What Will Cause The Next Recession – Joseph Stiglitz On Trump’s Protectionism


There are several problems
facing the global economy. I think it’s fairly clear that there
is going to be a gross slowdown that the economy was given what is
now generally called a sugar high by the combination of a tax reform
bill in December of 2017 and then the expenditure increases in January
2018 creating a very large increase in the deficit when the
deficit was already very large and that provided some short term
stimulus to the economy. It was not well-designed and the
money didn’t go into long term investment it went
into share buybacks. The result of all that is
it didn’t provide the foundations of sustainable growth. There are several problems
facing the global economy. Europe. remains very weak. Part of the reason has to do
with some fundamental flaws in the euro. Their political problems. Italy has not had growth and the
euro doesn’t have — give it a framework within which
to restore growth. So you’re really having
near stagnation in Europe. Meanwhile China is
also having problems. What I describe what’s going on
is that they alternate putting their foot on the accelerator and then on
the brake because the only way they goose their economy
is through debt. I don’t see the basis
of stable growth in China. The third obvious concern is
Trump’s protectionism and we’re talking about China. We’re talking about a trade
war with Europe over automobiles. We’re talking about sort of the global
rules based system which he has systematically attacked. The WTO this year will wind
up without having an effective appellate body because the United States refuses
to allow new judges to be elected. So the WTO which was the
basis of the rules based global system is is going
to be facing difficulties. So all these are significant
headwinds confronting the global economy and we’re part of
the global economy. So we will feel some of the
bumps that we ourselves have created. Many of us who were critics of
the WTO and I think correctly didn’t really appreciate the virtues of the
WTO until we actually confronted the reality of a
world without rules. You can’t imagine how any
economy American economy could operate without the rule of law it’s sort
a the foundation of our economy of our society. We talked about the
rule all the time. The same thing
actually applies internationally. You need a rule of law. It’s much more bare bones rule of
law and that’s what the WTO provided. Some of the rules
were not well designed. There were rules that were written
by the advanced countries for their corporate interests. And that’s really been my. complaint. that to to a large
extent the rules were dictated by American and European corporations. For instance access to drugs. They made it more difficult to
get access to lifesaving drugs drove the prices of drugs up and it
seemed so unfair that we had an international regime which allowed
the advanced countries to subsidize their agriculture
goods like cotton. Billions of dollars going to a
few thousand maybe twenty five thousand rich American cotton farmers
putting deeper into poverty tens of millions of people in Africa to
India and to me I found that abhorrent. And so that’s
what I criticized. Manufacturing is not going to come
back to the United States. We’re not going to recreate the golden
era of capitalism the 1950s or 60s. Even if China didn’t export
as much manufacturers goods to us we’re not going to make mostly
apparel in the United States. We’re going to be importing it from
Vietnam or Bangladesh and to the extent that manufacturing goes back
the United States would process which is called on-shoring. It’s going to be robots. It’s not going to be jobs in
the Midwest isn’t jobs in South Carolina. So in the end for all
the rhetoric Trump is not delivering . Manufacturing jobs have come back
a little bit as our economy recovers from that long
and great recession. Some of those jobs are coming back
and I think there’s more that we can do to bring them back. But the basis of that is going
to be research is going to be strengthening our universities. But these are the things that
Trump is trying to undermine. He’s trying to defund research to
defund the policies that actually bring those jobs back in a sustainable
way and make sure that the industrial jobs that are brought
back are really good jobs. What Trump did was to recognize that
we have not managed the process of structural transformation
of our economy. We were going from a manufacturing
economy into a service economy into an innovation economy and
the process of deindustrialization associated both with globalization and
with technological change is a difficult process and we left a lot
of people without help to move into the new economy. You see it in so many dimensions. We didn’t give them the education
that they needed but Trump University is not the kind
of education they need. They need real education and we’ve been
cutting back on the kinds of real education they need. So while he grass you might say
that the despair you grasp the concerns he’s a populist in the
sense there are no real solutions that he’s offering and
actually made things worse. I’m not a big UBI person. I understand that there are some
advantages to providing a single program guaranteeing a basic income to
everybody but to me the basic responsibility of our society of our
government is to make sure that there’s a job for everybody who’s
able and willing to work. And if we had a job with decent
pay for everybody able and willing to work then the concerns about
