by Morgan Rogers and Emily du Houx
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“The most incredible detail of all, the one that reveals just how blunt the Trump con is — his campaign did not even bother to completely remove the wrappers from the steaks they purchased. The steaks still had the labels from the local butcher from which they were purchased.”
“Virtually the entire Republican apparatus will follow Trump sooner or later, because without the voters, they have no power. And those voters have revealed things about the nature of the party that many Republicans prefer to deny. Whatever abstract arguments for conservative policy — and these arguments exist, and a great many people subscribe to them earnestly — on the ground, Republican politics boils down to ethno-nationalistic passions ungoverned by reason. Once a figure has been accepted as a friendly member of their tribe, there is no level of absurdity to which he can stoop that would discredit him. And since reason cannot penetrate the crude tribalism that animates Republicans, it follows that nothing President Obama could have proposed on economic stimulus, health care, or deficits could have avoided the paroxysms of rage that faced him.
“The paranoid mendacity of Joe McCarthy, the racial pandering of Barry Goldwater, Richard Nixon, and George Bush, the jingoism and anti-intellectualism of Ronald Reagan, George W. Bush, and Sarah Palin — all these forces have embodied the essence of American conservative politics as it is actually practiced (rather than as conservative intellectuals like to imagine it). Trump has finally turned that which was always there against itself.”
In the ongoing conversation about the growing divide between the rich and poor, there are few voices as prominent as the Columbia professor Joseph Stiglitz, a Nobel-winning economist and a former chairman of the Council of Economic Advisors.
In 2015 alone, Stiglitz wrote two books on the topic, The Great Divide and Rewriting the Rules of the American Economy, based on years of research and expertise about the intersection of economic theory, markets, and policy. Each book highlights a series of problems and challenges that have led to the current state of economic inequality: a faulty tax code that rewards the rich and hampers the poor, an increase in behavior that boosts the economic gains of only a few while extracting more capital from the majority, and a misplaced focus on altering the economy in a way that benefits shareholders, executives, and investors, but not the average worker.
Joseph Stiglitz: The observation you have is what most people are experiencing. GDP is just the sum total of the output of the economy, it doesn’t say how much of that is going into whose pocket. In the first three years of the recovery, 91 percent of all gains went to the top 1 percent. So the bottom 99 percent saw nothing. Many were actually becoming worse off: Their balance sheet had been destroyed, their major asset has been their home and the value of their home had gone down anywhere from 20 to 50 percent. Then came QE [quantitative easing of interest rates by the Fed], and it created a stock-market but the average American has very little in the stock market. Overall ownership of stocks, is much more concentrated than the concentration of wealth itself, so QE was basically a gift to the 1 percent.
The people at the bottom are not doing very well, and wealth inequality, in that sense, has gotten worse.
White: You were a vocal Janet Yellen supporter for Fed chair … Is the Fed moving monetary policy in a direction that helps the average American right now?
Stiglitz: … Now they know that 4.9 isn’t full employment, there’s weak labor market. They should have focused more on improving the channel of credit to make sure that money was going to small and medium-sized enterprises They should have said to the bank—like some other countries have done—if you want access to the Fed window you have to be lending to SMEs. You have to be making sure the money isn’t going to land speculation, real-estate speculation, not going abroad, not going to hedge funds, and so forth. Whether Janet could have done this on her own, I don’t know, but she was following the standard macroeconomics view that asks how deep is the downturn and then using the one set of instruments they have, which is lowering or raising interest rates. The interest rate is not the right issue, the real issue is making sure credit is available to expand the economy. Just using the interest rate is not going to have a first-order effect on the economy as a whole. You’re encouraging people not to focus on the really critical thing.
White: So are you not at all concerned about negative interest rates?
Stiglitz: Well that’s a continuation of this single-minded focus. Lowering the interest from 5 percent to 0 didn’t bring a robust recovery. Lowering it from 0 to minus 1/2 percent isn’t going to do it either. And as you start getting to these very low interest rates, you introduce some distortions into the economy. There’s some evidence from some European countries that it actually led to less lending activity. They’re just focusing on this one variable as if it was a magical number, and I think it would be great if every American small business could go out and borrow at a negative interest rate, we would have a recovery. But that’s not the interest rate that they’re facing.
White: Early on in The Great Divide you ask who is to blame for the crisis and the inequality that grew after it. One of the answers you say are economists. To what extent do you feel economist and economic theory is culpable for the crisis? What is the role of an economist going forward?
Stiglitz: The prevalent ideology—when I say prevalent it’s not all economists— held that markets were basically efficient, that they were stable. You had people like Greenspan and Bernanke saying things like “markets don’t generate bubbles.” They had precise models that were precisely wrong and gave them confidence in theories that led to the policies that were responsible for the crisis, and responsible for the growth in inequality. Alternative theories would have led to very different policies. For instance, the tax cut in 2001 and 2003 under President Bush. Economists that are very widely respected were cutting taxes at the top, increasing inequality in our society when what we needed was just the opposite. Most of the models used by economists ignored inequality. They pretended that macroeconomy was unaffected by inequality. I think that was totally wrong. The strange thing about the economics profession over the last 35 year is that there has been two strands: One very strongly focusing on the limitations of the market, and then another saying how wonderful markets were. Unfortunately too much attention was being paid to that second strand.
