Nobel Winning Economist Joseph Stiglitz on the Economic Recession

Nobel Prize winning economist Joseph Stiglitz spoke with Bill Plante about his updated "Freefall: America, Free Markets, and the Sinking of the World Economy" now out in paperback and revisits what's happened to the U.S. economy in the wake of the economic recession.

CBS News Nobel Winning Economist Joseph Stiglitz on the Economic Recession Joseph Stiglitz: (Author, Freefall)-I anticipated that if things were going the way I said they were going we would be in for your long term, it was going to be a slow recovery, if we didn’t have a large enough stimulus, a well designed stimulus if we didn’t do what needed to do about mortgages if we didn’t fix the banks in the right way the economy would be mired in a downturn for possibly years to come and unfortunately we didn’t do any of the things that we should have done and here we are with the unemployment rate 9.6%. I went out of 6 Americans who would like a full time job not able to get one. Reporter: You said in the book that you put the owners of responsibility for what happened in 2008 on the financial markets and the institutions and the day we’re attempting to shift blame and that the problem is in the system fundamental flaws. Joseph: Right, it was not an accident. The financial sector would like to tell you it’s if something that happened to them an accident. It’s really something that they did to the rest of us and in a way you’ve been able to see continuation of you might call there bad behavior and among since they brought the economy to the brink. When we gave money to the banks intended the president said to allow them to lend more. They didn’t take their money to recapitalize the banks and to want to get the economy going. They paid it out in bonuses, they paid it out in dividends. They didn’t recapitalize the banks and the result is what we have today. Reporter: You say that the financial reform is which is the Obama administration did pass were stronger than perhaps you’ll expected but didn’t work as well as should have? Joseph: I described that it would have been like a smelly Swiss cheese. They have a lot of good principles putting it together and you look at it it’s a little smelly so many holes that it’s an embarrassment. Let me give you just one example, they recognize that we need something to protect consumers and that created a financial product safety commission, but they exempted automobile loans the second most important category of loans now is there any reason why the banks ought to be allowed to engage in predatory lending practices for one category loans and automobile and out the other. Reporter: No. Joseph: No we all know what this was. This was naked politics. Reporter: You’ve got a situation right now I’m talking about politics where a large percentage of the public is very upset about the deficit and many people feel that the money that was spent on tarp by both the administration and the previous administration and the money for the bailouts was money thrown away? Joseph: Well they’re half wrong about both of those more wrong about one than the other. The bailout money didn’t succeed in getting the financial system really on to doing what it supposed to do which is to lend money to small or medium sized enterprises. The stairways package actually worked. In the phone link sense, it was intended to create more jobs or to first stall the loss of jobs. It succeeded if we hadn’t had that stimulus package unemployment rather than peaking at 10% would have peaked somewhere between 12adn 13%. The mistake they made was that it was too small too short, not as well designed as I would have liked as I say in the book it should have been the problem is that if we don’t have a second rounder stimulus and I’ll be frank I don’t see it on the cards if we don’t the economic recovery is going to be much weaker, take much longer and there’s going to be much more unemployment. Reporter: Well you said in the book that we have to rely on physical policy to help restore the economy because that flies in the face of what the republicans are arguing less regulation, more tax cuts and this is what a large percentage of the voters soon to think going to poles. Joseph: Yeah, unfortunately from a neck of a 104 and if you— that won’t work. I mean tax cuts we tried that in 2008 and part of the reason that the Obama stimulus package didn’t work was about 40% of it was tax cuts and the problem is pretty obvious. With Americans burdened with debt facing a certain use of unemployment. They’re not going to spend and the very essence of a stimulus is that people have to spend money. Monetary policy which is the other instrument has reached the limits of its ability. Zero interest rate is not worked and they’re talking now about a new. Reporter: Right new expectation of— Joseph: Quantitative easing. We’re in the long term interest rates from say 2-1/2 to 2.4% is not going to get us out of this mess and I don’t you know think anybody really, realistically believe that to be the case. Reporter: Professor Joseph Stiglitz thank you very much. Joseph: Thank you. Reporter: The book is free fall. This is the latest edition contains an afterwards with your thoughts on what’s happened since you wrote the hard cover edition months ago. Joseph: Great. Reporter: It’s out go find it, thank you.