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Joseph Stiglitz on Recession

Posted on Jun 3, 2008

By James Harris

(Page 3)

Harris: Dammit, I agree with you. I mean, does it all boil down to making money? In some ways, I think we’ve become that type of nation. Has our need to be globalist, to put our factories in other countries, to allow other people to do work that we used to do—has that come home to roost? Are we starting to see, in addition to the war, just a diminished country? A country that cannot produce anymore? A country that cannot do anything but consume, as you said earlier? Where does the psychology come down on all of this?

Stiglitz: In a way, the problem lies not so much with engaging in the world but from thinking that we can engage the world totally on our terms and that we could win no matter what we did. So, for instance, China realizes that it’s a poor country. They’ve said, “Look, our aspiration is to be a moderately prosperous country.” Not even to be prosperous: moderately prosperous. Because they know they have so far to go. But they know, to get from where they are to where they want to be, they have to invest in education, in technology, in infrastructure. They know they can’t squander huge amounts of money on the military. And what we spend in a few months in Iraq is their total defense budget. Because they know that every dollar they’re spending on defense is not available to increase their standard of living. In the long run, the strength of China will depend on the strength of their economy.

So we took the opposite view. We said, “Well, we can squander $3 trillion on a war in Iraq.” We cut back on research. We haven’t provided the educational benefits, the health benefits that other advanced industrial countries have done. Let alone when you go to Europe and there’s all the excitement about new infrastructure to try to deal with the problem of global warming. Fast trains. Anybody who travels on American trains, visits our airports, feels the gap between where we are and where much of the rest of the world is.

Harris: Well, what do we do? George Washington told us that party politics was a bad idea, but here we are, fascinated by both races in front of us. John McCain’s endorsement of this war, the idea that he’s OK with being there for, as he said, “a hundred years.” Isn’t that but evidence that we will continue down this road as globalists, as people who always feel like they can make it work just as long as they work it hard enough?  Does it seem like there’s a real change, economically speaking, on the horizon for you, given what we just talked about?


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Stiglitz: Well, you know, I still have a lot of faith in American democracy and, in a way, that was one of the reasons I wrote the book. Because I felt that if Americans could only understand what this war was costing them, the connection between the weakness of our economy and the waste of money in Iraq, that actually it’s undermined our security, not enhanced our security. That, you know, as an economist, we begin with the premise: resources are scarce, no matter the richest country in the world. Resources are scarce and we have to use our resources carefully. We haven’t been doing that. There are lots of examples in the world of countries that didn’t learn that lesson and suffered the consequences. 

So, I have a lot of faith in America and I believe, as we start to point this out to them, they’re trying to understand why it is that they feel poor, why they aren’t doing well.  And as they ask that question, hopefully they’ll come to realize that the recipes that were sold in the past, particularly by people like McCain and Bush, are not the recipes that work. You know, tax cuts are not the solution to all problems. In fact, our current economic downturn is—besides the war—the other major factor, I think, is the tax cut, which was not designed to stimulate the economy and didn’t do it very much and forced a greater burden on monetary policy beyond its ability to deliver in a way that was sustainable. So my view is that the more we can discuss these issues, the more we can try to come to understand them, the more likely the American people will say, “We’ve had enough of that strategy. Let’s try another strategy.”

Harris: Where do poor people fit into all of this? I’m getting more phone calls and having more conversations with people that are at their wits’ end. They can’t pay the bills. They’re either losing their homes or are about to lose their homes, or they’re losing so much value that their loan doesn’t make sense. Where do the poor people fit into all of this? We talked early on in this interview about a turn-around coming perhaps in 2009.  Does the poor class get larger over the next year? What happens there?

Stiglitz: Unfortunately, that is the prospect. Unless we do something. And what’s so frustrating to so many of these people is, it’s not because they’re not working hard. They are working hard. They’re working as hard as they can. When you look at the data, the amount of work that they’re working has gone up; the time they have to spend with their families is going down. They’re struggling—they’re struggling to make their ends meet. And so this is where the role of the government comes in. These are forces beyond the ability of any single individual. What we obviously need to do is to have a more dynamic economy that helps drive up wages. The focus has been on driving down wages to increase profits. And we need to really say, “Look, enough of that.” We need to have higher real wages. We have to figure out how to deliver higher real wages, increasing productivity. We need to have more social protections, not less social protections; the world has become more volatile. And people—these risks are beyond their ability, to many people, to meet.

