Stiglitz on the Daily Show

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Stiglitz debates with pro-inequality Romney supporter

This had to be a frustrating discussion for Joe Stiglitz. He constantly threw in facts to show the destructive nature of the pro-inequality movement and the former Bain director ignored everything. It should come as no surprise since the 0.1% have been winning the class warfare battle for a few decades. Republicans take delight in the destruction of the middle class and want to continue down the same old path.

The embedded video is having some difficulties so if it's not showing, please use this link. Read the rest of this post...

Video: Joe Stiglitz talks about US inequality

For some reason, the issue of inequality has yet to take root among the political class. When the land of opportunity is no longer the land of opportunity, there's a problem and it needs to be addressed. Addressing anything serious requires a discussion and as long as the obstructionist party remains as is. Read the rest of this post...

PBS interview about financial crisis with Joe Stiglitz

It's a long read, but it's very good. During the interview, Stiglitz discusses the failure of regulation, the lack of transparency with the banks (even today) and where the economy may be going as Europe falters. If you enjoy economics, grab a cup of coffee and have good read.

Here's a taste of the interview after he was asked about Geithner and Summers joining (and leading) the Obama economic team:

He was told that appointing this team would present a problem, because even if they gave the right advice, it will be tainted. People will see it as reflecting the interest of the banks and people who were linked to the deregulation, to the flawed policies. You're bringing in the same plumber that caused the problem. ...

Of course the real risk was that they would not give the right advice, and that would turn out to be the case. I wasn't surprised, because at that point it was already clear where he was getting his advice from, who he was listening to.

The only thing that was perhaps a little bit of a surprise was the disjuncture between "Change you can believe in," the slogan, and the team that was put in place, which was, yes, change a little bit from the Bush team, but only a little bit.

In that same section, Stiglitz throws in what many - myself included - believe about Obama and where he fits on the political scale. He may have some liberal beliefs but for the most part, he's a "don't-rock-the-boat conservative. Read the rest of this post...

Stiglitz: European austerity like 'medieval medicine'

Remember that austerity is exactly what the US Republicans are also promoting. They're oblivious to the downside of austerity and even pretend as though downsides are non-existent. Meanwhile in Europe, we're seeing the UK drift back into recession and the austerity program is only now kicking in. There will be a lot of economic pain in 2012.

"The answer, even though they see over and over again that austerity leads to collapse of the economy, the answer over and over [from politicians] is more austerity," said Mr Stiglitz to the Asian Financial Forum, a gathering of over 2,000 finance professionals, businessmen and government officials in Hong Kong. "It reminds me of medieval medicine," he said. "It is like blood-letting, where you took blood out of a patient because the theory was that there were bad humours. "And very often, when you took the blood out, the patient got sicker. The response then was more blood-letting until the patient very nearly died. What is happening in Europe is a mutual suicide pact," he said.

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Stiglitz: "I think they should be worried about the future of the euro."

During our interview with Nobel economist Joe Stiglitz in Paris on August, 28, 2011, Chris asked Stiglitz about the recent troubles with the euro. Here is the video (4 minutes and 21 seconds), and a partial transcript follows.

RYAN: Quick Question, since we're here in Europe, the euro, a lot of people are stressed - the French are stressed, the Italians, the Spaniards, people are really worried about the future of the euro.  What's your take on where things are going?

STIGLITZ: Well, I think they should be worried about the future of the euro.  When the euro was created there was a general recognition that it was not, what we call, an optimal currency area.  It was going to be difficult.  If one part of Europe faced, you might say, a greater shock than other parts, it wouldn't be any problem if everything is going well.  But it was in a period of economic downturn -- we are now facing that, and the problems that were anticipated have now come to the fore.

ARAVOSIS: A three-front war instead of a one-front war.

STIGLITZ: Exactly.  And the hope was, I think on the part of some, that when the further actions that were needed to make the euro work, that they would be taken, and that would require the creation of a European solidarity fund for stabilization.  Those actions, the framework has now been taken, but the concern is the magnitude of what is required may not be up to what they are willing to do, and the political process in Europe is very slow.  It has to be ratified by each of the parliaments.  So, the question is, given the speed with which the economic events are unfolding, whether Europe will be able to respond fast enough.  And, I think there is a resolve among the political leaders of most of the countries to make it work.  But that may not be enough, given the turbulence in financial markets....

