Unconventional Economic Wisdom
To Cure the Economy
Joseph E. Stiglitz
|
|
|
|
NEW YORK – As the economic slump that began in 2007 persists, the question on everyone’s minds is obvious: Why? Unless we have a better understanding of the causes of the crisis, we can’t implement an effective recovery strategy. And, so far, we have neither.
We were told that this was a financial crisis, so governments on both sides of the Atlantic focused on the banks. Stimulus programs were sold as being a temporary palliative, needed to bridge the gap until the financial sector recovered and private lending resumed. But, while bank profitability and bonuses have returned, lending has not recovered, despite record-low long- and short-term interest rates.
The banks claim that lending remains constrained by a shortage of creditworthy borrowers, owing to the sick economy. And key data indicate that they are at least partly right. After all, large enterprises are sitting on a few trillion dollars in cash, so money is not what is holding them back from investing and hiring. Some, perhaps many, small businesses are, however, in a very different position; strapped for funds, they can’t grow, and many are being forced to contract.
Still, overall, business investment – excluding construction – has returned to 10% of GDP (from 10.6% before the crisis). With so much excess capacity in real estate, confidence will not recover to its pre-crisis level anytime soon, regardless of what is done to the banking sector.
The financial sector’s inexcusable recklessness, given free rein by mindless deregulation, was the obvious precipitating factor of the crisis. The legacy of excess real-estate capacity and over-leveraged households makes recovery all the more difficult.
But the economy was very sick before the crisis; the housing bubble merely papered over its weaknesses. Without bubble-supported consumption, there would have been a massive shortfall in aggregate demand. Instead, the personal saving rate plunged to 1%, and the bottom 80% of Americans were spending, every year, roughly 110% of their income. Even if the financial sector were fully repaired, and even if these profligate Americans hadn’t learned a lesson about the importance of saving, their consumption would be limited to 100% of their income. So anyone who talks about the consumer “coming back” – even after deleveraging – is living in a fantasy world.
Fixing the financial sector was necessary for economic recovery, but far from sufficient. To understand what needs to be done, we have to understand the economy’s problems before the crisis hit.
First, America and the world were victims of their own success. Rapid productivity increases in manufacturing had outpaced growth in demand, which meant that manufacturing employment decreased. Labor had to shift to services.
The problem is analogous to that which arose at the beginning of the twentieth century, when rapid productivity growth in agriculture forced labor to move from rural areas to urban manufacturing centers. With a decline in farm income in excess of 50% from 1929 to 1932, one might have anticipated massive migration. But workers were “trapped” in the rural sector: they didn’t have the resources to move, and their declining incomes so weakened aggregate demand that urban/manufacturing unemployment soared.
For America and Europe, the need for labor to move out of manufacturing is compounded by shifting comparative advantage: not only is the total number of manufacturing jobs limited globally, but a smaller share of those jobs will be local.
Globalization has been one, but only one, of the factors contributing to the second key problem – growing inequality. Shifting income from those who would spend it to those who won’t lowers aggregate demand. By the same token, soaring energy prices shifted purchasing power from the United States and Europe to oil exporters, who, recognizing the volatility of energy prices, rightly saved much of this income.
The final problem contributing to weakness in global aggregate demand was emerging markets’ massive buildup of foreign-exchange reserves – partly motivated by the mismanagement of the 1997-98 East Asia crisis by the International Monetary Fund and the US Treasury. Countries recognized that without reserves, they risked losing their economic sovereignty. Many said, “Never again.” But, while the buildup of reserves – currently around $7.6 trillion in emerging and developing economies – protected them, money going into reserves was money not spent.
Where are we today in addressing these underlying problems? To take the last one first, those countries that built up large reserves were able to weather the economic crisis better, so the incentive to accumulate reserves is even stronger.
Similarly, while bankers have regained their bonuses, workers are seeing their wages eroded and their hours diminished, further widening the income gap. Moreover, the US has not shaken off its dependence on oil. With oil prices back above $100 a barrel this summer – and still high – money is once again being transferred to the oil-exporting countries. And the structural transformation of the advanced economies, implied by the need to move labor out of traditional manufacturing branches, is occurring very slowly.
Government plays a central role in financing the services that people want, like education and health care. And government-financed education and training, in particular, will be critical in restoring competitiveness in Europe and the US. But both have chosen fiscal austerity, all but ensuring that their economies’ transitions will be slow.
The prescription for what ails the global economy follows directly from the diagnosis: strong government expenditures, aimed at facilitating restructuring, promoting energy conservation, and reducing inequality, and a reform of the global financial system that creates an alternative to the buildup of reserves.
Eventually, the world’s leaders – and the voters who elect them – will come to recognize this. As growth prospects continue to weaken, they will have no choice. But how much pain will we have to bear in the meantime?
Joseph E. Stiglitz is University Professor at Columbia University, a Nobel laureate in economics, and the author of Freefall: Free Markets and the Sinking of the Global Economy.
Copyright: Project Syndicate, 2011.
www.project-syndicate.org
You might also like to read more from Joseph E. Stiglitz or return to our home page.
|
|
MarioPereaWaisman 07:49 03 Oct 11
True, the change of paradigm of production in the economy from agriculture to industry brought about huge amounts of unemployment. However, it was the fear of the red revolution, the need of the USA for markets and to a lesser extent, the wide shame of the war that pushed the political will to the expansionary policy that brought the golden years.
