Extracts from the Stiglitz Commission paper on the Global Financial Crisis (Paper) June 2009
Here are some extracts from the Stiglitz Commission paper on the Global Financial Crisis, which was the main output document of the June 2009 UN conference by that name. The underlining is not in the paper but I inserted for IU UN NGO Report:
First, and most importantly, the decisions concerning the necessary reforms in global institutional arrangements must be made not by a self-selected group (whether the G-7, G-8, G-19, G-20 or G-24) but should be taken by all the countries of the world, working in concert. This inclusive global response will require the participation of the entire international community; it must encompass representatives of the entire planet, from the G-192. ….. The only institution that has that broad legitimacy today is the United Nations.
(24) Part of the reason financial regulation was so ineffective lies in inadequate appreciation of the limits of the market mechanism – the prevalence of what economists call “market failures.” (25) The conduct of monetary policy in the United States both prior to and after the crisis can be viewed in part as an attempt to offset an insufficiency of global aggregate demand, aggravated by increasing income inequality in most countries. (27) The current crisis reflects problems that go beyond the conduct of monetary policy and regulation of the financial sector; it has exposed a flawed understanding of the functioning of markets. The belief that unfettered markets are, on their own, quickly self-correcting and efficient led national authorities and international institutions to support measures to deregulate financial markets.
Decries protectionism and subsidies
(35) A lack of resources is a major impediment to the introduction of strong stimulus packages in developing countries. A substantial increase in resources available to developing countries, not just to undertake stimulus measures, but to cope with the negative impact of the crisis, will be necessary. Funding to shore up their banking systems, provide credit, including trade credit, and strengthen social protection should be provided and developing countries should have expanded scope to implement policies that will allow appropriate counter-cyclical policies and to design other structural policies consonant with their needs, bo objectives and situation.
(36)It is apparent that the conditionalities that were often imposed by international financial institutions in their support of developing countries were counterproductive.
(39) Some Central Banks with only limited direct accountability have introduced without parliamentary/Congressional approval measures in support of financial institutions that have exposed taxpayers to massive risks. (42) There are large inequalities in the global economy and large asymmetries in the global economic framework. It is important that the measures introduced to respond to this crisis seek to reduce, not exacerbate, these inequalities and asymmetries. (43) All economic policies involve risks and uncertainties.. an aggressive stimulus policy may, for instance, increase the risk of inflation from over-stiulation and those with long-term
(17) In some countries, the weakening of social protection and the reduction of progressivity of income tax systems weakened the automatic stabilizers.
19 – 20 addresses income inequality and growing wealth gap and how financial deregulation allowed, maintained or increased aggregate demand at the cost of increasing household indebtedness. Says that globalization increases income inequalities worldwide.
(28) While the negative impact of income inequality and energy, commodity and food inflation was thus temporarily offset by mounting private and public debt, it should have been clear that this was not sustainable.
Growing inequality as a source of the crisis. (35) The difficulties in the real estate sector precipitated problems in financial markets. Discussed more extensively in the next Chapter. (Note from Alanna – this discussion was not as promising as hoped.)
91. A distinguishing feature of developments in recent years is the fact that the old idea of innovative finance has lead to action… 92. Some of the initiatives that have been proposed encompass “solidarity levies” or, more generally, taxation for global objectives. Some countries have already decreed solidarity levies on airline tickets but there is a larger set of proposals. There have also been suggestions to auction global natural resources – such as ocean fishing rights and pollution emission permits – for global environmental programs. 93. The receipts from these innovative initiatives could be directed to support developing countries to meet their development objectives, including their contribution to the supply of global public goods, as well as international organizations that are active in guaranteeing the provision of such goods. The exiting taxes on airline tickets, for example, are being used to finance international programs to combat malaria, tuberculosis and HIV-Aids. 94. The suggestions that taxes that could be earmarked for global objectives has a long history… Some suggestions aim at both raising funds for global objectives and mitigating a negative externality at the global. Two suggestions deserve special attention: a carbon tax and a levy on financial transactions. (This is as close as the Stiglitz Commission paper came to resource rent for revenue. No mention made of petroleum, hard rock minerals, or surface land value tax.)
Task force on Global Financial Integrity set up under direction of Norway.
(end of notes from Stiglitz Commission paper on Global Financial Crisis. The complete report is on the web.)