New Delhi: Joseph E. Stiglitz was awarded the Nobel prize in economics in 2001 for his pioneering research on markets with asymmetric information; his work has helped explain the cirumstances in which markets would work better with selective government intervention. Currently, he is the University Professor at Columbia University in New York. The 65-year-old former chief economist of the World Bank and member of President Bill Clinton’s economic team was in India this week. He spoke to Mint on a range of issues, including the rapidly eroding global economic outlook, the economic strategy of incoming United States president Barack Obama and how the current crisis was forcing a rethink in economic ideologies.
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Is the worst over for the world economy? No. We are just in the downward part of the trajectory. I am focusing mostly on the United States, because that is where the problem began and until that problem gets solved the global economy is going to be in difficulties. United States is going to get worse before it gets better.
The measures that are necessary to get us out of the downturn have not yet been taken. Everybody is waiting for (Barack) Obama to assume the presidency on 20 January; (the United States) Congress has to pass (the package), he has to sign; and, then the measures have to be actually put in place. That doesn’t happen overnight. So, I think we can see things probably getting worse for the next six months.
That means the collateral damage to the rest of the world is likely to endure?
Exactly.
So, then what is the outlook you see for emerging economies such as India and Brazil?
I think the outlook is for a weak economy for a year-and-a-half, two years. I have three observations. Actually your (India’s) economy, in terms of fundamentals, is much stronger. There is an article, just the other day, in the International Herald Tribune, pointing out how lucky you were to have a (Reserve Bank of India) governor like (Y V) Reddy, who was criticized for putting on the brakes. But now everybody realizes that he was doing exactly the right thing. And, that means your banks are in much better shape.
Obviously, when the economy slows down there are going to be problems; but their magnitude is so much less because you had a good bank regulator. Also, in the case of India your growth has been very robust; you have been growing at 9%. So you slowdown to 7%, 6%, 5%, it is still growth. In the case of United States we are talking about slowdown (turning) into decline; into a situation where the GDP (gross domestic product) is actually falling.