Joseph Stiglitz: An Economy without Spare Tires

Nobel laureate economist and Professor at Columbia University Joseph Stiglitz talks to Rob (his former graduate student in the Princeton Econ Department and member of the 2009 UN Stiglitz Commission) about what the pandemic has revealed about the U.S. economy’s shortcomings, and how a proper response to other crises—like climate change—could actually stimulate economic growth and innovation.


Rob Johnson:

I’m here today with Joseph Stiglitz, Nobel Laureate in Economics in 2001, University Professor of economics at Columbia University, and the author of many, many books including his most recent, People, Power and Profits: Progressive Capitalism for an Age of Discontent. Joe also serves as the co-chairman along with Michael Spence of the Commission on Global Economic Transformation that the Institute for a New Economic Thinking underpins and administers. Joe, thanks for joining us today.

Joseph Stiglitz:

Nice to be here.

Rob Johnson:

Joe, I think to begin with, we’re here in the early days of April and what this pandemic represents… I mean, nobody can know. Nobody has a crystal ball for this unprecedented event. There’s no statistical distribution. But there are things we know about policy, behavior of economies, and so forth. What are you seeing is the nature of the challenge from the pandemic and the kind of policy responses, emergency responses you’ve seen around the world, and what would you like to see us do better?

Joseph Stiglitz:

Well, first, this is very different from other economic crises. Those typically arise from an insufficiency of aggregate demand either because there has been a stock market crash, a financial crisis like in 2008, the Fed tightened interest rates too much. It’s an insufficiency of demand that is the normal source of the economic downturn. This begins with COVID-19 and no one wants to go to restaurants, go on the airplane because they don’t want to be near in proximity with other people. And they’re worried about going to work because they don’t want to be in proximity to other people, and thus risk the chance of getting this terrible disease. So it’s both a supply and a demand shock caused by disease.

In a way of where a simple model of the world was one where we have this disease, we put the world on hold, somehow we survive for two months, and then we pick up where we left off, that would be an easy matter. But that’s not the way things play out. People have to live in that interim period. We don’t know how long that interim period is going to be. During the interim period, they’re going to be without a job. Already the unemployment rate has spiked at a more rapid rate than ever and to a level that we’ve not seen since the Great Depression. So there are a lot of people who are going to face a lot of economic stress. Companies are going to have expenses but without revenues. So they’re going to face economic stress.

Some of the ways that our society is organized, our economies are organized, are actually put us in a bad position for addressing effectively the pandemic. And so when we think about the response to the crisis, we need to think about it in three different parts. The first is what can we do to make sure that the health consequences are most contained? That is to say, the contagion is reduced, fewest people will die. The second is how do we help those who are going to be without income, who are going to be very vulnerable. And thirdly, how do we prepare the economy for picking up when the pandemic is put under seemingly control? And what problems will we face in the aftermath as we come to deal with all the things that we’ve done in the process of trying to deal with the crisis.

So let me go through each of them very, very quickly. In the first, United States began in a very bad state. You would have hoped that we were prepared for a crisis. After all we’ve had, this is not the first epidemic. We had Ebola, we had SARS, we had MERS. So we’ve had others, and the Obama administration responded by setting up a White House office to deal pandemics. But then President Trump disbanded that. We’ve had contagious diseases before and the government set up the Centers for Disease Control, but the Trump administration has been defunding that leaving it in a position where it was not able to respond in the way that it should. And that meant the tests for the disease were much less available in the United States than in in other countries. We were in a much less prepared position.

Because we’ve had crises before we know we have to have stockpiles of things that we don’t normally need, but we have to be ready if the time comes. You know when a crisis comes, we almost never have everything we need, but at least we have some items in stockpile. But the Trump administration allowed those stockpiles to be depleted, didn’t restock them. They were focused on the short run, saving money in the short run, and allowed even the ventilators not to be maintained. So again, we were in a much worse shape to respond to the crisis. So you might say our crisis preparedness state was terrible.

There’s a broader issue about the way our whole economy works that we created an economy that is not very resilient. We focused on the short term. It’s like our cars. With our cars, we have in many cars taken off the spare tire. It was extra cost. Normally you don’t need it. Yes, normally you don’t need it. But when you have a flat tire, you really do need it. The cost of not having the spare tire is enormous. And that was the way that we ran our entire economy. We were proud of the fact that we had almost no spare beds in our hospital. All thought well and good as long as you don’t have a crisis. But when you have a crisis, you have a problem.

So the way our shortsighted economy has worked has not put us in good stead for responding to a crisis such as this one. And we’ve seen in both the ability of the Trump administration to respond and the ability of the private sector to respond, great deficiencies. You can ask the question, how can the richest country in the world, supposedly, not be able to produce masks? A relatively simple product. How could they not be able to get an adequate supply of protective gear? We’ve known about the crisis now for a long time and there are still these shortages. So very deep questions are being raised. It’s actually even worse than I’ve just described, and here’s a big distinction between America other countries.

