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Ideology and vested interests hobble growth in the West
By Joseph E. Stiglitz |
January 18, 2012, Wednesday
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THE year 2011 will be remembered as the time when many ever-optimistic Americans began to give up hope.
President John F. Kennedy once said that a rising tide lifts all boats. But now, in the receding tide, Americans are beginning to see not only that those with taller masts had been lifted far higher, but also that many of the smaller boats had been dashed to pieces in their wake.
In that brief moment when the rising tide was indeed rising, millions of people believed that they might have a fair chance of realizing the "American Dream."
Now those dreams, too, are receding. By 2011, the savings of those who had lost their jobs in 2008 or 2009 had been spent. Unemployment checks had run out.
Headlines announcing new hiring meant little to the 50 year olds with little hope of holding a job again.
People who moved in with friends and relatives have become homeless. Houses bought during the property boom are still on the market or have been sold at a loss. More than 7 million American families have lost their homes.
The dark underbelly of the previous decade's financial boom has been fully exposed in Europe as well. Dithering over Greece and key national governments' devotion to austerity began to exact a heavy toll last year.
This year is set to be even worse. It is possible, of course, that the United States will solve its political problems and finally adopt the stimulus measures that it needs to bring down unemployment to 6 percent or 7 percent (the pre-crisis level of 4 percent or 5 percent is too much to hope for). But this is as unlikely as it is that Europe will figure out that austerity alone will not solve its problems.
On the contrary, austerity will only exacerbate the economic slowdown. Without growth, the debt crisis - and the euro crisis - will only worsen. Moreover, the major emerging-market countries, which steered successfully through the storms of 2008 and 2009, may not cope as well with the problems looming on the horizon. Meanwhile, long-term problems - including climate change and other environmental threats, and increasing inequality in most countries around the world - have not gone away.
The good news is that addressing these long-term problems would actually help to solve the short-term problems. Increased investment to retrofit the economy for global warming would help to stimulate economic activity, growth, and job creation.
Inequality
More progressive taxation, in effect redistributing income from the top to the middle and bottom, would simultaneously reduce inequality and increase employment by boosting total demand. Higher taxes at the top could generate revenues to finance needed public investment, and to provide some social protection for those at the bottom, including the unemployed.
The worry, however, is that politics and ideology on both sides of the Atlantic, but especially in the US, will not allow any of this to occur.
Fixation on the deficit will induce cutbacks in social spending, worsening inequality. Likewise, the enduring attraction of supply-side economics, despite all of the evidence against it (especially in a period in which there is high unemployment), will prevent raising taxes at the top.
Even before the crisis, there was a rebalancing of economic power - in fact, a correction of a 200-year historical anomaly, in which Asia's share of global GDP fell from nearly 50 percent to, at one point, below 10 percent.
The pragmatic commitment to growth that one sees in Asia and other emerging markets today stands in contrast to the West's misguided policies, which, driven by a combination of ideology and vested interests, almost seem to reflect a commitment not to grow.
As a result, global economic rebalancing is likely to accelerate, almost inevitably giving rise to political tensions.
With all of the problems confronting the global economy, we will be lucky if these strains do not begin to manifest themselves within the next 12 months.
Joseph E. Stiglitz is University Professor at Columbia University and a Nobel laureate in economics. Copyright: Project Syndicate, 2012.www.project-syndicate.org. Shanghai Daily condensed the article.
President John F. Kennedy once said that a rising tide lifts all boats. But now, in the receding tide, Americans are beginning to see not only that those with taller masts had been lifted far higher, but also that many of the smaller boats had been dashed to pieces in their wake.
In that brief moment when the rising tide was indeed rising, millions of people believed that they might have a fair chance of realizing the "American Dream."
Now those dreams, too, are receding. By 2011, the savings of those who had lost their jobs in 2008 or 2009 had been spent. Unemployment checks had run out.
Headlines announcing new hiring meant little to the 50 year olds with little hope of holding a job again.
People who moved in with friends and relatives have become homeless. Houses bought during the property boom are still on the market or have been sold at a loss. More than 7 million American families have lost their homes.
The dark underbelly of the previous decade's financial boom has been fully exposed in Europe as well. Dithering over Greece and key national governments' devotion to austerity began to exact a heavy toll last year.
This year is set to be even worse. It is possible, of course, that the United States will solve its political problems and finally adopt the stimulus measures that it needs to bring down unemployment to 6 percent or 7 percent (the pre-crisis level of 4 percent or 5 percent is too much to hope for). But this is as unlikely as it is that Europe will figure out that austerity alone will not solve its problems.
On the contrary, austerity will only exacerbate the economic slowdown. Without growth, the debt crisis - and the euro crisis - will only worsen. Moreover, the major emerging-market countries, which steered successfully through the storms of 2008 and 2009, may not cope as well with the problems looming on the horizon. Meanwhile, long-term problems - including climate change and other environmental threats, and increasing inequality in most countries around the world - have not gone away.
The good news is that addressing these long-term problems would actually help to solve the short-term problems. Increased investment to retrofit the economy for global warming would help to stimulate economic activity, growth, and job creation.
Inequality
More progressive taxation, in effect redistributing income from the top to the middle and bottom, would simultaneously reduce inequality and increase employment by boosting total demand. Higher taxes at the top could generate revenues to finance needed public investment, and to provide some social protection for those at the bottom, including the unemployed.
The worry, however, is that politics and ideology on both sides of the Atlantic, but especially in the US, will not allow any of this to occur.
Fixation on the deficit will induce cutbacks in social spending, worsening inequality. Likewise, the enduring attraction of supply-side economics, despite all of the evidence against it (especially in a period in which there is high unemployment), will prevent raising taxes at the top.
Even before the crisis, there was a rebalancing of economic power - in fact, a correction of a 200-year historical anomaly, in which Asia's share of global GDP fell from nearly 50 percent to, at one point, below 10 percent.
The pragmatic commitment to growth that one sees in Asia and other emerging markets today stands in contrast to the West's misguided policies, which, driven by a combination of ideology and vested interests, almost seem to reflect a commitment not to grow.
As a result, global economic rebalancing is likely to accelerate, almost inevitably giving rise to political tensions.
With all of the problems confronting the global economy, we will be lucky if these strains do not begin to manifest themselves within the next 12 months.
Joseph E. Stiglitz is University Professor at Columbia University and a Nobel laureate in economics. Copyright: Project Syndicate, 2012.www.project-syndicate.org. Shanghai Daily condensed the article.
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