Nowdays, with a globalized economy, with transnational enterprises bigger than whole states and open markets to investment in thirsty lands such as East or Africa and southamerica. It is hard to see how the politicians -who have become a problem to development themselves, will give a solution that resembles the post war years.
Let's keep optimist Mr. Stiglitz, but I see more future in the "Indignados" than in the congress.
cs702 08:30 03 Oct 11
The proposed prescriptions make sense to me: government intervention to accelerate debt restructuring and reduce income inequality, government spending to develop more efficient energy infrastructure, and major reform of the global financial system to increase its stability. The private sector can do the rest. http://cs702.wordpress.com
VictorFB 09:49 03 Oct 11
Mr Stiglitz you are not going deep enough,
The problem is that what you give as prescription, more government expenditure, is impossible to achieve without changing globalization, without putting limits to big corporations producing abroad.
If big companies produce abroad in search of cheap labour, we are going to keep having high unempoyment in the West (not only in the West). If there is unempoyment, there are no wages nor consumption so the government can not collect enough taxes and then can not expend enough to change anything.
Globalization is at the roots of the problem.
In the West, only a few rich benfit from globalization but what they consume is nothing compared with what the rest of citizens could spend if they were working and not unemployed.
On the other hand defending the reform of the global financial system you are right.
gamesmith94134 10:04 03 Oct 11
Gamesmith94134: Catching up is so very hard to do 67
Justlistenall said well, ”how about “nations of higher living standards” in lieu of “rich nations”, except for those who really qualify as such?” It was not the yuan or GDP that make China the emerging nation; and the fact is the affordability that gives impetus to growth and not the higher living standard.
If the rich nations must catch up the up-ward growth spiral, they must cut their living standard to make its people live to grow, instead of, strive to survive. The rich nations are only think of their people are rich but they are not; not afford to consume make its economies anemic. If they want to catch up, they must make it affordable for their people.
Even if the troika can get 2 trillion to cover the PIIGS, the onward slow or anemic growth is not getting to the level of the proportion on the normalcy. In addition, the solution is short of the fiscal and tax equation among its EU members. Then, the 2 trillion would be spent in vain if the present higher living standard does not meet its affordability level, then, there is no demand to consume. It is still no growth if the durables or oil do not go down enough to provide the cash flow that will change the marginal affordability level and ready to consume.
The bank or central bank may free of the old debts with the fresh new debts like the 2 trillion with longer term bonds with low interest, however, the low rate will halt lending to commercial based on the non-profitable, eventually, it will die or go bankrupt itself unless banking cut its own size like BOA or JPM. Such condition will turn into another tourniquet to the commercial needs if the bonds are not restructured by 2013 with the short-term basis. Depression will become inevitable even the BRICS can help to restructure the loans.
Inflation and deflation is much as virus in fever and cold to one body as it is to an economy; it is understandable that disease works with one’s body to create its anti-biotic to fight diseases. Now, what our economist is facing the anemic economy with too much of sterilization with sub-prime and long-term interest rate that the body or the economy will not respond till the inflation or deflation can take its effects to make the economy change.
In order to face reality, EU and US must settle on the coming depression, deflation helps in cutting the cost of living in a down turn spiral till the private industries can use human capitals in a lower valuation in wages. If the affordability allows more consumption; then, production will rise. Eventually, growth comes only after there is demand of it.
If there is no systematic cut the valuation of the present, and the lowest interest of today only make the financial industry suffers. Let the nature take its course to adjust. Any attitude like no on my watch can only make it-- Japanification.
If th economy is immune to inflation or deflation, then, valuation on price is not valid. I was not surprise if gold can fall 6% in a day; and how about you, Soros? What is you gold standard of monetization if immunization stands?
Anything else is just excuses, isn’t it?
May the Buddha bless you?
gamesmith94134 10:05 03 Oct 11
Gamesmith94134: Catching up is so very hard to do 67
Justlistenall said well, ”how about “nations of higher living standards” in lieu of “rich nations”, except for those who really qualify as such?” It was not the yuan or GDP that make China the emerging nation; and the fact is the affordability that gives impetus to growth and not the higher living standard.
If the rich nations must catch up the up-ward growth spiral, they must cut their living standard to make its people live to grow, instead of, strive to survive. The rich nations are only think of their people are rich but they are not; not afford to consume make its economies anemic. If they want to catch up, they must make it affordable for their people.
Even if the troika can get 2 trillion to cover the PIIGS, the onward slow or anemic growth is not getting to the level of the proportion on the normalcy. In addition, the solution is short of the fiscal and tax equation among its EU members. Then, the 2 trillion would be spent in vain if the present higher living standard does not meet its affordability level, then, there is no demand to consume. It is still no growth if the durables or oil do not go down enough to provide the cash flow that will change the marginal affordability level and ready to consume.
The bank or central bank may free of the old debts with the fresh new debts like the 2 trillion with longer term bonds with low interest, however, the low rate will halt lending to commercial based on the non-profitable, eventually, it will die or go bankrupt itself unless banking cut its own size like BOA or JPM. Such condition will turn into another tourniquet to the commercial needs if the bonds are not restructured by 2013 with the short-term basis. Depression will become inevitable even the BRICS can help to restructure the loans.
Inflation and deflation is much as virus in fever and cold to one body as it is to an economy; it is understandable that disease works with one’s body to create its anti-biotic to fight diseases. Now, what our economist is facing the anemic economy with too much of sterilization with sub-prime and long-term interest rate that the body or the economy will not respond till the inflation or deflation can take its effects to make the economy change.