In other countries, standard in advances countries, people get 10 days of paid sick leave. In the United States we don’t. And that means low income people who are sick forced to go to work, spreading the disease. Now Congress recognized the danger and they passed a law providing for paid sick leave. But at the behest of our largest companies, companies making billions of profits a year, they said, “We can’t afford it.” They lobbied successfully so that 80% of employees are exempt from this provision and so they went to work spreading the disease.

So these are some of the elements in, you might call, our healthcare response where we’ve done a deficient job. There are debates over whether at this critical time we will… The federal government, which is where all the resources are, will provide assistance to the hospitals, to the states, which are the front line to providing for healthcare. And the Republican Senate says, “No. Much more important to give aid to the airlines than to help the hospitals or help the states provide healthcare.” Well, that’s a set of prioritizations, but clearly my view that the first prioritization is to try to contain the pandemic. And if you don’t provide adequate healthcare, you won’t be able to do that. So that’s the first part of the provisionings. And after an enormous amount of battle, we got something that’s much better than in the beginning, but is still deficient, particularly in aid to the hospitals and aid to the state and local governments.

The second provision is providing help for the vulnerable, people who are losing their job. The principle that a number of countries in Europe articulated, which was let’s keep people connected with their employer so that when the economy starts, it will be a lot easier to start. Moreover, even more important than in the United States than in other countries, most people get healthcare through their employer. And if that relationship is broken, they may not have access to healthcare. And this is a time when you really want to be sure people have access to healthcare. So, that was the basic idea that Denmark implemented, France, the UK.

We came to it a little late. We’ve tried to do it through a lending program to small businesses which have a large element of debt forgiveness if they keep employment at the same level and comply with some other requirements. Unfortunately, things are not seeming not going very well in that program. It doesn’t look like a United States, in spite of all the money that we poured into the banks, it doesn’t seem like the banks that we turn to to help administer the program are really doing a very good job. They don’t seem to be very interested in helping the small businesses and it seems like it’s not going very well, although it’s just in the preliminary stage. But it is a huge contrast with say Switzerland where they were able to disperse the money very quickly, within a few days. It was clear that we are not able to do that.

Second part of the program for helping the vulnerable are the unemployment insurance programs. Unemployment has increased by some 20 million in three weeks. Our system is not really geared to cope with that rate of increase because we never had anything near that normal. Even in an economic downturn, it might be 300,000 a week, but not 6 million one week, 6 million another week. So it’s well beyond the normal capacities. And there was concern that even this number, 20 million, may be a vast understatement because people can’t get through to the unemployment insurance offices to apply. But even before the crisis, the United States had one of the worst unemployment insurance schemes, both in terms of coverage, that is to say the fraction of the population that is not covered, and in terms of replacement rate, that is what fraction of the income that you lose do you get back under the unemployment insurance system.

We’ve done, again, some big, you might call repairs. Assistance through the unemployment insurance schemes. We brought in people that were not previously in there, like freelancers, gig economy. We topped up what they’re getting by $600 a month. So we’ve done a lot. But again, the question is administrative capacity, are they going to be able to really handle the onslaught? There was a concern that in between the programs of trying to keep people on their jobs, the programs for the unemployment, there’s still people who are going to fall between the cracks. And that was why there was a program to send a check to everybody. $1,200 to every adult, though below a certain level of income.

When the program was first discussed, the President said, “We’ll get the checks out in two weeks.” Well it took them two weeks to even get Congress to shape the program and get it through Congress. Now Treasury says it’s going to take another three weeks for those who paid taxes this year or last year. The problem is the people who we really worry about are those whose incomes are so low that they didn’t file a tax return because they weren’t required to. And there, the administration is talking about not getting checks out to them until maybe August or September. That’s not really providing the assistance that they need. So what we’ve seen is that the bill that was passed, while it had great aspirations, has crashed into the wall of the administrative incompetence of the Trump administration.

Now there’s a third part I’ll talk about very briefly, and that’s the part putting the economy in a good position to recover once the pandemic gets put under control. And what that means is making sure companies don’t go bankrupt, both large companies and small companies. You might say, trying to prevent liquidity crises, providing, federal reserve providing money to people to borrow. Big corporations, small corporations, state and localities. In some of these cases, the issue is liquidity. Clearly financial markets are on an unusual position. But take the case of the states. The problem there is that all the states have balanced budget frameworks, which means that they can’t borrow. That means that if the revenues plummet, as they surely will, they’re going to have to cut back expenditures. It’s not so much that they can’t find sources of funds, they’re just not allowed to borrow.

