Must-read: Joe Stiglitz: “Why the Great Malaise of the World Economy Continues in 2016”

Must-Read: Joe Stiglitz: Why the Great Malaise of the World Economy Continues in 2016: “In early 2010, I warned… that… the world risked sliding into what I called a ‘Great Malaise’…

…Unfortunately, I was right: We didn’t do what was needed, and we have ended up precisely where I feared we would… a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity. Those at the top spend far less than those at the bottom, so that as money moves up, demand goes down. And countries like Germany that consistently maintain external surpluses are contributing significantly to the key problem of insufficient global demand…. The U.S. suffers from a milder form of the fiscal austerity prevailing in Europe… some 500,000 fewer people are employed by the public sector in the U.S. than before the crisis. With normal expansion in government employment since 2008, there would have been two million more.

The only cure for the world’s malaise is an increase in aggregate demand. Far-reaching redistribution of income would help, as would deep reform of our financial system–not just to prevent it from imposing harm on the rest of us, but also to get banks and other financial institutions to do what they are supposed to do: match long-term savings to long-term investment needs…. The obstacles the global economy faces are not rooted in economics, but in politics and ideology. The private sector created the inequality and environmental degradation with which we must now reckon. Markets won’t be able to solve these and other critical problems that they have created, or restore prosperity, on their own. Active government policies are needed. That means overcoming deficit fetishism. It makes sense for countries like the U.S. and Germany that can borrow at negative real long-term interest rates to borrow to make the investments that are needed…

January 14, 2016


Brad DeLong
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