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November 24, 2004

Stiglitz on the US economy

I have begun an argument that America's twin deficits mean that the US needs to get its economic house in order. Support for this position comes from Joseph Stiglitz, the Nobel prize-winning economist, in his recently outlined views of what is wrong with the U.S. economy in a speech to the Wharton Investment Management Conference last month.

This post is a paraphrase of The Big Picture's summary of Stiglitz's criticisms of President Bush's economic policies. These are:

President Bush's economic policies have failed to spur growth, while exacerbating rising household indebtedness;

In the last four years, the US has failed the challenge of increased productivity and lost the opportunity it affords to raise living standards. Instead US companies took the path of fewer workers and less hiring;

That meant the US economy limped along losing jobs (net one million new jobs) for the first four-year period of the Bush administration instead of creating something like six million or seven million new jobs. The only part of employment that's growing is the public sector;

The unemployment rate (around 5.4% ) understates job problems as it doesn't include people who have dropped out of the job market and it fails to account for underemployment (that is, people who work part-time, often without benefits, but want full-time work);

The Bush tax cuts failed to stimulate the economy, thereby forcing the Federal Reserve to lower interest rates to historically low levels. Despite this there is still too little business investment;

Companies don't want to borrow -- even at low rates of interest -- because there is still too much excess capacity;

Reducing taxes for wealthy Americans didn't help the economy whilst cutting the corporate dividends tax rate was merely a tax cut for the rich. Some corporations don't pay tax. If these firms pay dividends and those payments are tax exempt for shareholders, then the government never taxes this money;

Instead of lowering the tax on dividends Bush should have provided investment tax credits for companies;

A rather devastating critique don't you think? Gives you cause to worry about the economic policies of the Bush administration does it not? John Quiggin's post about empty containers and the trade deficit provides more support for the argument that the US needs to get its economic house in order.

More reasons to worry. The US spin is that responsibility for the US economic problems lies with others. As Stiglitz shows US policy makers should bear primary responsibility for the US trade deficit.

Posted by Gary Sauer-Thompson at November 24, 2004 07:29 PM

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