Stiglitz Says U.S. Economic Recovery May Not Be ‘Sustainable’

[SlowDownFast]

Stiglitz Says U.S. Economic Recovery May Not Be ‘Sustainable’

By Michael McKee

Sept. 4 (Bloomberg) -- The U.S. economy faces a “significant chance” of contracting again after emerging from its worst recession since the 1930s, Nobel Prize-winning economist Joseph Stiglitz said.

“It’s not clear that the U.S. is recovering in a sustainable way,” Stiglitz, a Columbia University professor, told reporters yesterday in New York.

Economists and policy makers are expressing concern about the strength of a projected economic recovery, with Treasury Secretary Timothy Geithner saying two days ago that it’s too soon to remove government measures aimed at boosting growth.

Stiglitz said he sees two scenarios for the world’s largest economy in coming months. One is a period of “malaise,” in which consumption lags and private investment is slow to accelerate. The other is a rebound fueled by government stimulus that’s followed by an abrupt downturn -- an occurrence that economists call a “W-shaped’ recovery.

“There’s a significant chance of a W, but I don’t think it’s inevitable,” he said. The economy “could just bounce along the bottom.”

read more:
http://www.bloomberg.com/apps/news?pid=20601087&sid=anag9TDM3vDw

[madrchsod]

1. the united states no longer has a manufacturing base

without that we`ll never recover.

[ixion]

4. yep, exactly

on the other side, the consumer no longer has credit. Given that consumer spending was 70% of the economy, there will be no recovery until a) people have jobs; and b) people have discretionary money to spend.

Right now, neither one of those things are anywhere near watershed.

[AdHocSolver]

25. Exactly! Until 80 percent of what we buy is produced in the U.S. by Americans...

...the economy will NEVER recover.

Currently, practically everything we buy is imported. This country gets most of its goods and services by going into debt. This is crazy. Once the foreign countries who supply us with credit go off of the U.S. dollar standard, which they are starting to do, the U.S. economy will totally collapse.

The ONLY way to save the U.S. economy is to get rid of the corporate cartel agreements such as NAFTA, the WTO, the IMF, and the World Bank, and revise the tax laws to prevent tax evasion through offshore dummy corporations so as to give companies who want to produce goods in the U.S. with American labor a chance to compete on a level playing field.

Moreover, Americans who work pay income taxes. Unemployed people pay no income tax. The government is going into even more debt to buttress an economy that is unsustainable. The corporatists know this. That is why they are stealing everything in sight before there is nothing left to steal.

[IrateCitizen]

2. Roubini says the same thing, basically

Given the mammoth deficits, he says there are two scenarios under which we will likely face a "double-dip" recession -- and it's pretty much a dichotomous choice.

In the first scenario, the government raises taxes and slashes spending in order to gain some control over runaway deficits, thus smothering any recovery that might be starting.

In the second scenario, the government continues to operate under large deficits and the bond markets begin to punish them mercilessly, leading to a period of stagflation -- rising interest rates and inflation with stagnant or declining wages.

In either event, it doesn't look pretty. Policymakers are still trying to keep the old system together with spackle and duct tape, when the only thing keeping it afloat now is simple inertia. Once that stops, the sinking of the old order is pretty much inevitable.

[dgibby]

3. Jack Cafferty is right.

"It's Getting Ugly Out There", and it has the potential to get a whole lot uglier.

[Warpy]

5. Roubini is missing the elephants in the room, I'm afraid

Raising taxes back to confiscatory levels on the ultra rich with a return to a progressive tax structure and using the money to provide seed money for infrastructure and new industry built on that infrastructure is one thing that will turn the economy around. The ultra rich will scream, of course, but they're screaming now and their money is doing nothing but creating more bubbles to bleed money off the middle class instead of creating something that will sustain the country and the economy.

The second thing is bringing the Pentagon budget down to the level other countries spend on their military. Once we no longer lavish 51% of our revenue on that five sided black hole in Virginia, we've got a fighting chance to bring the deficits down and the nation's economy back from the brink.

All of this also rests on the willingness of a recalcitrant conservative Congress to re regulate the finance industry.

Unfortunately for us, long term thinking hasn't been the economist's focus for a very long time. Thinking quarterly has limited their vision greatly and will continue to hobble our chances for a real recovery.

[notesdev]

9. They'd just leave

and take all the money the government has helped them steal over the years with them.

[Warpy]

10. Those offshore accounts are being investigated already

and taking domestic wealth would be problematic since liquidating everything would drop its value in the process.

