Joseph Stiglitz: 'The American Dream Has Become a Myth'

[eridani]

http://readersupportednews.org/opinion2/279-82/13802-joseph-stiglitz-the-american-dream-has-become-a-mytht seems to be the Republican debate mode at all levels this year.

Stiglitz: The main problem in Europe right now are the austerity packages, they depress demand and weaken economic growth. The reversal of this policy is absolutely essential to develop growth and more equality. Spain, for example, gets weaker and weaker, money flows out of the country, and it is a vicious downward spiral.

SPIEGEL: Isn't the real problem the lack of competitiveness? Spain and the other countries in crisis have lived beyond their means, that's why they are in trouble.

Stiglitz: No, Europe's crisis is not caused by excessive long-term debts and deficits. It is caused by cutbacks in government expenditures. The recession caused the deficits, not the other way around. Before the crisis Spain and Ireland ran budget surpluses. They cannot be accused of fiscal profligacy. More fiscal discipline will only worsen the downturn. No economy ever recovered from a downturn through austerity.

SPIEGEL: Really? What about Estonia or Latvia? With severe pay cuts the Baltic states boosted productivity and recovered.

Stiglitz: They are small economies. They can make up for the loss of government spending by more exports. But that doesn't work with a fixed exchange rate and when your trading partners are not doing well. The crisis countries don't suffer from excessive spending. The problem is not supply but demand. It is the responsibility of monetary and fiscal policy to maintain the economy at full employment.

SPIEGEL: No matter what the costs? No private household can live beyond its means permanently. Why should governments be exempted from that rule?

Stiglitz: Because countries are different from households. If a citizen cuts back his spending, it is without any consequences for the country. Unemployment does not increase. But if the government cuts back its spending, it has a major effect. An expansion of spending can increase production by creating jobs that will be filled by people who would otherwise be unemployed.