At Project Syndicate, Joseph Stiglitz takes  issue with the prevailing framing of the global economic crisis.  By labeling it a financial crisis, it meant that fixing the banks was the first line of defense.  While Stiglitz isn't arguing that policymakers should not have taken action to fix the financial sector, he says it was clearly not sufficient to mend a full scale economic crisis. 

Now, he says, policymakers need to address the very serious labor market problem, along with growing inequality and "emerging markets’ massive buildup of foreign-exchange reserves."  Stiglitz:

Where are we today in addressing these underlying problems? To take the last one first, those countries that built up large reserves were able to weather the economic crisis better, so the incentive to accumulate reserves is even stronger.

Similarly, while bankers have regained their bonuses, workers are seeing their wages eroded and their hours diminished, further widening the income gap. Moreover, the US has not shaken off its dependence on oil. With oil prices back above $100 a barrel this summer – and still high – money is once again being transferred to the oil-exporting countries. And the structural transformation of the advanced economies, implied by the need to move labor out of traditional manufacturing branches, is occurring very slowly.

Government plays a central role in financing the services that people want, like education and health care. And government-financed education and training, in particular, will be critical in restoring competitiveness in Europe and the US. But both have chosen fiscal austerity, all but ensuring that their economies’ transitions will be slow.

The prescription for what ails the global economy follows directly from the diagnosis: strong government expenditures, aimed at facilitating restructuring, promoting energy conservation, and reducing inequality, and a reform of the global financial system that creates an alternative to the buildup of reserves.

Read To Cure the Economy here.