Ex-World Bank chief economist exposes “failure” of austerity, deregulation
Joseph Stiglitz, a senior OECD expert, slams OECD’s own policies to prevent global slowdown
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The Great Malaise Continues
The Great Malaise Continues
NEW YORK – The year 2015 was a hard one all around. Brazil fell into recession. China’s economy experienced its first serious bumps after almost four decades of breakneck growth. The eurozone managed to avoid a meltdown over Greece, but its near-stagnation has continued, contributing to what surely will be viewed as a lost decade. For the United States, 2015 was supposed to be the year that finally closed the book on the Great Recession that began back in 2008; instead, the US recovery has been middling.
Indeed, Christine Lagarde, Managing Director of the International Monetary Fund, has declared the current state of the global economy the New Mediocre. Others, harking back to the profound pessimism after the end of World War II, fear that the global economy could slip into depression, or at least into prolonged stagnation.
In early 2010, I warned in my book Freefall, which describes the events leading up to the Great Recession, that without the appropriate responses, the world risked sliding into what I called a Great Malaise. Unfortunately, I was right: We didn’t do what was needed, and we have ended up precisely where I feared we would.
The economics of this inertia is easy to understand, and there are readily available remedies. The world faces a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity. Those at the top spend far less than those at the bottom, so that as money moves up, demand goes down. And countries like Germany that consistently maintain external surpluses are contributing significantly to the key problem of insufficient global demand.
At the same time, the US suffers from a milder form of the fiscal austerity prevailing in Europe. Indeed, some 500,000 fewer people are employed by the public sector in the US than before the crisis. With normal expansion in government employment since 2008, there would have been two million more.
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On US Interest Rates
On US Interest Rates
The first US interest rate increase since June 2006 is a pivotal moment for the global economy, launching what Mohamed El-Erian, Chief Economic Adviser at Allianz, calls the “great policy divergence,” with repercussions in every region and financial market. The impact will be particularly powerful in emerging countries, where currencies are vulnerable to a rising dollar and tightening liquidity conditions in the US. Project Syndicate’s commentators – some of the world’s preeminent economists and policymakers – have examined the issue from four broad angles.
What is the immediate and longer-term outlook for US monetary policy?
The Fed’s leaders have repeatedly said that they plan to raise interest rates much more slowly than in previous periods of monetary tightening. Such assurances from central bankers cannot always be trusted, but Fed Chair Janet Yellen’s promises to move more gradually than in the past are credible, because the Fed is genuinely determined to push inflation higher and to ensure that it never again falls much below 2%.
Nobel laureate Joseph Stiglitz provides further grounds for discounting the likelihood of faster tightening. Instead of trying to control inflation, according to Stiglitz, the Fed’s main concern now is to reduce unemployment and counteract inequality. To do this, the Fed must continue to stimulate the US economy with easy money. Even the quarter-point rate hike that the Fed’s just announced is, in Stiglitz’s view, dangerous and premature.
Moreover, while the Fed’s official responsibility is to manage the US economy, its leadership fully understands the international impact of Fed decisions. Thus, Harvard’s Carmen Reinhart, an authority on global debt crises, believes the Fed will “favor gradualism” to avoid wreaking havoc in emerging economies that are overloaded with dollar debts. In a related argument, Barry Eichengreen, the Berkeley economic historian, suggests that US monetary policy is now effectively “Made in China,” because China’s efforts to stabilize the renminbi have already tightened US monetary conditions by the equivalent of the quarter-point rate hike expected on December 16.
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Joseph Stiglitz on Canada’s Housing Inequality: ‘It’s Very Disturbing’
Joseph Stiglitz on Canada’s Housing Inequality: ‘It’s Very Disturbing’
Ex-World Bank top economist talks unaffordability, the TPP, and being a fiscal ‘black sheep.’
Joseph Stiglitz, winner of the Nobel Memorial Prize in Economic Sciences, is the third-most cited economist in the world, according to Research Papers in Economics. Photo by David P. Ball.