In order to face reality, EU and US must settle on the coming depression, deflation helps in cutting the cost of living in a down turn spiral till the private industries can use human capitals in a lower valuation in wages. If the affordability allows more consumption; then, production will rise. Eventually, growth comes only after there is demand of it.
If there is no systematic cut the valuation of the present, and the lowest interest of today only make the financial industry suffers. Let the nature take its course to adjust. Any attitude like no on my watch can only make it-- Japanification.
If th economy is immune to inflation or deflation, then, valuation on price is not valid. I was not surprise if gold can fall 6% in a day; and how about you, Soros? What is you gold standard of monetization if immunization stands?
Anything else is just excuses, isn’t it?
May the Buddha bless you?
Arda 11:47 03 Oct 11
Money moves to maufacturers, enerygy producers/distributors, and, more intensely recently, to those who speculate on basic commodities as well. This, of course, is in addition to financial market lenders and those who make money from clever financial instruments and other speculations. Money works best when there is a system where 'what goes around, comes around', in other words when there is a healthy circulation in the 'money politic'!
Economic problems arise, in large part, when 'funny money' attracts real money, which then tends to disappear magically into a black hole. In the process a select few get very rich with 'real money', which can get invested in 'real things' (like the buying up of huge swathes of land in Africa, for example), but a lot of it gets plowed back into the wonderful world of 'funny money'. Unfortunately, a lot of this real money (which becomes unaccountable in the magical black hole) comes from pension funds and insurance companies - our very own rainy-day money.
Governments have to borrow money (currently, anyway!) and because the West, on the whole, consumes more than it produces and clings to notions of a 'free market', that money is just going to leak away quite quickly again, however much we wring our hands and pray for 'real growth'. Let's face it, we have become addicted to an image of growth, a graph of growth, an ideology of growth, growth as panacea. Whereas 'real growth' is concentrated in a relatively small number of global companies (both manufacturing and financial) which tend to hoover up any money innocently going around minding its own business!
Therefore, instead of looking for 'growth' as a way out of our current little troubles, maybe we should have a jolly good chin-wag (as we are doing now), take a deep breath, see where we stand and where we really want to go - not as worried by-standers, but as global citizens of worth and substance and ability.
ShowMe 12:06 04 Oct 11
the world’s leaders – and the voters who elect them – will come to recognize this.
this is not going to happen
what is going to happen is that the GOP is going to win and suffer winner's curse
Gulmar 11:38 04 Oct 11
Gulmar
Main Error in cure of the Third Globe Depression - both in thinking and in action - result from concentrating on economic instruments to repairInstead - on the detection of what false – injurious - poisons the social organism by toxic - extravagance overconsumptionMany economists missing out that to the consumer global "table" sit not just the Americans and others from the highly developed capitalist societyRide upon the others - with the more plentiful people from "emerging markets" in the queue are people from the next “emergences ... "Dissemination of "American way of life" - meaning "abundance society" becomes evident: Ecologically devastating and Socially infeasible for the whole and all nationsThe conflict puts the Mankind to "the wall"We must - And tighten the belts - because ecology does not withstand extravagant overconsumption- And to loosen the belt - because consumer demand is necessary to drive the market economy – without this - as a vehicle with the nature monorail – inescapably derailedAnd also- minimize extensive and dirty techniques and wasteful exploitation of natural processing of natural goods for merchandise- and maximize the intense and clean technologies of adaptation the environment to human needsSolving this dilemmas is a social problem - not technicalBecause - richer must tighten its belt - to give up extravagant overconsumptionA poorer loosen the belt - but not according to patterns of "american way of life" – stratifying socially and degrading environmentally - but more rationalisticAnd all must - replace looting by rescue of nature - the peaceful cohabitation of Humanity from the planetary ecological environmentFocusing attention on the economical repair of economic equipment- In lieu causes of economic disease - loses sight of the fact - that the treatment must begin from withdrawal Toxins by creating more rational model of the progressEconomy which serve the rational needs - but without the winding wasteful economic rivalry prestigious desiresThis is a necessary conditionTo be or not to be of global capitalistic system Trick from these improvement of economic instruments can not be curableThe history of mankind shows that there were civilizations attempting a trick from these categorical order
They were - and - they collapsed
allanda 03:38 04 Oct 11
The modernization of agriculture and the more recent growth of services in the industrial specialization of ‘modern economies’ were mainly caused by a pressure arising from demand for more and better food and for high-quality welfare, legal and financial services (that in turn generated an increasing division of labor between industries with new ones emerging). Thus, workers were not only ‘forced’ out of agriculture, they were mainly pulled out because of a quest for efficiency and because employment growth took place in urban areas (in manufacturing). This different perspective implies that the issue of industrial transformation is not about whether individual workers have the resources to ‘move out’ of manufacturing – even they had, they would not do it (in that case they should have done long ago) – instead the crucial force in changing industrial structure is demand-pull. The conclusion is the same though. Strategic public investment and procurement must (via the generated demand and institutional change) change business incentive structures and take the first leaps towards energy efficiency, less inequality and sustainable development. The main difference between seeing system/structure transformation as being down to individuals or down to locked-in structures is, that even in good times when individuals are powerful they will not be interested in change and they will not have the vision or power to fundamentally change economic structures. That remains a task for the (benevolent) nation state.
