The U.S. economy needs more fiscal stimulus because monetary policy has little traction and government spending cuts threaten the expansion, Nobel Prize-winning economist Joseph Stiglitz said.
“What we need now is another round of stimulus to get out of the doldrums,” Stiglitz, a Columbia University professor, said today on the “Bloomberg Surveillance” television program with Tom Keene and Sara Eisen. “We can’t rely on exports given the weaknesses in Europe.”
Without President Barack Obama’s 2009 stimulus package, unemployment would have peaked at more than 12 percent instead of the 10 percent high it hit in October of that year, Stiglitz said. Now, he said America is undergoing austerity by a “slightly different name” with public-sector job losses that could undermine growth.
Since the latest recession began in December 2007, public payrolls have dropped by 511,000, according to Bureau of Labor Statistics data compiled by Bloomberg. The jobless rate was 7.6 percent in March and the economy added 88,000 jobs, the smallest gain in nine months and less than the lowest economist estimate in a Bloomberg survey.
To bolster growth, the U.S. must use fiscal policy because the central bank’s efforts “have very little effect,” at present, Stiglitz said. The Federal Reserve has been buying $85 billion in Treasuries and mortgage-backed securities each month in an effort to spur economic improvement.
Europe’s austerity measures, including those espoused by German Chancellor Angela Merkel, are also misguided, he said. Household budget rules don’t transfer to the larger economy, because when consumers watch their spending “it doesn’t have an systemic effect,” whereas government cutbacks reverberate through the economy.
“I wish Merkel could understand that,” Stiglitz said. “Austerity leads the economy to perform more poorly. It leads to more unemployment, lower wages and more inequality. There is no instance of a large economy getting to growth through austerity.”
Stiglitz is a former chief economist of the World Bank, and has worked as a member and chairman of the White House Council of Economic Advisers. He won his Nobel Prize in economics in 2001.