Skyrocketing housing prices in Canada’s cities, most dramatically in Vancouver, threaten the cohesion of our society, argues Nobel laureate and former World Bank chief economist Joseph Stiglitz.
The Columbia University professor sat down with The Tyee on Friday at the University of British Columbia for a wide-ranging interview, touching on foreign real estate speculation, the changing field of economics, and how the new Liberal government might soon find its promises to the middle class derailed by trade deals such as the Trans-Pacific Partnership.
That trade deal, billed as “the largest, most ambitious free trade initiative in history,” would allow foreign corporations to challenge participating governments using investor-state dispute settlement hearings — and potentially force taxpayers to reimburse them for any national policies and laws that hurt future profits or don’t grant a company “fair and equal treatment.”
The 72-year-old American author of The Great Divide: Unequal Societies and What We Can Do About Them hasn’t previously discussed Canada’s housing crisis. But the harm and social strife caused by property speculation and empty condos is something Stiglitz knows well.
“It’s the same phenomenon happening in New York,” he said. “We attributed it maybe to Russian oligarchs buying multimillion-dollar apartments in huge buildings… driving up rents, making it unaffordable to live in the city.”
Figuring out the crisis is just one of many inequality-related challenges now facing Justin Trudeau’s government. But if addressed, Stiglitz noted, the rewards will be great.
“There are very significant benefits to creating communities with diversity, diverse incomes and other forms, that cannot exist if we price ordinary people out of our cities,” he said.
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Ex-World Bank chief economist exposes “failure” of austerity, deregulation
In a little-known speech at the United Nations University, renowned Nobel Prize-winning economist Joseph Stiglitz criticised Western approaches to addressing the global economic crisis for being obsessed with market solutions that cannot work.
His remarks were made just two months before the Organisation for Economic Cooperation and Development (OECD) issued its latest forecast of a “deeply concerning” slowdown in global trade, which the group says has dropped perilously close to levels “associated with global recession.”
The OECD’s chief economist, Catherine Mann, said that: “Policy actions are already being implemented that will help to address the weak underlying trends.”
Professor Stiglitz of Columbia University, who chairs the High-Level Expert Group on the Measurement of Economic Performance and Social Progress (HLEG) at the OECD, contradicted this reassuring promise in his UN University address in September.
Describing standard neoclassical and behavioural models of economics as “wrong” on the basis of new advances in economic research, Stiglitz blamed ongoing economic stagnation on the so-called “Washington Consensus” — a set of neoliberal policies advocated most strongly by the US and Britain.
The Washington Consensus (WC) consists of a string of interlinked policies requiring reductions in public spending; rampant deregulation to reduce restrictions on banks, corporations and other financial actors; extensive privatisation of social and public services; and liberalisation based on reducing taxes, tariffs and non-tarrif barriers to trade.
All this is believed to drive growth and enhance the distribution of wealth.
In reality, as Stiglitz told an audience at the UN University’s World Institute for Development Economics Research, it has done the opposite.
Thirty years ago, he said, “the focus was on limiting the role of the government — getting it out of the way…
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A Step Forward for Sovereign Debt
A Step Forward for Sovereign Debt
Every advanced country has a bankruptcy law, but there is no equivalent framework for sovereign borrowers. That legal vacuum matters, because, as we now see in Greece and Puerto Rico, it can suck the life out of economies.
In September, the United Nations took a big step toward filling the void, approving a set of principles for sovereign-debt restructuring. The nine precepts – namely, a sovereign’s right to initiate a debt restructuring, sovereign immunity, equitable treatment of creditors, (super) majority restructuring, transparency, impartiality, legitimacy, sustainability, and good faith in negotiations – form the rudiments of an effective international rule of law.
Recent events underscore the enormous risks posed by the lack of a framework for sovereign debt restructuring. Puerto Rico’s debt crisis cannot be resolved. Notably, US courts invalidated the domestic bankruptcy law, ruling that because the island is, in effect, a US colony, its government had no authority to enact its own legislation.