I think that it is really too soon to say about whether, what will happen to the euro.

ARAVOSIS: And why should we care as Americans what happens, so the euro doesn't do so well?

STIGLITZ: The breakup in the euro, or even turbulence in the euro, is going to mean that the European economies, one of our major trading partners, will be doing badly.

ARAVOSIS: "Badly" meaning what?  Growth drops, banks go bankrupt?

STIGLITZ: Those are all possibilities.  Growth will clearly drop, and some banks may face real severe problems.  Many American banks are exposed to the risks of European banks.  We don't know how much because of the lack of transparency in American banking.  And that was one of the failures of the banking regulation, to make greater transparency.  There is concern that the banks are under-capitalized, and concern about bad accounting in American banks, a lot of the bad real estate mortgages are still on the books and have not been written down.  So financial crises in Europe could translate into financial problems in the United States, just like the financial problems in the United States, an economic downturn in the United States, was exported to Europe a few years ago.  They may respond in kind.

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Stiglitz: "President wasn’t willing to fight... for the kind of stimulus that the economy really needed"

Nobel economist Joe Stiglitz, in an interview with Chris and me in Paris on August 28, 2011.

The advisers that they had, economic advisers, partly because they were complicitous in the creation of the crisis, these were people who were involved in deregulation, wanted to believe that the economic downturn was more limited than it really was.  So they were more optimistic about the economy so they thought less was needed than was really needed.  And the President evidently wasn't willing to fight in a way that he might have had to fight for the kind of stimulus that the economy really needed.

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Stiglitz on pharmaceutical prices; and the four major causes of the worsening of the national debt

In this latest installment of Chris' and my interview with Nobel economist Joe Stiglitz this past Sunday, August 28, 2011 in Paris, Stiglitz talks about the four major causes of the deficit.

STIGLITZ: I try to remind people that just ten years ago we had a very large surplus, 2% of GDP, so big that Greenspan said that if we didn't do something about the surplus, we would entirely pay down the national debt, and it would be difficult for him to conduct monetary policy. An important reminder of why we should be skeptical of the Federal Reserve -- that it is a political institution, not just an economic institution. It has a political agenda, or it had in the past.

Four things brought us from where we were then, huge surpluses, to where we are now. And those things were:

First, the tax cut for the rich that we couldn't afford.

Two very expensive wars.... The budgetary cost so far have been around $2 trillion, but we were, in our book, underestimate the future cost, almost one out of 2 people coming back form Iraq and Afghanistan are disabled. And we've estimated that the cost of paying for health and disability for these may be approaching $1 trillion. So this is not even reflected in the official account, these are our estimates, corroborated by others, of what these future costs are likely to be.

The third is, a very good thing that we did, which was to provide prescription benefits under Medicare for the aged. But we made again a mistake, Bush made a mistake, and that was to say that even though the government is the largest buyer of prescription drugs, it could not negotiate with the drug companies, and that led to those high costs that you were referring to, estimated by some people over a period of ten years, about a trillion dollars extra given to the drug companies. That's another major source of our deficit.

The banks were very good at making political investments, and the same thing was true of the drug industry. They've been very hard pressed to come up with new drugs, but the money they're spending in Washington is yielding high dividends, and this is an example of those high dividends.

The final cause of the change of our framework from the surplus that we had ten years ago, just ten years ago, to where we are today, is the economic downturn. And that's why the most important thing for dealing with the deficit is putting America back to work. And that's where a stimulus package is absolutely essential. Proposals for more austerity cutbacks are going to make that even worse, and prospects of a real significant reduction in the deficit not very good.

Previous interview snipets:

* Stiglitz: Probabilities of a double dip recession "certainly have increased significantly" (3:17 long)

* Stiglitz: Obama administration and the Fed have demonstrated an "inability to make economic judgements." (1:09 long)

* Stiglitz: "The Fed is very good at creating problems, not so good at resolving them.... QE3 won’t help" (6:46 long)

* Stiglitz: "The only thing that can be done (to help the economy in the near term) is fiscal stimulus, spending more money." (1:01 long)

* Stiglitz: We are bearing the consequences of Obama/Congress not pushing state/local aid in 1st stimulus. (2:05)

* Stiglitz on Dodd-Frank: "We are once again at risk of a freezing of the credit system" (4:04) Read the rest of this post...

