Joseph Stiglitz's Long-Term Economic Prescription | Big Think

Joseph Stiglitz's Long-Term Economic Prescription

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Joseph Stiglitz’s Short-Term Economic Prescription

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Joseph E. Stiglitz:

A graduate of Amherst College, Joseph E. Stiglitz received his PHD from MIT in 1967, became a full professor at Yale in 1970, and in 1979 was awarded the John Bates Clark Award, given biennially by the American Economic Association to the economist under 40 who has made the most significant contribution to the field. He has taught at Princeton, Stanford, MIT and was the Drummond Professor and a fellow of All Souls College, Oxford. He is now University Professor at Columbia University in New York and Chair of Columbia University's Committee on Global Thought. He is also the co-founder and Executive Director of the Initiative for Policy Dialogue at Columbia. Stiglitz helped create a new branch of economics, "The Economics of Information," exploring the consequences of information asymmetries and pioneering such pivotal concepts as adverse selection and moral hazard, which have now become standard tools not only of theorists, but of policy analysts. In 2001, he was awarded the Nobel Prize in economics for his analyses of markets with asymmetric information, and he was a lead author of the 1995 Report of the Intergovernmental Panel on Climate Change, which shared the 2007 Nobel Peace Prize. His most recent book, The Three Trillion Dollar War: The True Cost of the Iraq Conflict measures the war's opportunity cost to Americans.

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TRANSCRIPT:

Card: What’s your advice for fixing the economy in the short-term?

Stiglitz: The short run is more difficult and I think we have to be recognized. We are in for a long difficult problem. Things have not even reached the bottom. One of the problems that we face is not only that we’ve lost confidence in our financial institutions, we’ve lost confidence in those who are supposed to be managing our economy. I can, you know, tell you for a fact, you know, they were going around Europe, for instance, [IB]… 7 meetings and saying… last may, saying, “We’ve turned the corner, you know, things are turning up. Things are going well.” Clearly, they were either doing a sales job or they didn’t understand but either case, why should anybody listen to these guys again? They’ve been so consistently wrong. So, the… the… there this crisis of confidence, the problems are going to get worse. We’re only about half way through the [IB] housing prices. Housing prices go down, more foreclosures will occur. Half way through, assuming we don’t overshoot, that is to say, when you have a bubble, when the bubble breaks, you don’t typically go back to the normal level, you go further down and then you bounce back up. So things may be even worse than what I just suggested if there is overshooting. Secondly, stakes and localities are facing serious problems, revenues are plummeting. Here in New York, cities in New York State depends very heavily on revenues from the financial sector, it’s plummeted. But stakes and localities depend on what you call a balance budget framework, when revenues go down, they had to cut back expenditures and as they cut back expenditures, the economy goes further down. I said several months ago that the first agenda in stimulus ought to be the make up for the sure fall in this state and… local revenues ‘cause if you don’t, you’re going to have downward pressure on the economy, cut back of services to the poor, cut back of investments that would be the basis of long term economic growth but the Bush administration decided to give a tax cut. They think the tax cut is a solution to every problem, the tax cuts were part of the problem. The problem of America is not that we consumed too little, with the savings rate of zero, how could anybody say that? Yet, that was the solution that the Bush administration put forward. So, the future cut backs in the state and local expenditures are going to depress the economy, as the banking sector faces problems, they’re going to be more reluctant to lend and as people see their houses, price go down, they’re going to be more reluctant to borrow. The lack of transparency means that even banks won’t lend to each other so if there’s a bank with money, it’s not [IB] ‘cause it doesn’t know what the risks that it faces are. So I think we’re… you might say,

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