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Joseph Stiglitz: “Romney’s Plan is Based on Magic”
Nobel-winning economist Joseph Stiglitz -- an Obama critic -- says Romney's cuts would be disastrous
Joseph Stiglitz has a decent résumé. He won the Nobel Prize in economics and served as chairman of Bill Clinton’s Council of Economic Advisers before being named chief economist of the World Bank. His C.V. , however, pales before his passionate commitment to pushing for economic policies that help the poor and powerless — inside and out of the United States. For Stiglitz, economics and social justice can’t be separated.
Since the election of Barack Obama, Stiglitz has also been something of a thorn in the side of the current administration, consistently critiquing the White House for falling short. He wasted no time in pointing out that Obama’s stimulus was too weak and his housing policy woefully ineffective — and he’s been particularly biting on the topic of Obama’s subservience to banking interests. But with Election Day fast approaching, it’s always useful to look at what the other guys would do, instead. Stiglitz took some time out to explain to Salon why, when the topic is economy, there’s really no choice for progressives in this election.
What’s at stake in this election for the U.S. economy?
Quite a lot. First, there’s what we call the macro-economy. The budget cuts that Romney/Ryan propose will certainly slow growth. If the European downturn continues that could tip us into a recession. The cuts certainly won’t provide the kind of stimulus that Obama’s jobs bill, for instance, pushes. Romney’s plan is based on magic: Just because he gets elected, the economy is supposed to take off. There is no evidence that anything like that would happen. Quite the contrary — I think the opposite would happen. The business community would see the cutbacks coming and that would itself cause a slowdown in the economy.
So that’s the macroeconomy. Secondly, the Romney/Ryan budget promises to spend more on the military while cutting taxes and cutting the deficit, and that means only one thing. If you look at the arithmetic, it means less investment in infrastructure, R&D, education … it just can’t add up any other way. And that means we’ll be growing more slowly in the future.
The irony is that these two things — lower growth now and lower growth in the future — means that our debt-to-GDP ratio won’t improve, it will get worse. So even if you were foolish enough to think that the debt-to-GDP ratio is the main determinant of future prosperity — which it’s not — the Romney agenda will fail.
And although I don’t like what’s called “presidential economics,” where you look solely at what happens under a particular presidential regime, the fact is that Romney has many of the same economic advisers that Bush did. Those economic advisers essentially doubled the debt in eight years. And that was in a period of relatively high growth. Why would we think that wouldn’t happen again? I don’t see any reason for that. Particularly when the global environment is more adverse.
And then the third part has to do with what kind of society we will be. If Romney wins, we will become a more divided society, a more unfair society. And that in turn will bring greater inequality, and will also undermine our growth.
Your most recent book is titled “The Price of Inequality.” Conservatives are pushing back, however, at the very idea that inequality is growing. One of Romney’s advisers just published an Op-Ed in the Wall Street Journal declaring, basically, that because everybody has a cellphone and an HDTV now, we’re better off than we were 10 years ago.
A lot of people living in shacks in South Africa also have cellphones and TVs, but that doesn’t mean they have an adequate standard of living — adequate nutrition or access to adequate healthcare, adequate life expectancies …
In any case, when we measure inequality we take into account the fact that the prices of some things go down while the prices of other things go up. That’s what we call “real income” — adjusting for those prices. And median household real income today is lower than it was 15 years ago.
You’ve made the negative case for how the economy will suffer if Romney is elected. Is there a positive case to be made for Obama? You’ve been one of the people on the left most critical of Obama’s efforts on the economy. Why should progressives vote for him now?
I think the main reason, quite honestly, to vote for him is that if he loses there could be a major step backward in every aspect. Not the least important of which is the importance of the Supreme Court, which would affect inequality of political power, as with the Citizens United case. The Court will also rule on basic human rights, gender rights, discrimination, things I think progressives should care a lot about.
But in terms of the economy, while I’ve been critical, there still has been progress in an awful lot of areas. Less progress than there should have been, less progress than was promised, but progress all the same.
Where do you see that progress?
Healthcare. Access to healthcare for everybody is an important step. It wasn’t the kind of deep reform that one would have liked where you would have done something about the pharmaceutical industry and health insurance industry and so forth, but it did result in increased access and that was terribly important. In education, getting the banks out of student loans saved $80 billion over 10 years. That’s a big deal. So while the housing program …
I was about to ask, what have been your biggest disappointments?
