Greek Business File, November-December 2019, No 123

Interview by GBF


Joseph Stiglitz the American economist, awarded the Nobel in Economics and Professor at Columbia University in this exclusive interview with GBF maintains that Greece has a long way to go for a return to normalcy and focuses on the failures of the economic system

You have been watching relatively closely the Greek crisis evolve. Debt crisis, fi scal crisis, economic-cum-social crisis. Would you say that we are out of the woods? Or not yet?

By any measure, Greece has a long way to go for a return to normalcy. Incomes per capita are still well below what they were before the crisis. Large numbers of citizens, including many talented people, have left the country, and there is little to attract them back home. Public spending remains highly constrained, and under the Troika plan, Greece will be saddled with maintaining a primary surplus for years and years to come — hampering the prospects of a return to prosperity. And even then, there are clouds on the horizon: Germany may well fall into recession, slowing growth throughout Europe, and the underlying problems of the euro have yet to be fixed.

The key issues of today

 You have been also watching the euro crisis build up, erupt, subside. Is Europe out of the woods or is a new crisis looming just around the corner? Do you expect the change at the helm of the ECB to play a role if a new crisis occurs? Was Christine Lagarde ready to step into the shoes of Mario Draghi?

Most of the fundamental problems of the euro that I wrote about in my book, “The Euro: How a Common Currency Threatens the Future of Europe”, have not been addressed. While there is talk of a banking union, the most important part of this, a common deposit insurance scheme, is not likely to occur any time soon. The ECB’s mandate, which is fi xated on infl ation, encumbers its ability to address the key issues of today: growth, employment, and fi nancial stability. Perhaps the biggest challenge, requiring all of Christine Lagarde’s considerable diplomatic skills, will be to reconcile fundamentally diff erent understandings of what contributes to good economic performance.

Counterproductive austerity

 Do you expect some sort of fiscal relaxation to be accepted in Europe or will the austerity medicine stay with us for a long time?

This is perhaps the most fundamental change that is necessary for Europe — an understanding that when there is defi cient aggregate demand (as there often is) there is a need for expansionary fi scal policy. Austerity is counterproductive. This is especially true when, as now, monetary policy seems of limited effi  cacy. But I am not sanguine about changing the mindset of the neoliberals, who continue to maintain that so long as infl ation is low and budgets are balanced, the private sector will ensure shared prosperity.

How far is the trade war underway infl uencing monetary policy perspectives? In the US, in the EU, wherever? Does the very notion “trade war” correspond to something real?

In President Trump’s first year in office, the trade conflict was best described as a skirmish; but since then, he has ratcheted things up to the point where it can only be described as not just a trade war but perhaps as a new cold war, embracing traditional trade issues as well as issues of broader economic rivalry and national security. The fear of a significant global slowdown is affecting monetary policy, though the Chairman of the Federal Reserve has pointed out the limited ability of the Fed to offset the effects of the trade war. From now on, the effects will be complex and hard to predict. If Trump actually implements his promised tariff increases, prices will rise, and traditionally that would have meant that the Fed would raise interest rates. But the Fed is under intense political pressure from Trump to lower interest rates.

May I introduce an academic-sounding question: Have we been living through a paradigm shift these last years – or is it more of a journalistic description?

There has been a paradigm shift—it is generally recognized that the era of neoliberalism is over, that globalization and financialization didn’t deliver on their promises, that markets on their own are neither efficient nor stable, let alone fair or generating even moderately acceptable distributions of income. Though Trump and demagogues in other countries are pushing doctrines of protectionism and nationalism, there is little intellectual support for such perspectives, even if these views have attracted considerable popular support. It remains to be seen whether there will be a new consensus, and if so, what that might look like. Large fractions of Americans are supporting a perspective that I have called progressive capitalism and which I wrote about in my recent book, People, Power, and Profits.

Political consequences

And now to a political question: can our societies survive the shifts and turns in economic policy of these same last years? Not to sound too melodramatic, but “can democracies survive”. In situations where the vote of citizens is negated by the way in which the economic system functions? (Back to the Greek experience).

The failures of our economic system (both in the US and Europe) have had profound political consequences, reflected in the election of Trump (though he lost the popular vote) and support for demagogues and fascists in other countries. The twists and turns in our economic policy may only make matters worse: the uncertainty associated with the vagaries of Trump’s policies are depressing investment and leading to a global slowdown, and among the victims will be the very people who were not served well by the previous orthodoxy. In the US, these political problems are compounded by the fact that one of the two political parties, the Republican Party, seems more interested in preserving its power — whether through voter suppression, gerrymandering, stuffing the Supreme Court, or whatever it takes — than in promoting democracy, good governance, or a good economy. As I explain in my book “People, Power, and Profits”, it has replaced a representative majoritarian democracy that has a commitment to basic rights for all, with a minority who has a commitment to domination. This minority pays little attention to human rights or the will of the vast majority of people on issues such as gun control, women’s rights, bank regulation, and access to health care, climate change or equality.