The Nobel-winning economist discusses the Fed, the election, and the role of economists in fixing inequality.
.. In the first three years of the recovery, 91 percent of all gains went to the top 1 percent. So the bottom 99 percent saw nothing.
.. The labor force participation rate of people in their 40s, 50s, is still lower than it’s been in decades. People who lost their jobs in 2008, didn’t get jobs in 2009, ‘10, ‘11, maybe aren’t likely to get a job ever. If they do, it’s not going to be anywhere near as good as their old job. There are many people for whom they lost their job at 50 or 55 and are unlikely to ever work again. The scar is permanent.
.. They should have focused more on improving the channel of credit to make sure that money was going to small and medium-sized enterprises They should have said to the bank—like some other countries have done—if you want access to the Fed window you have to be lending to SMEs.
.. Just using the interest rate is not going to have a first-order effect on the economy as a whole. You’re encouraging people not to focus on the really critical thing.
.. They’re just focusing on this one variable as if it was a magical number, and I think it would be great if every American small business could go out and borrow at a negative interest rate, we would have a recovery. But that’s not the interest rate that they’re facing.
.. The most problematic option is clear: Cruz. He’s an ideologue. Conservative Republicans like him because he’s true to the faith, that means getting rid of social security, making our tax system more regressive, cutting back on all the programs that lean against growing inequality. Of the major candidates remaining, he stands out as the person most likely to do the most harm.
.. Are you generally disappointed with the way the Obama administration has handled economic policy?
Stiglitz: I guess I would say so overall, but not compared to the way it would’ve been handled by Romney or Bush. The stimulus should have been larger, deeper, longer. The bank bailout should have been more focused on helping small and medium sized banks, on helping homeowners.
.. A big question, in all of these areas, is could he have gotten more out of Congress? That’s a very difficult political judgement. I think a lot of people feel that in those first two years where there was a Democratic president and a Democratic Congress he could’ve gotten a lot more done—he was just too conservative. He was too much in the hands of the banks, too much in the hands of big business, too much in the hands campaign contributors. He’s done a lot of things by executive order in the last year, like raising the minimum wage and climate change. But a lot of people are wondering, why did he wait?
.. Stiglitz: The prevalent ideology—when I say prevalent it’s not all economists— held that markets were basically efficient, that they were stable. You had people like Greenspan and Bernanke saying things like “markets don’t generate bubbles.” They had precise models that were precisely wrong and gave them confidence in theories that led to the policies that were responsible for the crisis, and responsible for the growth in inequality. Alternative theories would have led to very different policies. For instance, the tax cut in 2001 and 2003 under President Bush. Economists that are very widely respected were cutting taxes at the top, increasing inequality in our society when what we needed was just the opposite. Most of the models used by economists ignored inequality. They pretended that macroeconomy was unaffected by inequality. I think that was totally wrong. The strange thing about the economics profession over the last 35 year is that there has been two strands: One very strongly focusing on the limitations of the market, and then another saying how wonderful markets were. Unfortunately too much attention was being paid to that second strand.
.. It’s very hard to persuade a young person who has seen the Great Recession, who has seen all the problems with inequality, to tell them inequality is not important and that markets are always efficient. They’d think you’re crazy.
A Conversation With Joseph Stiglitz
In the first three years of the recovery, 91 percent of all gains went to the top 1 percent. So the bottom 99 percent saw nothing. Many were actually becoming worse off: Their balance sheet had been destroyed, their major asset has been their home and the value of their home had gone down anywhere from 20 to 50 percent. Then came QE, and it created a stock-market but the average American has very little in the stock market. Overall ownership of stocks, is much more concentrated than the concentration of wealth itself, so QE was basically a gift to the 1 percent.
The people at the bottom are not doing very well, and wealth inequality, in that sense, has gotten worse. There are so many of these dimensions where the statistics that the Federal Reserve and the administration don’t connect with the lives of ordinary Americans.
.. There are many people for whom they lost their job at 50 or 55 and are unlikely to ever work again. The scar is permanent.
.. They should have focused more on improving the channel of credit to make sure that money was going to small and medium-sized enterprises They should have said to the bank—like some other countries have done—if you want access to the Fed window you have to be lending to SMEs.
.. Who are the best and worst options in terms of the effect that their economic policies will have on inequality?
Stiglitz: The most problematic option is clear: Cruz. He’s an ideologue. Conservative Republicans like him because he’s true to the faith, that means getting rid of social security, making our tax system more regressive, cutting back on all the programs that lean against growing inequality. Of the major candidates remaining, he stands out as the person most likely to do the most harm.
.. I think a lot of people feel that in those first two years where there was a Democratic president and a Democratic Congress he could’ve gotten a lot more done—he was just too conservative. He was too much in the hands of the banks, too much in the hands of big business, too much in the hands campaign contributors. He’s done a lot of things by executive order in the last year, like raising the minimum wage and climate change. But a lot of people are wondering, why did he wait?
.. who is to blame for the crisis and the inequality that grew after it. One of the answers you say are economists.
.. The strange thing about the economics profession over the last 35 year is that there has been two strands: One very strongly focusing on the limitations of the market, and then another saying how wonderful markets were. Unfortunately too much attention was being paid to that second strand.
.. A very large fraction of the younger people, this is what they want to work on. It’s very hard to persuade a young person who has seen the Great Recession, who has seen all the problems with inequality, to tell them inequality is not important and that markets are always efficient. They’d think you’re crazy.