What can we do about it? We’ve had this very strong strand that is focused on the limitations and market imperfections. A very large fraction of the younger people, this is what they want to work on. It’s very hard to persuade a young person who has seen the Great Recession, who has seen all the problems with inequality, to tell them inequality is not important and that markets are always efficient. They’d think you’re crazy.
White: If you had to pick the biggest area of concern when it comes to inequality. What would it be and what would be the first step for fixing it?
Stiglitz: I think the change in labor law that has weakened bargaining rights of workers obviously has a very adverse effect. But there are two major things I would focus on: one is education. When you don’t have equality of opportunity because you don’t have equal access to education, it just seems so outrageous …
The second major issue: 50 years after the march on Washington, 150 years after the end of slavery, we still are suffering from the legacy of that, and we have problems of inclusion. Racial inclusion, gender inclusion, and that dimension of inequality is so undermining of our society.
In December, Gallup asked 824 U.S. adults this question: “In your opinion, which of the following will be the biggest threat to the country in the future — big business, big labor or big government?”
Sixty-nine percent responded “big government.” That was down from 72 percent in 2013, but otherwise higher than at any other time Gallup has asked.
What exactly has big government done to these people?
The article includes some links like,
Hacker and Pierson’s new book is aimed directly at this fantasy, but I’m torn on whether it will do much to dispel it. Hacker is a professor at Yale who first came to national attention with his 2006 book, “The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream,” which described how governments and businesses had shifted retirement and health-care risks onto the backs of families. In 2010 he collaborated with Pierson, a professor at the University of California at Berkeley, on “Winner-Take-All Politics: How Washington Made the Rich Richer — and Turned Its Back on the Middle Class,” a book that I liked a whole lot.
Justin Fox’s book, The Myth of the Rational Market, is a succinct history of the power, creation and destruction of ideas and some of the wreckage that goes with it and “describes with insight and wit the rise and fall of the world’s most influential investing idea: the efficient markets theory … Carries readers from the earliest days of Wall Street to the current financial crisis, debunking the long-held myth that the stock market [representative of markets in general] is always right in the process while intelligently exploring the replacement theory of behavioral economics.”
[The government and OBR] believe that austerity generates growth and so cuts the deficit. The trouble for them is that all the evidence shows that the opposite is true: cuts shrink national income and government spending increases it.
This has attracted cheap abuse from some… Such abuse is wrong, and misses the point. It’s wrong, because – in the context he is writing about – Richard is right to claim that fiscal multipliers are big. There’s widespread agreement (pdf) that multipliers are bigger in recessions (pdf) than in normal times. For example, Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo say (pdf):
The government-spending multiplier can be much larger than one when the zero lower bound on the nominal interest rate binds.
The fact that Osborne’s austerity has failed to cut the deficit as much as expected is wholly consistent with this. Bigger multipliers than Osborne assumed meant that austerity depressed output by more than he expected thus making it harder to reduce borrowing.
The political point is that Labour supporters should not rely upon a big multiplier as a case for fiscal expansion. And … Lots of leftist policies … can be designed without reliance upon fragile claims about the macroeconomy.
And not all ethical considerations need short- or medium-term macroeconomic validation. But as proposed in my book, Unicycle, if nature has an ethical sense of direction, and markets are necessarily rooted in nature, then there is a right way to go in macro.
May the results go far!
by Barack Obama, op-ed, FT (paywall)
… Today the G20 faces another challenge. While the global economy is growing, it is growing too slowly. … That is why, at next week’s summit, my message will be clear: we have to take action to strengthen growth in a way that benefits all our people.
Specifically, there are five areas in which we can act.
First, our countries have to implement fiscal policy that supports short-term demand and invests in our future. …
Second, our countries have to take action to boost demand by putting more money into the pockets of middle-class consumers who drive growth. …
Third, our countries can foster more inclusive growth by lowering barriers to entering the labor force. …
Fourth, we can support more inclusive growth with high-standard trade agreements that actually benefit the middle class. …
Fifth, the world agrees on the need for greater public investment, especially where interest rates are low. That is why I am pushing Congress to create jobs today and tomorrow by adopting a long-term infrastructure plan this year.
Furthermore, public investment often jump-starts private investment. …
And in the Financial Times, so heads up Austere Tories; take heart True Labour! Government should be an expression of community, not the “necessary evil” that many on both sides of many arguments historically believe. A healthy community needs us to be involved in cultivating good government globally and regionally. Good government does not waste money on those who are already doing well and who may well know who needs it most. ‘Nough said, again.