What Stiglitz said at NESC

Slí Eile: Nobel prize-winning US economist, Joseph Stiglitz, spoke on measurement of well-being at today's National Economic and Social Council Seminar on the NESC Social Report. Further posts will examine some of the important issues raised in this Report as well as issues raised in the course of today's seminar. In this post I attempt to recount one small part of what was said by Professor Stiglitz at the NESC Seminar in direct response to a question from the floor - 'how fast should the fiscal adjustment be in Ireland'. RTE have just released a full interview with Stiglitz here (for residents in the Republic of Ireland only).

Stiglitz said that, when confronted with issues about fiscal debt, people should consider all public assets as well as liabilities. Any attempt to reduce liabilities must take account of secondary impacts on public assets. He went pointed to the 'large amounts money squandered' by Governments in bailing out banks on the false premises that there is no alternative. Stiglitz said that we 'should play be the rules of capitalism': shared holders should take the hit in the first place followed by bondholders if that is not enough to fill the hole left by toxic assets. Instead, what is happening here as in many other banking crises is that a 'massive transfer to the banks from the public' is underway. He called the bailouts around the world “fraud” and said of taxpayers, “you are being robbed”.

Under the 'polluter pays' principle, those financial institutions polluting with toxic assets should pay the price. The price exacted through stringent fiscal measures arising from these banking bail-outs is directly undermining social solidarity and exacerbating our economic problems.

When asked about the option of kick-starting the economy through spending, he said that circumstances vary by country. He had no hesitation in supporting an investment package in the US. China and other countries were following this approach. While the Irish case is different to the extent that it is a small and open economy, policy-makers should not 'be intimated' by the situation. In relation to banking the taxpayer should 'own them' if they are paying for them. Credit to small and medium sized businesses should be extended. Investments in key areas such as green technology and human resources should be emphasised.

Stiglitz commented on the dominant school of macro-economic thinking, which simply does not recognise so much of what we discussed today and moreover, even “got it wrong” in its reliance on incentives, such as in the financial sector. He described the “absurdity” of the assumptions of free market economics (e.g. perfect information, single people, no life cycle, etc).