JPBulkoMBA 06:04 04 Oct 11
Here's my humble offering of a free market solution to the American Jobs Depression: Launch an Entrepreneurial Blitzkrieg, a mechanism that provides a profit incentive to Wall Street to fund an avalanche of new startup ventures (across a wide range of industries and disciplines)! Details here: http://jpbulko.newsvine.com
Zsolt 10:41 04 Oct 11
The system of economy is simply an external representation of the relationships in between human beings.
It is like going to the doctor's office to have some tests to find out about our general health. Same way looking at the economy we can draw conclusions about the health of our human relationships.
End today the diagnosis is not good.
But when the doctors diagnose a disease they do not start correcting the symptoms or laboratory results, but they try to correct the root of the disease as otherwise we cannot hope for improvement, everything will only get worse.
Until the modern human being is corrected, until we correct how we relate to each other it does not matter what we do with the economy.
Today we are in a very clear split: through evolution and multiple factors the world has become global, we are all interconnected by multiple ties, and we depend on each other 100%. In such a system we cannot continue relating to each other with ruthless competition, only caring about the other to the extent we can exploit them, still caring about self benefit instead of the well being of the whole. The global crisis shows us very clear proof of that all over the world.
If we correct the basics, and establish human connections based on mutual responsibility and cooperation, everyhthing else, politics, economy, culture, sciences and education will automatically adjust to the new foundations.
But if we choose to continue scratching the surface we will continue stumbling from crisis to crisis.
Zsolt 10:43 04 Oct 11
The system of economy is simply an external representation of the relationships in between human beings.
It is like going to the doctor's office to have some tests to find out about our general health. Same way looking at the economy we can draw conclusions about the health of our human relationships.
End today the diagnosis is not good.
But when the doctors diagnose a disease they do not start correcting the symptoms or laboratory results, but they try to correct the root of the disease as otherwise we cannot hope for improvement, everything will only get worse.
Until the modern human being is corrected, until we correct how we relate to each other it does not matter what we do with the economy.
Today we are in a very clear split: through evolution and multiple factors the world has become global, we are all interconnected by multiple ties, and we depend on each other 100%. In such a system we cannot continue relating to each other with ruthless competition, only caring about the other to the extent we can exploit them, still caring about self benefit instead of the well being of the whole. The global crisis shows us very clear proof of that all over the world.
If we correct the basics, and establish human connections based on mutual responsibility and cooperation, everyhthing else, politics, economy, culture, sciences and education will automatically adjust to the new foundations.
But if we choose to continue scratching the surface we will continue stumbling from crisis to crisis.
Topaz 11:17 04 Oct 11
Professsor Stiglitz: What do you make of the huge student loan debtload and sharply rising cost of education in keeping consumer spending frozen? Like the group formed on Facebook "Forgive Student Loans to Stimulate the Economy" I feel that relieving this burden might do more to stimulate movement for small business growth than any Jobs bill ever could. Moreover, as I study and read, I see that economies worldwide are reforming student loan obligations, like in New Zealand cancelling accrued interest because of impossibly harsh terms and high default, just like in housing. Can you comment or address this publicly? Could we do this in the US?
Tony 04:31 05 Oct 11
Hi VictorFB, the roots of the problem is not globalization, but runaway gap of human quality. Globalization is basically a natural and largely inevitable evolution. What is happening right now is the natural feedback to reduce human quality gap to be back in control, which may not be pretty (not in our desired way).
To obtain our desired outcome (vision), we need to manage (control) it ourselves. Control the gap of human quality by sufficient education (quantity and quality), and do not allow population to grow faster than increase in our capacity to provide sufficient education. This is the only way to facilitate social mobility sustainably and peacefully.
Human is the problem, human is the solution.
Share vision, get committed, improve ourselves.
Tony
http://think4sustain.wordpress.com
bluebear 06:37 05 Oct 11
Part of our economy problem is psychological with many factors contributing. One of them which I urge worldwide government economists to change is to stop using the existing marginal measure of GDP to scare everyone and trigger a negative feedback recessionary cycle whenever a quarter’s GDP falls below the previous’.
As is, whenever a GDP relative to the previous quarter goes negative, even by a materially insignificant fraction such as -0.5%, as we all know because of the forward-looking nature of investments and businesses everyone gets terrified by the risks of reduction in future cash flows. Those fears trigger crashes of stock markets and cause businesses and consumers all to cut back spending drastically just to worsen the originally insignificant problem. Such herd economic stampede reaction, from the point of view of someone outside this Earth, looks exceedingly stupid.
One of the possible ways to help is for government economists to stop reporting marginal GDP with rolling reference to the previous quarter and start using a “GDP Index” referenced to the national income level of a fixed past base quarter of a fixed past base year. Instead of, for example, reporting that GDP is –0.5% referenced the immediately previous quarter, tell everyone that, GPD Index of previous quarter points to a national income of, say, 25.0% above a fixed distance prior reference quarter; so that if GDP this quarter goes down by -0.5%, the government report of national income would be at 24.5% above the same fixed distance prior quarter.
Both secant 25.0% and 24.5% GDP Indices sound good positive advancement numbers and their -0.5% difference would, like a tangential GDP difference of, say, 2.5% growth previous quarter and 2.0% growth this quarter and unlike a -0.5% GDP recession, NOT set everyone up for a bipolar destructive run for cover.
