Exclusive: America has been afflicted by an ideology that doesn’t work, says Joseph Stiglitz
Nobel laureate Joseph Stiglitz, in an exclusive interview with timesnownews.com, talks about what is wrong with current American capitalism, rise of a new kind of politics emerging from dissent towards government and more. Here are some excerpts from the interview:
Interviewer: Professor Stiglitz, it is such a pleasure to have you with us for this Thinker’s interaction. I would like to start with your view as to how the world is changing today, there seems to be so much of turmoil that we are seeing and especially the rise of certain kind of leaders which I would call as the leaders that define the coalition of restoration. How would you really react to that?
Stiglitz: I think it is a period in which there is some underlying economic turmoil. I think you can see this on 2 different levels. Significant fractions of those advanced countries are not doing very well. Median income of a full-time male worker in the United States is not on the rise but full-time workers are the lucky ones at the same level as it was 42 years ago. Real wage at the bottom is at the same level as it was sixty years ago. Life expectancy in United States is declining rapidly amongst those who are not college graduates. There are lots of symptoms that something is wrong, people are unhappy and understandably so.
The second is that at the national level, the level of the nation-state we are seeing a rebalancing. With the collapse of the Soviet Union in 1989, there was only one superpower. The United States dominated and then with the collapse of Lehman Brothers in 2008, it was clear that there were flaws in the American style of capitalism. Meanwhile, China and other emerging markets like India have been growing at 5-6-7-8-9-10-11-12-13% and that meant they are closing the gap. Income is still lower but they are closing the gap and (there are) a lot of people in those countries. So, by sheer numbers even if the income per capita was lower, the economic weight was gaining.
To point by 2015, in purchasing power parity – the norm where we compare countries – China has become the largest country in the world. Now that was an interesting moment where neither country made a great deal about it. Obviously, it is not a surprise that the United States’ newspapers did not say that the US becomes number 2. But interestingly China didn’t either because it didn’t want pressure from the United States about it being number one.
Along comes Trump and at a moment of time where the disgruntlement over large parts of America was significant. America’s national security teams were beginning to worry about our place in the world. He is able to sense and exploit this unhappiness and to come up with a very ugly narrative but it was what he referred to, looking to the past, the restoration of power, what (we can do) to go back to the world after World War 2, where the US was dominant. Well, the fact of the matter is that you can’t go back in time and there is no way that you can go back to the period where the US was ‘the’ dominant power. But Trump doesn’t really understand that and those who support him don’t really understand that. They would also like to go back to a world of the past where a single worker in a family could support the whole family, where America’s middle class seemed to have everything.
I grew up in the 1950s in Gary, Indiana, an industrial town and the reason I became an economist was because I was upset about what I saw. I saw industrial strife, unemployment, massive discrimination and huge inequality and it was this that motivated me to be an economist. So, going back to that world was not the idea that some people think of it as. But inequality was not anywhere near as bad as it is today. How can United States accept this new geopolitical reality which means greater respect for the emerging markets? We will have to move to a multi-polar world. It means making sure that the benefits of globalisation and the advancement of technology are shared widely and don’t go just to the one percent. So that’s what we should be doing.
The problem is not with Mexico and not with China, the problem is with ourselves, we like to blame somebody else but the problem is really with ourselves and that’s a hard message for people to accept but it is. If we want to address the problem of those who have not been doing well, we will have to face that reality.
Interviewer: Very interesting Prof. Stiglitz. There are two remarkable points that come out of this. One is that there is something wrong with the American style of capitalism and the second thing is that there is a problem within the US. What are those problems you would really like to catch up on in? What is the thing that is affecting the US right now? And what is wrong with the American style of capitalism?
Stiglitz: Let us begin with the question about what’s wrong with American style of capitalism. Every successful economy is a mixture of government, the private sector and lots of other institutions. For instance, I think one of the real strengths of America is its universities. It is what attracts people to America, it is about innovation economy. Almost all our universities are not-for-profits, they are foundations. The other going universities, universities like the University of California and Berkley – a state university. There are people who have given money and they’re self-perpetuating, you can call them charities and they work very efficiently.
The really bad institutions are the poor private universities like Trump university who excel in only one thing, taking advantage of people who don’t know they are being taken advantage of, the vulnerable people. So, I am mentioning this because here is an important sector, a growing sector, education, where the for-profits are really terrible and we have good state universities and we have good not-for-profits. So, when we think about a successful economy, it’s a rich ecology of institutions. Unfortunately, beginning with president Reagen in 1980, there developed an ideology that the only good institutions were for private corporations. And they had few simple ideas; get rid of regulations, lower the tax rates at the top and the idea was that the lower tax rates would incentivise, the getting rid of regulations would increase the scope.
So that combined, the two incentives and scope of action, would mean that a faster-growing economy, more productive economy from which everybody would benefit. Well, a third of the century later we can declare that that experiment was an utter failure. Growth slowed but growth record went to relatively few people at the top, the upper one per cent or even more the upper the one-tenth of one per cent. Majority of Americans saw their income stagnate and those who didn’t have much education did really, really, badly. The result was the kind of a world where opportunity was being destroyed, the American dream became a myth, America became the country, amongst the advanced countries, among the worst where opportunity was at the lowest, that meant the income, the future prospect of young Americans was more dependent on the income and education of their parents almost of any of the other advanced countries. So, the contradiction between what we thought of ourselves and the reality, what the statistics said was just startling. I think we can say that America has been afflicted by an ideology that doesn’t work.
