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Stiglitz: Wheel of Fortune Reversal

Wheel of Fortune Reversal
February 16, 2009 "Investment" magazine

Stiglitz In explaining ideology, special interest pressure, populist politics and sheer
incompetence has reduced to the U.S. economy, while the dying situation, propose a
time to reverse the Bush folly to restore economic health of the United States clearly
and common sense plan.
Culture / Joseph Stiglitz compile / Lan Xiao Meng
Joseph Stiglitz, President Clinton's economic advisers during the chairman,
the World Bank in 1997, he was appointed vice president and chief economist, 2001
Nobel laureate in economics, is currently Senior Fellow Brookings Institution

When the U.S. economy slipped into the period, you often hear the experts discuss its
trajectory is showed V-type (short and sharp) or U-type (long and moderate). Today,
the downward trend in the U.S. economy may be the most appropriate in describing
L-type: it really is at a very low position, and may continue for some time in the
future to maintain this level.
Almost all of the indicators look very serious, the inflation rate of nearly 6%, the
highest level for 17 years. High unemployment rate hovering at 6%; almost a full year,
net private sector employment rate is zero. Home prices fell faster than the speed of
recall at any time - in Florida and California, price declines of 30% or more. Banks
continue to report their loss record amount - in their executives with an unprecedented
high of money a few months after leaving office. When President Bush took office
from Bill Clinton inherited 128 billion U.S. dollars in the fiscal surplus; this year, the
federal government announced a record second-highest budget deficit. In the Bush
administration's 8 years, America's national debt increased by
65%, close to 10 trillion (according to the Congressional Budget Office, the
government deficit is also taken into Fannie Mae and Freddie Mac debt). At the same
time, we are forced to bear the cost of two wars. I estimate a cost of the Iraq war only,
eventually more than three trillion U.S. dollars.
Inflation, the standard prescription is to raise interest rates; the face of economic
downturn, it is lower interest rates. When these two situations can also arise, what
approach would you take? Do not approach proposed by some politicians do. When
gasoline prices are at the highest point, John McCain advocated reduction of the
petrol tax. This will lead to increased gasoline consumption, gasoline prices rise
further, create more dependence on imported oil and to expand our already huge trade
deficit. The rising deficit to force the U.S. to continue to heavily on other countries to
borrow money, let us bear more debt. At the same time, the United States imports
more oil and gasoline prices of derivatives, will cause the depreciation of U.S. dollar,
more inflation.
Millions of Americans are losing their homes, since the subprime mortgage crisis,
there are 360 million people facing this dilemma. This social catastrophe has brought
serious economic consequences of these mortgage assets held by banks and other
financial institutions suffered incredible blow; some, such as Bear Stearns, bankrupt.
In order to prevent the United States to provide 5.2 trillion mortgage loans Fannie
Mae and Freddie Mac repeat the mistakes of Bear Stearns, Congress issued a blank
check, to make up for the loss of the two. But even such a generous gesture, but also
ineffective. Now, the Government has completely taken over the two companies, for
pursuing market-oriented system, the move was shocking. Government assistance will
increase the deficit in the short term, long-term view will play a perverse incentive
effects. Market economy exists only if the system of accountability only when
running, but the fact is, corporate executives, investors and creditors billions swept
out (in 2007, Freddie Mac Chairman Richard earned a 145 000 000 000 Race London
U.S. dollar, Fannie Mae CEO 丹尼尔马德 as 142 billion), while the U.S. taxpayers
are left to pay the bill. We are looking for is a new form of public-private partnership -
the public bear all the risk, the private sector take all the profits. When the Bush
administration to promote a sense of responsibility, they would just say that
low-income groups of people to listen.
How the trip into the muddy water?
Ideology, special interest pressure, populist politics, bad economic situation and
simply a unique combination of incompetence, so we are caught in today's
This ideological claim form, the market is always good, government is always bad.