The only way they can hang on to the principal is to stay put. Remember, the higher taxes are on income and don't touch that principal. However, if they want to get richer, they have to start taking some risk and investing in something useful instead of hoarding and creating artificial bubbles.

[notesdev]

12. But what if...

... they simply got us to buy their holdings, through the Treasury and Federal Reserve? And those institutions intervened actively to prevent the loss of value of their wealth?

[Warpy]

13. Not going to happen

but if you want to keep constructing palaces in thin air, go ahead.

[notesdev]

14. That wasn't hypothetical

That is what has already happened.

[IrateCitizen]

16. Game. Set. Match. (nt)

[AdHocSolver]

26. The corporations have already transferred the technology to Asia. They can just abandon US assets.

The U.S. gave "bailout" money to General Motors. GM is making profits like crazy selling cars in China.

When GM executives looked to Washington for billions in handouts, they didn't even hide the fact that they wanted the cash to build an auto plant in Brazil to profit from growing markets in South America.

Wasn't it Halliburton that moved their headquarters to some Middle East oil sheikhdom?

[IrateCitizen]

15. So, in effect, you're expecting elected officials to buck the status quo...

... that has ensured their relative security within positions of power and influence? Personally, given the manner in which money has infected our federal political process since Buckley v. Valeo, I give your proposals, as admirable as they may be, scant chance of becoming a reality. Great powers in history do not often turn away from the very behaviors that made them powerful, not even when those behaviors have turned into baggage that will eventually bring them crashing back to the earth. Perhaps the greatest example of this phenomenon at work was ancient Rome.

I'd suggest reading the excellent work, "Peak Civilization" by Ugo Bardi for a good description of why this will not occur. Here's an interesting excerpt that portrays a meeting between a druid from Brittania discussing the sustainability of the Roman Empire with Marcus Aurelius

Avoiding Collapse

From our viewpoint, we see what was the history of the Roman Empire. But, from inside, as we saw, it wasn't clear at all. But let's assume that someone had it clear, already at the time of Marcus Aurelius. I said that there might have been something like an ASPE; "association for the study of peak empire". Or let's imagine that a wise man, a Druid from foggy Britannia, an ancestor of Merlin the wise, was smart enough to figure out what was going on. You don't really need computers to make dynamical models, or maybe this druid made one using wooden cogs and wheels, the whole thing powered by slaves. So, let's say that this druid understood that the troubles of the Empire are caused by a combination of negative feedbacks and that these feedbacks come from the cost of the army and of the bureaucracy, the overexploitation of the fertile soil, the fact that Rome had exhausted the "easy" targets for conquest.

Now, it is a tradition of Druids (and also of ASPO) of alerting kings and rulers of the dangers ahead. After all, Merlin did that for King Arthur and we may imagine that the druid we are thinking of felt that it was his duty to do that with Emperor Marcus Aurelius. So, he decides to go to Rome and speak to the Emperor. Suppose you were that druid; what would you say to the Emperor?

Good question, right? I have asked it to myself many times. We could think of many ways of answering it. For instance, if gold is running out from the Empire's coffers, why not suggest to the Emperor to mount a naval expedition to the Americas? It is what Columbus would do, more than a millennium afterwards and the result was the Spanish empire - it was also based on gold and it didn't last for long. Maybe the Romans could have done something like that. But they didn't have the right technology to cross the oceans and, at the time of Marcus Aurelius, they had run out of the resources to develop it. So, they had to remain in Europe and to come to terms with the limits of the area they occupied. The Empire had to return its economy within these limits. So, there is only one thing that you, as the wise Druid from Britannia, can tell the Emperor: you have to return within the limits that the Empire's economy can sustain.

So you walk to Rome - kind of a long walk from Eburacum, in Britannia; a place that today we call "York". You are preceded by your fame of wise man and so the Emperor receives you in his palace. You face him, and you tell him what you have found:

"Emperor, the empire is doomed. If you don't do something now, it will collapse in a few decades"

The Emperor is perplexed, but he is a patient man. He is a philosopher after all. So he won't have your head chopped off right away, as other emperors would, but he asks you, "But why, wise druid, do you say that?"

"Emperor, " you say, "you are spending too much money for legions and fortifications. The gold accumulated in centuries of conquests is fast disappearing and you can't pay enough legionnaires to defend the borders. In addition, you are putting too much strain on agriculture: the fertile soil is being eroded and lost. Soon, there won't be enough food for the Romans. And, finally, you are oppressing people with too much bureaucracy, which is also too expensive."

