Transcript: Thom Hartmann discusses the American economy with Professor Joseph Stiglitz. 19 Jan '10.
Thom Hartmann: And welcome back. In just a moment we’re going to have Joseph Stiglitz with us, the extraordinary economist and the question for the day – what is the future of America? With us is Nobel Prize winning American economist and professor at Columbia University, former senior vice-president and senior economist at the World Bank, contributing editor and columnist to Mother Jones Magazine, best-selling author of numerous books, including his latest out today, "Freefall: America, Free Markets, and the Sinking of the World Economy ." Joseph Stiglitz, professor Stiglitz, welcome to the program.
Joseph Stiglitz: Nice to be here.
Thom Hartmann: Thank you so much for joining us. In your recent piece in Mother Jones you talk about how the, you ask the question: Are we sure that the way we are molding us – you know, essentially our nation, our economy – is what we want? It’s increasingly, I think, seeming to many on both the right and the left, we hear these noises coming out of everything from the Tea Party Movement to progressive websites, that this isn’t what we want, the bailouts of the banks and the large institutions and more too-big-too-fail and what-not. What’s your take on where we stand right now and how we got here?
Joseph Stiglitz: Well, clearly where we stand today is not a good position. I think that some of the problems are even worse than they were before the crisis. Take the banks, for instance. The way we engaged in the bailouts, we let the too-big-to-fail banks to be even bigger and the way we bailed out the banks, we bailed out not just the banks but the bankers, the bond-holders, the share-holders. We exacerbated what is called the moral hazard problem. They know that if they succeed in the gamble and they win, they walk off with the profits. If they lose, Uncle Sam -- the taxpayer -- picks up the losses and that’s why there’s such anger.
But there's a broader issue that I raise in my book, “Freefall” about how all what's been going on is shaping our society. And that’s illustrated by the outsized bonuses. It was called incentive pay but we discovered during the crisis that that was just a name, it was really a charade because they got these huge bonuses even when they had record losses. Now what kind of society get bonuses for record losses?
Thom Hartmann: Right.
Joseph Stiglitz: What was going on is that they were engaging in deception, calling it incentive pay when it had nothing to do with incentives and so how did they respond? Not to change the pay but to change the name of the pay. They called it retention bonus.
Thom Hartmann: Right.
Joseph Stiglitz: And it's had a further effect – as a teacher, I felt very strongly for a number of years that so many of our best students have been attracted to the whirr of this easy money. Students that in other years would have gone into medicine, to research, to expand the frontiers of knowledge, to help others, and I that's distorted our society and our economy.
Thom Hartmann: These distortions we see also in CEO pay and some industries, and financial services industries sometimes being 5,000 to 1 over the most highly paid person to the most lowly paid person, 500 to 1 across the board in our economy, as compared to 30 to 1 in most European nations and in the United States up until the 1980’s.
And a year ago we did our program live from Denmark and we interviewed several members of parliament. The most highly placed conservative member of parliament – I asked him, you know, why is it in Denmark CEO’s tend not to make more than 30 to 40 times the pay of the lowest paid person, and he laughed and he said it's because the taxes are high on very high incomes. He said, you had this in the United States for 50 years. You had 70 to 90% income tax on people who made millions and so they put the money back into the company rather than taking the money out in income. He said when you drop income taxes below 50% it creates a massive distortion in the economy. Would you agree with that analysis and if so, is that one of the solutions?
Joseph Stiglitz: Well, I think it’s one of the factors that's contributed to it. I think there has been a breakdown of our what I call the social contract, the kind of sense of solidarity between various parts of our society. So rather than a CEO saying, “What is reasonable for me to take relative to my workers?” his view is, “How much can I get out as fast as I can?”
And, “You know, so what if the company doesn’t have enough money to generate the investment to generate the jobs for my workers. That’s their problem.” So a kind of selfishness. Let me give another way of thinking about it which is, you know, “What kind of a person says to his employer, If you only paid me five million dollars, I am only going to give you half of my attention. If you want me really to work hard, you have to give me more than five million dollars.” Now if somebody, if an employee, if I were running a company, owning a company and somebody, I was interviewing somebody who was supposed to be the CEO and he said that to me, I'd say that’s not the kind of person I want.
Thom Hartmann: Right.
Joseph Stiglitz: If I am going to pay you a good salary, I want you to give me your all – I don’t want all this business about incentive pay, that you only give me half your effort if I only pay you five million. Well, we've created a culture in which they think that that’s the way people ought to behave.
Thom Hartmann: Right. We’re speaking with Nobel Prize winning economist and professor Joseph Stiglitz, the author of the new book, “Freefall: America, Free Markets, and the Sinking of the World Economy.” Professor Stiglitz you said when we started speaking that you felt that in some ways structurally, and presumably actually, the economy right now is in worse shape than it was when it crashed in the last year of the Bush Administration. Does that mean that you’re expecting a double-dip recession and might the second dip be ever far worse than the first was?
Joseph Stiglitz: I am thinking, expecting that the economy will slow down from the current level. I am not sure whether it will turn out to go into negative territory, actually a negative growth. I am not expecting it to be worse than the last dip, followed after the collapse of Lehman Brothers. But what I am very worried about is I do not see a return to normal levels of unemployment any time in the near future.
Thom Hartmann: Isn’t that a prescription for social and political chaos?
Joseph Stiglitz: I think it’s a prescription for a lot of social unrest. Americans are probably – so far – have been much more accepting -- citizens in other countries would have been much more active in response to…
Thom Hartmann: Yeah, the French would be out in the streets, flipping over cars and setting them on fire.
Joseph Stiglitz: There have been UK, Greece, lots of other countries would have taken to the streets. This has not been part of – at least recent history in the United States, so I don't, I can’t really tell you what I expect in the United States but what I can say is that there is going to be a lot of suffering, there already is a lot of suffering, not only from the unemployment, from people losing their homes, and with their homes, for most Americans it’s their major source of savings, so they’re losing a large fraction of their life-time savings.
Thom Hartmann: we have a half a minute, Professor Stiglitz. What can people do? What should our government be doing right now?
Joseph Stiglitz: Well, what is needed is a wide swath of actions. We need a second round of stimulus. We need finally to get adequate regulation – almost nothing has been done. We need to break up the too-big-to-fail banks. We need to do something about the mortgages. We expect two and a half to three and a half million foreclosures this year alone. Nothing's been done.
Thom Hartmann: All of these steps. Professor, I’m sorry, we’re out of time. Professor Joseph Stiglitz – his new book, “Freefall: America, Free Markets, and the Sinking of the World Economy.” Sir, thank you for being with us today.
Joseph Stiglitz: A real pleasure
Thom Hartmann: Thank you.
Transcribed by Caleb Burns, Portland Psychology Clinic.