Bush, George W · every effort to ensure that government get this kind of reputation -
and this is his only place where one-upmanship - but in fact, our society on key issues
facing the government in the absence of an effective Time can not be resolved,
whether the issue is to protect national security, or protect the environment. Our
economy depends on public investment in science and technology, such as the
Internet. Now, everyone - even the president - have recognized the need for
macroeconomic policy, and government efforts to keep the economy near full
employment, the need, but in favor of free-market economists such a clever publicity
to the concept: When economic recovery to full employment, the market will always
allocate resources efficiently. In their view, the best regulation is no regulation, if the
claims are no longer marketable, then the "self-regulation" are
basically good.
On the surface, the basic concept is absurd: the large-scale market failure to form a
recession or depression, which in the past few hundred years have occurred
periodically, annoyed by the capitalist economy, look at these market failures tip of
the iceberg did not even make sense? Is not there under the surface many more subtle
but more difficult to estimate the incompetence of it? Let me venture an analogy from
biology to identify: a seriously ill person to the hospital, and now, this person may
from time to time just got a weak pop up to cause disease, and can be cured through
the use of large doses of antibiotics. In this example, we have a macro problem and a
macro solution. However, this person may also be a long-term excessive to smoking,
drinking, overeating, lack of exercise or smoking methamphetamine patients. This
will not only have disastrous effects, but also make him vulnerable to any
opportunistic infection. In other words, this is a question by the accumulation of
micro-macro problem, if not solve these fundamental problems, it is impossible to
cure his illness. The U.S. economy is now the second patient.
Economic theory - and historical experience - long ago proved the need for regulation
of the financial markets. But the Reagan administration began, deregulation is widely
regarded as a model. And do not care about the "free banking
system" of several attempts - the most recent test took place in Chile under
Pinochet's rule, by Milton Friedman's free-market theories of
fundamentalism and ultimately to disaster end.
The new right-wing populist rhetoric to persuade not only the taxpayers, ordinary
people always know how to spend money than the government, also promised a new
world without budget constraints (9.16,0.48,5.53%): By that time, every time taxes
are can generate more revenue - such statements can not play any role, some special
interests but never populist and free-market ideology that tempting combination of
profit. They also modify the provision to meet their own. Companies and wealthy
people argued that lower taxes will bring more of their deposits; they got tax breaks,
however, the U.S. household savings rate not only did not rise, anti fell to its lowest
level for 75 years. The Bush administration on the ability of the free market big plus
praise, but willing to provide generous subsidies for farmers, for the protection of
steel manufacturers and setting tariffs. Recently, as we have seen, they seem happy
friends on Wall Street a blank check. All of these examples, there clear winners and
clear losers - the latter including the entire country.
What to do next?
U.S. trying to get rid of the current crisis, but the danger is that we will listen to the
ones who let us into the mess on Wall Street and institutional persons.
The use of economic instruments available to state there are many. The sad truth is
that we have reached the limits of monetary policy. Use of interest rate cut to
stimulate the economy will not receive too many results - banks will be reluctant to
lend money to strapped consumers, and consumers will see prices falling do not want
to borrow money. To raise rates to curb inflation also 不会 the expected results,
because the main source of inflation caused by Women - food and energy prices are
set by the international market-determined; major in Houguo right common
Minzhonglaishuo Jiang painful. The difficulties we face mean that careful balance is
required. In this regard, there is no quick, easy solution. But if we act decisively now,
we can shorten the duration of the downturn and reduce its impact. If we also think
about what the economic benefit in the long run, we can establish that the healthy
development of the economy a permanent basis.
Let us return to the emergency room earlier that patients who have: we need to
address the underlying causes. Most treatment programs require painful choices, but
some are simple. Energy: conservation and research of new technology will enable us
to reduce dependence on imported oil, reduce the trade imbalance and help the
environment. Some people have suggested that the environment by expanding the
exploitation of vulnerable areas on the price of oil we buy is minimal impact. And,
"first adopted to make the U.S." policy will lead to our future
more dependent on imported oil. From any speaking, this is short-sighted.
Our ethanol policy is also harmful to taxpayers and harmful to the environment,
harmful to the world and our relations with other countries, and contribute to inflation.
