Joe Stiglitz: Turn left for growth
I don't necessarily come out at the same place that Joe Stiglitz does in this article, but I thought this article good and worth sharing.
Both the left and the right in the United States say they stand for economic growth. So should voters trying to decide between the two act as if they are choosing between alternative management teams?
If only matters were so easy! Part of the problem concerns luck. America's economy was blessed in the 1990s with low energy prices, a high pace of innovation, and a China offering high-quality goods at decreasing prices - all of which produced low inflation and rapid growth.
President Clinton and then-chairman of the U.S. Federal Reserve Alan Greenspan deserve little credit for this - though, to be sure, bad policies could have messed things up. By contrast, today's problems - high energy and food prices, and a crumbling financial system - have, to a large extent, been brought about by bad policies.
There are, indeed, big differences in growth strategies, which make different outcomes highly likely. For starters, growth is not just a matter of increasing GDP. Growth based on environmental degradation, a debt-financed consumption binge, or the exploitation of scarce natural resources is not sustainable. Growth also must be inclusive; a majority of citizens must benefit. Trickle-down economics does not work: An increase in GDP can actually leave most citizens worse off. America's recent growth was neither economically sustainable nor inclusive. Most Americans are worse off today than seven years ago.
But there need not be a trade-off between inequality and growth. Governments can enhance growth by increasing inclusiveness. A country's most valuable resource is its people. So it is essential to ensure that everyone can live up to their potential, which requires educational opportunities for all.
To which I would add that there are other resources -- what the classical econommists grouped together under the banner of "land " -- including not only the value of our urban land, but our natural resources and many other assets that are like land: electromagnetic spectrum (the airwaves which we say belong to the American people); water rights; airport landing slots (which the USDOT now asserts belong to the American people -- not the airlines), to name a few.
We ought to be sharing the value of all these resources equally among all of us, collecting that value as our common treasure, rather than permitting its privatization under the theory of "finders keepers." We ought to be financing our government spending with that value, and/or investing any excess in a fund, similar to the Alaska Permanent Fund, which pays an annual income to every man, woman and child in that state.
An education which doesn't include familiarity with that idea doesn't get us very far. Opportunities for all means equality with respect to our natural and common resources; education is a small but important part of that.
Back to the article ...
A modern economy also demands risk-taking. Individuals are more willing to take risks if there is a good safety net. Social protection is more efficient than protectionism.
Failure to promote social solidarity can have other costs, not least of which are the communal and private expenditures required to protect property and incarcerate criminals. It is estimated that within a few years, America will have more people working in the security business than in education. A year in prison can cost more than a year at Harvard. The cost of incarcerating two million Americans - one of the highest per capita rates in the world - should be viewed as a subtraction from GDP, yet it is added on.
Perhaps the reason we have as much crime as we do is that people don't have the opportunities they should have, and, while the mechanics of why they don't are largely unknown to most of us, the effects of that deprivation are very obvious. People who in a just society would be contributing members simply can't find their place in our current economy.
Returning to the article,
A second major difference between left and right concerns their respective perceptions of the state's role in promoting development. The left understands that the government's role in providing infrastructure and education, developing technology, and even acting as an entrepreneur is vital. In the 19th century, research at America's government-supported universities provided the basis for the agricultural revolution. More recently, the government laid the foundations for the Internet and the modern biotechnology revolutions.
The final difference may seem odd: The left now understands markets, and the role they can and should play in the economy. The right, especially in America, does not. The new right is really old corporatism in a new guise. These are not libertarians. They believe in a strong state with robust executive powers, but one used in defense of established interests, with little attention to market principles.
The list of examples is long, but it includes subsidies to large corporate farms, tariffs to protect the steel industry and, most recently, the mega bail-outs of Bear Stearns, Fannie Mae and Freddie Mac. But the inconsistency between rhetoric and reality is long-standing: Protectionism expanded under Reagan, including through the imposition of so-called voluntary export restrictions on Japanese cars.
By contrast, the new left is trying to make markets work. Unfettered markets do not operate well on their own - a conclusion reinforced by the current financial debacle. Defenders of markets sometimes admit that they do fail, even disastrously, but claim that markets are "self- correcting." During the Great Depression, similar arguments were heard: Government need not do anything, because markets would restore the economy to full employment in the long run.
Perhaps much of what the current economy needs is a shift from land monopoly capitalism to free market capitalism. The markets might work pretty well if only we taxed that which should be taxed, and untaxed that which should not be taxed! Efficiency would improve greatly.
But, as John Maynard Keynes famously put it, in the long run we are all dead.
But in the meantime, some of us would have accumulated the valuable toys, the ones which our fellow human beings depend on and therefore are willing to pay us for -- and we get to pass the proceeds to our own children, excluding the children of everyone else.
No government can sit idly by as a country goes into recession or depression, even when caused by the excessive greed of bankers or misjudgment of risks by security markets and rating agencies. But if governments are going to pay the economy's hospital bills, they must act to make it less likely that hospitalization will be needed. The right's deregulation mantra was simply wrong, and we are now paying the price. And the price tag - in terms of lost output - will be high, perhaps more than $1.5 trillion in the United States alone.
The right often traces its intellectual parentage to Adam Smith, but while Smith recognized the power of markets, he also recognized their limits. Even in his era, businesses found that they could increase profits more easily by conspiring to raise prices than by producing innovative products more efficiently. There is a need for strong antitrust laws.
Today, in contrast to the right, the left has a coherent agenda that offers not only higher growth, but also social justice. For voters, the choice should be easy.
Between those two options, the choice is clear -- but Georgist reforms provide a third way, a superior one to my mind -- and according to my heart as well.
We can eliminate the boom-bust cycle which plagues us -- that alone is reason enough!
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