Housing policy has been a big disappointment. But compared to Bush, who didn’t do anything, and the Republicans, who haven’t proposed anything — Romney has been totally silent on the issue — at least Obama did something. So I am disappointed, but it represents a small step forward rather than zero. And I am worried that under Romney we will go back to the kind of deregulatory environment where we allow the banks to exploit our homeowners once again.
Looking ahead, are there things Obama could do that would represent a real step forward, rather than just consolidate what has already been achieved, or simply prevent going backward?
There aren’t many magic bullets, but let me talk about a couple things. Obviously, more progressive taxation — getting rid of the distortionary provisions in corporate welfare, special treatment of capital gains, carried interest — would make our economy more efficient and less unequal. Then there are a set of reforms on what I call economic legislation: finishing financial sector reform, strengthening corporate governance. More effective enforcement of competition that would eliminate the pervasive monopoly power that’s growing in our economy. Bankruptcy reform that would allow appropriate discharge of student debt. Stopping the for-profit schools that are basically funded by the U.S. government that are taking advantage of so many poor people.
We can also cut back on defense spending and use that money to invest in infrastructure and R&D, and make more investments in education to try to start dealing with the problems caused by the lack of equality of opportunity.
If Obama wins, the first item on the agenda is dealing with the “fiscal cliff.” A lot of progressives are worried that Obama will seek some kind of “grand bargain” that ends up slashing the safety net. What do you think will happen? What would you like to see happen?
I’ve been involved in this business long enough to know that the outcome won’t be what I would have wanted if I could do it alone. But the kind of compromise that I would like would begin with significant tax increases as a result of the elimination of corporate welfare buried in the tax code, special treatment of capital gains, the Cayman Islands tax avoidance setup, a whole set of things of that kind.
On the expenditure side, I’d like to see the biggest chunk come out of the military, I think we’re spending too much on weapons that don’t work against enemies that don’t exist. We need to spend our money more smartly — that’s where I would see the biggest chunk of expenditure cuts.
I think that there is scope for fine-tuning our Social Security system. One of the easiest solutions is increasing the age of retirement, but that only works for people like me who have high incomes and whose life expectancy and health is quite good. For a lot of people at the bottom that’s not true, so there can’t just be an across-the-board increase in age of retirement.
Where does trade fit into this overall equation? Both Obama and Romney have been competing on the basis of who will be tougher on China. Is that really a source of our economic problems?
No. I think Romney has behaved unusually irresponsibly for a presidential candidate. I know that Obama has tried to balance the need to interact with China and be tough, both for political reasons and because there have been certain abuses. Whether he has drawn the right line, I don’t know, there are some judgment calls, some of the particular cases that he has brought against China have been misguided. But he’s been trying to keep a balanced position and I think he’s done it relatively well, certainly in terms of keeping the level of heat down
Romney has taken the irresponsible position of promising on “Day One” to call China a currency manipulator. Doing that gives you no room for wiggle. That means on Day One he opens a trade war.
Not only has he not recognized that China has already appreciated its currency but he also hasn’t recognized that a stronger yuan won’t affect America’s multilateral trade deficit very much. What will happen is we will import more goods from other developing countries and less from China. So what?
One of the biggest areas of progressive disappointment with respect to Obama has to do with banking policy. Do you see any chance of improvement there?
We face a choice between someone who is viewed as being too close to the financial industry and somebody who is in the financial industry. Of the two I’d rather have someone who is close but not in it. So to me, there’s just not much choice.
I think a lot will ride on who gets selected as the next treasury secretary. The reason I say that is I’m not sure that Obama has strong views on a lot of these issues. Therefore he may be more amenable — I don’t want to say “pushed around” — but he may be more amenable to being influenced by the banks. So there is at least an opening, depending on who gets chosen, for somewhat stronger regulation. I don’t know if we can count on it — there’s a battle going on right now, or will be going on, I’m sure, as soon as the election is over, over who will succeed Timothy Geithner. And you know the banks will want to see someone of the same ilk.
Anybody you would like to see there?
There are lots of names of people who have done quite a good job. Gary Gensler at CFTC [Commodity Futures Trading Commission] and Sheila Bair at FDIC [Federal Deposit Insurance Corp.] really performed their role as regulators in an admirable way. I think that there are good people, the question is whether they will survive the pressure that the banks bring to bear.
I certainly hope there will be a lot of pressure from the other side, too, on the grounds that, look, now’s the time to really do something.