stiglitz303_ Frank Rumpenhorstpicture alliance via Getty Images_gas prices Frank Rumpenhorst/picture alliance via Getty Images

Shock Therapy for Neoliberals

Like previous disruptions to the global economy, Russia’s war in Ukraine has highlighted the fallacy of relying on markets alone to mitigate risks and strengthen countries’ resilience. Neoliberalism has failed yet another test and must finally be replaced by a new economic vision based on new values.

NEW YORK – The fallout from Russia’s invasion of Ukraine has reminded us of the unforeseeable disruptions constantly confronting the global economy. We have been taught this lesson many times. No one could have predicted the September 11, 2001, terrorist attacks, and few anticipated the 2008 financial crisis, the COVID-19 pandemic, or Donald Trump’s election, which resulted in the United States turning toward protectionism and nationalism. Even those who did anticipate these crises could not have said with any precision when they would occur.

Each of these events has had enormous macroeconomic consequences. The pandemic called our attention to our seemingly robust economies’ lack of resilience. America, the superpower, could not even produce simple products like masks and other protective gear, let alone more sophisticated items like tests and ventilators. The crisis reinforced our understanding of economic fragility, reprising one of the lessons of the global financial crisis, when the bankruptcy of just one firm, Lehman Brothers, triggered the near-collapse of the entire global financial system.

Similarly, Russian President Vladimir Putin’s war in Ukraine is aggravating an already-worrisome increase in food and energy prices, with potentially severe ramifications for many developing countries and emerging markets, especially those whose debts have soared during the pandemic. Europe, too, is acutely vulnerable, owing to its reliance on Russian gas – a resource from which major economies like Germany cannot quickly or inexpensively wean themselves. Many are rightly worried that such dependence is tempering the response to Russia’s egregious actions.