Stiglitz on Dodd-Frank: "We are once again at risk of a freezing of the credit system"

Another segment of Chris' and my interview with Nobel economist Joe Stiglitz. In this segment, Stiglitz talks about the mortgage crisis in America, and about the Dodd-Frank banking bill (he's not a fan).

Stiglitz on the mortgage crisis:

"We could have avoided this, but the bankers didn't want it, and unfortunately the Obama administration gave in to the bankers.  They kept listening to the bankers in the design of the programs that would help owners, and they kept putting forth programs that many economists that looked at them said they're not going to work. They didn't listen, they didn't work, and here we are years after the bubble broke still trying to deal with this problem."

He goes on to to say that Dodd-Frank bill didn't go far enough.

"The market has no confidence in the banking sector.  There's a lot of non-transparency.  And that means when rumors go around about what is going on, everybody knows they don't know.  The consequence is that we are once again at a risk of a freezing of the credit system."

Previous interview snipets:

* Stiglitz: Probabilities of a double dip recession "certainly have increased significantly" (3:17 long)

* Stiglitz: Obama administration and the Fed have demonstrated an "inability to make economic judgements." (1:09 long)

* Stiglitz: "The Fed is very good at creating problems, not so good at resolving them.... QE3 won’t help" (6:46 long)

* Stiglitz: "The only thing that can be done (to help the economy in the near term) is fiscal stimulus, spending more money." (1:01 long)

* Stiglitz: We are bearing the consequences of Obama/Congress not pushing state/local aid in 1st stimulus. (2:05)

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Stiglitz: We are bearing the consequences of Obama/Congress not pushing state/local aid in 1st stimulus

During Chris' and my interview with Nobel economist Joe Stigltz this past Sunday in Paris, Joe mentioned that one of the big mistakes of the stimulus package was the lack of funding for states and localities. The transcript is below the video - the video is 2 minutes long.

STIGLITZ: More of the money could have gone to help the states and localities.  It was predictable that they would be facing financial problems.  They would be cutting back, firing teachers.  Can you imagine, in a period where the United States needs to strengthen our education system we are firing teachers?  The government is supposed to stimulate the economy, and yet employees in the public sector are actually lower than they were before the crisis, so our government is contributing to the downturn in that sense.

So first, we could have avoided these cutbacks by an appropriately designed stimulus package for state and local.  That's what I said they ought to be doing.  For some reason the Obama administration did not push this, Congress did not pass this, and we are now bearing the consequences.

The second thing that we should have done is to recognize this was going to be a long and deep economic downturn, and knowing that it's a long deep economic downturn, in the first year of the economic downturn you make plans for the second and third year of the economic downturn.

In the first year, you hire a lot of engineers and people that can help design good projects, high return projects, and that would have been a high return investment.

Previous interview snipets:

* Stiglitz: Probabilities of a double dip recession "certainly have increased significantly" (3:17 long)
* Stiglitz: Obama administration and the Fed have demonstrated an "inability to make economic judgements." (1:09 long)
* Stiglitz: "The Fed is very good at creating problems, not so good at resolving them.... QE3 won’t help" (6:46 long)
* Stiglitz: "The only thing that can be done (to help the economy in the near term) is fiscal stimulus, spending more money." (1:01 long)

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Stiglitz: "The only thing that can be done (to help the economy in the near term) is fiscal stimulus, spending more money."

In this segment of Chris' and my interview with Joseph Stiglitz, Joe talks about another stimulus as the only effective thing the government can do in the near term to help the economy:

"The only thing that can be done is fiscal stimulus, spending more money.  And, the United States is in a sense a good position, because we can borrow at very low interest rates.  We've underinvested in education, technology, infrastructure for a couple of decades, particularly in the Bush years  The result of that is we have many high return investments, those investments pay far more than the cost of capital, and that means if we make those investments, the national debt in the intermediate term will actually be lower and debt sustainability will better, i.e., that is to say that the debt to GDP ratio will be lower."

