Joe Stiglitz needs to stop making sense

He’s getting in the way of some fantastic right wing nutty rants around the world who believe chopping budgets (and punishing the poor) somehow makes sense. By the time the budget choppers realize their mistake it’s going to be too late. If anyone is looking for places to cut, corporate handouts and the wars in Afghanistan and Iraq sound like much better options. Unfortunately the poor have a really crappy lobbyist program so they’re going to take the brunt of the new nastiness programs.

There’s so much more in this article so click through and read it all. Reading this is frustrating though because Obama has chosen an economic team who are part of our economic problem rather than part of the solution, like Stiglitz.

The result is that, following the attacks by the financial markets on Greece and then Spain, everybody is now in a mood of retrenchment. “It’s not just pre-Keynesian, it’s Hooverite,” he says. By which he means governments are not just refusing to stimulate, they are making cuts, as Herbert Hoover did in the US in 1929 – when he turned the Wall Street Crash into the Great Depression. “Hoover had this idea that, whenever you go into recession, deficits grow, so he decided to go for cuts – which is what the foolish financial markets that got us into this trouble in the first place now want.”

It has become the new received wisdom throughout Europe. But it is the classic error made by those who confuse a household’s economics with those of a national economy.

“If you have a household that can’t pay its debts, you tell it to cut back on spending to free up the cash to pay the debts. But in a national economy, if you cut back on your spending, then economic activity goes down, nobody invests, the amount of tax you take goes down, the amount you pay out in unemployment benefits goes up – and you don’t have enough money to pay your debts.

“The old story is still true: you cut expenditures and the economy goes down. We have lots of experiments which show this, thanks to Herbert Hoover and the IMF,” he adds. The IMF imposed that mistaken policy in Korea, Thailand, Indonesia, Argentina and hosts of other developing countries in the 1980s and 1990s. “So we know what will happen: economies will get weaker, investment will get stymied and it’s a downward vicious spiral. How far down we don’t know – it could be a Japanese malaise. Japan did an experiment just like this in 1997; just as it was recovering, it raised VAT and went into another recession.”


An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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