The irony is—talk about the financial market—the financial market has prided itself on its ability to manage risk, design products to help people manage risk. What we now see is, the financial market has created more risk and has created risk beyond their ability, even, to manage. But, meanwhile, it didn’t create the products that the world needed, that Americans needed to help manage the risk to own their own homes. Now, that’s the risk that should’ve been managed. And they totally failed. And this is a clear argument—  you know, we know the answers of how to do that. There are products out there. But clearly, the private sector is not interested in delivering on those, probably because there’s not profit. You know, one of the problems of being poor is, there’s not much money in servicing you. And that’s where the government needs to come in, a government that focuses not on helping the Halliburtons, the Enrons, the oil companies, the Exxons, but somebody to come in and try and help the average American. And ... it’s not just the poor we’re talking about. The median American—that’s the person in the middle—is today worse off than he was in 1999. So we’re talking about helping the majority of Americans, and that’s what democracy is about.

Harris: Mr. Joseph Stiglitz, the author of the new book, “The Three Trillion Dollar War.” And if you don’t have a copy of this book, you need to have it on your person. Not at all times, but it needs to be in the house, because it’s about the war. But beyond that, it is about the underlying philosophy that we need to take on as Americans, as policymakers, as people, in order to fix these problems. I always say to my son, “When we spill milk, there’s no need to cry.” He literally thinks you have to cry when you spill milk, because he thinks he’s in trouble. I always say, “There’s enough paper towels to fix it.” And he said to me the other day, he said, “They keep talking about this economy. They’re going to need a lot of paper towels.”

But I agree. I don’t want to end on a sad note, but I want to end reflecting on what you said earlier. You know, as long as we start the conversation and keep the conversation going about this issue, it’s something we can work through. 

Stiglitz: I agree.

Harris: Well, thanks for joining us today on Truthdig.

Stiglitz: Nice to be here.

Harris: For Joseph Stiglitz, this is James Harris, and this is Truthdig.

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By Give hope a chance?, June 10, 2008 at 8:11 pm Link to this comment
(Unregistered commenter)

This was obvious even before we went to war, but it makes me feel guilty ... because I think I have had more opportunities to write and comment - and have not.  I think I am a little stupified ... stupified at how little our federal legislatures have actually done.  They really are caught up in another version of the world where political gain is much more important then meaningful, correct and real constituent support.  I fail to understand how they miss the connection between money spent in Iraq and money therefore not available to their districts ... via pipeline appropriations etc.  It makes the difference come elections.  Certainly one of the issues right now is the connection between the war and our economy is not being effectively made.  Further - the flow of taxes ends up in a bating game.  The worse one, however, is the way vets are being treated.  They KNOW they underfunded, and have done so consistently for years.  And what they have created (for lack of a better word) is a very complex system that is driven on a value system of frustrating vets so that they will not pursue benefits.  Further, there are so many levels of this that they almost have to present their case in pretty close to what is a court.  They can spend years trying to get a hearing for PTSD .. or, for an illness that the military will NOT admit exists.  Here is something more sad ... the largest case load for offices representatives and senate will be the military.  And that I can tell over many years, very little has been done.  I think we need to make a really strong case for giving vets their benefits WILL stimulate the economy!  ...

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By Arabian Thoroughbred, June 5, 2008 at 3:46 pm Link to this comment
(Unregistered commenter)

How sadly true this short comment of yours, purpolewolf!

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By purplewolf, June 5, 2008 at 10:39 am Link to this comment

Welcome to the newest third world country-AMERICA! Home of the bankers and the Land of the homeless.

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By purplewolf, June 5, 2008 at 10:37 am Link to this comment

Welcome to the newest third world country-AMERICA!

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By elwood p.dowd, June 5, 2008 at 6:08 am Link to this comment
(Unregistered commenter)

The only true statement to ever come out of any Bush family member was during the ‘88 primary campaign when 41 called it voodoo economics. Keynesian economics and the New Deal worked. Real, decent paying jobs have to go to the people- and not to the corporate moneymen who will pay barely minimum to illegal immigrants here, and foreign workers in out-sourced factories overseas. The deregulation and privatization highway that we have been speeding down since Reagan has to be detoured, or we are doomed.

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By particle61, June 4, 2008 at 5:10 pm Link to this comment
(Unregistered commenter)

Stiglitz is right!