Nichol 03:42 05 Oct 11
There is an interesting paradox. Some of these countries championing austerity are also driving the energy transition. Germany is the champion of renewable energy production. Spain has started doing the same with solar energy. The UK with all its austerity does not seem to have stopped the growth of wind and other renewables. And now there is talk of germans helping to finance solar electricity production in Greece.
This is not necessarily inconsistent. If you realize that austerity can be motivated by long-term worries. It seems that you invest in solutions of long-term problems must be taken from short-term spending. But maybe that is a mistake .. as short-term reduction of income may be so severe that it kills the middle-term recovery.
gamesmith94134 02:18 06 Oct 11
gamesmith94134:
Recently, Auto Union is compromising with GM, tha they are allow to hire labor in hourly basis with lesser benefits. In revive the economy may not reestablish the business in the old standard of pay or benefit; it must cut unemployment through the process of sharing that a full-time worker may not be the 40hr/wk ones. If we are not willing to cut pay, work less.
12,000 will be hired in hourly basis--Fr. GM
Gamesmith94134: A quest for job
American must wake up! There is no middle class job for America like 30K available in America; it is the salary for managerial position or higher for Chinese, Indian, or anybody else and it is relatively high in the competitive globalized job markets. At present, the developed nations suffer the insolvency with sovereignty debt that is so high that they cannot even pay on its interests on the bonds that were sold; and those developed nations’ economy is on the brink of collapsing.
The bills of their equities are running on negative, and the pensions were gone after their investments failed to give a cent on return. It is why the fight within our Congress continues with the ceiling to the debts; shot term relief from some project is not going to solve the problem because it adds more to debt and the present employed will lose his job after the project ends.
So, we must face the globalization seriously with the present competitiveness and compatibility in jobs and corporations. First, our government must reinstate the best of our interest to compete with our products and salary; also, we must not allow the corporations to take advantages on the exchange rate with other nations to put us to skid row. I mean they must be taxed highly for its profits; in order to compensate our loss of jobs in its native land; then, outsourcing is not relatively restricted but administrates through the Chamber of Commerce and State Department.
Perhaps, our government must take itself seriously on the patent law that will distinguish on what is discovered and invented from our innovations. Some may think it cheaper to put its patents oversea rather than have its patents maintained in United States. Then, we can claim our innovations clearly and make them worthy especially when it is a product of ‘Made in America’, and manufactured by Americans. If we can acclaim our prestige of its making like the German made knife or Japanese made cars. Any things would rise to the parallel of Boeing airplane, then, American workers can take its bigger share of earning off the profit according to the competitive sales in the global markets.
There are ways our government can do to retain the capacity to compete in the globalized markets, if only we can put away or focus on the profit margin off the corporation, or appeased on the complacency of the tax our government collected. We must look deeper in how we can motivate the investment on the human capitals America holds just because they are consumers to goods and services we created. Otherwise, we may remain anemic if consumers fail.
Our government must restructure itself to make the better use of the taxes and human capitals. It is not just praise on the ideologues on the marketwise profitability because the balance of the monetary capital and human capital must be accountable in the future planning. So, it is not how to compensate the non-achiever in unemployment or pay welfare to the needed. It is how we can make it affordable to sustain a profitable environment to grow both in business and consumers.
The American Think tank must make the restructuring on the tax code and commercial law smarter in the best utilities of the monetary capital and human capitals. After all, money is very limited in our coming years even if we can revive ourselves from the financial crisis; again, please make it “affordable for both the business establishments and consumers”. Only our government can release our economy to grow after it finds its own footing relatively by comparisons to the globalized trading markets or job markets. There is no “dollar rules’ anymore; if we got debts. This is reality and we must be relatively compatible to the globalization on trading markets and job markets.
So, stop reminisce the middle-class of the 30K with $270,000 home; by contrast, most economists should shot at another level on middle-class of 20K and $170,000 housing our economy can return like a dream if more human capital is considered. If they do not have to strive to survive, and, they just live the way their fathers did. Can it be after deflation and depression? Punching its own face is not aiming to look health, it bruises.
May the Buddha bless you?
Gulmar 09:24 06 Oct 11
Gulmar
Main Error in cure of the Third Globe Depression - both in thinking and in action - result from concentrating on economic instruments to repair
Instead - on the detection of what false – injurious - poisons the social organism by toxic - extravagance overconsumption
Many economists missing out that to the consumer global "table" sit not just the Americans and others from the highly developed capitalist society
Ride upon the others - with the more plentiful people from "emerging markets" in the queue are people from the next “emergences ...
"Dissemination of "American way of life" - meaning "abundance society" becomes evident: Ecologically devastating and Socially infeasible for the whole and all nations
The conflict puts the Mankind to "the wall". We must:
- And tighten the belts - because ecology does not withstand extravagant overconsumption
- And to loosen the belt - because consumer demand is necessary to drive the market economy – without this - as a vehicle with the nature monorail – inescapably derailed
And also- minimize extensive and dirty techniques and wasteful exploitation of natural processing of natural goods for merchandise - and maximize the intense and clean technologies of adaptation the environment to human needs
Solving this dilemmas is a social problem - not technical
Because - richer must tighten its belt - to give up extravagant overconsumption
A poorer loosen the belt - but not according to patterns of "american way of life" – stratifying socially and degrading environmentally - but more rationalistic
And all must - replace looting by rescue of nature - the peaceful cohabitation of Humanity from the planetary ecological environment
Focusing attention on the economical repair of economic equipment- in lieu causes of economic disease - loses sight of the fact - that the treatment must begin from withdrawal Toxins by creating more rational model of the progress
Economy which serve the rational needs - but without the winding wasteful economic rivalry prestigious desires
This is a necessary condition To be or not to be of global capitalistic system
Trick from these improvement of economic instruments can not be curable
The history of mankind shows that there were civilizations attempting a trick from these categorical order
They were - and - they collapsed
krotok 02:47 11 Oct 11
In a service economy, technology can no longer fuel growth. Growth relies on demography (stagnant in developped countries) and improvement of human capital by offering health care and education. We need to shift from science and technology research to human sciences research. Better people, not better equipment, will restore growth in developped countries.
