A bipartisan group of senators is trying to work out a deal to bring down the federal deficit. All their approaches share the stated goal of reducing dependence on borrowing. Nobel Prize-winning economist Joseph Stiglitz tells Steve Inskeep that those approaches miss the point in a recent National Public Radio (NPR) interview.
RENEE MONTAGNE, host:
Next, we'll hear an alternative view of the debate over the federal budget.
STEVE INSKEEP, host:
House Republicans and President Obama have offered competing plans to bring down the deficit.
MONTAGNE: A bipartisan group of senators is trying to work out a deal.
INSKEEP: All of their approaches share the stated goal of reducing federal dependence on borrowing over time. And Nobel Prize-winning economist Joseph Stiglitz contends that all these approaches miss the point.
Mr. JOSEPH STIGLITZ (Economist): The most important thing for addressing the deficit is putting America back to work.
INSKEEP: Stiglitz wants to create more jobs, even if the nation builds up more debt.
Mr. STIGLITZ: If you're spending money for investments that increase the productivity of the economy - infrastructure, technology, education - that has two effects. It grows the economy today, puts people back to work, but it also increases the future potential output of the economy. And when you increase output, both today and in the future, that means more tax revenues, and that means it's money well spent, even from the narrow fiscal perspective.
INSKEEP: Mr. Stiglitz, isn't that the flip side of the Republican argument - or the conservative argument, let us say - which essentially is if you want to make the economy grow, cut taxes and ultimately the people will invest the money and there'll be so much more economic growth, you'll get more tax revenue coming in. Isn't that the same argument?
Mr. STIGLITZ: It sounds a little bit similar, and it - you know, all economists talk about demand and supply, but then you have to look at more detail, at the underlying hypotheses. So what they say is that if we only lowered tax rates a little bit more, tax the billionaires a little bit less, they would work more.
But the tax rates were lowered by President Bush. Did savings increase? No. The national savings rate went down, plummeted close to zero - some quarters it was actually negative. The evidence is very clear that those supply side effects on savings just aren't there.
INSKEEP: Does the argument for government investments, the argument you're making here, have the same basic weakness as the argument for tax cuts to spur the economy? Because in both cases what you're saying is I want to do something very definite and concrete now that will very definitely increase the deficit right now, in the hopes that eventually some of that money will be coming back, but I can't really be sure about that part.
Mr. STIGLITZ: Well, nothing in economic policy is ever done with certainty, so we have to do the best we can based on past experience, analytic studies. Right now the United States you might say is in a lucky position because we've underinvested in infrastructure, technology, education.
One concrete example, in 2000 we knew what were some of the key things we needed to invest in infrastructure. One of the things at the very top of the list were the levies in New Orleans. If we had made that few-billion-dollar investment that the engineers said we needed, we would have saved a couple hundred billions of dollars and our economy would have saved even more.
INSKEEP: So would you argue for running up even higher deficits than the ones we have now?
Mr. STIGLITZ: Yes, I would. I mean I - let's be frank about it. We are going to be running up deficits no matter what we do. But if we go into mindless austerity cutbacks, our deficits are not going to go down as fast as those people who argue for it claim. Because what's going to happen is, the economy is going to get weaker, tax revenues will go down, more people will be unemployed, expenditure for unemployment insurance will go up, expenditure for welfare payments will go up, and the savings in the deficit will be much smaller than they anticipated. We're already seeing, you might say examples, case studies, of this. The U.K. began its austerity package and the economy has gone into a double dip.
INSKEEP: Well, let me ask about that, because as I'm sure you know very well Standard and Poor's, the rating agency, has in recent weeks issued a warning about the security, the safety, of U.S. government debt. I wonder if the United States really doesn't have much of a choice in this matter for very much longer.
Mr. STIGLITZ: Yeah, that's sheer nonsense. First of all, we should say the S&P and the other rating agencies really have lost their credibility. They gave the A ratings to the subprime securities that brought our economy down. And if anybody, after that, really pays much attention to them, I find it actually striking.
We can't ignore the deficit. I mean, that's correct. The real question is we have to address it in an intelligent way. And an intelligent way means invest in the future, and grow the economy today. And a mindless response will actually put us in the road to those who lend to us not being willing to lend to us, because our economy will be weak.
INSKEEP: I wonder what you think of the proposals that, if I may, try to couple a mindful response with the mindless response. The White House, among others, there are various plans out there, that include some kind of trigger. If Congress doesn't figure out how they're going to reduce the deficit, automatic cuts begin kicking in, in order to provide them an incentive to do things in a thoughtful way. Would you favor that?
Mr. STIGLITZ: I haven't made up my mind on that. The reason is, across-the-board cuts are not an intelligent way of doing things. It's easy for a lot of people because it says we're not going to have to make the decisions, we're not going to have to annoy agribusiness that likes the ethanol subsidies, the oil and coal companies that enjoy the tax benefits. But I think we have to, unfortunately, annoy some people, and we have to make some of these painful political decisions. I think this is a little bit of a cop-out.
INSKEEP: You seem to think, based on your writings, that the political process here is being driven by a bunch of short-sighted rich people.
Mr. STIGLITZ: I think that's right. But it's more than that. There's ideology playing a very important role. Part of what is going on, you see it very clearly in some of the proposals for deficit reduction, is that they're really almost designed to cut back on the core functions of government.
So they're not asking the question, what kind of society do we want to create and how do we get there? What is the appropriate role of government and what does that cost and how do we best finance that?
There's certain things that we really do need government for. If we want to have a more equal society, we have to have public education. Quality of life, important to have livable cities, important to have parks. Rich people can have a big back yard, they can live in an isolated, gated community. Most Americans can't afford that, so we have to have public parks. That costs money. And we can go down the line and we can get a vision of what it is that is necessary to make our economy the kind of society that we want. We need to have a - as I say, a vision of what it is that we need the government to do. But it's not a question of the size of the government, it's a question of what it does, and that's what we need to have a national conversation about.
INSKEEP: Well, Joe Stiglitz, thanks very much.
Mr. STIGLITZ: Well, thank you.
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INSKEEP: Joseph Stiglitz, one of many voices we have heard and will hear on the deficit. He served as chairman of the council of economic advisors under President Clinton and received a Nobel Prize for his work in economics.