There’s only one answer. Money from the federal government. And this is where the government, the federal government, the Trump administration refuses to provide the assistance that is necessary. And that means there will be a contraction, there’ll be people unemployed. The economy will be weak as a result of this. So what will be happening is when we emerge from the pandemic that many households, many firms will see their balance sheets weakened. They’ve had to make expenditures, revenues haven’t been there, and their balance sheets have been weakened. That’s going to lead them to reduce their expenditures. There will be some households, small businesses, that are just going to be facing liquidity constraints. They won’t be able to borrow and that too is going to reduce spending. And there’s going to be enormous uncertainty. Not clear whether there’ll be a second pandemic.

… Pandemic, not clear how well the economy is going to recover and all of that will induce precautionary behavior. That will mean investment will be low, consumption will be low and the economy will be weak. And that’s when it’ll be time to have a real stimulus. But it will have to be a stimulus that is very targeted, very timely. Make sure that the money gets to the people who really need it, spend it, and spend it well in a very short order.

So that’s my overall view of where the advanced countries, where particularly in the United States is today. It’s a much better response than when Trump began talking about the need for doing something, he talked about a payroll tax cut or a corporate profits tax. That would’ve been not what we needed. So what we got is not a bad package, not the ideal one, a little late, and more than a little short of what we need, but a lot better than where we began.

Rob Johnson:

I think that’s a wonderful overview, Joe. And I tend to agree with you. Some people are saying now that it’s darkest just before dawn. And the question is, is it going to get darker still? Or are we at the dawn, where the light at the end of the tunnel is well known or foreseeable?

What concerns me when I look at the analogy of war preparation and World War II, is that we came out of the Depression and we had a government through the New Deal that had responded to the benefit of the citizens to such a degree that by the time we got to the war preparation in 1939-40 there was a great deal of regard or trust, trusting in regard for government.

When I look at the era that we’ve just lived in the last 40 years starting… I’ll make the starting point when Ronald Reagan said “Government is the problem, not the solution.” And we’ve had an ideology which some referred to as neoliberalism. You and I talked in 2008 at the time of the Lehman crisis as though that romantic fantasy was now over and we’d get back to a balanced particularly financial sector at the time. And that’s not what happened with the bailouts at a time where I recall quoting you as saying “The polluters got paid.” The cynicism towards governments became very extreme. It spawned both the Occupy Movement on the left, the Tea Party on the right. We had a change of control of the House to the Republican side during the Obama administration, then the Senate and then Donald Trump running around saying the system was rigged, got elected as president.

What I find daunting about this pandemic and a very formidable challenge is that we are, unlike Franklin Roosevelt, engaged in something like war preparation at a time when the despondency and distrust of government is overpowering. And I think there are lessons to learn and transformations and realignment of the we might call balance of power to be considered.

And also as you and I’ve often talked about in the Global Commission, there are a lot of things to talk about, about the role of the nation state in this globalized world, and how that has to be restructured. But I think the thing I most fear right now when I talk about maybe it gets darker… Is that in this void and in this cynicism regarding government, the void gets filled by a more authoritarian structure, an intensification of oligarchy and insensitivity to the population. And I guess the question I’m asking is how do we work together as people, as citizens, as members of the economy? How do we work to evolve things to that more constructive place?

Joseph Stiglitz:

Well, the questions you raised are deeply troubling, and at the center of what our society may look like when we emerge. The way you posed it was really interesting. What would have happened in 1939 if we were attacked in Pearl Harbor, and the response was, “Well this is pretty terrible, but we don’t have confident in our government being able to respond. We don’t think the government knows how to organize armies or organize production.” Would our response have been, “Let’s just surrender.”?

It’s such a dismal view. We’re fighting a war. We’re fighting a war against a pandemic. We’re fighting a war against climate change. We’re fighting a war against not just this health crisis, but a decline in life expectancy in the country as a whole. We’re fighting a war against inequality. And yet there are a lot of people saying, “Well, we can’t turn to the government to fight the war.” And obviously all of us have seen the incompetence of our government and our incompetence of the Bush administration in fighting the Iraq war.

But I think we have no choice but to ask the question. We’re not going to win this war with handguns. We’re not going to win this war each of us on our own. We’re only going to win each of these wars by collective action. And so that means that we have no choice but to think about how do we make our government work? Not perfectly. No human institution is perfect. But we have to make the government work for all of us.

So that means that we have to go back a step and ask the question, well where did things go so wrong? And here I think we have to turn to our politics. And the key point here is the role of money in politics. But it’s not the only problem. The problem is that there are an influential group in our country that do not believe in democracy. A lot of them may be disproportionately wealthy people, but there are other minorities who say “We know what we want is not supported by a majority of Americans, but to get what we want, we have to suppress democracy.”

So we’re talking about abortion, gun control, things like that, that two thirds of American want, but the one third of America who has the other view say so as to get their view, the right to kill carry guns that could kill the other people. They’re willing to let our democracy die. And that means their willing to allow for voter suppression, willing to allow for gerrymandering, disempowerment, “putting democracy in chains.” as Nancy MacLean put it. All kinds of things that really eviscerate our democracy.

