7 Minutes with Joseph Stiglitz: Hopes Geithner and Summers Learn from Serious Errors

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Freefall.jpgThis is a seven minute clip of a high substance, politically significant exchange with Nobel Economics Laureate Joseph Stiglitz — who hopes that Obama’s economic team will soon — finally — learn from the serious mistakes they have made.
Stiglitz says that there is a major battle of ideas underway. He said that the belief that markets were self-correcting, efficient, and no need for government was completely wrong. He said that regulation is vital.
Stiglitz also said that the first stimulus package was badly designed, deployed, and inadequate in size. He said that there will need to be another stimulus package — mostly focused on helping the states manage their state budget implosions. Stiglitz said that states face a collective $200 billion shortfall in 2010 and that the employment and program slashing states will do is very de-stimulative.
Stiglitz also said that the bank bailout schemes perversely bailed out the banks that made profits through gambling and did virtually nothing for the smaller community and regional banks that made loans and profits in normal ways. Stiglitz lamented that many of these good institutions that did nothing wrong were the ones allowed to go under.
Joe Stiglitz is worth spending a lot more time than 7 minutes with — and one can do that here by watching a longer presentation with him followed by questions and answers from a New America Foundation audience.
Or, better yet, read his new book, Freefall: America, Free Markets, and the Sinking of the World Economy — which is #81 on Amazon’s list as I write this.
Suffice it to say that the course of ideas that Stiglitz has been advocating are what many who supported Barack Obama thought they would be getting from the administration, but instead of Stiglitzianism, America got Rubinism — not from a team of rivals but from a “team of Rubins.”
— Steve Clemons

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7 comments on “7 Minutes with Joseph Stiglitz: Hopes Geithner and Summers Learn from Serious Errors

  1. David says:

    Thank you for this comment, WigWag. To me it is well worth repeating.
    “Had Gore been elected and had Larry Summers stayed in office it is highly probable that the sovereign debt of the United States would have been entirely retired. Had that occurred, we would be facing an entirely different economic and budgetary climate today. A stimulus bill far larger than the one Obama proposed would have been easily affordable and would have resulted in a federal debt level (as a percentage of GDP) that was inconsequential.”

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  2. WigWag says:

    Stiglitz might be right as a matter of pure economic policy. But how in the world can Washington pass a second stimulus in the middle of a populist economic revolt, with people staring wide-eyed at the 98.2% federal debt WigWag mentions, with beads of cold sweat forming on their foreheads? (Dan Kervick)
    From a political perspective I agree with you, Dan. From an economic perspective I think a second stimulus is a good idea.
    In the aftermath of World War II federal debt was significantly higher than it is now; in 1945 it was 116 percent of GDP and in 1946 it climbed to 121 percent of GDP. Nothing calamitous happened. In fact, it set the stage for the 1950s which was a very prosperous decade (for a variety of reasons that are admittedly not present now). During that decade, federal debt fell rapidly and in 1959 it was 56 percent of GDP.
    In case you’re interested, during World War I federal debt was around 30 percent of GDP; during the Civil War it was also around 30 percent; just after the First Continental Congress it was around 35 percnt of GDP.
    The average federal debt for every year from 1792 to 2010 (anticipated) is 28.36 percent but it hasn’t been as low as the average since the 1930s.
    Here’s a link to federal debt levels by year in case you want to take a look at it;
    http://www.usgovernmentspending.com/federal_debt_chart.html
    In any case, but for the fiscal policy of Rubin/Summers which reduced the federal debt by running surpluses, federal debt would be far higher than it is now.
    They raised taxes on the rich; the eliminated the federal deficit; the reduced the federal debt; they got it right.
    In light of this, I don’t understand why it is so difficult for Steve and others to take a more nuanced approach when evaluating their performance.

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  3. Dan Kervick says:

    Stiglitz might be right as a matter of pure economic policy. But how in the world can Washington pass a second stimulus in the middle of a populist economic revolt, with people staring wide-eyed at the 98.2% federal debt WigWag mentions, with beads of cold sweat forming on their foreheads?
    We could sure use that 1.05 trillion we threw into Iraq over the past eight years. We spent that ghastly amount for what turned out to be no compelling security need, killed thousands of our own soldiers and hundreds of thousands of Iraqis in the process, poisoned and busted up the country and didn’t get dick. Why are George Bush and Dick Cheney still breathing the free air?
    Yes military spending has some stimulative effect. But unlike spending on roads, infrastructure and even durable goods, where the products themselves amount to value-building investments, in addition to whatever ancillary stimulation they provide, the materials of war are mainly blown up in short order. And unless all that blowing up is shoring up the nation’s security, it is as obscenely wasteful as it looks. In Iraq, we just got more blowback, and no enhancement of security as the Saddam-threat turned out to be just another hysterical wingnut vampire-hunt.

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  4. WigWag says:

    “When 2010 ended it was 98.2%.” (WigWag)
    That should read “when 2010 ends it is expected to be 98.2%.”
    I regret the error.

