From Joe Stiglitz in the FT this morning:
But the real answer, at least for countries such as the US that can borrow at low rates, is simple: use the money to make high-return investments. This will both promote growth and generate tax revenues, lowering debt to gross domestic product ratios in the medium term and increasing debt sustainability. Even given the same budget situation, restructuring spending and taxes towards growth — by lowering payroll taxes, increasing taxes on the rich, as well as lowering taxes for corporations that invest and raising them on those that do not — can improve debt sustainability.
As he then notes:
The politics, however, are elsewhere. Markets know that the mix of low tax and debt fetishism sweeping the North Atlantic means that there are no instruments at hand: monetary policy won't work, fiscal policy is constrained, growth will slow and the improvement in deficits (brought by austerity) will be disappointing.
I think he knows, and I know, the last comment is being generous.
That's the political reality at present. Right wing politics is crippling the market. It's crippling growth. It's crippling hope.
But, as I'll note elsewhere soon, and as Stiglitz hints at in the article, the markets are realising that this political failure exists. To date they have supported the mad policy of austerity. But I think there are beginning to be signs that they no longer do so and that they are realising austerity will fail, as it surely will.
Those of us on the left - like Stiglitz - don't need to change our narrative. We have the right one. But I think what will happen is the markets will join us. When that happens will the politics of the right stand up to a new narrative of intervention? Personally I doubt it.
There has to be hope!
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Stiglitz, with his background at the World Bank and the imposition of Washington Consensus policies, knows that austerity in the form of Structural Adjustment Programmes (SAPS) did not work in the majority of developing countries and they will not work in developed countries. It will be difficult for policymakers so steeped in neoliberalism to turn their backs on this destructive economic paradigm but there is now a chorus of commentators who are asking for this to be done. We need someone with the the visionary political leadership to use the knowledge, skills and experience of these commentators to change direction before our economies sink further into the mire.
For austerity to work, it requires a degree of social confidence and support that is very rare in today’s world….maybe the japanese, or the germans, can pull the trick if needed. But most societies are so divided and suspicious about the objectives of their politicians, that they will resist austerity at every turn, making success almost impossible.
And markets know this.
That is why those who lend to the US would have preferred an increase in taxes on those that have more capacity to contribute…..the chance of success as a measure to balance the budget is much higher.
It was done in the 1930s with Roosevelt’s New Deal, it was done in World War II when all restraints were taken off the economy for the war effort, it was done in both the the United States and Britain when both countries ran huge deficits (UK’s from 1945 to 1960 250% of GDP!) to rebuild their economies and build a post war consensus in the UK for the NHS, the Welfare State and free university education for all. Both countries and most of Europe ran huge deficits to stimulate their economies and lift their countries out of poverty.
It has been done before, with a high degree of success. Why do politicians persist in pretending it can’t be done again? It can and MUST be done again!
Agreed!