Joseph E. Stiglitz's Blog, page 8

Inequality is now killing middle America

Life expectancy is now declining for middle-aged white Americans, especially those with a high school education or less

This week, Angus Deaton will receive the Nobel Memorial Prize in Economics “for his analysis of consumption, poverty, and welfare.” Deservedly so. Indeed, soon after the award was announced in October, Deaton published some startling work with Ann Case in the Proceedings of the National Academy of Sciences – research that is at least as newsworthy as the Nobel ceremony.

Analysing a vast amount of data about health and deaths among Americans, Case and Deaton showed declining life expectancy and health for middle-aged white Americans, especially those with a high school education or less. Among the causes were suicide, drugs, and alcoholism.

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Federal Reserve needs to worry about inequality, not inflation

If Fed raises interest rates every time there is a sign of wage growth, workers’ share will be ratcheted down – never recovering what was lost in the downturn

At the end of every August, central bankers and financiers from around the world meet in Jackson Hole, Wyoming, for the US Federal Reserve’s economic symposium. This year, the participants were greeted by a large group of mostly young people, including many African- and Hispanic Americans.

The group was not there so much to protest as to inform. They wanted the assembled policymakers to know that their decisions affect ordinary people, not just the financiers who are worried about what inflation does to the value of their bonds or what interest-rate hikes might do to their stock portfolios. And their green T-shirts were emblazoned with the message that for these Americans, there has been no recovery.

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America is on the wrong side of history

The US has become an obstacle to reshaping international laws for tax, debt and finance, writes Joseph Stiglitz

The Third International Conference on Financing for Development recently convened in Ethiopia’s capital, Addis Ababa. The conference came at a time when developing countries and emerging markets have demonstrated their ability to absorb huge amounts of money productively. Indeed, the tasks that these countries are undertaking – investing in infrastructure (roads, electricity, ports, and much else), building cities that will one day be home to billions, and moving toward a green economy – are truly enormous.

At the same time, there is no shortage of money waiting to be put to productive use. Just a few years ago, Ben Bernanke, then the chairman of the US Federal Reserve Board, talked about a global savings glut. And yet investment projects with high social returns were being starved of funds. That remains true today. The problem, then as now, is that the world’s financial markets, meant to intermediate efficiently between savings and investment opportunities, instead misallocate capital and create risk.

Related: Development finance summit: milestone or millstone for the world's poor?

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Joseph Stiglitz: how I would vote in the Greek referendum

Neither alternative – approval or rejection of the troika’s terms – will be easy, and both carry huge risks

The rising crescendo of bickering and acrimony within Europe might seem to outsiders to be the inevitable result of the bitter endgame playing out between Greece and its creditors. In fact, European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics.

Of course, the economics behind the programme that the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

Related: Greek debt crisis: hopes of last-minute deal on decision day for Alexis Tsipras - live updates

Related: Greece debt crisis: Europe says referendum is euro vs drachma - live

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Sovereign debt needs international supervision

Crisis in Europe is just the latest example of the high costs – for creditors and debtors alike – entailed by the absence of an international rule of law for resolving debt crises

Governments sometimes need to restructure their debts. Otherwise, a country’s economic and political stability may be threatened. But, in the absence of an international rule of law for resolving sovereign defaults, the world pays a higher price than it should for such restructurings. The result is a poorly functioning sovereign-debt market, marked by unnecessary strife and costly delays in addressing problems when they arise.

We are reminded of this time and again. In Argentina, the authorities’ battles with a small number of “investors” (so-called vulture funds) jeopardised an entire debt restructuring agreed to – voluntarily – by an overwhelming majority of the country’s creditors. In Greece, most of the “rescue” funds in the temporary “assistance” programs are allocated for payments to existing creditors, while the country is forced into austerity policies that have contributed mightily to a 25% decline in GDP and have left its population worse off. In Ukraine, the potential political ramifications of sovereign-debt distress are enormous.

