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Stiglitz writes: "Why did the backlash in the US come just when the economy seemed to be on the mend, rather than earlier? And why did it manifest itself in a lurch to the right?"

Economist Joseph Stiglitz. (photo: Reuters)
Economist Joseph Stiglitz. (photo: Reuters)


Trumpian Uncertainty

By Joseph Stiglitz, Project Syndicate

10 January 17

 

very January, I try to craft a forecast for the coming year. Economic forecasting is notoriously difficult; but, notwithstanding the truth expressed in Harry Truman’s request for a one-armed economist (who wouldn’t be able to say “on the other hand”), my record has been credible.

In recent years, I correctly foresaw that, in the absence of stronger fiscal stimulus (which was not forthcoming in either Europe or the United States), recovery from the Great Recession of 2008 would be slow. In making these forecasts, I have relied more on analysis of underlying economic forces than on complex econometric models.

For example, at the beginning of 2016, it seemed clear that the deficiencies of global aggregate demand that have been manifest for the last several years were unlikely to change dramatically. Thus, I thought that forecasters of a stronger recovery were looking at the world through rose-tinted glasses. Economic developments unfolded much as I anticipated.

Not so the political events of 2016. I had been writing for years that unless growing inequality – especially in the US, but also in many countries throughout the world – was addressed, there would be political consequences. But inequality continued to worsen – with striking data showing that average life expectancy in the US was on the decline.

These results were foreshadowed by a study last year, by Anne Case and Angus Deaton, which showed that life expectancy was on the decline for large segments of the population – including America’s so-called angry men of the Rust Belt.

But, with the incomes of the bottom 90% having stagnated for close to a third of a century (and declining for a significant proportion), the health data simply confirmed that things were not going well for very large swaths of the country. And while America might be at the extreme of this trend, things were little better elsewhere.

But, if it seemed clear that there would be political consequences, their form and timing were far less obvious. Why did the backlash in the US come just when the economy seemed to be on the mend, rather than earlier? And why did it manifest itself in a lurch to the right? After all, it was the Republicans who had blocked assistance to those losing their jobs as a result of the globalization they pushed assiduously. It was the Republicans who, in 26 states, refused to allow the expansion of Medicaid, thereby denying health insurance to those at the bottom. And why was the victor somebody who made his living from taking advantage of others, openly admitted not paying his fair share of taxes, and made tax avoidance a point of pride?

Donald Trump grasped the spirit of the time: things weren’t going well, and many voters wanted change. Now they will get it: there will be no business as usual. But seldom has there been more uncertainty. Which policies Trump will pursue remains unknown, to say nothing of which will succeed or what the consequences will be.

Trump seems hell-bent on having a trade war. But how will China and Mexico respond? Trump may well understand that what he proposes will violate World Trade Organization rules, but he may also know that it will take a long time for the WTO to rule against him. And by then, America’s trade account may have been rebalanced.

But two can play that game: China can take similar actions, though its response is likely to be more subtle. If a trade war were to break out, what would happen?

Trump may have reason to think he could win; after all, China is more dependent on exports to the US than the US is on exports to China, which gives the US an advantage. But a trade war is not a zero-sum game. The US stands to lose as well. China may be more effective in targeting its retaliation to cause acute political pain. And the Chinese may be in a better position to respond to US attempts to inflict pain on them than the US is to respond to the pain that China might inflict on Americans. It’s anybody’s guess who can stand the pain better. Will it be the US, where ordinary citizens have already suffered for so long, or China, which, despite troubled times, has managed to generate growth in excess of 6%?

More broadly, the Republican/Trump agenda, with its tax cuts even more weighted toward the rich than the standard GOP recipe would imply, is based on the idea of trickle-down prosperity – a continuation of the Reagan era’s supply-side economics, which never actually worked. Fire-breathing rhetoric, or raving three a.m. tweets, may assuage the anger of those left behind by the Reagan revolution, at least for a while. But for how long? And what happens then?