Again, the Emperor considers having your head chopped off, but he doesn't order that. You have been very lucky in hitting on a philosopher-emperor. So he asks you, "Wise druid, there may be some truth in what you say, but what should I do?"

"Emperor, first you need to plant trees. the land needs rest. In time, trees will reform the fertile soil."

"But, druid, if we plant trees, we won't have enough food for the people."

"Nobody will starve if the patricians renounce to some of their luxuries!"

"Well, Druid, I see your point but it won't be easy....."

"And you must reduce the number of legions and abandon the walls!"

"But, but.... Druid, if we do that, the barbarians will invade us....."

"It is better now than later. Now you can still keep enough troops to defend the cities. Later on, it will be impossible. It is sustainable defense."

"Sustainable?"

"Yes, it means defense that you can afford. You need to turn the legions into city militias and..."

"And...?"

"You must spend less for the Imperial Bureaucracy. The Imperial taxes are too heavy! You must work together with the people, not oppress them! Plant trees, disband the army, work together!"

Now, Emperor Marcus Aurelius seriously considers whether it is appropriate to have your head chopped off, after all. Then, since he is a good man, he sends to you back to Eburacum under heavy military escort, with strict orders that you should never come to Rome again.

This is a little story about something that never happened but that closely mirrors what happened to the modern druids who were the authors of "The Limits to Growth." They tried to tell to the world's rulers of their times something not unlike what our fictional druid tried to tell to Emperor Marcus Aurelius. The heads of the authors of "The Limits to Growth" weren't chopped off, but they were surely "academically decapitated" so to say. They were completely ignored. Not just ignored, ridiculed and vituperated. It is not easy to be a druid.

So, here we found another similarity between our times and the Roman ones. We are subjected to the "fish in the water" curse. We don't understand that we are surrounded by water. And we don't want to be told that water exists.

You can read this entire excellent article here: http://www.energybulletin.net/node/50025

[Warpy]

19. Any answer that begins with "so" generally contains a strawman

and that is one of the biggest I've ever seen, congratulations.

What I outlined is what needs to happen if this economy is ever to get back on track again.

It won't happen until and unless Congress is more afraid of people angry at disaster than it is of angry corporate backers.

[IrateCitizen]

20. Response

What I outlined is what needs to happen if this economy is ever to get back on track again.

I referred to your proposals as "admirable" in my first response. From a rational-critical POV, assuming that we have a Congress and populace that is able to act in a rational-critical fashion, they would go a long way toward solving our problems.

It won't happen until and unless Congress is more afraid of people angry at disaster than it is of angry corporate backers.

THIS is the crux of my disagreement with you. This statement fails to take into account the incredible amount of socio-political inertia that is out there, combined with the ability of those who largely control the flow of information (entrenched corporate interests) to spread disinformation and propaganda that deflects attention away from the real issues at hand. Just because you and I may be able to see through it to a large degree, we are likely in the minority.

My fear is that we have become a society so much about the "self" (see the Adam Curtis documentary "The Century of the Self" on Google video for a full understanding of what I'm referring to here) that we (as a nation) will willingly go down the road of soft fascism in order to keep the comforts and conveniences that remain our perceived birthrights rather than sacrifice some comfort to forge a more just, equitable, and sustainable society. Lord knows that many of our politicians from both parties have both promoted and accepted such measures over the last 30 years due to their fecklessness and the grip of the corporate interests that finance their campaigns.

That being said, I would also like to work for the better alternative, which is to start by adjusting my own life to live a more sustainable lifestyle and enjoy the bonds of family and community that tend to come about from rejecting large pieces of the status quo, and then promote such changes by actually demonstrating to those around me how they can lead to a richer, fuller life.

Is that a "strawman," or is it an opportunity for agreement and convergence?

[Warpy]

21. Funny, I looked into solar power a few months ago

because of the generous rebate. I found the payback period at my present electrical use (which is still going down, not up) to be over 50 years. Add in the cost in megawatts of producing the whole system and staying connected to coal fired electrical plants polluting the 4 corners looks more like a sustainable option in my case.

However, my contentions about the conditions for and necessity of change still stand. It's not possible while people are still fairly comfortable. The only reason we got the New Deal is that there was a credible threat of a socialist revolution by the time Roosevelt came to power. Things will have to be that scary once again for the powerful to act. The same changes are necessary once again since abandoning them has led to the worst crisis since then and for the same reasons.

