Joseph Stiglitz on the economy
Joseph Stiglitz in an op-ed in Vanity Fair tells us about a more basic set of problems we face than actually discussed in public media. It is very long.
The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. It was absurd to think that fixing the banking system could by itself restore the economy to health. Bringing the economy back to “where it was” does nothing to address the underlying problems.
Key graf:
The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support.
This is visible looking at household debt:
http://research.stlouisfed.org/fred2/graph/?g=43z
this chart graphs annual household debt take-on over household wages.
Also, Stiglitz:
“Of four major service sectors—finance, real estate, health, and education—the first two were bloated before the current crisis set in. The other two, health and education, have traditionally received heavy government support.”
is on-point. Throw in the fifth service sector — armed security — and you’ve got 3/5ths the service economy being driven by “Big Government”.
Stiglitz’s argument is good as far as it goes, but his thesis is lacking and thus his fix is lacking.
The problem is not that we are not productive enough, the problem is one of distribution and rents.
Housing and health care alone each have a trillion of annual profit, and these economic rents are being siphoned out of the middle class.
That $500B/yr trade deficit — that’s paycheck money and once it leaves the US middle class doesn’t look to return any time soon (as paycheck money at least).
Throw in another $500B/yr in military waste, and god knows how much waste in the criminal justice sector.
What’s the point of talking about strategic national invesments when we’ve got a $4T/yr hole in the boat?
This economy needs perestroika — eliminating the rentiers — not stimulus. Stiglitz is one of the few economists to not avoid that r-word so I’m disappointed he didn’t bring it out in this piece.
Stiglitz makes what I think is a major error right from the start. The need for fewer wrorkers in farming do to technology improving productivity via machines that could plant and harvest larger areas than a single human is not equivalent to a concious decision to remodel an economy to service from manufacturing.
This is especially true in that, as the rich captured our government, they used their reality of how they make money (rents, money from money, financialization, royalties, etc) to model the economic policy. There have been no equivalent technology applications in our version of a service economy that have made that sector more productive and less in need of people as that of International Harvester.
Yes, we have the computer, but the computer has been used in all sectors. Thus a wash.
Of the services Stiglitz lists, only one has the ability to actually produce something new, that did not exist prior and thus benefit humanity in the quest for more and better for less: education. Yet, in education it is still not the same as an International Harvester.
Also, is it not true, as productivity increases, prices become less and thus more people can now purchase thus is the ever rising need for more workers and not less?
No, Stiglitz is wrong as to the equivalency and the solution. Again, International Harvester may have reduced the need for the number of farmers, but it increased the need for the number of machine operators.
Everywhere and at all times employers are rewarded for reducing staff and lowering the salaries of (non-managerial) labor, yet we’re surprised at the existence of unemployment and inequality.
Eliminating 100 farmers doesn’t guarantee jobs for 100 machine operators; it could just as easily result in employing 1 financier, 90 walmart cashiers, 8 unemployed workers, and 1 Fox News host to tell us all how wonderful capitalism is.