Joseph Stiglitz - Why We Have to Change Capitalism - Essay Example

Capitalism Name Course Lecturer Introduction The advent of the great recession set a host of debates on the modern day world economies. Major economies underwent a major shake up with during the great recession. The slump exposed the various flaws that exist in the economies. At the same time, potential risks that were never seen before also became unearthed by the great recession. It is with the great recession that most economies in the world had a point in case to reevaluate themselves. However, many economies wished the great recession away and down played the flaws that it elicited. In the book freefall, Stiglitzt reveals his fears about the modern day economies in the world. The launch of the book freefall comes just after the world had undergone the great recession. It is from the great recession that various economies were dwindled within a day with many people adding to the statistics of those living in poverty. The great recession could have been avoided if at all the stake holders in the economy worked in synergy for the common good. Despite the modern day economy having liberalized markets, globalization and all advancements associated with it having guaranteed prosperity to all, it still lacked the very essential component which was better risk management. Lack of risk management within the modern day economies meant that the business cycle was not complete hence the vulnerability of the economy to fluctuations was not eliminated (Astley et al 2009, p. 8). For a very long time, the economies of the world have been driven by principles of a free market. These principles have worked for many years. However, times are changing and various faults have started to emerge in the economies managed by this doctrine. Most economies are not proactive in trouble shooting. Such economies do not have proper analytical capabilities to allow for the trouble shooting of potential risks that the economies are likely to face. This means that the economies are more than ever exposed to risks (Bauer et al 2009, p. 4). Governments have a major role to play in the building of stable economies. They are responsible for setting up of regulations that govern the economy. However, this mandate has not been actualized effectively by governments. Most governments are coming up with regulations that hamper the dynamism that ought to exist in economies. The regulations hamper innovations hence various economies are at a stand still. In addition, the regulations expose economies to numerous risk factors. For instance, the central ought to be independent (Acharya and Richardson 2010, p. 6). However, this is not the case since the central banks are regulated and it renders the operations of such an essential body untenable (DeNavas-Walt et al 2010, p. 5). Americans have a culture of believing in their strong economic dominance in the world. The recession exposed the various flaws that exist in world economies. Americans having for a long time believed in the dominance of their economy in the world has come to be tested. But instead of embracing the flaws exposed by the recession, Americans denied the magnitude of problems that were associated with the recession. Most of the flaws that were exposed have never been addressed or resolved to date. This means that the American economy is still sitting on a time bomb and it is only a matter of time that everything gives way. There are numerous grievances which still ought to be addressed for the American economy to retain its stability. For instance, the middle class in the society are grappling with remunerations problems. As a result, there is need for the reevaluation of policies and values that drive the American economy (Garnaut 2009, p. 8). According to Stiglitzt, there is need for the Americans to reevaluate and reflect on the need to establish social order and do away with private enterprises. Free enterprises have greatly affected the social order and brought about the degradation of social norms. Private enterprises have propagated the establishment of covetousness in the society. As a result, the society has undergone moral decay. This means that even though growth of the economy is visible it posses negative effects to the society. The community does not address common needs as a result of selfishness and greed having eroded the sense of a community having common goal. As a result, social disorder has thrived with many people being exploited and the growth of such an economy only worsens the social divide (Posner 2009, p. 6). It is about time that Americans seriously reevaluated their economic model. The economic model propagates immorality. The markets are driven by vested interests since the participants in down grade morality. As a result, the pursuit of the self interests makes the society drift further away from achieving social well being. The individualism has resulted in the regarding of the community as a useless entity. At the same time, trust in the society has been eroded by the greed that exists in the economies driven by vested interests. The existence of autonomy can solely be blamed on the government since its regulations allow it to thrive at the expense of social well being (Shiller 2008, p. 4). Development of economies solely depends on various factors. Trust is the most essential aspect in the growth and stability of an economy. The existence of trust means that various stake holders in the economy work in synchrony towards achievement of common goals. The presence of trust means that the society’s well being is also considered while the economy grows. Various stakeholders in the American economic model have lost trust with each other. Lack of trust among the stakeholders has not gone well. Trust is an essential aspect in the growth and stability of the economy. Growth of any economy is based on the amount of trust that the stakeholders have with each other. Lack of trust simply exposes the economy to more risks and undermines the existence of the society. There is lack of trust in essential links in the economy such as between banks and the society. As a result, banks were forced to undertake high risk activities in order to keep existing. The banks reverted from being commercial institutions to investment groups. Such risks have led to the banks having to put up with high capital to pay high insurance deposits (Shiller 2008, p. 4). The recession not only exposed flaws in the economic model, cracks were also evident in the society. It was clear that the society existed in two parallel streams. For instance, there was a clear divide between the rich and the poor. It became evident that the living standard of the rich was growing tenfold at the expense of the rest of the society. At the same time, the income of other Americans was at a standstill or even having undergone a deep over the years. The recession also exposed some of the greatest fears of the American economy. The biggest spenders in the economy were the middle class. As a result, a bulk of the middle class lived in debt after having taken many loans. The middle class consumed beyond their means yet their incomes were minute. With the middle class forming a bulk of the society, it was evident that the American economy was already in debt. One of the strategies to be put in place to avoid the over expenditure is through consumer protection. Consumer protection enables the Americans to live within their means and avoid over expenditure and going into unnecessary debts (Taylor 2009, p. 22). The effects of the slump could have been averted if only a proper analysis of an American economy was done in time. There are numerous ways through which the economy and the society can be structured in order to pave way for an economic growth that is realistic and stable. For this to happen, the role of the government needs not to be restricted to offering bail out services. Governments ought to establish and also reconsider some of the regulations that govern the economy. For instance, the revising of the Glass-Steagall act to prevent the commercial banks taking advantage of the safety net that is offers. The political elite should not just wish away the recession and its effects. Wishing away means that various issues still go unresolved and this only precipitates a bigger crisis’s in the future. Governments need to restructure the salaries and also control various aspects of the economy such as taxation (Roberts 2009, p. 242). The society ought to be motivated to value ethics. Motivation will be done by enabling them to understand the significance of ethics to the economy. Worthiness of ethics will enable issues such as trust that catalyze economic growth being strengthened. Ethical responsibility begins with the financial sector owning up to the effects generated with the recession’s aftermath. The financial sector ought to avoid engaging in blame games especially shifting it to those it ill-treated during the recession period since it does help. It is from this perspective that the American economy will pick up (Grusky et al 2011 p. 224). The slump acts like an eye opener to the world’s economies. It offers the Americans a chance to create a new financial system that will advocate for the role of a financial system in meeting the needs for human beings. The new economic system ought to also provide social well being through the creation of meaningful jobs are created, provision of decent work for all those who want to work and the narrowing the gap that exists between the rich and poor rather than widening the gap. For this to happen, individualism has to be done away with. Americans should work together to realize the setting up of an economy they all are proud of and can live comfortably since their future will be well secured (Grusky et al 2011 p. 224). Conclusion Americans want to live a decent life and be able to fulfill their dreams, goals and aspirations. The building of a robust and stable economy solely depends on the ability to realize the chance they have to seize the opportunity. Americans ought not to overlook the happenings of the recession, but to take it like a lesson to prevent future occurrence of crises of such a magnitude and also how to handle such a situation in the eventuality it repeats itself in the future. 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