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US growth based on 'house of cards'
March 17, 2009, Tuesday
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INTERVIEW with Joseph Stiglitz:
Q: You are critical of American-style capitalism. What's wrong with it?
A: We went too far in deregulation, we have executive compensation schemes that encourage short-sighted behavior. The financial institutions are encouraged to take excessive risks. It encourages bad accounting, we have inadequate enforcement of competition policy, and as a result banks get too big to fail.
Q: You have been wondering whether the recovery would be U-, V- or L-shaped. Have you decided about this?
A: I thought it would probably be L-shaped. It would recover eventually, but the failure to act early, the fact that it has now spread around the world, the fact that the developing countries do not have the resources to recover, the fact that we have not been able to do anything about the financial system, and the fact that we haven't begun to address the underlying problems, suggest that it would be difficult for us to have a quick recovery.
Q: What do you think about China's growth in recent years?
A: I think the growth is impressive and real, which is unlike the US where it is unreal and based on consumption, a housing bubble and financial sector that is a house of cards. But China has expanded through globalization, and now all countries that expand through exports are facing difficult times.
Q: It seems that economic growth has always been the No. 1 concern for economists and politicians. Is this obsession rational if we take into account the hidden environmental and social costs?
A: Actually, there are two ways to look at that. Part of the problem is that we do not measure growth correctly. If you measure growth taking into account the environmental degradation, then we have much healthier growth. So we have been misled by the wrong way of measurement.
But the second part of the problem is that we must begin to think more about the quality of life.
There are many things like culture, knowledge, leisure, that don's use resources, don't pollute the atmosphere, and I think we would be happier, better off restructuring our society and economy in that direction.
Q: You are critical of American-style capitalism. What's wrong with it?
A: We went too far in deregulation, we have executive compensation schemes that encourage short-sighted behavior. The financial institutions are encouraged to take excessive risks. It encourages bad accounting, we have inadequate enforcement of competition policy, and as a result banks get too big to fail.
Q: You have been wondering whether the recovery would be U-, V- or L-shaped. Have you decided about this?
A: I thought it would probably be L-shaped. It would recover eventually, but the failure to act early, the fact that it has now spread around the world, the fact that the developing countries do not have the resources to recover, the fact that we have not been able to do anything about the financial system, and the fact that we haven't begun to address the underlying problems, suggest that it would be difficult for us to have a quick recovery.
Q: What do you think about China's growth in recent years?
A: I think the growth is impressive and real, which is unlike the US where it is unreal and based on consumption, a housing bubble and financial sector that is a house of cards. But China has expanded through globalization, and now all countries that expand through exports are facing difficult times.
Q: It seems that economic growth has always been the No. 1 concern for economists and politicians. Is this obsession rational if we take into account the hidden environmental and social costs?
A: Actually, there are two ways to look at that. Part of the problem is that we do not measure growth correctly. If you measure growth taking into account the environmental degradation, then we have much healthier growth. So we have been misled by the wrong way of measurement.
But the second part of the problem is that we must begin to think more about the quality of life.
There are many things like culture, knowledge, leisure, that don's use resources, don't pollute the atmosphere, and I think we would be happier, better off restructuring our society and economy in that direction.
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