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Joseph Stiglitz on Recession
Posted on Jun 3, 2008
By James Harris
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?
Square, Site wide
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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