Nationalize or bank-bust? Scholars debate crisis, Depression

Distinguished economic scholars hashed out a history of economic crisis Wednesday night.

The Committee on Global Thought hosted over 150 students for a roundtable discussion featuring Columbia professors Joseph Stiglitz and Alan Brinkley, along with professors Harold James of

Princeton and Lord Robert Skidelsky of the University of Warwick. The group talked about lessons learned from the Great Depression, especially with respect to current regulatory policies, analyzed the importance of directing a concerted global effort to tackle the recession, and considered the recession’s impact on the future of economic policy theory.

Alan Brinkley, former provost and professor of history, critiqued the failure of government over two administrations and 12 years to end the Great Depression. Harkening to President Franklin Roosevelt’s premature attempt in 1937 to balance the budget by cutting back on spending, the economists unanimously warned that the Obama administration could cause the economy to contract further if the stimulus plan were to be curtailed.

Harold James, professor of history and international affairs at Princeton University, took a contrasting position, saying that “there have been an awful lot of crises in the past and they’re nothing like one another.” Still, he went on to note that the Federal Reserve’s stimulative fiscal policy has had positive effects on the economy.

Stiglitz remarked, “we learned a lot from the Great Depression, but we forgot it all after Reagan came along.” He added that, although most point to low interest rates under former Federal Reserve

Chairman Alan Greenspan as the cause of the current recession, inefficient financial markets are just as culpable. In this regard, the current recession and the Great Depression both have credit
institutions to blame for their failure to ably allocate capital. He urged the government to fix credit rating agencies to restore trust in them and reiterated the need for stimulus spending by the Obama administration. According to Stiglitz, the role of government is essential as markets take time to adjust their competitive equilibria.

The scholars disentangled the debate on banking institutions and outlined the only solutions: nationalization or “trust-busting” to break up big banks into smaller, less concentrated units.

Assessing the varied perspectives, Lord Skidelsky remarked on the “interminable nature of debates in economics” and commented that the field often crosses the seemingly fine line between science and ideology. “Debates go on in the same way as in the 1930s but are done so today with more mathematical elegance, and in that way at least, one can say that economics is progressing.”

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