How to Stop the Downturn

Stiglitz pulls no punches in an op-ed in today’s NYT:

"AMERICA’S economy is headed for a major slowdown. Whether there is a recession (two quarters of negative growth) is less important than the fact that the economy will operate well below its potential, and unemployment will grow. The country needs a stimulus, but anything we do will add to our soaring deficit, so it is important to get as much bang for the buck as possible. The optimal package would contain one fast-acting measure along with others that could lead to increased spending if and only if the economy goes into a steep downturn…

The day of reckoning has come. This time we need a stimulus that stimulates. The question is, will the president and Congress put aside politics to get the job done?"

The full piece is pretty brutal . . .

>


Source:

How to Stop the Downturn
JOSEPH E. STIGLITZ   
NYT, January 23, 2008
http://www.nytimes.com/2008/01/23/opinion/23stiglitz.html

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. Paul Jones commented on Jan 23

    Until we produce more than we consume we won’t get out of this slide.

    “Stimulus” is throwing gasoline on the fire.

  2. rickrude commented on Jan 23

    ya mean, the US cannot continue to be the
    world leader in consumption ??

    Is it not a God given right, as an american citizen to borrow and spend ??

  3. bugly commented on Jan 23

    Man, I just wish they’d get on with it, but I know it’s gonna be a long hard stumble down a real steep hill. And if they miss that turnoff for the bridge- the path runs right into a huge cliff. The few of us that survive can go get ’em water. If we’re so inclined, just let me open up this brokerage statement first… ;^)

  4. Owner Earnings commented on Jan 23

    This guy have any specific examples? Otherwise he’s just blowing hot air.
    We seem to have an oversupply of hot air right now.

  5. John Borchers commented on Jan 23

    When the speculators get flushed out and are broke will be the time to get back in.

    When the average yahoo messageboard on stocks has an intelligence level over the mentally disabled will be the time to get back in.

    There are actually people believing and pumping apple saying it will go right back to $200.

    When these people disappear is when it will be over but no sooner.

  6. blam commented on Jan 23

    The one thing that Stiglitz forgot to say is that the 8 year long, Debutante Ball in washington must end.

    What’s for dinner ? The lame duck looks pretty good.

  7. Eclectic commented on Jan 23

    Hey, what’s the chance of a magnitude 12 earthquake in Davos?

    Well, the magnitude of such an earth-opening body-swallowing event is directly proportional to the clensing of humanity it would accomplish (even though a good waste of a tiny percent of worthy humanity as well – for example: Roubini and a few others, some press, and of course including hotel administrative and service staff).

    However, it would fail to wipe out all the motor truckers, because some of them would have front-run the earthquake and avoided the place like the plague.

  8. MarkM commented on Jan 23

    Barry-

    Wasn’t that an unbeievable rotaion out of health care (XLV)and staples (XLP)into everything that’s been beat up? Doesn’t that say that traders believe the coast is clear?

  9. Joe commented on Jan 23

    Stiglitz is a liberal politcal animal and has been dead wrong about most things for a long time

  10. Marcus Aurelius commented on Jan 23

    We’re going to have to modify our social structure to get out of this. That kind of thing won’t happen unless the and until the pain factor of continuing the status quo is racheted up. Setting aside our current government’s penchant for turning everything they touch to dreck, anything they do attempt at this point – without radical social reform – will be too little, too late, and irrelevant.

  11. Royce commented on Jan 23

    The economy has been snorting cheap money for so long that it’s addicted to it. The solution for a coke problem is not to demand that the government give you more coke. Get off the junk, suffer through withdrawal, then get on with your life is what I’d tell the economy. Then I’d slap it for being such a whiny little bitch.

  12. George Bush commented on Jan 23

    C’mon guys…I’m giving everyone $800. What more do you want from me?

    By the way…$800 buys you a nice iphone, with some cash left over for accessories.

  13. Max commented on Jan 23

    “The question is, will the president and Congress put aside politics to get the job done?”

    No. The Democrats will never pass on a chance to bash George Bush no matter how much colateral damage that does to the country.

  14. Royce commented on Jan 23

    “The Democrats will never pass on a chance to bash George Bush no matter how much colateral damage that does to the country.”

    Hard to see how the politics play out this way when both parties are desperate to toss money at the voters in an election year. As soon as Hillary came out with an $100 billion plan, Bush came out with one for $150 billion. By the time the bidding war is over, the government will be handing out $10,000 bonus checks with borrowed Chinese money.

  15. Bob A commented on Jan 23

    door no. 1: the president and Congress put aside politics and get the job done

    door no. 2; congress put aside the (fill in the blank) and get the job done

  16. Bob A commented on Jan 23

    door no. 1: the president and Congress put aside politics and get the job done

    door no. 2; congress put aside the (fill in the blank) and get the job done

  17. Mike M commented on Jan 23

    “This time we need a stimulus that stimulates.”

    WTF! More Keynesian bullshit! Wrong! What we really need to do this time is to produce and save, not borrow and spend.