Trump might like to repeal the ordinary laws of economics, as he goes about his version of voodoo economics. But he can’t. Still, as the world’s largest economy leads the way into uncharted political waters in 2017 and beyond, it would be foolhardy for a mere mortal to attempt a forecast, other than to state the obvious: the waters will almost certainly be choppy, and many – if not most – pundit ships will sink long the way.


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+24 # lobdillj 2017-01-10 11:01
Dr. Stiglitz, a Nobel laureate in economics, wrote: "Why did the backlash in the US come just when the economy seemed to be on the mend, rather than earlier?” What economic model is he using? It certainly isn’t the one Dr. Michael Hudson has shown us...you know, the one that explains every crash since, and including 1929. Dr. Hudson’s model says that QE only kicked the crash can down the road and has only temporarily improved the economy for the 0.01%. In fact, the model says that there will be another crash because “Debts that can’t be paid won’t be paid.”
Paul Krugman, another Nobel laureate suffers from the same reliance on Milton Friedman’s flawed model. (Friedman was a Nobel laureate too.) Hudson’s model also says that the 0.01% will be back for more QE after the next crash.
 
 
+1 # Cassandra2012 2017-01-10 11:26
Quoting lobdillj:
Dr. Stiglitz, a Nobel laureate in economics, wrote: "Why did the backlash in the US come just when the economy seemed to be on the mend, rather than earlier?” What economic model is he using? It certainly isn’t the one Dr. Michael Hudson has shown us...you know, the one that explains every crash since, and including 1929. Dr. Hudson’s model says that QE only kicked the crash can down the road and has only temporarily improved the economy for the 0.01%. In fact, the model says that there will be another crash because “Debts that can’t be paid won’t be paid.”
Paul Krugman, another Nobel laureate suffers from the same reliance on Milton Friedman’s flawed model. (Friedman was a Nobel laureate too.) Hudson’s model also says that the 0.01% will be back for more QE after the next crash.


QE =?
 
 
+7 # geohorse 2017-01-10 11:54
QE =?

Quantitative Easing
 
 
+11 # Robbee 2017-01-10 12:02
Quoting Cassandra2012:
QE =?

- in 2008 banks stopped lending - money supply that had been whizzing thru the economy several times a year, froze - money sat like a rock by the side of the road

Qualitative Easement was the fed's response - pumping massive new money into the stuck economy - QEI, II and III each massively devalued our money supply - (we stopped worrying about china devaluing its money for trade advantage!!! - all except rump! who either didn't get the memo or is selling snow to eskimos)
 
 
+1 # molesoul 2017-01-12 18:28
Quoting Robbee:
Quoting Cassandra2012:
QE =?

- in 2008 banks stopped lending - money supply that had been whizzing thru the economy several times a year, froze - money sat like a rock by the side of the road

Qualitative Easement was the fed's response - pumping massive new money into the stuck economy - QEI, II and III each massively devalued our money supply - (we stopped worrying about china devaluing its money for trade advantage!!! - all except rump! who either didn't get the memo or is selling snow to eskimos)


If the QEs massively devalued our money supply, where was the inflation?
 
 
+15 # Robbee 2017-01-10 12:08
Quoting lobdillj:
Dr. Stiglitz, a Nobel laureate in economics, wrote: "Why did the backlash in the US come just when the economy seemed to be on the mend, rather than earlier?” What economic model is he using? It certainly isn’t the one Dr. Michael Hudson has shown us...you know, the one that explains every crash since, and including 1929. Dr. Hudson’s model says that QE only kicked the crash can down the road and has only temporarily improved the economy for the 0.01%. In fact, the model says that there will be another crash because “Debts that can’t be paid won’t be paid.”
Paul Krugman, another Nobel laureate suffers from the same reliance on Milton Friedman’s flawed model. (Friedman was a Nobel laureate too.) Hudson’s model also says that the 0.01% will be back for more QE after the next crash.

- nonsense! - Stiglitz and Krugman are not supply-siders like Milton Friedman - quite the opposite!
 