And that’s what’s been going on. The only way then that we can respond to that, is with trying to take the money out of politics, but also bringing out into the open this attack on our democracy, and hoping, which I really do believe that the vast majority of Americans do believe in democracy and are willing to fight to maintain our democracy. And that’s the political battle that we will have to be fighting in this year, and I’m sure it’s a battle that will go on over and over again.

Rob Johnson:

I share your concern about the preserving of democracy, and for the broad based public to have the willpower to fight for it. Last night I listened to a podcast that was recorded in 2011 by a man named Stuart Zechman, where he talked about how some unnamed officials that were in the Obama administration said, we’ve got to solve problems. We can’t discuss ideology. We can’t discuss the economy or other things or changing the democracy. We just have to solve problems because if you look at the polls, the American people are very, very disapproving of governance.

And what Zechman unfolded over the course of the podcast was that when you looked at Gallup polls, what they essentially said was this isn’t government control versus private control. It was that very wealthy people in large corporations controlled the government to subsidize themselves to the detriment of the population. And so it wasn’t about the philosophy of governance in document democracy, it was about what we had did not create representation of a broad base of people. That brings to mind what you alluded to, which was the role of money in politics and other forms of control.

But there has to be a sense in which the broad based population uses its collective power, what I call the second currency. There’s dollars and there’s votes. And how we bring votes to bear on changing the architecture and changing the nature of who’s appointed to the courts and so forth… is fighting against a cynicism right now, where some people say that there is no alternative vision right now. And I don’t believe we should be that despairing. But I think it’s a formidable challenge.

And the one place where you and I’ve talked about this, and I think it’s very interesting, is in recent years how many large corporations that exert political influence have seen their debt equity ratio of their liability structure skyrocket as they’ve engaged in stock buy backs to enrich the management. And now we hit this crisis. They’ve got no safety cushion and they’re all complaining that they need bailouts, when they didn’t create a resilient corporate structure because they thought they could… Which you might call raid the public, or the contingent fiscal capacity of the nation.

And my concern now is, unless the structure is changed fundamentally vis a vis money in politics and the influence of large, sophisticated public relations, lobbyists, et cetera, we may be in a situation where the large and powerful want to keep the powder dry and become lobbyists themselves for austerity so that they know the capacity to bail them out is always there.

And I think we’ll learn a lot about what’s happened in this episode about the structure of these supportive funds in bailouts. And my hope and prayer is that it doesn’t increase the despondency and cynicism of the public like Stuart Zechman described in 2011 after the financial crisis of 2008.

Joseph Stiglitz:

Yeah. I share a lot of your concerns. When I was in the Clinton administration, Bob Reich and I talked a lot about corporate welfare. The money that was going from the government to enrich the large corporations. One of the people in the Clinton administration came from finance, was really upset about our use of the word corporate welfare. He thought it was besmirching. Where our view was that you need welfare for vulnerable people but not for rich corporations.

The interesting thing was of course, that his bank and other banks received the largest amounts of corporate welfare in the history of the planet in 2008. And it was very clear even back during Clinton’s administration, that there was a trade off between money that would go to poor people and corporate welfare, money that would go to rich corporation. We said we shouldn’t be giving money to rich corporations, that we should only give it to people.

And here was the point. We argued that giving money to corporations distorted the economy. And one aspect in particular that I was concerned with at the time, was banks that were too big to fail. And if they became too big to fail, that gave them in effect, an entitlement, that gave them an advantage over other companies over other smaller banks who weren’t too big to fail. And they grew not because they were more efficient, but because they had this implicit subsidy.

And this is what’s now become part of the entire corporate sector. The airlines got a huge tax cut in 2017. Delta Airlines didn’t even pay taxes in 2018 if I remember correctly from a New York Times article. These companies, almost a trillion dollars went out in share buybacks. Leaving these companies in a much more vulnerable position. And now we are being asked to bail them out. It is really a kind of corporate welfare, but it’s a corporate welfare that is distorting our economy, making it less productive.

The basic rule of capitalism is that when companies can’t pay what’s owed, they get restructured. The shareholders lose, the bond holders become the new shareholders, but the company goes on, that’s called Chapter 11. Workers don’t have to lose their jobs because the company can continue to produce. So there’s a change in ownership claims and it was exactly the same problem we had in 2008. We confused bailing out the banks and saving the banks, saving the depositors with saving the banks shareholders and saving the bankers themselves. We could have saved the banks, but let the shareholders and the bankers, the rich bankers, the CEOs go. And because we did that wrong, there have been economic and political consequences.

It distorts the economy. But it is that which has given rise to this backlash against government, this view that it’s a rigged system. Now I’m afraid that may happen again. People may be angry. Who was the head of the list of getting aid and who was well behind? The big corporations were at the head of the list, the hospitals and the states that were fighting the Covid, the frontline soldiers, they were at the bottom of the line because they were fighting the war. They weren’t paying the money to get the lobbyists that will get them the money.