While the MSM focuses on changing the focus- the bank run blog reports daily on the current economic crisis and its financial and social consequences

published by the editors of
funny, frightening, free since 2005
and a new gwbush comic weekly

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By johnnyfarout, June 4, 2008 at 9:41 am Link to this comment

As I was reading this article I thought to myself, “How many books and articles have I read like this one?” Perhaps dozens; now one more that shows again, the rich have been running the country and this is what we get. Disturbingly this slap happy talk Stiglitz is pushing here may be far off the mark of our pending future. No longer can we talk just about the consequences of the last 30 to 35 years as if it has only to do with a problem to be “fixed”, and a way for the USA to see “morning again”. Once Reagan removed the solar panels from the White House roof, the church bells that were heard all over America were knelling, “for whom”. The presidency since has become ever more the office of oppressive reaction across the world, stomping down on whatever the bankers and oil men point out as “a problem for portfolio growth”. But beyond this the planet has a reality of its own. One shrugged away as if the only real things are Federal Reserve Notes and how many are flowing into the pockets of the ruling elite class. Abstractions have replaced realities. Fantasies are the new raison d’être. The fantasy that the world as created by the imperial Western system can go on and on and only needs a few “fixes”. The spiral of fixing has careened out of control. “What’s good for GM is good for America.” may well be a sad epithet. The huge efforts expended in the last 100 years to pump dry the oil fields and spew the exhaust into the atmosphere and rivers and lakes and oceans is the political and economic nightmare mankind is waking up to. As a species we may not be able to recover. We needed to start that morning Reagan watched his powers in action on America’s symbolic roof. That may have been our last chance politically, environmentally, and economically. They knew it then and we know it now. The crushing of the working classes’ organizations is the second sad bell knelling the last hurrah; sensible public transportation, S&L;’s, unions, and now their houses, and their gas guzzling cars, going each one as federal reserve notes accumulated at the top of the teetering colossus of deception. As if keeping them out of the hands of those who make things work was the most rational effort civilization could make. Let’s take some Prozac with that martini lunch; let’s have a beer with that president who is on the wagon and chokes on pretzels in the country’s basement. Who can go on with this? All the notes are violently discordant. Oh the irony of such clever boys and girls having this systemic crime lead us all so far astray; is it us who stand, gladius raised in hand and shout: “We, who are witnessing this tragedy end, salute you!”?

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By Ed Harges, June 4, 2008 at 9:10 am Link to this comment
(Unregistered commenter)

Matthew Rothschild, editor of the venerable “The Progressive” and of lambastes John McCain as “John McCAIPAC”.

It’s clear that a fanatical dedication to a militarized and domineering Israel makes McCain “tick”, but why this is so begs a larger question: why does the far right get to define what it means to be “pro-Israel” or “anti-Semitic”?

Rothschild doesn’t count as a “major Jewish leader” because you see, his views on the middle east are somewhere to the left of Attiila the Hun. This puts him closer to actual Jewish opinion in America, but in direct opposition to the “major Jewish organizations”.

Rothschild writes (by the way, Howard: this is how you quote a person at reasonable length, giving proper credit and a link):

“When John McCain went before the American Israel Public Affairs Committee (AIPAC) on June 2, he could not have been more obsequious to this group that has done more than any other in the United States to block a just solution to the Palestinian quest for statehood.

“...Israel doesn’t really want peace, and McCain was telling AIPAC that this is just fine by him.”

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By elwood p.dowd, June 4, 2008 at 7:19 am Link to this comment
(Unregistered commenter)

And the neocons were able to create this disaster by simply using fear. The American people should be ashamed of themselves for allowing this to happen. We have squandered our children’s futures,while enriching a select few, all to fight this absurd war on terror. FDR was right.

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By GoldenT, June 4, 2008 at 5:44 am Link to this comment

The pigs at Goldman Sachs and Morgan Stanley who have brought us this mess ought to be crushed. Pressure your congressional representative to close the London loophole.

Speculation is the driving force putting the cost of life’s essentials out of reach. Any other “explanation” simply is a contemptible lie told on behalf of the aristocracy propping up the British Empire ... the same liars who brought us WMD in Iraq and all the other crap jammed down the throats of a free people by a bunch of Tories inside and outside the beltway.

Mr. Obama, you can have your “special relationship” with these two-bit thugs if you wish, but this Democrat is NOT voting for you.

Mr. Dodd, your Public-Private partnerships are only a solution if you possess some strange love for Benito Mussolini.

Mr. Frank, that freak Rohatyn is no American. He is only all too good at abusing the People. May he hang you.

Ms. Pelosi, get gone. You had your chance to be Henry Clay and YOU BLEW IT.

Listen, no matter who you freaks impose as our next President, Wall Street, mother England’s child, is FINISHED.

And a new Franklin Roosevelt will rise…

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By Arabian Thoroughbred, June 3, 2008 at 8:22 pm Link to this comment
(Unregistered commenter)

So it’s the war stupid! And more so it’s a war based on lies, deception and plain evil. The economy might relatively recover after one or two years, but how are you going to fix millions of shattered lives, mostly in Iraq, but also at home!

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