Previous interview snipets:

* Stiglitz: Probabilities of a double dip recession "certainly have increased significantly"
* Stiglitz: Obama administration and the Fed have demonstrated an "inability to make economic judgements."
* Stiglitz: "The Fed is very good at creating problems, not so good at resolving them.... QE3 won’t help" Read the rest of this post...

Stiglitz: "The Fed is very good at creating problems, not so good at resolving them.... QE3 won’t help"

In the third installment of Chris' and my interview with Nobel economist Joseph Stiglitz in Paris this past Sunday, Stiglitz discusses (and explains) the Fed policy of quantitative easing.

[Previous installments:
* Stiglitz: Probabilities of a double dip recession "certainly have increased significantly"
* Stiglitz: Obama administration and Fed have demonstrated an "inability to make economic judgements".]

Stiglitz: "Monetary policy will not get us out of the mess, and all this discussion about monetary policy is a distraction.... The Fed is very good at creating problems, not so good at resolving them. QE3 won't help."

Stiglitz goes on to explain why quantitative easing didn't work (and I paraphrase what you'll see in the video below):

1. QE didn't lead to more lending, partly because we haven't fixed the banking system.

2. Lower interest rates typically do not have much effect on investment in an environment like the one we're in right now.

3. Slightly lower interest rates on bonds might have encouraged speculation in the stock market, driven up stock prices, which might induce people to consume more. But since it was pre-announced that the intervention would just be temporary, why would people go out and consume based on a knowingly volatile stock market? Only the foolish would have gone out and consumed based on a temporary boost in stock prices.

4. Competitive devaluation might have had some effect, namely lower interest rates leads to a lower US exchange rate, helping US competitiveness. Fed would never admit that this was the goal, but that was probably the only effect that was significant. But other countries responded in ways that limited the size of the positive impact.  And benefits over medium term are probably negative.

5. All of this might pose the risk of higher prices back in the US - and what does the Fed do if growth remains low but inflation rises?


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Stiglitz: Probabilities of a double dip recession "certainly have increased significantly"

During our interview in Paris on Sunday, Nobel economist Joseph Stiglitz told Chris and me that the probabilities of a double dip recession "certainly have increased significantly."

But Stiglitz made an interesting point.  It doesn't really matter if we "officially" enter recession territory again or not - things are bad, especially in terms of jobs, and not improving, no matter what term we use to describe the current situation. So, to some degree, by saying "thank God we've avoided a double dip" (if in fact we do avoid one) we're ignoring the fact that things are still horrible and not getting better.

Stiglitz also pointed out that the economy needs to grow by 3% to 4% to get us out of the current "jobs deficit."  And that, he says, isn't going to happen any time soon - at most growth will be 1% this year.



See our earlier excerpt of the interview in which Stiglitz says the Obama administration and the Fed have demonstrated an inability to make economic judgments.
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Stiglitz: Obama administration and Fed have demonstrated an "inability to make economic judgements"

I had the pleasure of befriending Nobel economist Joseph Stiglitz and his wife Anya a few years back at a small conference we both attended in Greece.  Joe and Anya happened to be in Paris yesterday (where I still am), and he graciously agreed to an on-camera interview for the blog.  I'm going to be posting the interview in small excerpts to make it more easily digestible.  Here is the first excerpt. (For those curious, the interview took place in the Cafe de la Mairie, across from Saint Sulpice church.)

Stiglitz, when asked if the economy is going to get a lot worse this year and next:

"The way I would put it is, the hopes of the 'green shoots' that were expressed in March, 2009 that then turned to brown later in that year, and again woke up earlier this year, have again been dashed.  So that the administration's, and the Fed's, constant referral to the economy 'on the road to recovery' is another demonstration of their inability to make economic judgments.  Just like the Fed totally misjudged the economy in the period leading up to the recession, totally -- even after the bubble broke, they said the crisis was contained.  Once again the Fed has shown that its ability to make judgments about the economy leaves something to be desired."

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What could Obama have done better?

From Ezra Klein:

But I’ve never been able to come up with a realistic scenario in which a lot more got done, the economy is in much better shape, and the president is dramatically more popular today. Anything that even comes close is really a counterfactual of what the chairman of the Federal Reserve could have done, and I’m not confident that I understand Bernanke’s constraints nor that a more massive intervention on the part of the Fed would have been the cure-all some suggest.