Social democracys like Sweden and Quebec (Canada) suffered less from the crisis because large amount of taxes are devoted to health and education.
sooku 05:10 12 Oct 11
Wage Arbitrage: the Rotten Core
The article ignores the massive new phenomenon of wage arbitrage: producing goods for high-wage workers in low-wage countries - in effect, sabotaging your own customers' purchasing power. It is insane to gut employment in your country and expect no reduction in demand.
One solution is to bring the actual societal costs of relentless massive layoffs into corporate accounting. This can be done by means of a layoff tax, say two years' worth of income tax lost as a result of each layoff.
Another solution is to effectively equalize the marginal cost of labor hired in China, say, and the USA. This can be done by a foreign labor tax, equal to the tax that a comparable American worker would have paid to the US.
As long as corporations get a free ride at the expense of society, by leaving government to absorb the cost of layoffs, there can be no solution.
sooku 05:36 12 Oct 11
I am amazed that someone of your stature can make an elementary mistake. In the example you give, replacing a rural job by an urban job does not eliminate tax revenue and spending in this country, but replacing a domestic job by a foreign job causes permanent loss of revenue and spending in the US, while increasing societal costs due to job loss and a weakening economy. I don't understand how a brilliant economist can call the two situations analogous. The difference is substantial and pervasive.
Factified 06:52 21 Oct 11
It's great to see this paragraph; I've been shouting this from the rooftops for a couple of years now:
"But the economy was very sick before the crisis; the housing bubble merely papered over its weaknesses. Without bubble-supported consumption, there would have been a massive shortfall in aggregate demand. Instead, the personal saving rate plunged to 1%, and the bottom 80% of Americans were spending, every year, roughly 110% of their income. Even if the financial sector were fully repaired, and even if these profligate Americans hadn’t learned a lesson about the importance of saving, their consumption would be limited to 100% of their income. So anyone who talks about the consumer “coming back” – even after deleveraging – is living in a fantasy world."
Fixing the financial sector was necessary for economic recovery, but far from sufficient. To understand what needs to be done, we have to understand the economy’s problems before the crisis hit.
Ah, truer words were never spoken. You just sold another one of your books, Dr. Stiglitz!
mhassan 07:06 23 Oct 11
What the Best:
Occupation or reform Wall Street
M. Hassan*
In past years, economic problems led to increased human suffering. Was paid (passive management) for the economy to move towards investments investment in the sectors of earning quick and private investments, indirect, speculation equities, commodities and strategic and are not directed and calculated the consequences of investors and economic authorities together, thus resulting in a state of economic growth, false, or growth of capital for speculative views without creating jobs and new job opportunities and commensurate growth of population in general, and causing increased rates of unemployment. Economic crises and the emergence of multiple and on a global level, including the food crisis caused by raising the price of doubling the proportion of agricultural crops have burdened the poor people that suffer in the origin of the problems of poverty, deprivation and loss of the most basic human rights.
To reduce the size of the crisis called for an international study expanded issued a number of international organizations including the Food and Agriculture Organization of the United Nations and the World Bank and the World Health Organization and the United Nations Environment published in Paris the need to return to methods of production of natural and sustainable, including the use of fertilizers and natural seed and reducing the distances between producer and consumer. Experts also stressed the importance of providing new frameworks to ensure adequate production while at the same time on the water resources, soil, forests and biodiversity[1]
By this, the other hand, led the passive management of the economy to the emergence of financial crises multiple countries with strong economies like today's mortgages that erupted in the United States and the scattered fragments to other economies, European, Asian, and the results of the collapse of large financial institutions and multiple signs of a deep recession pay for raising the rates of poverty are scary.
Effect at all interested in this field (governments and individuals)take action to find logical solutions are applicable according to encourage new insights on the granting of economic crisis, particularly a global food crisis, attention commensurate with the scale of the crisis.
The Solution:
Since in 1636 there were signs of financial crises with the Dutch tulip madness onions, passing through the South Sea Company shares in 1720, with real estate speculation in Chicago 1830,1849, in the mad gold of California, Florida real estate and the stock market, 1920, the end of the crisis with the Great Depression of 1929.
Mad investment returned with larger shares dot-com and Enron. Anyone did not learn with the exception of Warren Buffett, who has sought after real investments as much as he could get, despite losses in its investments with the arrival of financial collapses to the most dangerous stages in 2008
Investors and remained clinging to the owners of the money by mistake, governments remained on its view of economic and financial policies, the blind, that the sinking of all.
Wakes up when the global economy, awaken from the politicians to face the greatest disaster is about to get. Which is the best occupation of Wall Street or reform it?
What gives the occupation of Wall Street. You will achieve the Millennium Goals in 2015?. Will return the money or losing?
