Politics in the Name of Stimulus

Nobel Prize-winning economist Joseph Stiglitz has serious concerns about the short-term effectiveness of the Bush administration’s economic stimulus package — and the long-term risks it may pose.

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Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics, is the former chairman of the Council of Economic Advisers — a three-member panel that provides the president with economic advice — and former chief economist of the World Bank. He is currently a professor at Columbia University in New York.

MotherJones.com spoke to Stiglitz about his vision for effective economic stimulus and his opinion of the stimulus package being pushed by Republicans in the House of Representatives and supported by the White House.

MotherJones.com: Are you convinced that there is a need for an economic stimulus package of some sort?

Joseph Stiglitz: I think it’s fairly clear there’s a need, though there’s no such thing as a perfect forecast. I think it’s clear that we’re in a recession. Japan is in a recession. Europe’s markets are in trouble.

MJ.com: What should the main characteristics of such a package be?

JS: It’s not likely that monetary policy will be effective. What’s critical is fiscal policy. The two key criteria are: one, that the provisions are timely, meaning that they spark economic growth quickly. And two, that they contain high-multipliers, meaning for every dollar you spend you get a lot of stimulus.

The Republican bill currently on the table is neither timely, nor are the expenditures high-multipliers. It’s unlikely to be very effective in the relevant time frame and a disproportionate amount of the cuts are going to high-income people, who are unlikely to spend money right now.

In terms of investments, the benefits going to firms are based on past investment losses and may serve more as bailouts than new incentives.

MJ.com: What, then, can the Federal Reserve do to jump-start an economy?

JS: I think the Fed is doing the right thing — lowering interest rates in a conservative manner. But what the Bush administration has done has been to make policies that look like they’re merely reducing the surplus, while they’re actually increasing the deficit.

What we’re seeing is a general sense of anxiety over the quality of the management of our economic policy. The markets are reflecting that.

MJ.com: Is there any meaningful way that an economic stimulus package can calm foreign investors’ anxiety?

JS: Much of the strength of the US economy has been based on confidence in the quality of management — confidence that’s been shattered for two reasons.

First, Bush essentially inherited a problem. That is that the American economy was oversold. What was talked up as a boom was a really a bubble. The so-called very good economic management of recent years was, in reality, not that good. The sheen has been taken off of (Federal Reserve Chairman Alan) Greenspan. People are remembering 1991, when we lowered interest rates and still went into a recession. The sheen is gone.

Second, it’s true that Bush has brought confidence in American management to a more reasonable level, but with the Bush tax cut confidence shifted from suspicion to skepticism, because in the Bush tax cut he used soft numbers — unreliable numbers — based on an amazing amount of growth.

His predictions for growth were reminiscent of the false predictions made under Reagan, when tax revenues actually fell as a result of a package that he said would be stimulus. But what you had was an economic team pushing a political agenda under the guise of a stimulus package.

MJ.com: Is that what we’re seeing now in the Republican package?

JS: Yes.

SIX TRUTHS

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Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

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Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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