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Sunday, January 02, 2011

Stiglitz: New Year's Hope against Hope

Joseph Stiglitz:

New Year’s Hope against Hope, by Joseph E. Stiglitz: ...It has become fashionable among politicians to preach the virtues of pain and suffering, no doubt because those bearing the brunt of it are those with little voice – the poor and future generations. To get the economy going, some people will, in fact, have to bear some pain, but the increasingly skewed income distribution gives clear guidance to whom this should be: Approximately a quarter of all income in the US now goes to the top 1%, while most Americans’ income is lower today than it was a dozen years ago. Simply put,... should innocent victims and those who gained nothing from fake prosperity really be made to pay even more? ...
Debt restructuring – writing down the debts of homeowners and, in some cases, governments – will be key. It will eventually happen. But delay is very costly – and largely unnecessary. Banks never wanted to admit to their bad loans, and now they don’t want to recognize the losses, at least not until they can adequately recapitalize themselves through their trading profits and the large spread between their high lending rates and rock-bottom borrowing costs. ...
But ... there is life after debt restructuring. No one would wish the trauma that Argentina went through in 1999-2002 on any other country. But ... Argentina’s poverty rate has fallen by some three-quarters from its crisis peak, and the country weathered the global financial crisis far better than the US did...
So this is my hope for the New Year: we stop paying attention to the so-called financial wizards who got us into this mess – and who are now calling for austerity and delayed restructuring – and start using a little common sense. If there is pain to be borne, the brunt of it should be felt by those responsible for the crisis, and those who benefited most from the bubble that preceded it.

Reducing the deficit -- austerity -- is not the real goal of the Pain Caucus, it is only a means to an end. The real goal is to scale back government programs they oppose. If the Pain Caucus thought there was any chance that at all they'd be the ones who end up paying most of the costs of the policies they are calling for through, say, higher taxes, they never would have bothered to try to use the deficit as a means of scaling back government programs in the first place. That the austerity advocates have so little fear that their calls for deficit reduction might result in their having to share in the costs says a lot about the unequal distribution of political power.

    Posted by on Sunday, January 2, 2011 at 03:42 PM in Economics, Financial System, Income Distribution | Permalink  Comments (22)


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