The broad outlines of economic policy are not really that complicated or hard to understand. Don't believe me? Well, just listen to Nobel Prize-winner Joseph Stiglitz as interviewed on Democracy Now! Wednesday, as he sheds light on a series of big topics that have been the subjects of far more heat than light. First, on the newly-hot-again topic of foreclosures:
AMY GOODMAN: Our guest is Joseph Stiglitz, Nobel Prize-winning economist, professor at Columbia University. His book is out in paperback, Freefall: America, Free Markets, and the Sinking of the World Economy.
So, just to summarize, you are for a national moratorium on foreclosures.
JOSEPH STIGLITZ: I think--inevitably, I think we have to be moving towards that. And the reason is very simple. There were such--the bad practices were so rife, the inequities were so rife, the fraudulent behavior was so common, that at this point we don't know what is a valid mortgage and not. And the consequences of throwing somebody out of their home, when they shouldn't be, are hard to reverse. I mean, just imagine what it does to the family--education of the kids are interrupted--what it does to the community. So, when we have to balance the injustices--and life is unfortunately always balancing one side versus the other--and where will their mistakes be easily reversed and where not? My view is, if we keep them in the homes for a little longer, they owe the money--they still owe the money, that doesn't let them off the hook--but what we're saying is we're not going to speed up this process of-where there's the serious risk of an inequity that will not be easily compensated for.
Who can argue with that when it's put so simply and directly? Answer: No one. Which is why there's so much invested in making sure that it's never put so simply and directly. That's sort of the pattern that's established throughout this interview.
Regarding the need for further stimulus, and why the deficit is a red herring just now, he's equally lucid and to-the-point:
AMY GOODMAN: Joe Stiglitz, the deficit, the battle cry of the Tea Party movement, of the Republicans, as well. Robert Rubin has weighed in, says any new stimulus plan is highly likely to be counterproductive. What do you think has to happen? Does the deficit matter? And how do you think it should be dealt with?
JOSEPH STIGLITZ:My view is we cannot afford not to stimulate the economy. So, you know, anybody that says we should go back to austerity or we should not have a second-round stimulus just doesn't understand economics. And let me be very clear about this. If we don't stimulate the economy, the economy is going to get weaker. When the economy gets weaker, tax revenues go down and expenditures go up. Already, more than 40 million Americans are on food stamps. Number of people on Medicaid is reaching record levels. So, revenues go down, expenditures go up, deficits get worse. If you stimulate the economy, then people get jobs, they spend money, tax revenues go up. Now, if we spend the money on investments-investments in education, technology, infrastructure-you grow the economy in the short run from the stimulus, you grow the economy in the long term because of the returns that you get on these investments.
I mean, just think about this from the point of view of a firm. If you are a firm and you could borrow at zero to two-and-a-half percent, which is what the government can borrow, and you have investment opportunities that you owe ten, 15, 20 percent, you would be irresponsible, you would be foolish, not to undertake those investments. So, anybody that says, "I'm going to only look at one side of the balance sheet, the liabilities; I'm not going to look at the other side, the assets," is really not understanding economics. It's that kind of reasoning that got our country in the trouble in the first place, the people who didn't-you know, shortsighted behavior of the banks that got our country in trouble in the first place. And to me, I just view those kinds of statements as totally irresponsible.
Get that? Look what he does in place of the standard, brain-dead, totally misleading analogy with household budget-balancing (which, taken literally, would mean that no one should ever hold a mortgage, right? Or a car loan?) He makes a genuinely appropriate and valid analogy with a business and its investment opportunities vs. costs. Another example that so lucid and on-point that the only way to counter it is to suppress it.
AMY GOODMAN: Let me ask you how war fits into this. I mean, you co-wrote the book with Linda Bilmes, The Three Trillion Dollar War. How does war fit into our problems with the economy?
JOSEPH STIGLITZ: Well, war fits in because you're creating a liability, you're spending money. And when we went to war in Iraq and Afghanistan, we already had a deficit. And so, these wars were the first wars in America's history financed totally on the credit card. So, you're creating a liability, but you're not creating an asset. So that's the kind of spending that does weaken the economy, because it's one-sided.