So they didn’t get the money. But the big corporations did. And obviously there’ll be a political response that were people who will say the system is rigged. The swamp has never been as full as it is. In the terms of the Trump administration, you know, they wanted this $500 billion slush fund to spend in any way they wanted. No transparency. Nobody would know where the money went until six months later. Congress then said, “No, there’s no way that that could happened.” The Democrats said that no way, and they insist on there being an inspector general.

… and they insisted on there being an inspector general. But now Trump says, “I’m not going to cooperate with the inspector general. But in any case, I’ll appoint the inspector general from my own White House.” So it’s the White House appointee from the White House who’s supposed to make sure that the Treasury doesn’t use the $500 billion as a slush fund to reward the politically connected.

Rob Johnson:

So the fox there is monitoring the chicken coop.

Joseph Stiglitz:

Exactly. And it’s not clear that there won’t be a backlash against that.

But there’s one aspect of what you said that reflects a kind of both shortsightedness on the part of many in the corporate sector, and a deep, deep lack of understanding of economics. If they say, in order to use the expression, keep the powder dry to make sure we have money the next time we need it, if to do that, they insist on austerity, we know what will happen. The consequence of austerity is the economy will be weaker. The result of a weaker economy is that we will be in a poor position to respond to the next crisis when it occurs. So in fact, that kind of austerity would be extraordinarily foolish.

We’ve had these experiments with austerity beginning with Herbert Hoover, on through the Euro crisis, Greece, countries all over the world, always a failure. And yet it seems that it’s difficult for many people to really gather, understand, this lesson.

Sometimes these austerity arguments though are a little bit transparently not based on a belief about the way the economic system works. And this may be more consistent with your perspective. In 2009 and ‘10 and ‘11, it was clear the economy was not recovering quickly from the 2008 financial crisis. And the first stimulus in 2009 did work, but not enough to restore the economy to full employment. Those green shoots that Obama talked about never really flourished. And yet the Republicans refused to support a second measure saying the deficit would increase.

And yet in 2017, when the economy was already near full employment, what do they do? They passed a tax cut for the billionaires, for the corporations, in which a majority, a vast majority of those in the middle would pay higher taxes. And they passed this even though it was known it would result in massive deficits. This year even before the pandemic, it was expected the deficit would be over $1 trillion. And at that moment these Republicans, these deficit hawks seemed to forget about their deficit religion. And so it was a question of value. Money to the corporations, money for the billionaires is worth having a trillion dollar deficit.

So there’s a kind of dishonesty in a lot of this deficit hawkishness. But what I’m afraid of it is exactly what you said, that coming up as we emerge from this pandemic with a large deficit, there will be the same deficit hawks that suddenly get deficit religion again and try to use that as a way of constraining public expenditures that are so important for our society, including to make sure that we are prepared for the next pandemic or the next crisis that we face.

Rob Johnson:

Well as you I think know Joe I started out working on the Senate Budget Committee after graduate school with the Republican Pete Domenici as my boss. And I remember watching David Stockman while I was in graduate school at Princeton at OMB, tried to reduce the spending of the Pentagon and he was disciplined quite aggressively and ended up speaking with William Greider in a famous article in the Atlantic called The Economic Education of David Stockman. God bless Bill Greider who passed away on Christmas day last year.

But this notion of deficit hawk seems to be switched on and off. If one looks at the ratio of federal government debt to GDP in the United States, the times of the greatest velocity of increase are three. First one is Ronald Reagan’s eight years. The second is George W. Bush, not the father, but the son’s eight years. And the third is the first four years of Donald Trump. And so you’ve got to practice what you preach as they say. And as the Sanders-Warren contingent say to me often now, “These people complained about socialism. We’ve already got socialism for the rich.” We’ve socialized the downside, and in the most recent bailout legislation, the question of attaching warrants or equity shares to the public treasury was resisted, including by the CEO of Boeing very vehemently. And these people on the left say… Everybody’s berating Bernie Sanders, but they want to socialize things for the most powerful and in the large sense already have.

This is where my fear of the cynicism of the population about restoring government in its balance of representation, this is where it’s sourced. Because I want to see a design. Perhaps with national elections being publicly funded, a lot more transparency on financial transfers. Maybe even limits on what media corporations who get their license, both radio and television, from the federal government, that they have to allocate some time for political advertisements so representatives and their challengers don’t have to raise so much money. But we’ve got to restore the currency of votes.

And Joe, when I was young, taking courses with various people including yourself, there was the notion that when capitalism is operating, it gets its moral legitimacy from being embedded in and governed by democracy. And it feels like that legitimacy is very-much at risk now, if not in tatters.