  18. Alex Khenkin commented on Jan 23

    The moral decay displayed by the idea that whenever things get a bit tough the Government sends checks to everyone is repugnant. Not to mention that it will do squat. Less than one month’s mortgage? With the years upside-down to go?
    Pathetic.

  19. Barry Gree commented on Jan 23

    Calling a spade a spade… Nice call-out! Glad things have developed such that folks can say such and be heard. What a year we are in for!

  20. ECONOMISTA NON GRATA commented on Jan 23

    I propose a FAITH BASED stimulus package. That way we can attack the problem on two fronts.

    I think that we should ask Pat Robertson for some guidance on this matter….

    Best regards,

    Econolicious

  21. Northern Observer commented on Jan 23

    The question is, will the president and Congress put aside politics to get the job done?”
    No. The Democrats will never pass on a chance to bash George Bush no matter how much colateral damage that does to the country.
    Posted by: Max | Jan 23, 2008 9:28:17 AM

    It’s comments like this that make me think that the US is in for a long hard road. Stiglitz speaks the truth but because it goes against the conservative belief system, he must be demonized as a ‘liberal’

    Here’s a memo: society is like a pyramid, if you mine the bottom long and hard enough, everything comes down. Everything is coming down now, are you going to shore up the base of the pyramid or piss an moan that it goes against your politcal beliefs?

    The reson no stimulus package will make it is because President Bush, the leader of the Republican Party, will not compromise on his hard core conservative ideology and with the conniving of his republican collegues in the house and senate will only allow a bill to come forward if it has massive tax decreases for corporations and high net worth individuals; exactly what is not called for by the facts of the crisis.

    Ideology over Country. Republican conservatism in action. You wait and see, it will go down like that. No tax cuts for the top 10%ers, no tax cuts for Exxon, no stimulus for the American People. And the Republican Party will let the nation go to hell before they compromise. And the American media will help the GOP by not reporting the story accurately for fear of being called ‘partizan’ or taking sides. They would rather lie and keep the peace then tell the truth. They know who their paymasters are.

  22. Just Sayin’ commented on Jan 23

    I am sure this messenger will get shot by the likes of Max, but George Soros has an interesting commentary with a very long-term perspective in the Financial Times. I know, I know, being mega-rich doesn’t make you an oracle, but it’s worth a read.

  23. Keith Shepard commented on Jan 23

    This congress? This president? No. They’re not the people for the job. They’re not leaders. Never were. It’s just a career to them … a paycheck.

  24. Matt commented on Jan 23

    A tax rebate? Terrific way to generate new spending. Until everyone uses it to pay off that negative savings rate that they were consuming during the golden years.

  25. Al Czervik commented on Jan 23

    I say we outsource the job to Putin. He seemed to get broke-ass Russia back on track pretty good and they were in even worse shape than we’re going to be (hopefully).

  26. jag commented on Jan 23

    Stiglitz bemoans the 2001 tax cut yet ignores a)Clinton having said “I raised taxes too much) b) the recession of 2001 and c) The richest 1% of the country pay 39% of all taxes ($365,000 income and up), which is 3% more than before the Bush tax cuts, under the Clinton tax policy. The top 5% ($145,000) pay 60% of all taxes (up 5% from 1999); and the top 25%, with income over $62,000, pays paid 86% of all taxes. It seems to me that the rich are paying their fair share. Every category is paying more now than under Clinton, except the bottom 75%.

    As an economist he should know economic history; Keynsian stimulus doesn’t work. Most people spend according to what they view their future net income to be. If they see it going higher, they’ll be more liberal spending money. If people see their incomes declining (either because of taxes or recession) they’ll be more discrete until such time as their confidence about their future income improves.

    Rebates do nothing as everyone sees them for what they are; one shot deals. Yeah, a few will spend the windfall but most will treat the “gain” in line with how they view their regular spending.

    This is a good example of another “Nobel” winner spouting nonsense. I don’t know what facet of economics Stiglitz received his award for but he shows a startling amount of ignorance to some very well established economic history as well as human behavior.

  27. Grodge (aka Tony) commented on Jan 23

    Marcus,
    You state, “We’re going to have to modify our social structure…”

    Is this meant in a Marxist sense?

    Remember, the NSA may be watching ;)

  28. Bandwagon Smasher commented on Jan 23

    I don’t know if anyone else has suggested this, but why doesn’t the government allow a temporary write-off for consumer purchases? In other words, spend your disposable income instead of saving it (and save your receipts), and the government will allow you to deduct that amount from your taxable income. Obviously caps would need to be put in place to prevent abuse, but I think the idea is economically sound (if not easy to accomplish procedurally). Another way way to achieve a similar effect would be to enact some sort of negative sales tax, whereby the government springs for a small percentage of your consumer purchases. At the very least these measures would be targeted to the actual purpose of the stimulus, as opposed to a broadly applied transfer payment.

Read this next.

Posted Under