 
+11 # ladypyrates 2017-01-10 13:02
Some years ago, I attended an economics seminar in Chicago at which Dr Hudson spoke. I recall him observing that "for the last two or three generations, we've been teaching things at the universities that simply aren't true." If you go back several centuries, the French physiocrats were pondering a very crude system of valuation within an economy which started a thinking process with our founders. Most economic plans seem to utilize the "trickle down" theory in which the available wealth is controlled at the top with very little of it ever trickling down to the folks who actually do the work. If you monetize something other than debt, that created wealth is realized at a level at which the common folk can participate...a nd if you attempt to explain this idea to any of the "oracles" (Krugman, Stiglitz et al), you will be ridiculed and handed your head publicly. It is sad that people in positions of power today, speak of vague concepts as if they were proven truths when in fact they are nothing but fiction. While testifying before the Senate Finance committee during the depression, Mariner Eccles (a believer in American Capitalism...no t European oppressive capitalism) told the Senators "There must be a more equitable distribution of wealth production in order to keep purchasing power in a more even balance with production." Think about what he meant by that and the possible outcome for all of us.
 
 
+59 # Emmanuel Goldstein 2017-01-10 11:20
"We had to destroy the village in order to save it."
That famous quote from the Vietnam War was a perfect characterizatio n of that war's Orwellian insanity.

The 2016 ascension to power of a know-nothing narcissist like Donald J. Trump inspires this modified version:

"We Trump voters want to destroy the US in order to save ourselves."

Their strategy is not likely to succeed any better than America's strategy in Vietnam did.
 
 
+2 # madame de farge 2017-01-11 08:29
I hate to agree with you, but I do....
 
 
+44 # dascher 2017-01-10 11:39
"Donald Trump grasped the spirit of the time". Donald Trump has never 'grasped' anything except women's genitals. He never expected to win the GOP nomination, just to expand his "brand". As he kept making more and more outrageous personal attacks against his GOP rivals, and the GOP base responded by supporting him, he found himself with the nomination... despite his best efforts.

He clearly never expected to win the election - he spent the last week before it repeating that it was rigged against him, making excuses for why he was going to lose despite being what he thinks is "extremely intelligent".

He is likely to become the first US President to be removed from office for mental health reasons based on his compulsive tweeting about anybody who questions his "wisdom", "succcess", "morality", etc. He has not forgiven Ryan and McConnell and most of the GOP for running away from him during the election campaign and he will do his best to get even with them - mostly through more idiotic tweets. When the GOP has had enough of his insults, they will declare him to be unable to carry out his duties and Pence will be the President. We might has well start getting ready for that sooner rather than later.
 
 
+30 # norman markowitz 2017-01-10 11:47
Econmy is always political economy. Trump's "change" will be at best a third wave of Reaganism far worse than the first two, since it's protectionist policies can in all likelihood lead to major price inflation along with a major decline in money wages
Trump won't be able to keep such policies going with economic Potemkin Villages, taking credit for the return of a thousand jobs to Michigan, the Japanese opening up a factory in Central Pennsylvania. That is where the real danger of a full blown fascist dictatorship comes from. That is why we need the broadest unity possible to fight the administration and encourage its soft core supporters, traditional Republicans and non-metropolita n lower middle class people, to turn against it as it makes their daily lives far worse, instead of blaming the traditional scapegoats, foreign powers, illegal immigrants,peop le of color, who Trump used to seize the presidency and whom his administration will use to explain away both the worsening economy and their repressive plicies
 
 
+47 # John Puma 2017-01-10 12:01
Regards Steiglitz's question:
"And why did it manifest itself in a lurch to the right?"

Because that was the only "choice" presented. In a new twist on the "why vote for fake Republicans" electoral dynamic, this cycle it was "why vote for the LESS rich of two greedy jerks, either richer than my wildest dreams."

The only possible "detectably-to- the-left-of-Ati ila-the-Hun" candidate was rejected and ambushed by the Dem establishment, assisted by it's hench-assholes, the "super-stupid" delegates.

Sanders addressed the same economic issues important to the American voter that Herr Hair used to manipulate his minions (into an early grave).

