US economy needs a second stimulus
The last stimulus package didn’t take into account the fiscal problems the recession would create for state and local governments.
Joseph Stiglitz, who was awarded the Nobel Prize for economics in 2001, spoke to the Council on Foreign Relations this Thursday about his new book, “Freefall: America, Free Markets and the Sinking of the World Economy,” and discussed the US recovery, banking regulation, and China’s stimulus. Nathan Gardels, Global Viewpoint Network editor, participated in the discussion as a member of the council.Skip to next paragraph
Subscribe Today to the Monitor
Adapted excerpts from Mr. Stiglitz's comments follow:
On the prospects of an economic recovery in the United States
We’ve pulled back from the precipice, but the current situation cannot be described as a strong recovery. The recession may be over in the way economists describe it – two quarters of negative growth – since growth has turned positive. But the recession is far from over for those who don’t have jobs or can’t sell the goods they produce.
The official unemployment rate may be 10 percent. But when we factor in those who are no longer looking for work because the recession has gone on so long, the picture looks pretty bad. Since the US Bureau of Labor Statistics collects data on those who have given up looking for work or taken a part-time job, we can calculate that the real unemployment level stands at over 19 percent.
That means 1 out of 5 Americans looking for full-time work cannot get it now. And 4 out of 10 who can’t find work have been out of a job for more than half a year, which means whatever savings they had will have dried up while the prospects of reemployment in a good job goes way down. That is a serious situation. It is bleaker for those over 50, and bleaker still for black youth, in which 1 out of 2 are unemployed.
It is commonly said that growth in jobs always lags behind recovery. The truth is that the recovery hasn’t been strong enough to create enough jobs for new entrants to the labor force, no less to bring unemployment back down from 10 percent to 5 percent. For that to happen in the US, growth must be at least 3 percent a year. I don’t see growth in 2010 or 2011 being above that level.
The fundamental problem – both nationally and globally – is that what sustained such levels of growth in the precrisis years was the bubble economy, which allowed people to live beyond their means by borrowing. In one year alone in the US, people took $950 billion out of their houses in equity loans.
During that time, the savings rate in the US plummeted to zero. Clearly, what was unsustainable couldn’t be sustained.
The flip side of the burst bubble is that consumption has gone down. For the long turn, that is a good thing. For the short run, that is a problem.
Praying for the consumer to come back in this context is a funny kind of prayer. We shouldn’t go back to living beyond our means in the US, which is what created the crisis to begin with. And, certainly for the moment, we can’t.