Apparently, I (unknowingly) come from the same School of Economics as Joseph Stiglitz.
In a speech to Wharton Investment Management Conference last month, the Nobel prize-winning economist laid out his critique of what’s wrong with the U.S. economy. He believes that several Bush policies have only made economic problems worse.
Stiglitz’s criticisms (direct quotes in italics) will be all too familiar to readers of The Big Picture:
· President Bush’s economic policies have failed to spur growth, while exacerbating rising household indebtedness;
· Increased productivity was a squandered opportunity. Higher productivity should raise living standards — at least when the economy is growing at its full potential. Instead, companies get by with fewer workers and less hiring, and unemployment rises: "In the last four years, we have failed the challenge of increased productivity and lost the opportunity it affords because we have not had enough economic growth."
· The economy has limped along, losing jobs for the first four-year period since the Great Depression: "We should have created something like six million or seven million new jobs. In fact, we have lost net one million new jobs. The only part of employment that’s growing is the public sector. The private sector is down 1.5 million."
· The unemployment rate (5.4% in September) understates job problems — it doesn’t include people who have dropped out of the job market.
· The unemployment rate fails to account for underemployment – that is, people who work part-time, often without benefits, but want full-time work.
· Since the tax cuts failed to stimulate the economy much, it forced the Federal Reserve it lower interest rates to historically low levels — and yet there’s still too little business investment. Stiglitz blames excessive investment in the 1990s. (the post-bubble overhang);
· Companies don’t want to borrow — even at low rates — because there is still too much excess capacity (sound familiar?);
· Reducing taxes for wealthy Americans wouldn’t help the economy,
(In 1993, President Clinton raised taxes on the wealthiest 2% of Americans, and that didn’t hurt the economy);
· Cutting the corporate dividends tax rate wasn’t originally intended as a stimulus for a sluggish economy — it was merely a tax cut for the rich: "They said that a dividend tax cut would lead to higher stock prices, and that would lead to more investment. Think about how the economy got into the downturn. It got there in part because of overinvestment;"
· Instead of lowered tax on dividends, we should have provided investment tax credits for companies;
· The dividend tax cut, he said, ended up exempting some dividends from any tax. Some corporations don’t pay tax. If these firms pay dividends and those payments are tax exempt for shareholders, then the government never taxes this money. "So now the problem is zero taxation."
Hard for me to argue with much of this . . .
Joseph Stiglitz and Pete Peterson: What’s Wrong With the U.S. Economy and How to Fix It
17 Nov – 30 Nov 2004