Which he goes on to note has continued to get much worse:
JOSEPH STIGLITZ [Cont]: Now, we came out just a couple weeks with new numbers that unfortunately show that our old numbers were a little wrong, in the sense that they were too conservative.
AMY GOODMAN: Three trillion dollars.
JOSEPH STIGLITZ: Was too little. And particularly what we looked at in a report--we testified before Congress--what we looked at was the large number of troops returning who are disabled. Turned out that the numbers returning disabled are higher than we had estimated. It's close to 50 percent now. And the cost per disabled, injured troop is higher. So we had talked then about the cost of healthcare and disability payments for our returning troops in the order of maybe a little less than a half-a-trillion dollars. That's a lot of money. Our new numbers are, best estimate, in excess of $900 billion. These are unfunded liabilities, a moral obligation--they fought for us--unfunded, totally unfunded. The good news is that they were trying to put together a coalition of people who believe in responsible budgeting, that said, "OK, if we're going to send our troops overseas, we ought to at least put aside the money to pay for the full in costs. The full in costs include the costs of these disabled people."
AMY GOODMAN: So what you're estimating the cost of both the wars in Iraq and Afghanistan now at?
JOSEPH STIGLITZ: Well, well in excess of the $3 trillion. Before, the numbers that we said were actually three to five trillion. That doesn't sound as catchy a title as--"The Three to Five Trillion Dollar War." The numbers now are much more like four to six trillion [dollars]. And-
Next, the discussion turns to the need for thinking about expenditures as a whole, contrasting the social welfare of spending on our own people and our own future with the wastefulness of war:
AMY GOODMAN: And yet, across this country, as the debates over--you know, for various congressional and Senate seats, for any seat, whether you're talking about a state one, as well, war is almost never raised.
JOSEPH STIGLITZ: Yeah, I don't understand that, because what should be so clear is that we have a limited amount of resources. And the critics who say we have to worry about the debt are right in emphasizing the economics of scarcity, that we have a limited amount of resources. But the issue isn't whether to cut back; the issue is how we spend our money, because cutting back would weaken the economy, but reallocating our money, more money for those who are unemployed--remember, we have one of the worst systems of social protection, unemployment insurance, of the advanced industrial countries. We are a whole group of people called the ninety-niners, who have come to the end of their unemployment benefits and are being, you know, left to fend for themselves. So, what we really need to do is to rethink how we spend the money, make sure that we spend the money in a way that will energize our economy. Spending money in Afghanistan, paying money for contractors, are not the way to energize our economy and make our economy strong, competitive for the long run.
And finally, the discussion turns back to the stimulus again, and one of my favorite, virtually neglected topics--the federal responsibility to provide stability & continuity for the states and local governments, so that they in turn can continue to provide services for their people:
AMY GOODMAN: How much do you think a stimulus should be in this country?
JOSEPH STIGLITZ: Well, I think we really need $400, $500 billion a year. Part of the reason why we should try to keep those kinds of numbers in mind is to realize that we have a federal system, about a third of all spending is at the state and local level, and the states have balanced budget frameworks, which mean when the revenues go down, they have to cut back spending or raise taxes, which is very difficult in the current environment. And their revenues are going down. They depend very heavily on property taxes. Values of real estate have gone down 30, 40 percent, in some places 50 percent. And the result of this is that we're laying off teachers. We're laying off basic-those who provide basic services. So, while the government is coming to the end-the federal government is coming to the end of the stimulus, the states are retracting. We saw that in the September numbers on jobs. Sixty-seven thousand private-sector jobs were created-not enough for the new entrants in the labor force, less than half the amount we needed. But we lost, in total, 95,000 jobs. In other words, there was about a 140,000 loss in the public sector, predictable-I talk about that in my book-predictable, unless we find some ways of making up for their shortfall.
This is all really incredibly simple in its basic logic. That doesn't mean there aren't complexities as you drill down into the details. But the big picture logic is both straight-forward and progressive. There is no reason at all that Obama should not have been listening to Stiglitz or someone else like him, such as Jamie Galbraith. We've already been through this once back in the Great Depression. There's simply no reason at all to be trying the failed policies of Hoover and Melon all over again, while turning our backs on Roosevelt and Keynes.
This interview with Stiglitz is living proof that these policies not only make sense, but can be readily and lucidly explained as well.
