Europe doing OK, says Stiglitz
Maybe Europe is not lagging behind the US economy so much after all, unlike the common belief of the last decade. Joseph Stiglitz, the American Nobel Prize-winning economist, stresses that gross domestic product is not enough to assess an economy, as its quality depends on what reaches the citizen in the end and the long-term maintenance of yields; the US has not done so well in these areas of late. «Indeed, Europe has been hurt in the last four or five years by the European Central Bank policies that focus exclusively on inflation and not growth or employment,» said Stiglitz, a former adviser to US president Bill Clinton, in an interview with Kathimerini. «But one shouldn’t be overly influenced by what’s happened in the last five years, which gives a more negative view on Europe’s performance,» he suggested, adding that «there are some countries such as Ireland and the Scandinavian states that have done exceptionally well.» At the same time one has to worry about two things in the United States, he noted. «One, that the long-term sustainability may not be there because of the huge debt, and secondly, most Americans are getting worse off. So GDP may be going up but it is true at the same time that most Americans are worse off,» said Stiglitz, who continued, «Is that a successful society?» «Maybe, in terms of actually delivering improvements of well-being to the average citizen, Europe may be doing just as well,» he said, explaining that «this is not even including the fact that Americans worry about losing jobs; if you lose your job in the US you have no healthcare. I think many people in Europe would say that would be unacceptable.» He argues that in the US, GDP growth came along with an increase in poverty, with even the middle classes being worse off. Real wages are stagnating and would have fallen even more were it not for Americans working more and more. «This may be imposing huge costs to the family and social costs, perhaps partially reflected in high level of violence and crime – 10 times higher than in Europe,» he said. Stiglitz therefore calls on Europeans to increase flexibility in the labor market. This should be offset by bigger social safety nets, professional training programs, investments in education and, eventually, a rise in employment; otherwise flexibility will only increase insecurity. He added that attention is needed in foreign currency policy, as no increase in productivity can offset big shifts in exchange rates. Using the Scandinavian example to make his point, Stiglitz noted that its success is recorded not only in strong growth but also through the use of broader criteria. After facing crises in the 1980s, these countries have adjusted their social model over more recent years, choosing to maintain some features that do not conform to classical economic doctrine, such as high taxation policies. «With the improvement of social security networks more risk can be taken, that is entrepreneurship, and in modern technology-based economies, risk taking is required,» he explained. A US war economy After the disillusionment in the «New Economy,» the US is now running a kind of a war economy. Asked about how this economy works and the real cost of the Iraq war, Stiglitz answered that conservative estimates put the cost «at $1-2 trillion, but it’s more than that. It is a very high cost. Because the American economy is rich enough, it hasn’t affected our standard of living that much, but it is more difficult to fund investment in research and development and it will have a negative effect in the future,» he said. «America continues to fight this war because the cost is so low; the cost is high in the long run but in the short run you don’t feel these consequences,» the US economist argued. «Unfortunately, America’s energy policy under the Bush administration is set largely by the oil companies, who are the only beneficiaries of the war in Iraq, and they gain enormously from it,» he stated. President Bush attempted to privatize the US social security system but did not proceed. Stiglitz commented that «the social security problem in the US is not as significant as in Europe and, anyway, almost everybody in the US agrees that privatization was a bad idea. There is no political support, the president stopped talking about it.» Bush had presented one set of figures about the economic situation when he proposed cutting taxes and another set when he promoted the privatization of social security. «He has no problems in being inconsistent,» Stiglitz stressed. He added that healthcare is a long-term problem, but, «again, Bush misrepresented the cost.» He then wondered aloud: «Is Bush a liar or incompetent? Like the war. About the cost of the war, was he lying or incompetent? About the weapons of mass destruction, was he lying or incompetent? Probably both. With [Hurricane] Katrina, the same thing. I mean, there is a pattern here where there is clearly evidence about both lying and, you know…» Energy Another issue is energy and our reliance on fossil fuels. There are two very strong reasons, said Stiglitz: «One is the greenhouse gases, which are clearly a very serious environmental problem. And the second is that the supply of fossil fuels is dominated by the Middle East. Do we want to be dependent on these unstable countries?» He made two suggestions. The first is «reducing demand for energy, being more energy efficient,» he said, citing Japan as an example to follow. The second is alternative energy sources: «There is a whole set of alternative sources; we ought to be going for a diversified portfolio – biofuels, that can have enormous advantages, wind, and you can certainly have safe nuclear power,» he argued, concluding that «eventually, people say, the world will have nuclear fusion. But that won’t happen in the next five years. It’s a 30-year project.» An acclaimed scientist Joseph Stiglitz is professor of economics at Columbia University, USA, and was honored in 2001 with the Nobel Prize for his contribution to the theory of «information asymmetries» on economic relationships. From 1993 to 1997 he was a member of US President Bill Clinton’s Council of Economic Advisers, from 1995 as chairman. In 1997 he became a vice president of the World Bank but was forced to resign in 2000 after his strong criticism of the International Monetary Fund for what he termed its «destructive» handling of the Asian and Russian crises of 1997-98. His writings include scientific publications as well as books for the broader public, including «The Roaring Nineties» that will soon be published in Greece too.
