Transcript Growth and Equity in a World of Deficits: An Alternative to Austerity

Growth and Equity
in a World of
Deficits:
An Alternative
to Austerity
Joseph E. Stiglitz
Copenhagen
May 13, 2011
OUTLOOK: A DIFFICULT TIME
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World—and especially Europe and America—is
going through a very difficult period
There are some important choices about how to
respond
The choices that are made today will not only
determine what happens now, but are also likely
to have long-run consequences
HOW TO RESPOND?
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One alternative promises:
stronger growth and higher employment today
 faster growth tomorrow
 sustainable growth—consistent with fiscal
responsibility
 it is also consistent with broader social values,
including social solidarity.
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The other alternative:
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promises weaker growth, higher unemployment, and
a more divided society.
DENMARK CAN DRAW ON ITS STRENGTHS
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Denmark is lucky in several respects: its social
model has worked well, it has enabled the
country to avoid the worst effects that afflicted
other countries. All models need constant
readjustment.
As Denmark thinks about the choices it faces, it
should think about preserving what it has
worked so hard to achieve, and think about how
the world got into the mess tin which it finds
itself—basically by following the ideology and
interests and policies of that so-called alternative
LESSONS FROM AMERICA’S EXPERIENCE
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The crisis originated in the U.S.
Pre-crisis policies and the response show one
"alternative"—a model based on austerity,
privatization, deregulation.
LESSONS FROM AMERICA’S EXPERIENCE
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These policies led to the most serious economic
crisis in 75 years—it was man-made
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Decreasing incomes for most Americans
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A more divided, contentious, society
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And the largest peacetime deficits—going
from 2% surplus at the end of Clinton to 10%
deficits today
WHAT CAUSED U.S. DEFICITS? WHAT
TO DO ABOUT THEM?
 Economic

Put America back to work
 Tax
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downturn
cuts for rich
Even though they are the only group that has
prospered over the past thirty years
 Mismanagement
of health care in the name
of "privatization”—no bargaining with drug
companies
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If America had Europe's public health care system,
we would not have any deficit
WHAT CAUSED U.S. DEFICITS? WHAT
TO DO ABOUT THEM?
 Expensive
wars
 Exacerbated
by corporate welfare that
encourages investment abroad but does not
encourage it at home
 Including
giveaways of nation's resources
WHAT IS THE POSITIVE ALTERNATIVE?
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Investments in education and technology and
infrastructure, leading to a more productive
society and labor force, higher incomes
 Recognizing that debt is only one side of a
balance sheet
 A country's most important asset: its people
 Good investments in people short-circuit the
equity-efficiency trade-off
 Competitive advantage with high standards of
living is achieved not throw low wages, but
through high investments (US South—it was
minimum wage that changed growth strategy)
WHAT IS THE POSITIVE ALTERNATIVE?
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Flex-security—combining flexibility with
security, including:
Investments in helping people move from job to
job—an active labor market policy—leading to
 more efficient use of labor
 higher wages
 more risk taking
 more acceptance of openness
WHAT IS THE POSITIVE ALTERNATIVE?
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Changing times may require an adjustment in
the social contract—but adjustments should be
done on basis of "solidarity"
 Taking into account how the economy has been
changing
 Implying some adjustments in taxes,
especially among those at the top (who have
done so well), some adjustments in social
security (retirement ages—but taking note of
the disparate circumstances of different
individuals)
THE OTHER ALTERNATIVE:
AUSTERITY, A DIVIDED SOCIETY
Not a more efficient or faster-growing economy
 Crisis destroyed myth of market fundamentalism
 US social security most efficient insurance
company
 Medicare—keep government hands off of it
 No government has ever wasted money on the
scale of US financial sector
 New York State Public Housing Authority part of
the housing sector that did well—did not engage
in predatory lending
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THE OTHER ALTERNATIVE:
AUSTERITY, A DIVIDED SOCIETY
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Markets are important, but markets alone do not
solve our problems
Austerity will bring decline—experiment that
has been tried (Hoover, IMF)
Even the IMF has realized the mistakes of its
past
VALUES:
BEYOND GDP FETISHISM
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GDP is not a good measure of well being
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Doesn't reflect sustainability
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Doesn't reflect what is happening to most citizens
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Doesn't reflect the broadest aspirations of our
society