October 04, 2004
by Joseph E. Stiglitz
Professor of
economics at Columbia University and a member of the Commission on the
Social Dimensions of Globalization.
He received the Nobel Prize in
Economics in 2001.
No wonder 67
percent of Americans find the American Dream harder to achieve. Median
real income has fallen by $1,500 in the last three and a half years.
Nobel-winning economist Joe Stiglitz says it was the Bush administration's
wrong choices that got us here. They may have inherited a recession, but
they made it worse—a lot worse.
Many around the world are surprised at how little
attention the economy is receiving in President Bush's re-election
campaign. But I am not surprised: if I were President Bush, the last thing
I would want to talk about is the economy.
Yet many people look at America's economy, even over these past three
and half years, with some envy. After all, annual economic growth—at an
average rate of 2.5 percent—may have been markedly slower than during the
Clinton years, but it still looks strong compared to Europe's anemic 1
percent growth.
But these statistics mask a glaring fact: The average American family
is worse off than it was three and half years ago. Median real income has
fallen by more than $1,500 in real terms, with American families being
squeezed as wages lag behind inflation and key household expenses soar. In
short, all that growth benefited only those at the top of the income
distribution—the same group that had done so well over the previous 30
years and that benefited most from Bush's tax cut.
For example, some 45 million Americans today have no health insurance,
up by 5.2 million from 2000. Families lucky enough to have health
insurance face annual premiums that have nearly doubled, to $7,500.
American families also face increasing job insecurity. This is the first
time since the early 1930s that there has been a net loss of jobs over the
span of an entire presidential administration.
Bush supporters rightly ask: is Bush really to blame for this? Wasn't
the recession already beginning when he took office?
The resounding answer is that Bush is to blame. Every president
inherits a legacy. The economy was entering a downturn when Bush took
office, but Clinton also left a huge budget surplus—2 percent of GDP—a pot
of money with which to finance a robust recovery. But Bush squandered that
surplus, converting it into a deficit of 5 percent of GDP through tax cuts
for the rich.
The productivity growth that was sustained through the downturn
presented both an opportunity and a challenge. The opportunity: If the
economy was well managed, the incomes of Americans could continue to rise
as they had done in the 1990s. The challenge: to manage the economy so
that growth would be robust enough to create the new jobs required by new
entrants to the labor force. Bush failed the challenge, and America lost
the opportunity because of his wrong choices.
True, the economy was stimulated a little bit by Bush's tax cuts; it
was probably stronger in the short run (though arguably not in the long
run) than it would have been had there been no tax cuts. But there were
other policies that would have provided far more stimulus at far less cost.
Bush's objective, however, was not to maintain the strength of the economy;
it was to push forward a tax agenda that shifted the burden away from
those who could best afford to bear it.
Bush's failed policies have not only cost the economy dearly; they have
left the economy in a far weaker position going forward. The non-partisan
Congressional Budget Office agrees that even without Bush's new
expenditure initiatives and tax proposals, costing trillions of dollars,
the deficit will not be eliminated in the foreseeable future—or even cut
in half, as Bush has promised. Expenditures on which America's future
economic health depends—on infrastructure, education, health and
technology—will be crowded out, jeopardizing long-term growth.
Because fiscal policy did not stimulate the economy, a greater burden
was placed on monetary policy. Lower interest rates worked (a little), but
for the most part by encouraging households to refinance their mortgages,
not by stimulating investment. The increased indebtedness of households is
already leading to higher bankruptcy rates and will likely dampen the
recovery.
National debt, too, has risen sharply. The huge trade deficit provides
the spectacle of the world's richest country borrowing almost two billion
dollars a day from abroad, contributing to the weak dollar and
representing a major source of global uncertainty.
There might be some hope for the future if Bush owned up to his
mistakes and changed course. But no: Bush refuses to take responsibility
for the economy, just as his administration fails to take responsibility
for its failures in Iraq. In 2003, having seen that its tax cuts for the
rich had failed to stimulate the economy as promised, the administration
refused to revise its strategies, but instead just prescribed more of the
same medicine. It now promises to make those tax cuts permanent. The real
risk is that this is one promise that Bush, if re-elected, will try to
keep.
At the end of August, I joined nine other American Nobel Prize winners
in economics in signing an open letter to the American public. It is hard
to get any two economists—let alone two Nobel Prize winners—to agree on
anything. But in this case our concerns were so grave as to overcome any
disagreements.
We wrote: "President Bush and his administration have embarked on a
reckless and extreme course that endangers the long-term economic health
of our nation…. The differences between President Bush and John Kerry with
respect to leadership on the economy are wider than in any other
Presidential election in our experience. President Bush believes that tax
cuts benefiting the most wealthy Americans are the answer to almost every
economic problem."
Here, as elsewhere, Bush is dead wrong, and too dogmatic to admit it.
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thanks
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