Indeed, if you had taken me aside in 2008 and sketched out the first three years of Obama’s presidency, I would have thought you were being overoptimistic: an $800 billion stimulus package — recall that people were only talking in the $200-$300 billion range back then — followed by near-universal health-care reform, followed by financial regulation, followed by another stimulus (in the 2010 tax deal), followed by the repeal of “don’t ask, don’t tell,” followed by the killing of Osama bin Laden and the apparent ousting of Moammar Gaddafi? There was no way. And yet all that did get done. But the administration hasn’t able to get unemployment under control — perhaps it couldn’t have gotten unemployment under control — and so all of that has not been nearly enough.

But perhaps I’m missing something obvious.

I think there are definitely reasonable scenarios under which more gets done. Remember, Obama won with a pretty huge mandate. The GOP was in ruins, people loathed them and the Bush legacy they rod out of town on, and the Dems had control of not just the House and Senate, but a solid majority in the House and a near filibuster proof majority in the Senate. The Dems were riding high. At the beginning of the President's term when the stimulus and health care reform were first being discussed.

The question therefore, is whether the President did all he could have, should have, to get as much as he could in those negotiations. The answer is no.

Let's start with the stimulus. While Ezra now says that everyone was only talking about a $200bn to $300bn stimulus, I'm not sure who he's referring to, as in early November of 2008, Paul Krugman was saying we needed at least $600bn. Now keep in mind, this was only seven weeks or so after Lehman Brothers went belly up, so we were still scrambling to figure out how bad things really were. By January of 2009, Krugman had upped the calculation and was saying that we needed a $1.8 trillion stimulus, comprised of $600bn a year for three years.

By the middle of February of that same year, when the details of the final stimulus package were known, Krugman was none too happy with how much we got.

"It's helpful, but it does not cover even one-third of the gap, so it's disappointing," Krugman said. Out of the $789 billion approved, only about $600 billion adds real stimulus, in Krugman's opinion. "So you've only got $600 billion to fill a $2.9 trillion hole." What's more, he argued that $350 billion of the package slated for tax cuts will provide some, but not much, stimulus traction because households are likely to save rather than spend large portions of it. That's the "paradox of thrift," Krugman noted. Normally, encouraging savings is a great plus for an economy. But in a downturn, households (and businesses) worry about the future more, and decide to conserve resources and spend less -- just when spending is needed most.

What's more, much of the proposed aid to state and local governments was stripped from the stimulus package during political negotiations needed to secure passage, Krugman noted. That was the most effective component because it would be spent quickly. State budgets are in serious trouble, and if the states knew more federal funds were on the way, they'd be more likely to decide immediately to defer layoffs and continue with construction and other projects requiring instant funding. Also, much of the planned infrastructure spending, while positive for the economy, will take up to two years to have its greatest effect.

And Joe Stiglitz was saying similar things at the same time.  (And keep in mind, that as bad as it was already, none of us were aware of how bad the economy was going to get.  At the time, Krugman was talking about unemployment possibly hitting 10% if we didn't pass a stimulus, when in fact it hit 10% even with the stimulus.)

So, I'm not entirely sure when it was that everyone was supposedly talking about a $200bn stimulus package.   And even were that the case, say back in October of 2008, once we became aware that the crisis was far graver than we realized, the Obama White House didn't come through for us. They didn't up their ask enough. Rather, they low-balled it. No one that any of us trust was suggesting that an $800bn stimulus (or as Krugman points out, really a $600bn stimulus with some weak-tea tax cuts included) was the right amount. Even the President's own chair of the Council of Economic Advisers said we needed $1.3 trillion (and even she was low-balling it, but still, it was at least higher than $800bn).

So, no, I don't take solace in the fact that the Obama administration asked for, and got, more money than an abysmal $200bn that might have been being discussed in the fall of 08. What mattered is how much stimulus we knew we needed at the time the legislation was passed, and whether the White House did all they could to get it. They knew we needed more, and they didn't ask for it. They instead asked for less, then chopped another $100bn off because Olympia Snowe didn't like it, then gave away another 35% of what remained to not-very-stimulative tax cuts.

