Joe Stiglitz is no dummy. He’s a member of the Columbia University faculty (although we can probably forgive him that) and 2001 Nobel Prize winner in economics.
Joe Stiglitz is no dummy. He’s a member of the Columbia University faculty (although we can probably forgive him that) and 2001 Nobel Prize winner in economics. Add to that his expertise as Senior Vice President and Chief Economist of the World Bank, a healthy critic of globalization, wary of free market fundamentalists as well as the International Monetary Fund and his own World Bank.
If Stiglitz were in the Mafia, Joe would be a made-man.
So it was with some interest that I read the Vanity Fair piece by Stiglitz; Reckoning--The Economic Consequences of Mr. Bush.
What is required is in some ways simple to describe: it amounts to ceasing our current behavior and doing exactly the opposite. It means not spending money that we don’t have, increasing taxes on the rich, reducing corporate welfare, strengthening the safety net for the less well off, and making greater investment in education, technology, and infrastructure.
Good luck, Joe.
When it comes to taxes, we should be trying to shift the burden away from things we view as good, such as labor and savings, to things we view as bad, such as pollution. With respect to the safety net, we need to remember that the more the government does to help workers improve their skills and get affordable health care the more we free up American businesses to compete in the global economy.
And there I lay my case, that no Democrat (or Republican for that matter) can come into office on January 19th of 2008 and find the support—either within the country or the Congress—to do that which must be done. History has proven with depressing regularity, that what man conspires to avoid, economic reality will enforce.
Usually that reality evidences itself in small adjustments, periodic recessions we have from time to time in America. Their hardship is not always widespread. In fact, some sectors of the economy hardly feel the pinch as the leviathan American financial vessel grinds and tosses between its arbitrary mooring and the unforgiving dock of reality.
There are of course, major events that mark our historic American inability to see hardship comin’ down the pike. Pleasantly for those who sell the snake-oil, those hard times are always seen in hindsight and fade quickly from the natural optimism of we the people, we the fortunate, we the otherwise occupied. Optimism has been the ruin of many a market. The closest remembrance of a truly plunging market is closing in on 80 years ago--the ’29 crash. Blissfully, nearly anyone with eyewitness memory of those times is dead or doddering.
But if Bush got us here, why can’t Hillary or Barack, Biden or Edwards, Richardson or Kucinich deliver us from yet another crippling legacy of the man's administration? For that is exactly what Stiglitz calls it, a crippling legacy.
When we look back someday at the catastrophe that was the Bush administration, we will think of many things: the tragedy of the Iraq war, the shame of Guantánamo and Abu Ghraib, the erosion of civil liberties. The damage done to the American economy does not make front-page headlines every day, but the repercussions will be felt beyond the lifetime of anyone reading this page.
I can hear an irritated counterthrust already. The president has not driven the United States into a recession during his almost seven years in office. Unemployment stands at a respectable 4.6 percent. Well, fine. But the other side of the ledger groans with distress: a tax code that has become hideously biased in favor of the rich; a national debt that will probably have grown 70 percent by the time this president leaves Washington; a swelling cascade of mortgage defaults; a record near-$850 billion trade deficit; oil prices that are higher than they have ever been; and a dollar so weak that for an American to buy a cup of coffee in London or Paris—or even the Yukon—becomes a venture in high finance.
All of which is true and all of which occurred in the compressed space of a presidential term and a half. Essentially it amounted to six years of treasonous mismanagement that’s brought a vibrant nation to its knees.
The world was a very different place, economically speaking, when George W. Bush took office, in January 2001. During the Roaring 90s, many had believed that the Internet would transform everything. Productivity gains, which had averaged about 1.5 percent a year from the early 1970s through the early 90s, now approached 3 percent. During Bill Clinton’s second term, gains in manufacturing productivity sometimes even surpassed 6 percent. The Federal Reserve chairman, Alan Greenspan, spoke of a New Economy marked by continued productivity gains as the Internet buried the old ways of doing business. . .
. . . The rich did well, but so did the not-so-rich and even the downright poor. . . the first time since the 1970s that incomes at the bottom grew faster than those at the top—a benchmark worth celebrating.
