Joseph Stiglitz Should Be Heading Obama's Economic Team-- Instead Of Warning Us About Another, Perhaps Worse, Recession

Obama has surrounded himself with a coterie of Wall Street hacks as an economic team. None of them are especially "better" than Republicans. All of them are free-market ideologues who follow the fascistic line pushed as American religion by the DuPonts starting in the 1920s and '30s. Credible economists, like Nobel winners Paul Krugman and Joseph Stiglitz, were excluded from the administration. And now Obama's only chance to win reelection is predicated on the GOP's tendency to nominate someone beyond the pale. Stiglitz wrote about what looks like a coming disaster in Slate earlier today.

Just a few years ago, a powerful ideology-- the belief in free and unfettered markets-- brought the world to the brink of ruin. Even in its heyday, from the early 1980s until 2007, American-style deregulated capitalism brought greater material well-being only to the very richest of the richest country of the world. Indeed, over the course of this ideology's 30-year ascendance, most Americans saw their incomes decline or stagnate.

Moreover, output growth in the United States was not economically sustainable. With so much of U.S. national income going to so few, growth could continue only through consumption financed by a mounting pile of debt.

I was among those who hoped that, somehow, the financial crisis would teach Americans (and others) a lesson about the need for greater equality, stronger regulation, and a better balance between the market and government. Alas, that has not been the case. On the contrary, a resurgence of right-wing economics, driven by ideology and special interests, once again threatens the global economy-- or at least the economies of Europe and North America, where these ideas continue to flourish.

In the United States, this right-wing resurgence, whose adherents evidently seek to repeal the basic laws of math and economics, is threatening to force a default on the national debt. If Congress mandates expenditures that exceed revenues, there will be a deficit, and that deficit has to be financed. Rather than balancing the benefits of each government expenditure program with the costs of raising taxes to finance those benefits, the right seeks to use a sledgehammer-- not allowing the national debt to increase forces expenditures to be limited to taxes.

This leaves open the question of which expenditures get priority. If expenditures to pay interest on the national debt are not prioritized, a default is inevitable. Moreover, to cut back expenditures now, in the midst of a crisis brought on by free-market ideology, would inevitably prolong the downturn.

A decade ago, in the midst of an economic boom, the United States faced a surplus so large that it threatened to eliminate the national debt. Unaffordable tax cuts and wars, a major recession, and soaring health care costs-- fueled in part by the commitment of George W. Bush's administration to giving drug companies free rein in setting prices, even with government money at stake-- quickly transformed a huge surplus into record peacetime deficits.

The remedies to the U.S. deficit follow immediately from this diagnosis: Put America back to work by stimulating the economy; end the mindless wars; rein in military and drug costs; and raise taxes, at least on the very rich. But the right will have none of this, and instead is pushing for even more tax cuts for corporations and the wealthy, together with expenditure cuts in investments and social protection that put the future of the U.S. economy in peril and that shred what remains of the social contract. Meanwhile, the U.S. financial sector has been lobbying hard to free itself of regulations, so that it can return to its previous, disastrously carefree, ways.

...Regrettably, the financial markets and right-wing economists have gotten the problem exactly backward: They believe that austerity produces confidence, and that confidence will produce growth. But austerity undermines growth, worsening the government's fiscal position, or at least yielding less improvement than austerity's advocates promise. On both counts, confidence is undermined, and a downward spiral is set in motion.

Do we really need another costly experiment with ideas that have repeatedly failed? We shouldn't, but increasingly it appears that we will have to endure another one nonetheless. A failure of either Europe or the United States to return to robust growth would be bad for the global economy. The failure of both would be disastrous-- even if the major emerging-market countries have attained self-sustaining growth. Unfortunately, unless wiser heads prevail, that is the way the world is heading.