We saw the consequence, we saw how alleged instability, the irony was in the ideology was to say the government to get out of the way led to the largest innovation in the market in the history of mankind. 700 billion dollars bailed out at the banks where we gave to one company, AIG more money than we spent in years and years and years in welfare for ordinary Americans. We said we didn’t have enough money to help poor Americans but somehow in a moment, we found more than 150 billion dollars to help one company. So, you understand that not only was the system dysfunctional, not working, but it led to widespread feelings that the system was rigged, unfair and that, of course, gives rise to mistrust in government, in institutions and in societies that do not function very well.
Interviewer: Is it not what you are really describing, that is a huge reflection of what we are seeing within the United States today? The disenchantment, the inequality that actually exists. So that is how you are really electing your political leadership, which is effectively saying that we have to redraw the institutions or we have to redraw the very narrative that the country was based on for ages. And which has driven the US to be a power which was respected and which was like the innovative economy and so on and so forth.
Stiglitz: The election of 2016 was to me a very interesting election because the 2 candidates that did well and in sense were the anti-establishment candidates – on the Democratic side it was Bernie Sanders and on the Republican side it was Donald Trump. They both were saying that something was wrong with the system. There was a fundamental difference though, between the anti-establishment candidates. Trump was blaming the problems on others, on foreigners, on migrants and his response was swap the Chinese trade and it was the worst predicament ever. He didn’t know what was inside the agreement and when the negotiators began to negotiate. He didn’t have any coherent set of demands. He focused on bilateral trade deficit, every economist knows what matters motto of lateral trade deficit in other words if we change the trade between China and United States or Mexico and United States. We are not going to get jobs back in United States, it’s just going to move to some other country and so it’s not going to solve the problem but he wanted to blame foreigners. Simplistic explanations, simplistic solutions.
Bernie Sanders is anti-establishment as well but he presented complaints that were, I thought were more coherent. He said that one of the reasons there is no hope is because young people can’t afford going to college, so he said let us do something to make college affordable. One of the reasons a lot of Americans land up in bankruptcy is hospital bills, medical bills. Let’s have a healthcare system like many of the Europeans have which delivers better healthcare at a fraction of the cost. We don’t have to have a banking system that makes its money by taking advantage of others. We ought to have a financial system that serves the society rather than one that exploits the society. It was interesting that Hillary Clinton articulated some of the same concerns, some of the same issues but she tended to be much more problematic when she made a proposal she costed out. She would make sure that the budget was feasible. That’s not what the voters wanted, they wanted someone to hear the concern, the voice… I hear you. And both Trump and Bernie Sanders conveyed that message.
Interviewer: I hear you saying something very interesting here and that is that voters are not really going to define who they are going to vote depending on the economic development rather is it the social issues which will define the future? Was it about that?
. . .
Stiglitz: I think that one has to recognize these as problems first. One has to recognize that there isn’t going to be any single solution that is going to take a comprehensive agenda. That there are some things that can help all of them together. For instance, if you impose a carbon tax that simultaneously raises revenues that you can use to promote education and health or development, infrastructure. Secondly, it provides incentives for a better environment, to make sure that you don’t have pollution in air or carbon dioxide or greenhouse gases. And thirdly, it can stimulate the man because people will have to retrofit their houses, their establishments, their firms to reflect the new relative prices the new economic realities and so it does all the things. It promotes growth, raises revenue and promotes a better environment. So those are the things to look for where you get synergies. I think that well-designed policies that promote a more equal society can do the same. They create demands because when you redistribute from top to the bottom, those at the bottom spend more, it increases demand and creates a more equal society and that helps in the reinvention of economic growth. I think unfortunately there is no magic bullet here. One has to first recognize the magnitude of the challenge and not shy away from it and then say can we find a common ground of a few things that have effects in addressing multiple problems simultaneously.
Interviewer: And but then I believe you still believe and we will agree on this that it’s going to be capitalism and it’s going to be the democracy that’s going to solve the problems in the world in the long run.
Stiglitz: It’s a 21st-century market economy in which government plays an important role, civil societies and non-profit institutions play role and market forces, capitalism which is what you call it plays a role. But it’s not going to be any one of these institutions on their own that can solve it, they are too big. And each of them, each of these institutions has their limits. That we have seen firms on their own are more interested in exploitation than they are in development. We know that government has some strengths but in general, in most countries is not able to undertake the multiplicity of the activities related to development. It’s the ecology, it’s the whole system and I think it’s wrong to say that the market is the solution, capitalism is the solution. 21st-century capitalism is a capitalism in which the market and civil societies, NGOs all play an important role.
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– – – > For full text go to: https://bit.ly/2HWc1EQ
Joseph E. Stiglitz is University Professor at Columbia University, the winner of the 2001 Nobel Memorial Prize in Economics, and a lead author of the 1995 IPCC report, which shared the 2007 Nobel Peace Prize. He was chairman of the U.S. Council of Economic Advisors under President Clinton and chief economist and senior vice president of the World Bank for 1997-2000. Stiglitz received the John Bates Clark Medal, awarded biennially to the American economist under 40 who has made the most significant contribution to the subject. He was a Fulbright Scholar at Cambridge University, held the Drummond Professorship at All Souls College Oxford, and has also taught at M.I.T, Yale, Stanford, and Princeton.
Stiglitz helped create a new branch of economics, “The Economics of Information,” exploring the consequences of information asymmetries and pioneering such pivotal concepts as adverse selection and moral hazard, which have now become standard tools not only of theorists, but also of policy analysts. His work has helped explain the circumstances in which markets do not work well, and how selective government intervention can improve their performance.
At Columbia, Stiglitz co-chairs the Committee on Global Thought and is founder and co-president of the Initiative for Policy Dialogue. He is also president of the International Economic Association, co-chair of the Commission on the Measurement Of Economic Performance and Social Progress and chair of the Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System.
- Source: With thanks to our colleagues at the Institute for New Economic Thinking – https://bit.ly/2KkLlfb
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