave to one company than we gave to poor people over a decade you know we believe in corporate welfare but not in individual welfare so but again Geithner and Bernanke said that's fine let's keep it secret let's let's uh uh let's allow banks to engage in those risky derivatives and the people like Fisher and and Honig who are actually want banks to be banks said no that's not the business of that's not the business of banking so uh I think I think that the the uh the process of of of re-regulating our banks is is sort of the glass we've we've done some things that are moving the direction in the right direction but many things have been left undone now on the question of of the practical politics uh whether uh you know there are many reasons that governments fail fail to get reelected and it's not always just bad policies there are personality issues um there are the structure of the political process for instance Al Gore got many more votes than Bush did in the first election but the Supreme Court selected Bush to be president it wasn't a part of our democratic process in the usual sort of way if we had had proportional representation or any direct vote uh Gore would have been the president with with the very marked differences in our uh outcome or to give you another example uh we have a house of representatives in the united states one of the houses is controlled by republicans even though the democrat got more than one million more votes than the republicans the result of gerrymandering if you look at the shape of some of the districts they're very imaginative but they have no argument for them other than uh trying to distort the political process so in my mind uh one of the main main problems that we face in the united states which i can say no more better than i do australia uh in the united states is that we've we have a distorted political system in which we've moved from a principle of one person one vote to something much more akin to one dollar one vote and uh if we're going to make our democracy work we have to reclaim that and that's going to require more active citizen involvement and uh when that's happened things have gone well and we've had people uh succeed in arguing for very many of the very issues that i i talked about and just to give you one example we had a very active debate discussion debate about who should be the head of the federal reserve uh one of the candidate the one that obama wanted was uh one of his main achievements was uh designing the law that ensured that derivatives would not be regulated some of us were skeptical about whether that was an achievement and whether that qualified him to be the head of the federal reserve now that was a really interesting case because obama really wanted him but several of the senators who were very pivotal said it would be inappropriate to put it mildly and uh we we we now have uh the outcome of that was that obama didn't get who he wanted and uh one of my students is now the head of the federal reserve is there a question from upstairs no over here we'll just take two more from over here and then one from there and then professor stiglitz you described quite eloquently how the prevailing sort of neoliberal economic orthodoxy has been profoundly discredited not only by the most recent crisis but by the last 40 years of economic performance and yet many of those ideas austerity deregulation capital market liberalization are still driving particularly the australian policy agenda to borrow a phrase what why do these zombie economic ideas keep coming back it can't just be a matter of vested interests because they continue to survive in economics faculties and and lobby groups and then the influential political leaders why do they keep coming back and and how can we stop them well that's a good question and i i don't think there's any good answer i think part of the answer clearly is special interest that a lot of people made a lot of money out of bank deregulation you know a lot of money was moved from the bottom to the top and it served the interest of a lot of people there was a big party and it went into the political process it got they reinvested in the political process a small fraction of their profits i you know i jokingly say but it's not a joke really that the banks made much more money out of their investments in washington than they ever made out of their investments anywhere else uh those other investments were disaster but the washington investments paid off handsomely so i do i don't i don't think you should underestimate the role of special interest interest i don't know if any of you saw the movie inside job if you haven't you should see it because it shows also the role of the economics profession in all of this and what it suggests is that economists are sometimes influenced by incentives as well and that there is more money in a way to espousing ideas that people are willing to pay for and the financial sector is willing to pay for people to say things that the financial sector likes to hear and it's a very subtle process i don't think any of my colleagues who starred in that movie would would say that they were influenced in the slightest by economic incentives and so you know one of the things i always find so striking is that economists believe that everybody else is driven by incentives except for themselves and i think there's two elements of that i think economic incentive non-economic non-economic incentives are also important and it is true that they are also affected by non-economic incentives but i do think economic incentives do play a role and finally there is an element particularly on faculty and you have to for those of you who are PhD students probably will appreciate this more if you spend five six years of your life showing that markets are perfect very hard to say oh boy that was a waste of six years now that i understand that markets are not perfect even though the first lecture in economics is some costs should be ignored let bygones be bygones so what have you spent wasting six years of your life it's better to waste those than to waste the next six years of your life but it's very hard to persuade economists of this basic principle we have time for two quick further questions i'll take one from here and one from there and then we'll have to wrap up i'm sorry professor stiglitz do you agree with the very recent statement by the bank of international settlements that current dominant macroeconomic policies will not only manage to restore sustainable and equitable economic growth but are actually building a debt and asset bubble trap that could result in a second global financial crisis even worse than the first well i i do agree that we haven't really solved the problem of financial stability that was the remark i made before that the reforms have not been adequate and more broadly with that quote without i haven't seen their their their whole analysis but let me say there's something very peculiar about current monetary policies the major instrument for trying to get the economy going again is low interest rates to encourage people to borrow more and if you remember what part of the problem of the crisis was excess debt and part of the observation after the crisis was that we have an over leveraged economy so what is the major thrust in the current monetary policy get people more in debt it's a strange thing and i think that's what the bis is is is observing that and the way they're doing it is low interest rates trying to create some new bubbles so the whole thing is has an aura of of hard to understand whether this is hard to believe that this is the best way of getting solving the problem and i think part of the reason goes back to what i talked about in my talk none of this has gone try to analyze what are the underlying sources of the weaknesses in our economy that necessit seemingly necessitate the use of these other mechanisms a bubble or more debt to get the economy going again final question from the front thank you professor stiglitz recently in an interview with bill moise you spoke about how the u.s. government is helping the person who committed an accident at the same time leaving the victim to bleed on the street when