Only to ethanol producers and American corn growers benefit should be abolished.
Currently, we extract the ethanol corn subsidies to nearly one U.S. dollar, while
imports from Brazil to each gallon of ethanol from sugar cane as raw material tariffs
levied 54 cents. Hard to invent a worse policy than this was. Is still our errant biofuel
policy occupied the land for food production, transfer them to the car energy
production; This is also contributing to rising grain prices the most important reason.
Our tax policies need to change. The strange lies, so do real estate or stock
speculation and the rich pay more taxes than the United States, only wage and salary
income in the lower middle class; its unpleasant places for those who make money
from the stock market paid taxes than 50 hours a week and fewer. The tax rate will tilt
the opposite direction of where they work to provide better incentives, will bring more
revenue and by reducing the deficit, to more effectively stimulate the economy.
No doubt those toxic mortgages is innovation. Other innovations are more tricks to
avoid regulation, but the purpose of monitoring is to prevent our economy currently
experiencing these problems. Some innovation is the bottom line in order to dress up
fancy to some, the debt from the transfer of the balance sheet - is more ambiguous
investors and regulators have the information puzzle. They succeeded: the extent
made public in the past and present are not clear. But we need to accounting for a
reason. Lack of good information is difficult to make the right economic decisions. In
short, a number of high innovation costs. Some may actually lead to instability.
Those who believe the market miracle of the free market fundamentalists are not
opposed to receiving government relief. In fact, they had requested the aid and
warned that if they can not get what you want, the whole system will collapse. What
kind of politicians only because of sticking to principles and happy to be condemned a
second Great Depression? I have been able to criticize the anti-trust policy to allow
some agencies have a dominant position, so that these institutions "too big
to fail." The harsh reality is, given that we have experienced, we will see in
the coming days the government for more assistance. Currently Fannie Mae and
Freddie Mac taken over by the federal government, we must adhere to is: when
unable to achieve regulatory operations with shareholders and creditors are allowed
anything they want to leave, should not the taxpayers Mei cent at risk. Otherwise, the
crisis will relapse.
The most difficult issues will appear in the monetary policy (balancing the risks of
inflation and economic decline of the risk) and fiscal policy (balancing the risks of
further economic decline and the risk of rapidly growing deficits) in the. Recent
analysis from the standard financial markets that inflation is the biggest threat, we
need to raise interest rates, cutting the deficit, which will restore confidence, and then
fix the economy. This is 1997 in East Asia, Russia and Brazil in 1998, the theory did
not work the same bad economic theory. In fact, with Herbert Hoover in 1929 is
exactly the same prescription.
This is a prescription, and in particular of the labor groups and the poor unfairly.
Higher interest rates curb inflation, a sharp decline in aggregate demand, resulting in
rising unemployment, falling wages. Finally, prices fall. As mentioned earlier,
resulting in our current inflation is mainly due to foreign - from world food and
energy prices, they are difficult to control. Therefore, inhibition of inflation means
that prices of all other things need to fall substantially, thereby constituting
compensation, which in turn means that the unemployment rate will also rise sharply.
In addition, there is not recourse to the fiscal theory of the time obsolete. As long as
the low growth, the economy will not restore confidence; and, if under-investment,
consumption weak, less and less public spending, growth will slow. In these cases,
without thinking to reduce government spending or tax cuts are stupid behavior.
However, there are several well-considered method of the formation of policy, the
policies can be in the right direction and help us out of the current predicament. The
money used for investment - infrastructure, education, science and technology - will
get double benefits. This will increase revenue in the present but also for future
employment and lay the foundation for economic growth. Investment in energy
efficiency will bring three times the revenue - in addition to environmental benefits,
the will also have short-term and long-term economic benefits.
Body in the U.S. economy could have been avoided things. Those who are entrusted
with the task, responsible for ensuring safe operation of the economy not only failed
to do so loyal, but also from the behavior of the benefit do not do. Now, we face a
choice: let those who caused us this way about how we deal with this pain state, or
fundamental reforms to seize the opportunity in the market with a new balance
between governments.

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