The Evils of Unregulated Capitalism

Remedy for the US economy: end the wars, rein in military and drug costs, and raise taxes – at least on the very rich

Published Current Concerns no 12 (Source: AlJazeera.net, 10 July 2011),  by Joseph E. Stiglitz, August 2011.

ef. In June 2009, the then President of the UN General Assembly Miguel d’Escoto Brockmann, and former chief World Bank economist and Nobel laureate Joseph E. Stiglitz had called together a “conference at the highest level” on the issue of the world financial and economic crisis and its impact.

This was the urgent attempt, not only not to leave the topic of global crisis to their originators, the G20, but also to help those to have their say and to participate, who most clearly experienced the consequences of the crisis. All countries, the G192, the world community, was to be involved in solving this problem of humanity, because the crisis affected the whole international community and therefore all peoples had to be equally involved in the quest for solutions. Miguel d’Escoto Brockmann, and Joseph E. Stiglitz had consistently advocated that the nations were treated as equal and sovereign partners and that powerful financial blocks or individual industrial states should not dominate.

At the conference it was clear that a new way of thinking was urgently needed, an economy based on exploitation, competition, selfishness, greed, an economy structured by the developed countries had had its day. Rather, a world economy was needed, that was driven by ethical principles: respect, caring, responsibility, cooperation – an economy in which the human being was again the focus. These ethical principles should help to “overcome the selfishness and take the necessary measures to prevent the crisis to become a catastrophe, but instead an opportunity, to create new forms of cohabitation, innovative business models and a highly developed sense of life and living together”. (Opening address by Miguel d’Escoto Brockmann, Current Concerns No 14 of 14.7.2009)

The then pressing demands while facing the devastating impact of the global financial and economic crisis, particularly for poorer nations, seem to have faded largely unheard in the west in the meandtime: The report of the Stiglitz Commission, which was presented at the conference, had asked for fundamental reforms of the international financial markets, amongst others a representative world economy council and capital transaction controls. At that time this attempt was rejected by the industrial nations … //

… So what happened?

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 privatisation, 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. (full text).

(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. W. W. Norton & Company, 2010, ISBN 9780393338959).

*(wiser heads are not foreseen, as the rainmakers WANT this world to fail … believing, they can dominate after even better, having definitively shut down any protest).

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