asked about the situation geithner in an interview with john steward said that it was the right thing to do and if they had not done that so my question is sir is it now unreasonable to even expect those who unleash this crisis to be held responsible for the actions yeah uh the there are many aspects of your of the question in one let me first talk about just the the economics there were two ways to help revive the economy we could have given more of the money that you know if you go back to the 2008 crisis what precipitated it it was a housing crisis that's where it began and uh millions of americans lost their homes uh it had a total very serious social consequences median wealth in the united states i don't know if i mentioned that my talk median wealth in united states went down by 40 percent and that was partly because uh uh most people in the middle their major asset was their home and their home went down in value and many of them lost their home uh it was it was truly tragic but rather than helping homeowners we did almost nothing for them and even the obama administration even a geithner now would mix that was a mistake we threw money at the banks so it was another example of trickle down economics the belief that if you throw enough money at the top everybody will benefit it was clearly wrong and it didn't work and it was very peculiar that we were helping the victimizers and not helping the victims so that was one aspect and i think it was one of the reasons to go back to to the politics i think it was bad politics as well as bad economics it was one of the reason it's one of the reasons that there is suspicion of government activity now they say well on a lot of people's part there there's a view that government is giving helping the wealthy and not helping the people who need it so why should i help the government so it's really undermine the it was a it to my to my mind it was really bad politics as well as bad economics but the other part of the problem is the banks that were too big to fail were also too big to jail and so very few of those who were responsible for the crisis and for the bad behavior of the banks the market manipulation the abuse of credit card practices the predatory lending the united states the banks even engage in discrimination they figured out who were the people most likely to be able to be preyed upon and they discovered it was hispanics and african americans and so they targeted those groups 40 years after we passed anti-discrimination laws they went ahead they were like in another planet and they said oh well our responsibility is to our shareholders to maximize profits and so that's what they did or they tried to do and not one of those people have gone to jail so you ask we have a system in which we actually lack individual responsibility a few of them have been tried and the system of corporate responsibility allows them to evade individual responsibility and in the end the case of corporations the shareholders pay but the managers walk off of the profits as if they had done nothing the worst miscarriage of justice perhaps was something i don't know if many of you know about our robo signing scandal one of the problems the banks were so sloppy in their record keeping that their records of who owed money was not very good to throw people out of their homes they had to sign that they had expected the records and the records were in good shape and that this person owed money and been delinquent by a certain amount of and that therefore there were grounds to throw them out but there were so many people that they wanted to throw out of the homes that they couldn't inspect the records and the records were so bad that they couldn't do it even if they had wanted to so they hired people to sign thousands of affidavits knowing that they were lying they were committing perjury before the court thousands and thousands of times it was called robo signing and the basis of that thousands of people were thrown out of their homes who didn't owe anything not a single of the bankers has been held accountable the bankers say oh well most of those who we threw out of the homes probably owed something and it was sort of like a system of justice that we have in the United States which says most of the people that we give capital punishment probably digs something wrong but of course this is not the rule of law use a rule of law is supposed to protect those who need protection not the bankers but our system of rule of law protected the bankers and not those who needed protection and so so one of the outgrowts of of the crisis is is a real question it's about our rule of law and whether in fact we have the kind of system you know every morning every American kid in school says I pledge allegiance to the flag of the United States of America and they say justice for all and now we rewrite that justice for those who could afford it thank you Professor Stiglitz is pleased to sign books at the when this is all wrapped up I wanted to just say a couple of words in in closing those of us in the academic economics profession know too well the intellectual contribution of Joseph Stiglitz he more or less invented a new area of economic theory involving asymmetric information and at any point in time like right now there'll be people in economic seminars all over the world or and or PhD students involved exactly in that work it has had a profound effect on our discipline and the way we think about economics and the way it will also think about the role of government but there's something more than this which I wanted to bring to your attention which if you've listened at all tonight you'll get this anyway and it's a question of ethics I think and and morals and for Joseph Stiglitz it takes two very obvious forms and the first involves the topics that he chooses to think about to research on and to write about and they're just the biggest issues of our time the measurement and mis-measurement of human welfare the prevalence of poverty and inequality and what can be done about this the causes and solutions to international financial failure economic solutions to climate change and the profound adverse consequences of misdirected ideologically based and ignorant macroeconomic management people can always always choose what they want to do research on and what they want to focus on and their his topics and behind them they're essentially about the warfare of the human condition and about essentially also about inequality and poverty and poverty but there's another issue too I've got to know Joseph Stiglitz well and his work very well over the last five years and if you know about his career you'll see some aspects of behavior which can only be admired hugely for the moral and ethical stance that he takes and you can see it and hear it in what he said tonight there is a willingness there which is close to unique to confront and to take on powerful vested interests groups with the financial and political power to damage public critics severely he's done this with respect to his critique of the international monetary foundation and he strived objections to their previous and currently a little bit austerity agenda he did it in the world bank for example by putting on the agenda the issue of corruption as a matter for economics and as part of the remit for the world banks role and most profoundly over the last few years he's done it with his continual opposition and offence taken at what has happened with respect to government reactions in the United States involving Wall Street the US banks and in part the role in of the US administration itself for bailing out the rich and the powerful after the financial crisis which in his very compelling view they had largely been responsible for and I think as a public intellectual it's not just the intelligence and the rigor and the power of communication that is so clear but when you know what he does and the reasons he do it there is and I think for those who know him and his work well there should be profound admiration for the moral stances and the ethical position he takes I think tonight has been very very special I hope you take the memory with you for a very long time and thank you so much