The White House should have negotiated from a position of strength, being fresh out of the elections, with a new wonderman in the White House, and with the GOP broken and in tatters. Instead, the President acted like the Democratic minority leader of the Senate (even the GOP minority leader of the Senate would have put up a bigger fight for what he wanted).

What do I mean?  I mean that when Olympia Snowe tells you to cut $100bn from legislation intended to keep America from plummeting into another Great Depression, you send the President to Maine, where he won handily only two months before, and have him inform Olympia's constituents that, on behalf of the very same people who got us into this crisis to start with, she's trying to short-change the only thing that might, just might, save us all from economic death.

That's what a leader with a mandate does in a time of national crisis.  He leads.  He fights.

But of course, President Obama didn't do this because he doesn't believe in fighting.  Instead, he did what he since has become famous for - he lowballed his initial offer, and then proceeded to whittle away at it, again and again, every time a Republican (or conservative Dem) got in his face and said "boo!"  To hell with the fact that we were talking about legislation to save the country from another Great Depression.  It was more important to the President to be nice, than to get the size of the package that was needed to address the crisis at hand.

We could have had more, we should have had more, had he simply fought for what was needed.  I just don't know how anyone looks at that and says "job well done."  If anything, it was one of the first symptoms of the larger problem this President has with leadership.  The last thing President Obama, and our country, now need is an attempt to retroactively justify his actions on the stimulus or anything else.  We almost lost "Don't Ask, Don't Tell" because the President wasn't willing to fight.  We most certainly lost the public option because of it, and we may lose whatever health care reform we did get because of it as well.

The President doesn't fight to win, nor does he fight to defend his victories.  Where is the ongoing effort to defend the stimulus, to defend health care reform?  I have zero confidence that health care reform is going to survive next year's election, mostly because the administration has done such a lousy job selling it to the American people, that if the GOP wins the White House, HCR is gone.

Outside of the administration bubble, I just can't fathom how anyone still thinks the President did everything he could on the issues of the day. Read the rest of this post...

Stiglitz: "A long malaise now seems like the optimistic scenario"

Nobel economist Joe Stiglitz writing in the Financial Times:

When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan’s long malaise. Now we know we didn’t learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren’t forced to return to lending. Our leaders tried papering over the economy’s weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.

Read the rest of this post...

Stiglitz: A contagion of bad ideas

By Nobel economist Joe Stiglitz:

The Great Recession of 2008 has morphed into the North Atlantic Recession: it is mainly Europe and the United States, not the major emerging markets, that have become mired in slow growth and high unemployment. And it is Europe and the US that are marching, alone and together, to the denouement of a grand debacle. A busted bubble led to a massive Keynesian stimulus that averted a much deeper recession, but that also fueled substantial budget deficits. The response - massive spending cuts - ensures that unacceptably high levels of unemployment (a vast waste of resources and an oversupply of suffering) will continue, possibly for years.

But, even as Europe's leaders promised that help was on the way, they doubled down on the belief that non-crisis countries must cut spending. The resulting austerity will hinder Europe's growth, and thus that of its most distressed economies: after all, nothing would help Greece more than robust growth in its trading partners. And low growth will hurt tax revenues, undermining the proclaimed goal of fiscal consolidation.

The end of the stimulus itself is contractionary. And, with housing prices continuing to fall, GDP growth faltering, and unemployment remaining stubbornly high (one of six Americans who would like a full-time job still cannot get one), more stimulus, not austerity, is needed - for the sake of balancing the budget as well. The single most important driver of deficit growth is weak tax revenues, owing to poor economic performance; the single best remedy would be to put Americans back to work. The recent debt deal is a move in the wrong direction.

But the real problem stems from another form of contagion: bad ideas move easily across borders, and misguided economic notions on both sides of the Atlantic have been reinforcing each other. The same will be true of the stagnation that those policies bring.

Read the rest of this post...

Stiglitz on how tax cuts, wars, recession and health care bankrupted the country

And here's a surprise, it didn't have to. Nobel economist Joe Stiglitz in Slate:

A decade ago, in the midst of an economic boom, the United States faced a surplus so large that it threatened to eliminate the national debt. Unaffordable tax cuts and wars, a major recession, and soaring health care costs—fueled in part by the commitment of George W. Bush's administration to giving drug companies free rein in setting prices, even with government money at stake—quickly transformed a huge surplus into record peacetime deficits.

