Joseph E. Stiglitz's Blog, page 7

A better economic plan for Japan

Japan has been mired in economic malaise for more than two decades – and it is likely to stay there unless it changes tack, dramatically

It’s been a quarter-century since Japan’s asset bubble burst – and a quarter-century of malaise as one “lost decade” has followed another. Some of the criticism of its economic policies is unwarranted. Growth is not an objective in itself; we should be concerned with standards of living. Japan is ahead of the curve in curbing population growth, and productivity has been increasing. Growth in output per working-age person, especially since 2008, has been higher than in the United States, and much higher than in Europe.

Still, the Japanese believe they can do better. I agree. Japan has problems on both the supply and the demand side, and in the real economy and finance. To address them, it needs an economic programme that is more likely to work than the measures policymakers have recently adopted, which have failed to achieve their inflation target, restore confidence, or boost growth to the level desired.

Related: The problem with Japan's high-stakes economic mind game | Alex Hern

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Seven changes needed to save the euro and the EU

Time for EU reform or divorce? Unless Brussels makes seven changes, its members will inevitably conclude they are trapped in an untenable marriage

To say that the eurozone has not been performing well since the 2008 crisis is an understatement. Its member countries have done more poorly than the European Union countries outside the eurozone, and much more poorly than the United States, which was the epicentre of the crisis.

The worst-performing eurozone countries are mired in depression or deep recession; their condition – think of Greece – is worse in many ways than what economies suffered during the Great Depression of the 1930s. The best-performing eurozone members, such as Germany, look good, but only in comparison; and their growth model is partly based on beggar-thy-neighbour policies, whereby success comes at the expense of erstwhile “partners”.

Related: King Canute's lessons for Brexit

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Joseph Stiglitz: The problem with Europe is the euro

In this extract from his new book, the Nobel prize-winning economist argues that if the euro is not radically rethought, Europe could be condemned to decades of broken dreams

Europe, the source of the Enlightenment, the birthplace of modern science, is in crisis. This part of the world, which hosted the Industrial Revolution that led to unprecedented changes in standards of living in the past two centuries, has been experiencing a long period of near-stagnation. GDP per capita (adjusted for inflation) for the eurozone – the countries of Europe that share the euro as their currency – was estimated to be barely higher in 2015 than it was in 2007. Some countries have been in depression for years.

When the US unemployment rate hit 10% in October 2009, most Americans thought that was intolerable. It has since declined to less than 5%. Yet the unemployment rate in the eurozone reached 10% in 2009 as well, and has been stuck in double digits ever since. On average, more than one out of five young people in the labour force are unemployed, but in the worst-hit crisis countries, almost one out of two looking for work can’t find jobs. Dry statistics about youth unemployment carry in them the dashed dreams and aspirations of millions of young Europeans, many of whom have worked and studied hard. They tell us about families split apart, as those who can leave emigrate from their country in search of work. They presage a European future with lower growth and living standards, perhaps for decades to come.

On both sides of the Channel, politics should be directed at understanding the underlying sources of anger

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After the EU vote, it's time for some clear thinking on trade | Joseph Stiglitz

Politics should now be directed at understanding how the establishment could have done so little to address the concerns of citizens

Digesting the full implications of the United Kingdom’s Brexit vote will take Britain, Europe, and the world a long time. The most profound consequences will, of course, depend on the EU’s response to the UK’s withdrawal. Most people initially assumed that the EU would not “cut off its nose to spite its face”: after all, an amicable divorce seems to be in everyone’s interest. But the divorce – as many do – could become messy.

The benefits of trade and economic integration between the UK and EU are mutual, and if the EU took seriously its belief that closer economic integration is better, its leaders would seek to ensure the closest ties possible under the circumstances. But Jean-Claude Juncker, the architect of Luxembourg’s massive corporate tax avoidance schemes and now president of the European commission, is taking a hard line: “Out means out.”

Related: Brexit: EU leaders say UK cannot have 'à la carte' single market

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The new era of monopoly is here

Today’s markets are characterised by the persistence of high monopoly profits

For 200 years, there have been two schools of thought about what determines the distribution of income – and how the economy functions. One, emanating from Adam Smith and 19th-century liberal economists, focuses on competitive markets. The other, cognisant of how Smith’s brand of liberalism leads to rapid concentration of wealth and income, takes as its starting point unfettered markets’ tendency toward monopoly. It is important to understand both, because our views about government policies and existing inequalities are shaped by which of the two schools of thought one believes provides a better description of reality.