Joseph Stiglitz:

Yeah. Those are all concerns I have and that have been brought out very much by the recent legislation. Let me share a little bit of optimism however, that in the debate over this bill that was passed just recently, it began very badly. Proposals for a payroll tax for corporations, proposals for a corporate profits tax, the all-purpose solution to every country’s problems. But the Democrats worked very hard and didn’t get everything that they should have, but what emerged was so much better than what I thought was likely to come out, and an awareness of what is needed.

So there was a sort of clarity about the importance of transparency, accountability, getting money to the people who really need it. Prioritization, a real sensitivity to what our country needed in the midst of this pandemic. So, that’s to me a little bit heartening, that at least one of the two political parties gets it or at least gets it mostly. You know, you don’t expect in this complex society anybody to get everything right and disagreements are going to be part of life. But that they did as well as they did really gives me some comfort.

And recent polls showing that Americans are beginning to grasp that the Trump administration is not managing the pandemic well bodes perhaps well for what may happen in November. Though, if you want moments of pessimism, you don’t have to go very far. The Supreme Court decision on Monday that the election should go ahead, forgetting about the fact that many people had not received the paper ballots that they had requested, that there were only a few polling stations in the whole city of Milwaukee, that people had to risk their lives in order to vote. And the Supreme Court began their decision saying this court is loathe normally to intervene in elections.

Well, this is not normal. This is not a normal time. And it was clearly an amazing beginning to a Supreme Court decision, that they would pretend that these were normal times and that we would go ahead, clearly a partisan decision based on their desire to get as few Democrats out so that their… The election in Wisconsin, they elect the state Supreme Court judges, that a Republican would be elected as a Supreme Court judge.

One of the aspects of Trump that you might say is, I don’t know what the right adjective is. But unlike most people, he doesn’t hide what is really going on in his mind. So he made it very clear, the reason that the Republicans are engaged in voter suppression is that they know that if more people turn out to vote, they won’t do as well. And so he said why should I support something that’s going to hurt… Even though it’s about what democracy is about is letting everybody’s vote count and everybody to vote, he made it very clear that’s not in the Republican’s interests. It was an amazing admission about the nature of American politics at this point in our history.

Rob Johnson:

Yeah. Yeah. Let me shift the focus a little bit, Joe. In our work in the global commission, you have emphasized over and over how the notion, what the economists might call the model of social control through the nation state, is under tremendous pressure. Capital or technology or mobile. I know you were very sensitive to the developments around the Panama Papers. People hide their money offshore and then come back and give sermons about how we can’t afford it, and don’t pay taxes. Technologies, mobile, as we see with the resistance to migration. Human beings as citizens and as a factor of production are nowhere near as mobile. How do we, how would I say, allow for government officials to be able to protect the wellbeing of their citizens in this globalized world where the factors of production, like capital and technology, with wings, can fly off to the places you might say that have the least environmental and labor restrictions and so forth, and therefore the potential for greater profitability for them?

Joseph Stiglitz:

I think this crisis, the pandemic, is going to result in changed perspectives about globalization. You’ve highlighted some of the longstanding concerns about globalization, that it allows money to escape taxation, it undermines attempts to achieve greater equality. It’s contributed to global instability. It’s a race to the bottom. There’s been concerted efforts in those areas. Not a surprise that they haven’t reached fruition. For instance, I’m on a commission trying to push for better taxation among the national corporations so they can’t escape taxation. Companies like Apple that managed to go to Ireland to effectively avoid all taxation and when that was brought out in the open, they went to the Channel Islands. They’re willing to take the benefits of government research but not willing to contribute. They’re willing to take the benefits of our publicly funded education, hiring the wonderful engineers, making a lot of money off of them, but not contribute to our society in proportion to their profits. No moral compass.

So we have a problem. But we know those are problems that we’ve understood and been fighting over to try to create a better working globalization. As I say, the same point on the environment. But the pandemic has opened up another set of dimensions of globalization. Not only do good things go across borders, but bad things like these germs, they don’t carry passports, they don’t carry visas. And like climate change, this is a global problem and needs global solutions so it needs global cooperation.

But one of the things that’s happened since 2017 with the election of Trump, the United States which had been the leader in trying to construct a global rule of law, a global international order that worked, has now attacked the system itself. And it’s been not acting in any way cooperatively. It’s undermining the international rule of law. And that’s a problem. And we’ve now come to understand that the basic political unit remains the nation state. Trump has reminded us that borders matter. The pandemic has reminded us even more that borders matter.

So we’re going to have a big challenge going forward. Saying, in this world where borders still matter, how do we protect our own citizens, and yet take advantage of comparative advantage? How do we create a framework in which we can make the whole global system work more effectively, but at the same time protect our citizens, whether it’s about from global financial instability, or from germs going across a border? But remember, there are some problems like the pandemic, like global warming, that we have to solve on a global basis. And that means we have no choice but to figure out ways that we can cooperate together to solve these common problems.

