Joseph E. Stiglitz

The consequences of the Japanese earthquake – especially the ongoing crisis at the Fukushima nuclear power plant – resonate grimly for observers of the American financial crash that precipitated the Great Recession. Both events provide stark lessons about risks, and about how badly markets and societies can manage them.

Of course, in one sense, there is no comparison between the tragedy of the earthquake – which has left more than 25,000 people dead or missing – and the financial crisis, to which no such acute physical suffering can be attributed. But when it comes to the nuclear meltdown at Fukushima, there is a common theme in the two events.

It has taken almost two years since the collapse of Lehman Brothers, and more than three years since the beginning of the global recession brought on by the financial sector’s misdeeds for the United States and Europe finally to reform financial regulation.

Perhaps we should celebrate the regulatory victories in both Europe and the United States. After all, there is almost universal agreement that the crisis the world is facing today – and is likely to continue to face for years – is a result of the excesses of the deregulation movement begun under Margaret Thatcher and Ronald Reagan 30 years ago. Unfettered markets are neither efficient nor stable.

Striving to revive the world economy while simultaneously responding to the global climate crisis has raised a knotty question: are statistics giving us the right “signals” about what to do? In our performance-oriented world, measurement issues have taken on increased importance: what we measure affects what we do.

If we have poor measures, what we strive to do (say, increase GDP) may actually contribute to a worsening of living standards.

Around the world, protests against soaring food and fuel prices are mounting. The poor -- and even the middle classes -- are seeing their incomes squeezed as the global economy enters a slowdown. Politicians want to respond to their constituents' legitimate concerns, but do not know what to do.

In the United States, both Hillary Clinton and John McCain took the easy way out, and supported a suspension of the gasoline tax, at least for the summer. Only Barack Obama stood his ground and rejected the proposal, which would have merely increased demand for gasoline -- and thereby offset the effect of the tax cut.

Both the left and the right say they stand for economic growth. So should voters trying to decide between the two simply look at it as a matter of choosing alternative management teams?

If only matters were so easy! Part of the problem concerns the role of luck. America's economy was blessed in the 1990s with low energy prices, a high pace of innovation, and a China increasingly offering high-quality goods at decreasing prices, all of which combined to produce low inflation and rapid growth.

It doesn't take a genius to figure out that the United States' financial system -- indeed, global finance -- is in a mess. And now, with the US House of Representatives having rejected the Bush administration's proposed $700 billion bailout plan, it is also obvious that there is no consensus on how to fix it.

Not surprisingly, the atmosphere at this year's World Economic Forum was grim. Those who think that globalization, technology, and the market economy will solve the world's problems seemed subdued. Most chastened of all were the bankers. Against the backdrop of the sub-prime crisis, the disasters at many financial institutions, and the weakening of the stock market, these 'masters of the universe' seemed less omniscient than they did a short while ago. And it was not just the bankers who were in the Davos doghouse this year, but also their regulators -- the central bankers.