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July 30, 2018


Joseph E. Stiglitz, a Nobel Prize Winner in Economics, published a very interesting book in 2016 entitled The Euro, which traces in meticulous detail why he thinks such a common currency spread around EU members with differing histories will not work but might with reforms – and he lays out the reforms – giving us a brilliant economist’s possible solutions to the current problems in, among other things, EU debt management. This essay will only discuss the problems Stiglitz has identified and provided answers for in general fashion but will discuss some of the EU policies he considered which we have adopted – and which are not working here, either. Take trickledown and austerity, for instance, the Bobbsey Twins of economic lore that have never worked anywhere in large economies. We have adopted both.

There is truth in what some pundits say when they note that our present economy is structured so that there is socialism for the rich and brutal capitalism for the poor, that the rich enjoy their version of free market economics while politically protected by socialistically structured tax and other policies and the other 90% are left to fend for their own, all in a society where the upper 10% owns the lion’s share of the nation’s wealth, a statistic that skews Piketty’s three-century history of wealth sharing.

Thus Stiglitz suggests that some would say he is interfering with “the market” with his panaceas offered to the Eurozone to blunt the effects of a common currency that isn’t working, but as he points out, the Eurozone is itself a massive interference with the market. It fixes a critical price, the exchange rate. It sets interest rates for all of the EU, rates set not by the central banks of its 29 members but by the European Central Bank. See any sovereignty problems? Are francs Euros? Pesos? Lira? How do disparate states agree to such structurally disagreeable understandings? Can they agree for the long term? What about credit flows and violently changing interest rates and their effect on these oil and water merged economies held together by a “common” currency? How common is it? Greece is not Germany.

Germany as the main driving force in the EU has the gold and thus makes the rules of enforcement for debtor nations within the EU, and one of their main enforcement tools is austerity economics, a policy we now have, and one that is not working for either the EU or the USA. Thus the negative results of adoption of trickledown (tax cuts for the rich) and austerity economics (less “handouts” such as wage inequality and medical care to the rest of us) are in congressional vogue these days, and Stiglitz rightly notes that our “Workers are told they should simply accept being buffeted by these maelstroms that are not acts of nature but the creations of irrational and inefficient markets,” that they should accept wage cuts and the undercutting of social protections in order for the capital markets to enjoy their “freedom.”

We learned long ago that we could not let a market economy manage itself (See the Great Depression and Bush’s Great Recession among other downturns), but yet we are right back with our trickledown and austerity economics as policy that presaged those disasters. Workers since the Trump-Ryan tax cut for the rich last December are now asked to accept less wages than they made prior to its enactment which was (to reiterate) due to irrational policy in continuing the “creation of an irrational and inefficient market,” and we haven’t even yet factored in the jump in price inflation due to Trump’s “irrational” tariff games, unemployment in our export industries, increasing rate of wage inequality – all certain to constrain aggregate demand, the sole arbiter of economic growth. That’s our future.

Such neoliberal economic doctrines based on the ideology of the right wing have failed on both sides of the Atlantic. Stiglitz writes that “Beginning about 1980, the country began a bold experiment, of lowering taxes on the top, allegedly to improve incentives, and “freeing the economy,” deregulating, especially the financial sector. The results are now in: the bottom 90 percent have seen their incomes stagnate, large proportions have seen their incomes fall: only those at the very top have done well. . . The right rewrote the rules of the market economy in ways that benefited the few; that is why there is now a campaign to once again rewrite the rules, but this time to benefit the vast majority of Americans.”

He further notes that “austerity is contractionary” and that “inclusive capitalism” is the only way for creating shared and sustainable prosperity. This raises the ultimate political issue and it is this > Why would any political party adopt neoliberalism in favor of a contractionary policy guaranteed to stifle economic growth, the supposed holy grail of all politicians of all stripes?

Perhaps it’s not so shocking after all to see and hear that millennials don’t think “socialist” is a dirty word anymore. Perhaps the terminal greedy among us who are prospering at the expense of the rest of us should rethink their position while such choice remains to them since, as I often write > I am trying to save capitalism, if the capitalists will let me.       GERALD       E






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One Comment
  1. Dee permalink

    This succinctly explains what is going on; thanks for pulling Stieglitz down to manageable proportions!

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