Glad India didn’t go with Paulson's advice: Prof Joseph Stiglitz

MUMBAI: When the world’s biggest economy gambles with other people’s money, blaming smaller nations which pay the price, it only protects a system that’s flawed and rotten. Nobel Prize winner and Columbia University professor Joseph Stiglitz, a bitter critic of that system, tells ET why Greece can’t be blamed, why the US is in for another shock, and how Washington is still missing the point.

In one of the bleakest forecast for the West, Stiglitz sees more pain if economies in Europe and the US go on an austerity drive to improve their deficits. Stiglitz is certain that there would be more mortgage defaults and unemployment in the US would not reach normal levels until the middle of the decade. “We expect the number in 2010 to be larger than in 2009. Things are getting worse. That’s one of the reasons why I am not optimistic about a quick recovery.”

Stiglitz, a winner of the 2001 Nobel Prize and the John Bates Clark medal in 1979, awarded to economists under 40, came into limelight with his attacks on economic orthodoxy in the wake of the 1997 Asian crisis. The International Monetary Fund, or IMF, had imposed stringent austerity measures, which meant swinging cuts in the budget deficit and government spending, as currencies plunged in the wake of a balance of payment crisis.

Stiglitz’s ferocious attacks on the IMF’s standard prescriptions, both for dealing with crises as well as the broad gamut of free-market policies known as the ‘Washington Consensus’, reportedly led to his firing in 2000 from the World Bank. Ten years later, Europe is following the same policies, he says.

Stiglitz is happy that India did not follow the policies prescribed by the US. “Our regulatory structure was very flawed. People like (Henry) Paulson — who helped create the problem — were telling India that you should follow the American way. I am glad that you didn’t follow Paulson’s advice.”