Rob Johnson:

I think that’s right. I remember years ago, Orville Schell wrote a book called Wealth and Power. And in it he said that the Chinese society…

He said that the Chinese society, formerly the Middle Kingdom, had been wounded by the British invasions related to the Opium Wars and the Japanese invasion in the ’20s, and there was a tremendous energy within China to regain their sense of national identity and prominence.

And he saw that intention with the United States, which is the world leader, and wanting China with a very different system of economy and governance and interaction to essentially emulate America and become part of our multilateral system.

And he saw that as incompatible with the Chinese philosophy in the Chinese ability to regain their stature that they had lost in those two invasions. And I have seen, since the time I read that book, a great deal of deterioration. And then you mentioned the role of Trump in this regard in the U.S.–China relationship.

But I want to underscore what you said, was we can’t solve global public goods problems like climate and like the global transmission of a pandemic without that cooperation. And particularly, with regard to climate, in the longterm, the survival of humankind depends upon that cooperation.

I don’t see it as a choice, but I also am not seeing, again, the light at the end of the tunnel about how we put things back together. On the other hand, when you or I or Mike Spence or whoever go to China, I find it very interesting.

I am concerned about the role of centralizing technology since we’ve had the internet monopolies, the Googles and Facebooks and the like, and how that in the hands of any leader can create a deterioration in the quality of life and an enhanced authoritarian governance, and we all have to grapple with that.

But I see the United States and China needing to work together, and I think you underscored it perfectly. Well, there are two more thoughts I wanted to explore with you today, Joe, and one is kind of woven into all of the issues that we’ve discussed about how ideas will change.

And then finally, this pandemic will, because of its depth and duration and scale, use an awful lot of fiscal capacity. And I hear two sides of an argument. Some will say, “Well, we’ve learned that that free market left to itself doesn’t handle everything, and we’ve got to change the role of governance and step up to climate change.”

And then others will say, “Our fiscal capacity has been used and exhausted and our population is weary from the pandemic. And so let’s just stabilize for a while and rebalance.” On the other hand, the clock is ticking with climate deterioration that the IPCC and others all talk about. How do you see the interaction between the pandemic, the change of mind and the ability to meet climate change?

Joseph Stiglitz:

Well, I would put the emphasis, first, on the change in mind. That we’ve understood the central role of government responding to crises, and the climate change is a crisis. And the market is not capable of responding to what we need leadership and we need the leadership of government to do it.

I’m not worried about the fiscal capacity. What we’ve done doesn’t really… We’re borrowing, but who we borrowing from? We’re borrowing mostly, de facto from the central bank, from the Federal Reserve. What does that mean we’re borrowing from ourselves?

The government is indebted to another branch of the government, which is what the Federal Reserve is. The issues going forward are very clear. If we get the economy moving smoothly, our economic strength going forward will not be changed significantly. So we have the capacity.

We have the tax capacity because we haven’t been taxing the rich, the corporations. We often measure tax capacity on, how much money could we raise over the next 10 years? If we just had a fair tax system, we would be able to raise $5 trillion, $6 trillion, $7 trillion just making the owners of capital pay the same tax as workers.

But if we wanted to have a progressive tax system, we wanted to really close some of the worst loopholes. If we wanted to return the corporate income tax to a reasonable level, not the 21%, but say 28%, if we want to tax pollution. Our capacity to raise additional revenues is enormous, and we would have the capacity to actually address the problems of climate change.

I think addressing climate change would actually stimulate the economy. There’d be new innovation. We’d have to retrofit the economy, that’ll increase aggregate demand. In every respect, that would be good for the economy. Of course, some people are going to lose.

The coal producers are going to lose, but that’s the nature of economic dynamics. When we invented the car, the buggy whip makers lost out. So we could be on the verge of a real era of innovation, recognizing that we’ll have to help those who are in the dying part, the old parcel fuel part of the economy.

But we have the resources to do it, and this pandemic, if we manage it right, won’t really have substantially taken away from those. There are some financial issues, but it’s money that we owe mostly to ourselves and those can be easily resolved.

So I’m optimistic, that if the mindset has changed, if we’ve learned the lesson that we have to prepare for the risks our society face, and the pandemic was one that we didn’t face up to. Climate change is another that we have to face up to.

Rob Johnson:

Yeah. Well, and I want to remind people, after hearing what you just said about the genesis of central banks as an institution, macro stabilization is the recent phenomenon and the lender of last resort came before that Walter Bagehot’s famous book, Lombard Street, underscored what was happening.

But the origin of central banking was driven by the motivation to pull together resources for war fighting. And this pandemic and climate are a war, not against another person, or a human enemy potentially, but they are wars against which we have to mobilize, and the central banks balance sheet is the place, like you say, where we have to borrow from ourselves to make sure that we go on.

And looking at the old histories of the central banks, of the Riksbank in Sweden, Bank of England and so forth, that war mobilization played a very, very important role. So they’re kind of returning to their origins in the current context. Joe, last question for the day.

