 The Ideological Crisis of
Western Capitalism
Joseph E. Stiglitz
NEW YORK – Just a few years ago, a powerful
ideology – the belief in free and unfettered markets – brought the world to the
brink of ruin. Even in its hey-day, from the early 1980’s until 2007,
American-style deregulated capitalism brought greater material well-being only
to the very richest in the richest country of the world. Indeed, over the
course of this ideology’s 30-year ascendance, most Americans saw their incomes
decline or stagnate year after year.
Moreover,
output growth in the United
States was not economically sustainable. With
so much of US
national income going to so few, growth could continue only through consumption
financed by a mounting pile of debt.
I
was among those who hoped that, somehow, the financial crisis would teach
Americans (and others) a lesson about the need for greater equality, stronger
regulation, and a better balance between the market and government. Alas, that
has not been the case. On the contrary, a resurgence of right-wing economics,
driven, as always, by ideology and special interests, once again threatens the
global economy – or at least the economies of Europe and America, where these ideas continue
to flourish.
In
the US,
this right-wing resurgence, whose adherents evidently seek to repeal the basic
laws of math and economics, is threatening to force a default on the national
debt. If Congress mandates expenditures that exceed revenues, there will be a
deficit, and that deficit has to be financed. Rather than carefully balancing
the benefits of each government expenditure program with the costs of raising
taxes to finance those benefits, the right seeks to use a sledgehammer – not
allowing the national debt to increase forces expenditures to be limited
to taxes.
This
leaves open the question of which expenditures get priority – and if
expenditures to pay interest on the national debt do not, a default is
inevitable. Moreover, to cut back expenditures now, in the midst of an ongoing
crisis brought on by free-market ideology, would inevitably simply prolong the
downturn.
A
decade ago, in the midst of an economic boom, the US faced a surplus so large that it
threatened to eliminate the national debt. Unaffordable tax cuts and wars, a
major recession, and soaring health-care costs – fueled in part by the
commitment of George W. Bush’s administration to giving drug companies free
rein in setting prices, even with government money at stake – quickly
transformed a huge surplus into record peacetime deficits.
The
remedies to the US deficit
follow immediately from this diagnosis: put America back to work by stimulating
the economy; end the mindless wars; rein in military and drug costs; and raise
taxes, at least on the very rich. But the right will have none of this, and
instead is pushing for even more tax cuts for corporations and the wealthy,
together with expenditure cuts in investments and social protection that put
the future of the US
economy in peril and that shred what remains of the social contract. Meanwhile,
the US
financial sector has been lobbying hard to free itself of regulations, so that
it can return to its previous, disastrously carefree, ways.
But
matters are little better in Europe. As Greece and
others face crises, the medicine du jour is simply timeworn austerity
packages and privatization, which will merely leave the countries that embrace
them poorer and more vulnerable. This medicine failed in East Asia, Latin
America, and elsewhere, and it will fail in Europe
this time around, too. Indeed, it has already failed in Ireland, Latvia,
and Greece.
There
is an alternative: an economic-growth strategy supported by the European Union
and the International Monetary Fund. Growth would restore confidence that Greece could
repay its debts, causing interest rates to fall and leaving more fiscal room
for further growth-enhancing investments. Growth itself increases tax revenues
and reduces the need for social expenditures, such as unemployment benefits. And
the confidence that this engenders leads to still further growth.
Regrettably,
the financial markets and right-wing economists have gotten the problem exactly
backwards: they believe that austerity produces confidence, and that confidence
will produce growth. But austerity undermines growth, worsening the government’s
fiscal position, or at least yielding less improvement than austerity’s
advocates promise. On both counts, confidence is undermined, and a downward
spiral is set in motion.
Do
we really need another costly experiment with ideas that have failed repeatedly?
We shouldn’t, but increasingly it appears that we will have to endure another
one nonetheless. A failure of either Europe or the US to return to robust growth would
be bad for the global economy. A failure in both would be disastrous – even if
the major emerging-market countries have attained self-sustaining growth. Unfortunately,
unless wiser heads prevail, that is the way the world is heading.
Joseph E. Stiglitz is University Professor at Columbia University, a Nobel laureate in
economics, and the author of Freefall: Free Markets and the Sinking of the
Global Economy.
Copyright: Project Syndicate, 2011.
www.project-syndicate.org
For a podcast of this commentary in English,
please use this link: http://media.blubrry.com/ps/media.libsyn.com/media/ps/stiglitz140.mp3
You might
also like to read more from Joseph E. Stiglitz or return to our home page.
Original site is: www.project-syndicate.org
| 