In the case of Argentina, another US court allowed a small minority of so-called vulture funds to jeopardize a restructuring process to which 92.4% of the country’s creditors had agreed. Similarly, in Greece, the absence of an international legal framework was an important reason why its creditors – the troika of the European Commission, the European Central Bank, and the International Monetary Fund – could impose policies that inflicted enormous harm.
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Thousands reject the extractivist logic at the World Bank-IMF meeting in Peru
Thousands reject the extractivist logic at the World Bank-IMF meeting in Peru
The annual governors’ meeting of the International Monetary Fund and the World Bank opened on October 5 in Peru’s capital city. In the meeting, an estimated 800 representatives from 188 countries were negotiating the shape of the world’s soon-to-be renovated finance infrastructure.
While the international media focused on the official meetings, no news outlets outside of Latin America have mentioned the Plataforma Alternativa conference — a parallel three-day meeting organized under the theme “Belying the ‘Peruvian Miracle.’”
More than 1,200 people attended Plataforma Alternativa’s conference. Dozens of young volunteers zoomed through the marbled hallways of Lima’s Hotel Bolívar, which hosted the conference. Participants represented dozens of organizations and countries as diverse as the Netherlands, China, the United States, Belgium, Zimbabwe, Colombia, Indonesia, Spain, Mexico, the Philippines, Germany, Palestine and Argentina.
On Friday, an estimated 5,000 people marched across 70 blocks in Lima, from Plaza San Martín to the first of three police perimeters around the official conference. Groups at the protest included indigenous feminist organizations, the Lima-based Comando Feminista, Bloque Hip Hop, worker unions, the Peruvian Campesino Confederation, and dozens of others.
Peru reportedly mobilized 20,000 police for this event, many of whom were safeguarding key areas around the city for the 12,000 visitors: from the airport to hotel areas.
The counter-conference was free, open to the public, and streamed online. It featured U.S. economist Joseph Stiglitz, a former World Bank chief economist and an outspoken critic of its policies, as its keynote speaker.
“Inequality is a choice — not the result of inevitable economic laws,” Stiglitz said in his speech after reminding the audience that Latin America has the highest rate of wealth disparity among world regions. At the end of September, Oxfam — one of several organizations in charge of the conference — released a report indicating that, at the current pace, one percent of Latin Americans would be wealthier than the remaining 99 percent by 2022.
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America’s “Inevitable” Revolution & The Redistribution Fallacy
Here’s the good news: The chaos and upheaval we see all around us have historical precedents and yet America survived.The bad news: Everything likely will get worse before it gets better again.
That’s NYPost.com’s Michael Goodwin’s chief takeaway from “Shattered Consensus,” a meticulously argued analysis of the growing disorder. Author James Piereson persuasively makes the case there is an inevitable “revolution” coming because our politics, culture, education, economics and even philanthropy are so polarized that the country can no longer resolve its differences.
To my knowledge, no current book makes more sense about the great unraveling we see in each day’s headlines. Piereson captures and explains the alienation arising from the sense that something important in American life is ending, but that nothing better has emerged to replace it.The impact is not restricted by our borders. Growing global conflict is related to America’s failure to agree on how we should govern ourselves and relate to the world.
Piereson describes the endgame this way: “The problems will mount to a point of crisis where either they will be addressed through a ‘fourth revolution’ or the polity will begin to disintegrate for lack of fundamental agreement.”
He identifies two previous eras where a general consensus prevailed, and collapsed. Each lasted about as long as an individual’s lifetime, was dominated by a single political party and ended dramatically.
First came the era that stretched from 1800 until slavery and sectionalism led to the Civil War.
The second consensus, which he calls the capitalist-industrial era, lasted from the end of the Civil War until the Great Depression.
It is the third consensus, which grew out of the depression and World War II, which is now shattering. Because the nation is unable to solve economic stagnation, political dysfunction and the resulting public discontent, Piereson thinks the consensus “cannot be resurrected.”
