Joseph Stiglitz takes issue with the view of economists (well, economists surveyed by Bloomberg and the Wall Street Journal, which not surprisingly have a
Pollyannish optimistic streak) that the economy is in or on the verge of a recovery.
The real issue is the ongoing con job. Team Obama has made it clear that it sees restoring confidence as paramount, when anyone with consumer marketing experience will tell you that advertising campaigns that make exaggerated claims about the product often don’t simply fail (as in customers see through the hype) but often backfire (buyers discount future ad messages about the product). The press has had a manipulated feel, with readers on sending news stories that have misleadingly positive stories with Panglossian headlines and upbeat initial paragraphs that are often undercut by other material in the same article.
So in our new branding, “the economy is no longer in a freefall” has become “recovery.” The self-congratulatory tone among US financial regulators (who should instead be engaging in serious self-recrimination for failing to foresee and prevent this crisis) is premature. The financial system has been patched up and put back together with considerable continued official support, and more important, policies in place that allow banks to go back to the craps table with the taxpayer sopping up any mess. This is not a sound foundation for growth.
Admittedly Stiglitz is far from a seer; he thought the Clinton budget-balancing program would lead to a slowdown. Nevertheless, his views are a useful reminder that we are not yet out of the woods.
The U.S. economy faces a “significant chance” of contracting again after emerging from its worst recession since the 1930s, Nobel Prize-winning economist Joseph Stiglitz said….
Stiglitz said he sees two scenarios for the world’s largest economy in coming months. One is a period of “malaise,” in which consumption lags and private investment is slow to accelerate. The other is a rebound fueled by government stimulus that’s followed by an abrupt downturn — an occurrence that economists call a “W-shaped’ recovery.
“There’s a significant chance of a W, but I don’t think it’s inevitable,” he said. The economy “could just bounce along the bottom.”… He said the crisis of the past year was made worse by lax regulation that allowed some financial firms to grow so large that the system couldn’t handle a failure of any of them…
“We did have a very big stimulus, and that stimulus has added to economic growth and will be adding in the current quarter,” he said. “But the question going forward in 2011 is the stimulus is coming off, and that’s a negative.”…
“In most quarters, there is a feeling we should move away from the dollar system. The question is do we do it in an orderly way, or a chaotic way,” Stiglitz said. “The size of the deficit and the size of the balance sheet of the Fed have just increased the anxiety and the desire that something be done.”…
Between the fall of the Berlin Wall and the collapse of Lehman Brothers was “the short period of American triumphalism, where we dominated the global scene. That period is over,” Stiglitz said.