Going Five For '10

Via Barry Ritholtz, here's Joseph Stiglitz's look back on the global economy in 2009 and what we should have learned:

1. Markets are not self-correcting, and without adequate regulation, they are prone to excess.
2. There are many reasons for market failures. Too-big-to-fail financial institutions had perverse incentives: Privatized gains, socialized losses.
3. Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster.
4. There is more to monetary policy than just fighting inflation. Excessive focus on inflation meant that some central banks ignored what was happening to their financial markets. The costs of mild inflation are miniscule compared to the costs imposed on economies when central banks allow asset bubbles to grow unchecked.
5. Not all innovation leads to a more efficient and productive economy – let alone a better society. Private incentives matter, and if they are not properly aligned, the result can be excessive risk taking, excessively shortsighted behavior, and distorted innovation.

Stiglitz ends with this warning:

We will soon find out whether we have learned the lessons of this crisis any better than we should have learned the same lessons from previous crises.

Regrettably, unless the United States and other advanced industrial countries make much greater progress on financial-sector reforms in 2010 we may find ourselves faced with another opportunity to learn them.

Amen to that.  We're going to be right back in the 2008 hole sooner rather than later.