This is a strange article by Joe Stiglitz. The first sentence is right. The second sentence is wrong: Joseph E. Stiglitz: The Myth of Secular Stagnation: "There are many lessons to be learned as we reflect on the 2008 crisis, but the most important is that the challenge was–and remains–political, not economic: there is nothing that inherently prevents our economy from being run in a way that ensures full employment and shared prosperity. Secular stagnation was just an excuse for flawed economic policies..." Larry Summers, I think, gets it 100% right here: Lawrence Summers: Setting the Record Straight on Secular Stagnation: "Echoing conservatives like John Taylor, the Nobel laureate economist Joseph Stiglitz recently suggested that the concept of secular stagnation was a fatalistic doctrine invented to provide an excuse for poor economic performance during the Obama years. This is simply not right...

...Secular stagnation... holds that..., the private economy may not find its way back to full employment following a sharp contraction, which makes public policy essential. I think this is what Stiglitz believes, so I don’t understand his attacks.... Aecular stagnation... [is] an argument... for policies to promote demand, especially through fiscal expansion.... I also highlighted the role of rising inequality in increasing saving and the role of structural changes toward the demassification of the economy in reducing demand....

Stiglitz condemns the Obama administration’s failure to implement a larger fiscal stimulus policy and suggests that this reflects a failure of economic understanding.... We on the Obama economic team... were told by those on the new president’s political team to generate as much validation as possible for a large stimulus.... We worked to encourage a variety of economists, including Stiglitz, to offer larger estimates.... Despite the incoming president’s popularity and an all-out political effort, the Recovery Act passed by the thinnest of margins, with doubts about its ultimate passage lingering until the last moment. I cannot see the basis for the argument that a substantially larger fiscal stimulus was feasible....

I have not seen a convincing causal argument linking the repeal of the Glass-Steagall Act and the financial crisis. The observation that most of the institutions involved–Bear Stearns, Lehman Brothers, Fannie Mae, the GSE Freddie Mac, AIG, WaMu, and Wachovia–were not covered by Glass-Steagall calls into question its centrality. Yes, Citi and Bank of America were centrally involved, but the activities that generated major losses were fully permissible under Glass-Steagall. And, in important respects, the repeal of Glass-Steagall actually enabled the resolution of the crisis, by permitting the merger of Bear and JPMorgan Chase and by allowing the US Federal Reserve to open its discount window for Morgan Stanley and Goldman when they otherwise could have been sources of systemic risk...

It is worth holding on to thee three points:

  1. Repeal of Glass-Steagall ought to have significantly amplified financial risks. But it, apparently, did not...

  2. The Obama economic policy team did catastrophically fail to understand the gravity of the situation. But the problem did not lie with Larry Summers or Christie Romer. The problem, rather, lay with Barack Obama—and Tim Geithner, Ben Bernanke, Peter Orszag, and company...

  3. As long as we live in a g > r world, debt is not a drain but a profit center for the government...


Paul Krugman: On the Debt Non-Spirals: "Joe Stiglitz... one of our greatest living economists, seems to have misunderstood what secular stagnation means.... He accused Larry of inventing the doctrine to justify the Obama administration’s policy shortfalls. Urk. Secular stagnation means that situations like 2008-16, in which monetary policy alone can’t restore full employment, should be seen as highly likely and maybe the norm...

...It’s hardly an excuse for Obama-era failures. I spent 2009-10 screaming that the stimulus was inadequate, precisely because I didn’t expect the slump to be rapidly self-correcting; I based this lack of faith partly on the tendency of financial crises to have long shadows, but I also simultaneously and independently arrived at the same secular stagnation conclusions as Larry did. So can we just chalk this one up to communication problems, and let it go? And can we talk about more interesting implications of the economy’s apparent need for low real interest rates on average? One implication, which I and others have pushed, is that the underlying case for a 2 percent inflation target is all wrong....

Another implication, which I don’t think has gotten enough attention, is that there is even less reason than before to obsess over government debt.... Debt spiral[s] can only happen if the interest rate on the debt is higher than the economy’s growth rate. And this hasn’t been true for a while.... Debt doesn’t spiral. On the contrary, it tends to fall as a share of GDP unless the government runs large primary deficits. I’m not saying that we shouldn’t worry about debt at all, because there may be future contingencies when real interest rates rise and debt becomes an issue. But debt is way, way down on the list of things to worry about–absolutely trivial compared with, say, crumbling infrastructure, which should be fixed without worrying about paying as you go...


#shouldread

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