The critical difference was that Sanders prior 50 years of life had proven he was serious about helping those getting trashed, while Herr Hair's prior life incontrovertibl y proved that he was just doing his normal, self-serving, scam.
 
 
+11 # Jayceecool 2017-01-10 13:26
Very astute observations, JP...
 
 
+36 # Jayceecool 2017-01-10 13:38
Why does the USA lag behind so many other modern countries in heathcare, education and social justice? The answer is obvious: increasingly unfettered capitalism, which by its nature, places property acquisition and rights above human values. More years under Republican regimes will only worsen the problem...
 
 
+23 # Moxa 2017-01-10 15:18
Regarding the "lurch to the right." The election of Trump did not reflect the majority will of the American people. The most popular candidate nationally was Bernie Sanders (that is, his net favorability rating soared above Hillary's and was even greater versus Trump. Sanders was arguably the most progressive candidate since FDR and America was ready to elect him president. All head to head match up polls showed him doing just that by wide margins. He didn't win the nomination because the huge number of independents who would have supported him in the primary could not, and the Democratic establishment covered their ears and shouted "La, la, la" every time his name was mentioned. It strikes me, that as a whole, America was quite ready for a very strong lurch-- not to the right, but to the left.
 
 
+21 # gordon.silverman 2017-01-10 12:41
I respect Joseph Stiglitz very much and usually agree with his recommendations regarding policy (both economic and political). His observations in the present instance are reasonable (mainly because he identifies uncertain outcomes). What I should like to point out comes from larger considerations. In particular, I am currently reading the book entitled, "How Will Capitalism End?" by the German economist Wolfgang Streeck including Essays on a Failing System. Basically, it is not "if" democratic capitalism will fail but "when", and which particular crisis will bring the ultimate collapse. The period from 1945 to 1970 included "some" stability between democratic (political) demands (like improvement in the "inalienable" rights of the working class) and the "needs" of an "open market" (as required by capitalism like "no" regulations). Starting in 1970 we entered a virtually continuous period characterized by inflation-->inc rease in public and private debt-->stagnati on (and attendant imbalance in wealth)-->attem pts to restore balance (which failed)-->stagn ation-->etc. The crash of 2008 was a signature event that ended one such cycle. Making estimates of a year's economic outcomes is thus "noise" in the relentless march. There are inherent contradictions in democratic capitalism that have not been addressed since at least 1700. We have no idea what will replace the current model and that is FRIGHTENING.
 
 
+13 # Sam Seaman 2017-01-10 14:10
The only trickle-down that we´re going to feel is because they´re pissing on us.
 
 
+8 # boomerjim 2017-01-10 14:45
Economists used to believe in supply and demand. For decades now, rightwingers have believed only in the supply side -- assuming they actually believe and aren't just building a facade over policies to rob everyone else while benefiting the super rich. But the demand side is the issue -- impoverishing much of the populace does not build demand; and the rich won't invest their wealth to produce where there is insufficient demand. Producing and marketing upscale goods and services (look at HGTV to see the efforts at such marketing) just won't do it for the economy as a whole. So we get snake-oil economics pushed by the pols, which will lead to more economic collapse. And lose-a-billion- dollars-in-a-ye ar Trump is poised to oversee this mess.
 
 
+19 # jsluka 2017-01-10 15:05
Quote: "China, which, despite troubled times, has managed to generate growth in excess of 6%."

They have done this by raping their environment, and are now reaping the whirlwind from that. Can you breath the air in China without it shortening your life?

The advocates of endless growth are fools. If the USA increases its "growth," that means it increases its consumption, and the fact is that what's being consumed is the health of the planet we live on.

Capitalism is a terminal disease, which Stiglitz does not seem to recognise.
 
 
+16 # kitster 2017-01-10 15:48
remember, trump has no economic experience or knowledge. since he bankrupted so many of his companies and the banks decided his failure would trigger their failure, trump has only been the ceo of selling his name. and, of course a tv celebrity and pitch man. he'll be at the mercy of the goofs, greedsters and gangsters who now populate his cabinet. our misfortune under w will look petty when the donald's intimate inmates take over the asylum...admini stration-wide,
 

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