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A Book Review- Globalisation and its Discontents

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Photo of Joseph Stiglitz by apesphereI read a book in the library today about Globalisation and its effects by the economist Joseph Stiglitz.

Joseph Stiglitz won a Nobel Prize for Economics for work on Information Asymmetry.

In the book Globalisation and its Discontents, he slams the role of the International Monetary Fund (IMF) for causing and worsening recessions in countries in East Asia, Russia and Latin America.

By comparing countries which were not helped or refused help from IMF with countries that had to take the bitter medicine it doled out, the book presents a strong case of incompetence and stubborn ideologues who adhere to the "free market is always right" maxim.

Analysis of Asia Financial Crisis
In his chapter analysing the causes and the conflagration of the crisis, he likens the standard package doled out to the East Asian countries to be gasoline on the fire.

By insisting on economic austerity and fiscal tightening by the government and central banks in the middle of a loss of confidence by investors who are taking the money out anyway, it worsened the economy, delayed it and was never really going to make investors more confident anyway.

Malaysia, where the maverick Prime Minister Mahathir decided to impose currency controls and refuse the help of the IMF with its conditions, came out of the crisis faster and in a better shape than all the other countries which were more seriously afflicted.

Russia the Basket Case versus China the Model Communist turned Market Economy
The analysis of the problems faced by Russia as it tried to convert its economy to a market based one with the help of IMF while China embarked on its journey to transform its agarian communal economy to a market based one is another case study where he highlighted the failings of the IMF.

The 'shock therapy' treatment recommended by the IMF for Russia caused the poverty figure in the country to rise from 2 to over 50 percent while the slower pace of reforms implemented by China, which refused to subscribe to IMF methods, to open its economy was a success.

After reading the book, I googled Joseph Stiglitz and found an article listed in the wikipedia which he wrote about "The Economic Consequences of Mr. Bush" published by Vanity Fair in December 2008.

It is a damning indictment of George Bush Jr's policies which blew US$2.2 trillion worth of surpluses made possible by the Bill Clinton's budget deficit by making the rich richer by cutting taxes such that those who earned more than $1million saved $162,000 on average while the people in the bottom 20 percent got a cut of $45.

Read both the article and the book to understand more about what really was one of the major causes of this current financial crisis afflicting the world. I wrote about the link of the Asian financial crisis to the present in a previous article.

Financial and economics literacy is one more step towards financial freedom.

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