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Fed Up with the Fed
Fed Up with the Fed
At the end of every August, central bankers and financiers from around the world meet in Jackson Hole, Wyoming, for the US Federal Reserve’s economic symposium. This year, the participants were greeted by a large group of mostly young people, including many African- and Hispanic Americans.
The group was not there so much to protest as to inform. They wanted the assembled policymakers to know that their decisions affect ordinary people, not just the financiers who are worried about what inflation does to the value of their bonds or what interest-rate hikes might do to their stock portfolios. And their green tee shirts were emblazoned with the message that for these Americans, there has been no recovery.
Even now, seven years after the global financial crisis triggered the Great Recession, “official” unemployment among African-Americans is more than 9%. According to a broader (and more appropriate) definition, which includes part-time employees seeking full-time jobs and marginally employed workers, the unemployment rate for the United States as a whole is 10.3%. But, for African-Americans – especially the young – the rate is much higher. For example, for African-Americans aged 17-20 who have graduated high school but not enrolled in college, the unemployment rate is over 50%. The “jobs gap” – the difference between today’s employment and what it should be – is some three million.
With so many people out of work, downward pressure on wages is showing up in official statistics as well. So far this year, real wages for non-supervisory workers fell by nearly 0.5%. This is part of a long-term trend that explains why household incomes in the middle of the distribution are lower than they were a quarter-century ago.
Read more at https://www.project-syndicate.org/commentary/us-fed-interest-rate-hike-low-inflation-by-joseph-e–stiglitz-2015-09#ysd6DoKTlIY5xLsF.99
Nobel Prize Winning Economists, Federal Reserve Chair and Other Top Experts: War Is BAD for the Economy Washington’s Blog
Debunking the Stubborn Myth that War Is Good for the Economy
About.com notes:
One of the more enduring myths in Western society is that wars are somehow good for the economy.
It is vital for policy-makers, economists and the public to have access to a definitive analysis to determine once and for all whether war is good or bad for the economy.
That analysis is below.
Top Economists Say War Is Bad for the Economy
Nobel prize winning economist Paul Krugman notes:
If you’re a modern, wealthy nation, however, war — even easy, victorious war — doesn’t pay. And this has been true for a long time. In his famous 1910 book “The Great Illusion,” the British journalist Norman Angell argued that “military power is socially and economically futile.” As he pointed out, in an interdependent world (which already existed in the age of steamships, railroads, and the telegraph), war would necessarily inflict severe economic harm even on the victor. Furthermore, it’s very hard to extract golden eggs from sophisticated economies without killing the goose in the process.
We might add that modern war is very, very expensive. For example, by any estimate the eventual costs (including things like veterans’ care) of the Iraq war will end up being well over $1 trillion, that is, many times Iraq’s entire G.D.P.
So the thesis of “The Great Illusion” was right: Modern nations can’t enrich themselves by waging war.
Nobel-prize winning economist Joseph Stiglitz agrees that war is bad for the economy:
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The Age of Vulnerability by Joseph E. Stiglitz – Project Syndicate
The Age of Vulnerability by Joseph E. Stiglitz – Project Syndicate.
NEW YORK – Two new studies show, once again, the magnitude of the inequality problem plaguing the United States. The first, the US Census Bureau’s annual income and poverty report, shows that, despite the economy’s supposed recovery from the Great Recession, ordinary Americans’ incomes continue to stagnate. Median household income, adjusted for inflation, remains below its level a quarter-century ago.
It used to be thought that America’s greatest strength was not its military power, but an economic system that was the envy of the world. But why would others seek to emulate an economic model by which a large proportion – even a majority – of the population has seen their income stagnate while incomes at the top have soared?
A second study, the United Nations Development Program’s Human Development Report 2014, corroborates these findings. Every year, the UNDP publishes a ranking of countries by their Human Development Index (HDI), which incorporates other dimensions of wellbeing besides income, including health and education.
Read more at http://www.project-syndicate.org/commentary/economic-failure-individual-insecurity-by-joseph-e–stiglitz-2014-10#qtjXzquHerihJ4ZK.99