Whether we get to that point is moot, but the system is dynamic, not static.

[IrateCitizen]

23. I don't disagree with you at all on solar

I'm not a technocratic-fix kind of guy -- actually, quite the opposite. I don't believe that we will be able to in any way, shape or form continue anything approaching the levels of energy use we have become accustomed to. Renewables may be part of the equation, but they dwarf in size compared to the need to getting used to doing with much, much less. I honestly think that my 2-year old daughter's life will much more closely resemble that of my grandparents who grew up in rural Western PA during the Depression than it will resemble my experience over the last 36 years.

When I talk of "sustainability," it's about living much more locally and deliberately, not seeking out the latest fad that will allow me to continue whistling past the graveyard with a less guilty conscience. For example, I have grown a bigger and bigger organic garden each year over the past three, and the primary input to that garden is horse manure. I plan to add a small flock of chickens to the mix in the not-too-distant future. I try to ride my bicycle more often for local trips. Rather than spending leisure time watching TV, I visit with neighbors and hang out on the deck, drinking a few beers. To me, sustainability is about significantly downgrading your standard of living (either voluntarily or involuntarily) -- a measure that can very easily and often be accompanied by a significant upgrade in your quality of life, because it forces you to re-establish connections with others.

The problem with your analogy between the Great Depression and today is that socialist and communist ideas represented available alternatives to the reigning orthodoxy. Today, where are the different ideas? Socialism and communism cannot help us for two reasons, IMHO -- they have been so vilified through a concerted propaganda campaign as to make them a non-viable alternative to the majority of the population, and they are as wedded to the unsustainability of the modern industrial economy as capitalism is. Like I said above, my fear is that the lack of ideas combined with most people's overarching concern toward maintaining comfort in the face of adversity will result in their acceptance of soft fascism (a process I believe has been happening over the past 25 years, anyway).

I know that the system is dynamic, and it is in that dynamism that I find hope for a better future. However, just because the system is dynamic does not mean that we can discount the incredible amount of cultural and historical baggage with which it arrives.

[AdHocSolver]

24. The plan of the powerful during the 1930s to prevent a "socialist" revolution...

...was to overthrow the U.S. government and replace President Roosevelt with a retired Marine commandant named Smedley Butler. Butler exposed their plot to Congress, fortunately for us, and the plot was never carried out.

[Warpy]

27. They thought Roosevelt was going too far

and was a traitor to their class. They didn't think he was a socialist.

A top down coup led by the Bushes and other pinchbeck aristocrats wouldn't have lasted long. Things had slowly gotten better for ordinary people and those people would not have taken a return to feudalism lightly.

[TheWatcher]

6. Stiglitz Is Lying here.

"The Recovery" never happened in the first place.

No matter how much the Propaganda wants it to be true.

All this W shaped, V Shaped bullshit is just that, bullshit.

If any REAL History books are ever written on this period, with any REAL objective, reality based perspective, they will Marvel at how this population, this country, if it does indeed do so, EVER managed to survive at all as basically what amounts to a dysfunctional Asylum, with the inmates running the show.

This would be quite a Black Comedy if it wasn't so dire and real.

[IrateCitizen]

17. The recovery has occurred for those who "matter"

That is, the investment class that represents about 10% or less of the population.

[wuvuj]

7. Jobs?

Even at this late date...the current rate of descent is at least as bad as the worst for the last recession and for the avg recession?

[bhikkhu]

8. No "growth" is endlessly sustainable in a finite environment

I know that's a little beside the point, but as long as politicians follow economists in speaking of the goal of "growth" as an end in itself we will have W-shapes, and "bouncing along", and volatility that involves a ratcheting down of living standards for ever-larger populations.

[Po_d Mainiac]

11. This chart says it all

If the Fed hadn't given money away in 01, odds are we would have actually had a sustainable recovery. Instead everything was just "bought forward."

[IrateCitizen]

18. If the Fed hadn't given money away in '01...

... then we likely would have had the reckoning then. And the response would have been just as disastrous.

The only way that we can get a "sustainable" recovery is to get back to an economy based on primary (raw materials) and secondary (goods and services), not tertiary (speculative investment) economic activities. And that goes completely against the conventional wisdom of the last 30 years.

[leftofthedial]

22. yeah, but it will take a littel while for the wealthy to spend Obama's latest

gift to them.