While economic stimulus fever is sweeping the nation one cable news channel at a time, some are skeptical it won’t do anything – because it isn’t large enough.
Joseph Stiglitz, winner of the 2001 Nobel Prize in Economic Science and the most cited economist in the world according to a Research Papers in Economics/University of Connecticut December 2008 study, told Bloomberg TV on Jan. 8 it will fall short.
“It will boost it,” Stiglitz said. “The real question is – is it large enough and is it designed to address all the problems. The answer is almost surely it is not enough, particularly as he’s had to compromise with the Republicans.”
However, the details of what the Obama administration considers a “tax cut” remain vague and some economists doubt it will fit the bill of what conservatives deem a tax cut – as Russell Roberts pointed out on the Café Hayek blog on Jan. 6.
Despite Obama’s ability to win the semantic game on the stimulus issue, Stiglitz still held contempt for congressional Republicans that “demanded” tax cuts. Stiglitz also called the February 2008 “tax rebate” stimulus a “tax cut,” although the Senate Republicans in particularly were criticized for opposing it.
“The Republicans again demanded tax cuts,” Stiglitz said. “The tax cut we had in February 2008 didn’t work very well, given the high burden of debt people decided not to spend as much of the money. It didn’t stimulate the economy very much.”
According to Stiglitz, stimulus funding would be better spent elsewhere by the government in lieu of being in the hands of the citizenry.
“So with a lot of the money going to tax cuts, they won’t have the effect that one would have hoped, although these tax cuts are likely to be better designed. The states and localities are having, facing a shortfall of $150 billion per year. That means $300 of the $800 billion are just going to offset cuts and expenditures that otherwise would occur,” Stiglitz said.
Stiglitz also noted that the previous stimulus did little to address the rise in foreclosures in the
“My judgment is exactly where he is – we need to spend more right now, but we have to spend smartly,” Stiglitz said.
The Nobel Prize winner also said people are only looking at one side of the nation’s balance sheet, the liability side and ignoring the asset side. According to Stiglitz, the assets the government will accrue, no matter how illiquid they are, will offset the huge debt liabilities the Obama administration would run up with a stimulus project.
“The deficit is only one side of a country’s balance sheet – it’s the liability,” Stiglitz said. “We also have to look at the asset side and that’s why he’s been emphasizing not only that we borrow, but we use it to buy assets that increase the asset side of our balance sheet.”