UBI wouldn’t be there. We will still need of course
to have social protection systems for the disabled for you know a whole
set of people who can’t work but that should be the core of a
program that provides a system of social protection for our society. It’s especially important for two reasons I
think and I may be a little old fashioned on this. I think there’s a certain dignity
from work younger students say oh there can be a lot of dignity
from meditation and from other ways of spending time. But I think for most people there will
be a real desire to work and this will be a
big challenge going forward. We don’t know exactly when driverless
cars and trucks are going to arrive. We know that even high
tech jobs like radiologists are not immune. Computerized radiology is actually
better than most humans. So there’s a lot of areas where
machines in one way or another will be not only stronger can do
data processing faster but actually can learn in certain limited domains and
even be creative in certain ways. So this is going to be one of
the big challenges of the next quarter century. I titled my book
people power and profits. It was trying to say the only
balance is going to be mass movements people engaged in politics because in the
end the way our economy and the way our society functions is
determined by rules that are set publicly. There is a real concern
that the problems of inequality that I’ve been so concerned with for
so long will be getting worse. And part of the reason
is the problems of unemployment that it could give rise to but also
part of it is the ability of A.I. in the new technologies to
be more efficient in exploitation. They can target prices at
exactly what each person pays. It actually undermines the basis of
a market economy as we’ve known it in the past a price
system where your standard courses in economics. It’s about how prices make
sure that the marginal benefit of a good is the
same for all individuals. The marginal cost is the same in
all uses of production but with the new technologies everybody’s paying
a different price. Every firm is paying a different
price and it actually undermines the efficiency of the market economy and
it takes we call economist called producer surplus surplus from individuals
and adds it to the profits of some of the
wealthiest people in the country. Over the last 40 years
corporate power profits have been driving the rules. We’ve become a more corrupt politics
more money driven politics and we’ve lost the balance
in our politics. Not surprising given that we’ve lost
the balance in our politics we’ve lost the balance
in our economics. There’s been an erosion or evisceration
of worker power over the last 50 years. We have to get the
rules of globalization right. They’ve contributed to the weakening
of worker bargaining power. We have problems in our corporate
governance where CEOs are taking a larger and larger share of the
corporate pie and dancing themselves at the expense of their
workers and of investment. And that’s one of the reasons why
investment rate is so low and our overall growth rate is so low. Now when it comes to
the particular problem of innovation. I think we have to realize at
the core of our innovation system is government funded basic research
and government funded education programs. And those are absolutely
essential for making a dynamic economy. The irony is that while the
basis of all the innovation our economy is government funded. too little of the proceeds
go back to the public. So there has to be a better
sharing of the proceeds of the innovation and that may be done through
taxation and may be done through adjustment of our
intellectual property regime. There are many ways to do it. It may turn out to to
vary across industry and over time. But what is very clear is there
has to be a better system of sharing of these proceeds. I’ve been a great advocate of
moving to an electronic payments mechanism. There are a
lot of efficiencies. I think we can actually have a
better regulated economy if we add all the data in real time
knowing what people are spending. It would enable the Federal Reserve
to actually set interest rates in a much more efficient way. We would have I
think better macroeconomic management. It also would curb some of
the illicit economic activities and it disturbs me a great deal. The attention that was
given to crypto currencies. because those were moving things off
of a transparent platform into a dark platform. We know about the role of
real estate and money laundering. We know from the paradise papers and
the Panama Papers the extent of this money laundering. We know from research in recent
years for instance the work of Gabriel Zucman the large percentage of
global wealth that is held in these dark havens. So if we want a more
efficient economy without these illicit activities I think we’re going to have
to move to more of an electronic payments mechanism and we will have
to figure a way out to have the transparency of electronic
payments mechanism without the dangers of the surveillance
and the surveillance state. We have a very good currency. So far the currency has been
run in a very stable way. There is no need for anybody to
go to a cryptocurrency you know in our standard courses in economics we
talk about the attributes of a good currency and the US
dollar has all those attributes. The crypto currencies do
not have those attributes. I actually think we should
shut down the crypto currencies.

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