Can be the solution to revisit the problem from other angles. Adoption of an updated economic theory designed to address economic imbalances and social and environmental that we are having today.
Economic Integrated Circuits Theory (EIC)[2]
States this theory (as was more integrated economic units, the greater the rates of real growth) and was the objective of developing this theory is to find a package of solutions for group problems. We mean here the problems, crises faced by humanity:
1 - The global food crisis
Facilities through the construction of agricultural production and animal supported by advanced technological solutions.
2 - The unemployment crisis
by providing jobs with high pay
3 - Housing crisis
by integrating workplace accommodation places
4 - The crisis of global warming
the face of climate change by using renewable energy sources
5 - The crisis of water shortage
the introduction of irrigation systems and use advanced and which reduce the rates of waste water to levels exceeding 50%
6 - Financial Crisis
Creation of areas of investment are able to attract investment from investment sectors indirect speculation in stocks and the results of disasters cost the world economies, losses exceeded $ 50 trillion up to now (some estimated 71 trillion dollars) and the reduction credit standing for some countries with stronger economies worldwide such as the United States. And turn the trend towards direct investment in the sectors of community development, and thus achieve economic growth and does not constitute real social basis for future financial crises.
Proposal applications from EIC theory
Ventures anchor re-move the global economies, provide a human right to access to decent housing and health without producing negative environmental effects, with the ability to work to fulfill loans granted in less period of time that these loans in kind and not cash to overcome the problems of financial and administrative corruption prevailing in the circles governmental organizations, and the security situation volatile or poor economic management and ideas insensitive, and management of these loans directly by the administration of the project until the completion of payment through the use of a new mechanism for monitoring and auditing, and contribute to the refinancing of other similar enterprises through these assemblies (strategy of integrated circuits).
Also contributes to this type of loan management reduce the loss of purchasing power of the amounts provided in loans due to high rates of global inflation and in addition to lower currency values (which in turn lead to a decreased number of donors or investors in this type of social economy), to encourage the growing bodies wishing to investment to enter in this type of social investments after ensuring that vulnerable to fluctuations in world prices, whether the currency exchange rates, or prices of materials and goods involved in the establishment and continuity of the projects.
It also encourages the investment projects on building went public to adopt the principle of free economy in the service of social development and not destruction, especially in developing countries a strategy capable of achieving the true interests of their people
These projects contribute to turning the wheel of the global economy through troubled financial institutions to move the remainder of their assets by contributing funding. And factories producing various areas to provide enterprises with raw materials and semi-manufactured and finished. And trade companies, and marketing products for the management of these projects.
One study that has been developed for the investment project is based on (Economic Integrated Circuits Theory) show the possibility to rotate a financial investor of the bank up to 300% per annum of the size of the total amount invested in the project, achieving economic and social growth is too high. And return to the banks and financial institutions balance in the market, and a cause for stability in global financial markets during the first year of starting work in this experiment and giving hope to the poor of this world.
* President of International Programs Group for Development (IPGD). Non-profit project aims to make a drastic change in the methods of teaching, training, preparation and developing of the young generation and works on getting them more chances to compete in the local, regional and international job markets. IPGD aims to fight unemployment by build human capital, energizing economy of the countries through providing free online training courses for the youth in different job fields. The project under construction. www.intrpro.org .
Translation by Google
[1] http://www.dw-world.de/dw/article/0,,3271250,00.html
[2] Economic Integrated Circuits Theory: Book under preparation by M. Hassan
PlanQ2012 02:29 24 Oct 11
Q) What is PlanQ2012?
A) PQ for short, is a peaceful economic initiative
Q) What does it stand for?
A) A Simple tool to help Governments all over the World to pay off debts and raise lots of extra money
Q) How can it do that?
A) By creating a Global Virgin Capital Fund in a new Currency
Q) What is Virgin Capital?
A) Money that has never been in circulation before, additional to what Money there is in circulation at the moment
Q) Is this same as Quantitative Easing?
A) Similar but this new Currency does not belong to any one Government it belongs to all of us
Q) Why do we need a new Currency?
A) To Help regulate all other currencies from Governments who borrow from this Fund, instead from each others
Q) Where is Virgin Capital coming from?
A) It is a bunch of big numbers on a computer, no notes or coins, it's designed for Government Banks only
Q) Why do we need it?
A) To finally Help all people on this Planet and stop our Planet from getting to sick too
Q) Who guarantees the value of this new Currency
A) We all do, our governments are allowed to borrow on our behalf in equal share for each person it has to support $1 or $200k as long as it is divided equal
Q) How is this different from now?
A) Governments issue Bonds that pay a return. Investors buy and sell Bonds at Share markets. Governments that borrowed to much may put investors and other Governments at risk of loosing lots of their Money
Q) Why is this a better solution?
A) The size of the fund is arbitrary, as we all guarantee equal shares, the fund can be distributed evenly and increased any time as needed and agreed. I get $1 you get $1. It's a fairer system that will allow us to invest in important things.
Q) This would create hyper inflation!
A) True, but you can regulate this with borrowing policies. Funds borrowed could be invested in specific projects that would benefit our Planet and Environment. Any government could be limited to borrow just enough for basics until all is equal.
Q) What about Countries at War
A) Funds would be held in trust as long as it takes to regain stability
Q) How does this PlanQ help me?