But those glory days were only seven years ago. Surely with the tide of support turning again toward Democrats, perhaps even to another Clinton in the White House, we are not permanently lost at sea. How much damage can two terms do?
Remember the presidential debates in 2000 between Al Gore and George Bush, and how the two men argued over how to spend America’s anticipated $2.2 trillion budget surplus? . . . The first major economic initiative pursued by the president was a massive tax cut for the rich . . . these tax cuts, when fully implemented and if made permanent, mean that in 2012 the average reduction for an American in the bottom 20 percent will be a scant $45, while those with incomes of more than $1 million will see their tax bills reduced by an average of $162,000.
. . . Inequality is now widening in America, and at a rate not seen in three-quarters of a century. A young male in his 30s today has an income, adjusted for inflation, that is 12 percent less than what his father was making 30 years ago. Some 5.3 million more Americans are living in poverty now than were living in poverty when Bush became president. America’s class structure may not have arrived there yet, but it’s heading in the direction of Brazil’s and Mexico’s.
Okay, okay, Joe has your attention. You see it’s serious. You know people are losing their homes left and right, but some incoming president has to be able to fix it, else why even go through the motions? Good question.
Presidents enter their first term full of high expectations and even higher moral certainties. Following the traditional and congratulatory 120 day ‘honeymoon,’ the first certainty that looms on the 18th century mahogany desk in the Oval Office is the necessity of getting re-elected. This painful (and seemingly unending) grind that so tests our patience in this current unprecedented run-up to nomination is, for a sitting president, a three year ordeal--beginning all too shortly after the Oath of Office.
Don’t offend the base becomes a mantra, even if the base is indefinable.
Then, presuming re-election, party politics demand of a president the massive effort required of mid-terms. Finally (perhaps blessedly) with a scant two years left to go, the president is termed a ‘lame duck’ and waddles off into the sunset and the rubber-chicken speaking circuit.
All these obvious pressures apply equally to members of the Senate and House. They want and expect and need to be there after the next election, warming that same comfortable seat, looking out the window of opportunity in the direction of K-Street. How on earth do they accomplish that? Status quo is the quick answer. Keep those campaign contributions coming. Complain, but do not change, because change (which every politician promises) does not work to re-elect (which every politician wants). Back to Stiglitz;
The most immediate challenge will be simply to get the economy’s metabolism back into the normal range. That will mean moving from a savings rate of zero (or less) to a more typical savings rate of, say, 4 percent. While such an increase would be good for the long-term health of America’s economy, the short-term consequences would be painful. Money saved is money not spent. If people don’t spend money, the economic engine stalls. If households curtail their spending quickly—as they may be forced to do as a result of the meltdown in the mortgage market—this could mean a recession; if done in a more measured way, it would still mean a protracted slowdown. The problems of foreclosure and bankruptcy posed by excessive household debt are likely to get worse before they get better. And the federal government is in a bind: any quick restoration of fiscal sanity will only aggravate both problems.
I argue you'd have to burrow all the way back to the depths of the Truman administration to find a 4% savings rate in America--and as for such an increase being good for the long-term health of America’s economy, we are not a long-term nation.
Frankly, we never were, because we never had to be. America was not Europe, running out of resources at the same time colonialism was dying, having to plan long term. America was a two hundred year party, giddy with new frontiers, extravagant and flirtacious in its love affair with a newfangled invention, global business. "Ceasing our current behavior and doing exactly the opposite"—when was the last time that happened in America?
Stiglitz’s "most immediate challenge" will be, like Nancy Pelosi’s impeachment strategy, not even on the table. We can rely upon Democrats to bewail the legacy Bush left them and Republicans to insist that it would have all worked out if we hadn’t lost our courage.
Thus both parties will run out the clock, hoping the collapse doesn’t happen on their watch.
Just as Ronald Reagan happened to be president when the wheels came off communism, so must someone be president when another Herbert Hoover moment occurs. That probability becomes more acute with every election cycle, making one wonder why it is that otherwise rational individuals fight so hard for the honor.
The next (presumably) Democratic president will not change the course of America’s economic decline. You can take that to the bank, while there still is a bank.