For the 19th-century liberals and their latter-day acolytes, because markets are competitive, individuals’ returns are related to their social contributions – their “marginal product”, in the language of economists. Capitalists are rewarded for saving rather than consuming – for their abstinence, in the words of Nassau Senior, one of my predecessors in the Drummond Professorship of Political Economy at Oxford. Differences in income were then related to their ownership of “assets” – human and financial capital. Scholars of inequality thus focused on the determinants of the distribution of assets, including how they are passed on across generations.

Related: Has the global economic growth malaise become the 'new normal'?

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The problem with negative interest rates

In none of the economies attempting the unorthodox experiment of negative interest rates has there been a return to growth and full employment

I wrote at the beginning of January that economic conditions this year were set to be as weak as in 2015, which was the worst year since the global financial crisis erupted in 2008. And, as has happened repeatedly over the last decade, a few months into the year, others’ more optimistic forecasts are being revised downward.

The underlying problem – which has plagued the global economy since the crisis, but has worsened slightly – is lack of global aggregate demand. Now, in response, the European Central Bank (ECB) has stepped up its stimulus, joining the Bank of Japan and a couple of other central banks in showing that the “zero lower bound” – the inability of interest rates to become negative – is a boundary only in the imagination of conventional economists.

Related: Negative interest rates: what you need to know

Related: ECB launches bold measures including negative interest rate to boost eurozone

Related: Bank of Japan launches negative interest rates

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Young people are right to be angry about their financial insecurity

Social injustice on an unprecedented scale, massive inequities and loss of trust in elites define our political moment – and rightly so

Something interesting has emerged in voting patterns on both sides of the Atlantic: young people are voting in ways that are markedly different from their elders. A great divide appears to have opened up, based not so much on income, education or gender, as on the voters’ generation.

There are good reasons for this divide. The lives of both old and young, as they are now lived, are different. Their pasts are different, and so are their prospects. The cold war, for example, was over even before some were born and while others were still children. Words such as socialism do not convey the meaning they once did. If socialism means creating a society where shared concerns are not given short shrift – where people care about other people and the environment in which they live – so be it. Yes, there may have been failed experiments under that rubric a quarter- or half-century ago; but today’s experiments bear no resemblance to those of the past. So the failure of those past experiments says nothing about the new ones.

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Closing the capital drain from emerging markets

The real worry for the global economy is not just falling commodity prices but also huge capital outflows, which hold serious knock-on effects for growth

Developing countries are bracing for a major slowdown this year. According to the UN report World Economic Situation and Prospects 2016, their growth will average only 3.8% this year – the lowest rate since the global financial crisis in 2009 and matched in this century only by the recessionary year of 2001. And what is important to bear in mind is that the slowdown in China and the deep recessions in the Russian Federation and Brazil only explain part of the broad falloff in growth.

True, falling demand for natural resources in China (which accounts for nearly half of global demand for base metals) has had a lot to do with the sharp declines in these prices, which have hit many developing and emerging economies in Latin America and Africa hard. Indeed, the UN report lists 29 economies likely to be badly affected by China’s slowdown. And the collapse of oil prices by more than 60% since July 2014 has undermined the growth prospects of oil exporters.

Related: What's holding back the world economy?

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What's holding back the world economy?

QE and low interest rates have disproportionately created wealth in the financial sector and inflated asset bubbles. It has done little for the real economy. The rules of the market need to be rewritten

Seven years after the global financial crisis erupted in 2008, the world economy continued to stumble in 2015. According to the United Nations’ report World Economic Situation and Prospects 2016, the average growth rate in developed economies has declined by more than 54% since the crisis. An estimated 44 million people are unemployed in developed countries, about 12 million more than in 2007, while inflation has reached its lowest level since the crisis.

More worryingly, advanced countries’ growth rates have also become more volatile. This is surprising, because, as developed economies with fully open capital accounts, they should have benefited from the free flow of capital and international risk sharing – and thus experienced little macroeconomic volatility. Furthermore, social transfers, including unemployment benefits, should have allowed households to stabilise their consumption.

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In 2016, let's hope for better trade agreements - and the death of TPP

The Trans-Pacific Partnership may turn out to be the worst trade agreement in decades

Last year was a memorable one for the global economy. Not only was overall performance disappointing, but profound changes – both for better and for worse – occurred in the global economic system.

Most notable was the Paris climate agreement reached last month. By itself, the agreement is far from enough to limit the increase in global warming to the target of 2ºC above the pre-industrial level. But it did put everyone on notice: the world is moving, inexorably, toward a green economy. One day not too far off, fossil fuels will be largely a thing of the past. So anyone who invests in coal now does so at his or her peril. With more green investments coming to the fore, those financing them will, we should hope, counterbalance powerful lobbying by the coal industry, which is willing to put the world at risk to advance its shortsighted interests.

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