A) It will create lots of new Jobs, rebuild a healthier and evenly wealthier society and focus our economic recovery on Global sustainability.
It will promote Peace, Prosperity, Equality and Sustainability, words our forefathers valued but we seemed to have forgotten
Q) When will we start PlanQ
A) I already have, the rest is up to each of you
PlanQ2012 Move the World to be a better place!
HansZandvliet 04:24 25 Oct 11
I keep wondering why economists (the valued Prof. Joseph Stiglitz included) have so little thought for the impact of high energy prices on overall economic performance. The fact that any mayor oil price spike of the last four decades has resulted in a (shorter or longer) period of recession, should be empirical cause enough for more scrutiny of the reasons why oil prices remain so stubbornly high, in spite of a faltering economic recovery.
Instead, triple digit oil prices are just taken as a given, without any questions. Likewise economic recovery -after fixing some financial, manufacturing and distribution problems- is taken as a given, without pondering the consequences of further spiking oil prices to this recovering economy.
So why is it, that oil prices remain so stubbornly high? This is a very important question to answer, before we can make any useful diagnosis of the faltering economic recovery. The notion that world oil production has reached (or is very close to reaching) its peak, after which it will start its progressive decline, is not yet a mainstream concept but it is rapidly gaining ground and for good reasons. Just to mention some: -1- various leading oil geologists have forecast peak oil to occur around 2010 (give or take five years); -2- in 1956 Marion King Hubbert (an oil geologist at Shell, Texas) led the way by correctly forecasting that U.S. oil production would peak around 1970 (i.e. 14 years in advance); -3- is it credible that our forecasting skills have deteriorated since Hubbert?; -4- the peak oil concept gives a very credible explanation for the high and volatile oil prices we see today.
However, taking the peak oil concept into account, is like opening Pandora’s box. This concept has such devastating economic consequences, that established economists prefer to keep it at arm's length. Still, depleting oil reserves and dwindling extraction rates (and scores of other natural resources) will not simply disappear by closing our eyes to these physical realities. What we really should be contemplating by now, is how to run an inevitably contracting economy in an orderly manner. Meanwhile, economists (however revered they may be) who keep telling us how to recover production, consumption and perpetual economic growth on a planet of finite size (and hence natural resources), show us just how lost we are in this economic house of smoke and mirrors.
JPBulkoMBA 05:43 25 Oct 11
HansZandvliet makes an essential point! Indeed, we need to develop a new economics based on sustainability, zero or negative growth, and diminishing natural resources. We must conjure up a system that employs and feeds everyone despite a future consisting of constraints and contractions.
Sandeer 07:45 29 Oct 11
As I understand it, the US dollar is in a transition period with its tie to oil.
http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html
Posted: Tuesday, 6 October 2009
To find a cure, we need to review the systems we have created in our development so far. If we view everything as two forces: the egoistic forces of people, countries, and the world and the altruistic force of Nature it will appear very simple. These two forces are in conflict and Nature patiently shows us that we cannot reverse the development process. We must make mutual concessions and come to an agreement of unity, mutual responsibility and love. Thus both the weak and strong camps teach each other how much we need each other.
A new law is being revealed here that is based on the choice of direction, meaning whether we should pull everything toward ourselves at the expense of others, or give to others while receiving life's essentials and caring for the entire system. I think the later direction would be the most beneficial for everyone.
Ecik 02:30 04 Nov 11
"For America and Europe, the need for labor to move out of manufacturing is compounded by shifting comparative advantage: not only is the total number of manufacturing jobs limited globally, but a smaller share of those jobs will be local."
How will we be able to close our current account deficit then? Do you believe that relying on services can help us solve the issue?
joconco 12:13 13 Nov 11
Dr Stiglitz has certainly described the economic condition and the forces driving it further downward for many citizens of this country. However I find in this post and those of some other distinguished economists a focus on describing the status quo without significant discussion of what can or should be done to correct the situation. I agree it is appropriate to identify the factors that have lead us to the current situation, but this has been given many times over on this site and others, and is quite well understood by the public. What is really needed is well constructed proposals that can be acted on by governments, the business community, and approriate associations of concerned citizens that will counter these recessive effects. One action item that could help would be for highly skilled progressive economists, like Dr. Stiglitz and others, to vigorously correct misleading political rhetoric by conservative candidates and current office holders.
Anumakonda 12:52 16 Nov 11
Dr. Joseph E. Stiglitz, your solution for a sound economy: strong government expenditures, aimed at facilitating restructuring, promoting energy conservation, and reducing inequality, and a reform of the global financial system that creates an alternative to the buildup of reserves is indeed the right choice. Thanks for your fine amalysis Nobel Laureate.
Dr.A.Jagadeesh Nellore(AP),India
artejera 05:30 15 Jan 12
Rounding up on the challenges not manageble by politicians:
Oil production decresingElder proportion increasingHuge supply of highly capable, adaptable work force from China and IndiaAccelerated impact of technologyBig capital uncheck by globalization
karen123 01:51 23 Feb 12
I loved the post a lot. This is really great blog, I always find worth reading stuff here. Thanks to writer.
rastanplan 06:34 03 Oct 11
What is strange when we compare this crisis to the previous, is that nowadays we are no longer facing any capital shortage.
Money is virtually infinite in our world and yet most of the productivity gains are captured by capital!
Business Cycles are well explained by the distribution problem, and until we find ways of better redistibute the wealth we create, there is going to be problems and finantial crisis.