The remedies to the U.S. deficit follow immediately from this diagnosis: Put America back to work by stimulating the economy; end the mindless wars; rein in military and drug costs; and raise taxes, at least on the very rich. But the right will have none of this, and instead is pushing for even more tax cuts for corporations and the wealthy, together with expenditure cuts in investments and social protection that put the future of the U.S. economy in peril and that shred what remains of the social contract. Meanwhile, the U.S. financial sector has been lobbying hard to free itself of regulations, so that it can return to its previous, disastrously carefree, ways.

Read the rest of this post...

Stiglitz: We have a government 'Of the 1%, by the 1%, and for the 1%'

That headline is the evaluation of Joseph Stiglitz, Nobel Prize winner and former Chief Economist of the World Bank. Not that this is news to many, but it's good that men of Stiglitz's reputation are making the point so publicly.

In a feature article in the May 2011 Vanity Fair, Stiglitz says baldly — We're now a government by the very very rich. The point is stark, and Stiglitz has the data (and the magazine space) to back it up.

For reference, the income of the top 1% starts at $500,000 and rises to several billion. Here's his opening (my emphasis throughout):

Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret. ... In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.

That time span starts mid-Reagan (the father of our woes) and ends in 2010. This translates as follows:

Total income of the top 1% grew from 12% to 25%.
Total wealth of the top 1% grew from 33% to 40%.

But doesn't a rising tide "lift all boats"? Aren't we all getting rich along with them? The answer would be No:

[The "rising tide"] response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran.

The article is terrific for the data; you can read it for that alone. But I'm interested in the consequences. I've been asking myself for months: Do the rich really need the rest of us? Do they think they still need us? And if not — if the very wealthy continue this process of wealth concentration — what's the outcome?

For Stiglitz, there are several outcomes. One is that, once the process reaches "critical mass" (my term), it continues almost on its own:

[W]e’re doing inequality on a world-class level. And it looks as if we’ll be building on this achievement for years to come, because what made it possible is self-reinforcing. Wealth begets power, which begets more wealth. During the savings-and-loan scandal of the 1980s—a scandal whose dimensions, by today’s standards, seem almost quaint—the banker Charles Keating was asked by a congressional committee whether the $1.5 million he had spread among a few key elected officials could actually buy influence. “I certainly hope so,” he replied.

And he notes this stark reality:

Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. ... [Thus when] pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.

His conclusion sounds a warning bell, the Cairo-to-Wisconsin connection:

In recent weeks we have watched people taking to the streets by the millions to protest political, economic, and social conditions in the oppressive societies they inhabit. Governments have been toppled in Egypt and Tunisia. Protests have erupted in Libya, Yemen, and Bahrain. The ruling families elsewhere in the region look on nervously from their air-conditioned penthouses—will they be next? ... [T]here is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live.

On the last point, I think I disagree. Is their fate bound up with ours? I'm not sure.

I wonder if the super-rich haven't decided that they really can do without the rest of us, without middle-class America. After all, isn't that what villas in France are for? They're certainly doing everything in their power, via their eager operatives in both parties, to turn back the clock to the age of the robber barons, regardless of consequences.

Perhaps one of the following is true: Either they really don't need us any more (as we go offline as consumers, billions of Asians take our fading places). Or they simply think they don't need us.

Either way, it spells trouble for the new America, a world I once said could easily become "a faltering second-world economy with a useful first-world military." That's a dangerous combination for us left-behinds to deal with.

GP Read the rest of this post...

Joe Stiglitz on strengthening the economy

It's a few days old but well worth the investment of six minutes of your time. This is a great discussion on how the US ought to be addressing the surplus of labor available today (rebuilding infrastructure) and getting tax revenues in the door. Cutting everything as the GOP (and some Democrats) want is wrong on so many levels. There's also an amusing moment when CNBC repeats a recent Geithner line about Keynesian economics being dead. I thought Stiglitz was going to fall over at that moment but he quickly recovered. Read the rest of this post...