In the realm of ideas, if you could look into the crystal ball now and see what your grandson will be teaching in economics and the paradigm’s different, describe the paradigm you would like to see him teaching and vehemently believe in, in contrast to today.

Joseph Stiglitz:

I suppose you begin with the central problem of economics, that resources are scarce and that economics requires complex coordination in production, consumption, and making the whole system work. But that we’ll begin with the presumption that not that market will solve that on their own, but that what we need is a rich ecology of different institutional arrangements for solving these problems.

That we will have… Government is really important. Markets will be important. NGOs will be important, civil society, cooperatives, a whole set of institutions. We’ve narrowed our lens to focus mostly on markets with a very limited role for government.

In fact, there are many other kinds of institutions, and the nature, the basic notion of our society is evolution. We’re always changing because we’re facing new challenges and we’re facing new technologies. We’re in the 21st century. It’s so different from the 18th century that Adam Smith wrote about, and yet we often quote Adam Smith as if he is the source of wisdom for the 21st century economy.

So this notion of evolution, meaning that we have to constantly be learning, constantly reassessing, constantly reinventing. And when I talk about innovation, I mean social as well as technological innovations that help us continue the progress that has been the hallmark of the last 250 years.

And one aspect of that progress has to be shared well-being. That’s one of the things that we lost sight of. Just like we go off side of the balance between these different kinds of institutions, an important role of the government of collective action, we also lost sight of the notion of some kind of shared well-being.

And the result of that is a disproportionate part of the wealth of the nation went to a very few at the top. And that, I think, is one of the reasons why we have such discontent today. I think we can have a working democracy only if we succeed in getting our economy to produce this kind of shared well-being.

And I think we will only be able to succeed in getting our economy to work if we succeed in getting our democracy to work. So I view these as two pillars of trying to make our society function for everybody. And that, I hope, will be part of the kind of economics that I hope my grandson will be teaching.

Rob Johnson:

Well, thank you, Joe. Before we sign off, I want to personally, first of all, thank you for today, but also tell the listeners a little bit of my history in knowing you. In 1980, I showed up at Princeton in the fall for a PhD, in large part because my advisors, Charles Kindleberger and Robert Solow at MIT, told me I couldn’t stay at MIT and the place that was on the rise that I should go to was Princeton because there was an economist named Joseph Stiglitz who had arrived there.

And in the second year, you offered a course called Advanced Theory. And once a week, four of us sat with you, not a lot of reading lists, but we would talk about things in derive things with you and read the papers afterwards. At the end of that, you gave a general exam, and the three other guys and I worked furiously to which I might call review what we had done all year.

And we walked in, we sat down and you started the clock and we turned over the paper. And the exam question you gave us was, you’ve spent a lot of years looking at the economics that has been created. And after you finish your general exams, you are going to start being a creator of new research. Let’s get an early start.

And why don’t you begin in these next three hours to talk about what’s in the literature that interests you and what you haven’t seen and what your first research project will be. And we were all a bit stunned because a lot of our preparation had nothing to do with what we were going to do in the next three hours. But it was such a marvelous question.

And years later, I remember working on the Stiglitz Commission with you at the UN, and you and I, we were in a meeting in Malaysia, and we went out to see those two big twin towers. And your book, Globalization and its Discontents, was out. And I watched a couple of young people come up very enthusiastic about meeting you.

They knew who you were and they were very excited. And I said to myself, at that moment, Joe Stiglitz doesn’t teach economics. He teaches creativity and courage. And obviously, the context is economics, but you’ve given a great deal to me, a great deal to the profession, a great deal to INET, and it’s a pleasure to work with you, Joe. Thank you.

Joseph Stiglitz:

Well, thank you, Rob, for those kind words.

Rob Johnson:

So I’m sure we’ll get back on these microphones again as things unfold. But I think we’ve done enough for today, and I look forward to working with you on the global commission to seeing if we can put our shoulders to the wheel and help move things in the directions that you’ve articulated in this session.

Joseph Stiglitz:

I hope so.

Rob Johnson:

Thank you.

Joseph Stiglitz:

Thank you.

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About the Host

ROB JOHNSON serves as President of the Institute for New Economic Thinking.

Johnson is an international investor and consultant to investment funds on issues of portfolio strategy. He recently served on the United Nations Commission of Experts on International Monetary Reform under the Chairmanship of Joseph Stiglitz.


About the Guest

JOSEPH E. STIGLITZ is Co-Chair of INET’s Commission on Global Economic Transformation (CGET), University Professor at Columbia University, the winner of the 2001 Nobel Memorial Prize in Economics, and a lead author of the 1995 IPCC report, which shared the 2007 Nobel Peace Prize. He was chairman of the U.S. Council of Economic Advisors under President Clinton and chief economist and senior vice president of the World Bank for 1997-2000.