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  5. WigWag says:

    Like Steve Clemons, I think Joe Stiglitz is great; he’s the perfect candidate for Secretary of the Treasury.
    While Obama couldn’t find a job in his Administration for Stiglitz; Bill Clinton gave him not one job but two. First he chaired Clinton’s Council of Economic Advisors and then Clinton gave (to be more precise nominated) Stiglitz for a senior level position at the World Bank.
    While Stiglitz didn’t exactly “endorse” Hillary for President, he did say that if she won, he expected to be part of her Administration; maybe that’s why Obama didn’t like him (source: Stiglitz Interview with Edmond Conway, London Telegraph)
    Once ensconced at the World Bank, Stiglitz bravely and tenaciously attacked the harsh and regressive development policies being pursued by the IMF under its Director, Michel Camdessus. This infuriated Bob Rubin and Larry Summers who did everything they could to get Stiglitz fired. The only reason that Stiglitz kept his job is that Bill Clinton liked him and the head of the World Bank, James Wolfensohn, ran interference for him.
    As much as I like Stiglitz, because of this history it’s only fair to mention that he has a grudge (a well-deserved one) against Larry Summers.
    Steve Clemons and many Washington Note devotees spend alot of time lambasting “Rubinism;” they have a point but I think their approach to Rubin and his progeny is too simplistic.
    First of all, the deregulation movement didn’t start under Rubin/Summers it merely reached its logical conclusion under Rubin/Summers. Massive deregulation first began under the Carter Presidency when the airline industry and long distance telephone business were deregulated and the Interstate Commerce Commission was stripped of many of its powers.
    The move to deregulate the economy accelerated rapidly under Reagan and continued unabated under Bush. Deregulation of the Finance and Banking industry by Rubin/Summers was merely the logical albeit extremely unfortunate conclusion to a quarter century of deregulation. None of this is to say that Rubin and Summers were right to join Phil Gramm and others in eviscerating a regulatory scheme that had served the nation well since the days of Roosevelt. But in fairness, Rubin and Summers engaged in their efforts only after deregulation had become a mantra amongst the public, most politicians of both political parties and a large number of academic economists.
    Secondly, while deregulation of the Finance Sector was a significant proximate cause of the recent meltdown, it was one of many causes not the only cause as so many Rubin/Summers critics seem to assert.
    In fact, there were a myriad of other causes including; increasingly skewed income distribution, a disinclination by Americans to save, a low interest policy adopted by the Federal Reserve, and especially the bizarre and unhealthy trade and currency relationship between the United States and China. None of this is to suggest that Rubin/Summers shouldn’t get some of the blame, just that they shouldn’t get all of the blame.
    Finally and most importantly, if Rubin/Summers are going to be criticized for what they did wrong, they should be praised for what they did right. While their enthusiasm for financial deregulation and their affection for Wall Street were seriously problematic, the fiscal policy they urged (and the President and Congress adopted) was spectacularly good.
    Under the Clinton economic team, marginal tax rates were raised on the wealthiest Americans for the first time in almost a decade. Rubin and Summers championed that policy and it passed the Senate by exactly one vote (the vote of then Senator Bob Kerry of Nebraska).
    Under Rubin/Summers the Clinton Administration did precisely what John Maynard Keynes said should be done in his magnum opus, “the General Theory of Employment, Interest and Money” it ran budget surpluses in times of economic growth. Budget surpluses in times of prosperity had never been achieved by any President since Eisenhower and they proved to be extraordinarily important.
    Rubin and Summers fought off all attempts to squander the budget surplus and even fought off Alan Greenspan who worried what would happen to the power of the Federal Reserve if the sovereign debt of the United States disappeared.
    As a result of their tenacity in demanding that the budget surplus not be squandered, U.S. sovereign debt as a percentage of GDP fell to one of the lowest levels of any developed nation. Federal debt as a percentage of GDP skyrocketed under Reagan and Bush (the first); it fell for the first time in a generation under Clinton and his economic team.
    When Clinton left office, thanks in large part to Rubin and Summers, federal debt as a percentage of GDP was 58.2%. When Bush (the second) left office it was 90.4%. When 2010 ended it was 98.2%.
    Had Gore been elected and had Larry Summers stayed in office it is highly probable that the sovereign debt of the United States would have been entirely retired. Had that occurred, we would be facing an entirely different economic and budgetary climate today. A stimulus bill far larger than the one Obama proposed would have been easily affordable and would have resulted in a federal debt level (as a percentage of GDP) that was inconsequential. Getting out of the mess that we are in now would have been far easier had the Rubin/Summers fiscal policy been maintained. But for the hiatus in growth of the debt during the Clinton years, the stimulus package Obama put in place would have had far worse long range consequences than we are likely to experience.
    So yes, “Rubinism” got it all wrong on deregulation, but got it all right on marginal tax rates and fiscal policy.
    Don’t you think, Steve, that you should give credit where credit is due?

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  6. Carroll says:

    Well I am furious. I wanted to hear this and the fricking audio on my brand new laptop isn’t working! It plays like one sentence at a time then rest for 5 minutes and plays another…damn it .
    Someone tell me the gist of the interview…pretty please

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  7. David says:

    Thank you for posting this interview, Steve. Absolutely essential perspective if we are to actually do something constructive about our economic debacle. The man should be considered a national treasure. The Obama administration has no business not seeing the situation through Stiglitz’s eyes. As you can probably guess, “change of mindset” jumped out at me.

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