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Greece's creditors need a dose of reality – this is no time for European disunion

It cannot benefit Europe to have a country on its periphery alienated from its neighbours, especially during this period geopolitical volatility

EU leaders continue to play a game of brinkmanship with the Greek government. Athens has met its creditors’ demands more than halfway. Yet Germany and Greece’s other creditors continue to demand that the country sign on to a programme proven to be a failure, and that few economists ever thought could, would, or should be implemented.

The swing in Greece’s fiscal position from a large primary deficit to a surplus was almost unprecedented, but the demand that the country achieve a primary surplus of 4.5% of GDP was unconscionable. Unfortunately, at the time that the “troika” – the European commission, the European Central Bank and the International Monetary Fund – first included this irresponsible demand in the international financial programme for Greece, the country’s authorities had no choice but to accede to it.

The troika’s forecasts have been wrong, and repeatedly so

The knowledge that the euro is not a binding commitment will make it far less likely to work the next time

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The secret corporate takeover of trade agreements

Terms such as ‘investor’ and ‘partner’ are taking on new meanings as multinationals manipulate deals to take legal action against sovereign states

The US and the world are engaged in a great debate about new trade agreements. Such pacts used to be called free-trade agreements; in fact, they were managed trade agreements, tailored to corporate interests, largely in the US and the EU. Today, such deals are more often referred to as partnerships, as in the Trans-Pacific Partnership (TPP). But they are not partnerships of equals: the US effectively dictates the terms. Fortunately, America’s “partners” are becoming increasingly resistant.

It is not hard to see why. These agreements go well beyond trade, governing investment and intellectual property as well, imposing fundamental changes to countries’ legal, judicial, and regulatory frameworks, without input or accountability through democratic institutions.

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In defence of the Asian Infrastructure Investment Bank

One would have thought that the AIIB’s launch, and the decision of so many governments to support it, would be a cause for universal celebration

The International Monetary Fund and the World Bank are holding annual meetings, but the big news in global economic governance will not be made in Washington DC in the coming days. Indeed, that news was made last month, when the United Kingdom, Germany, France, and Italy joined more than 30 other countries as founding members of the Asian Infrastructure Investment Bank (AIIB). The $50bn AIIB, launched by China, will help meet Asia’s enormous infrastructure needs, which are well beyond the capacity of today’s institutional arrangements to finance.

One would have thought that the AIIB’s launch, and the decision of so many governments to support it, would be a cause for universal celebration. And for the IMF, the World Bank, and many others, it was. But, puzzlingly, wealthy European countries’ decision to join provoked the ire of American officials. Indeed, one unnamed American source accused the UK of “constant accommodation” of China. Covertly, the United States put pressure on countries around the world to stay away.

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A fair hearing for sovereign debt

A UK ruling on sovereign debt liabilities reminds us that US judges are not the world’s judges

Last July, when United States federal judge Thomas Griesa ruled that Argentina had to repay in full the so-called vulture funds that had bought its sovereign debt at rockbottom prices, the country was forced into default, or “Griesafault”. The decision reverberated far and wide, affecting bonds issued in a variety of jurisdictions, suggesting that US courts held sway over contracts executed in other countries.

Ever since, lawyers and economists have tried to untangle the befuddling implications of Griesa’s decision. Does the authority of US courts really extend beyond America’s borders?

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Europe's economic madness cannot continue

What Europe needs is a reform of the structure of the eurozone itself and a reversal of austerity policies, writes Joseph Stiglitz

At long last, the United States is showing signs of recovery from the crisis that erupted at the end of President George W. Bush’s administration, when the near-implosion of its financial system sent shock waves around the world. But it is not a strong recovery; at best, the gap between where the economy would have been and where it is today is not widening. If it is closing, it is doing so very slowly; the damage wrought by the crisis appears to be long term.

Then again, it could be worse. Across the Atlantic, there are few signs of even a modest US-style recovery: the gap between where Europe is and where it would have been in the absence of the crisis continues to grow. In most European Union countries, per capita GDP is less than it was before the crisis. A lost half-decade is quickly turning into a whole one. Behind the cold statistics, lives are being ruined, dreams are being dashed, and families are falling apart (or not being formed) as stagnation – depression in some places – runs on year after year.

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