Stiglitz needs to speak up

The people of Greece did everyone in Europe a favour when they threw out the last government and gave the thumbs down to the austerity imposed by the guardians of financial orthodoxy. They opened up the political space for a democratic debate on the future of the strife-torn continent.

The politicians failed to grasp that opportunity: they just want to preserve the status quo.

The IMF and the European Central Bank just want their money back – debts to be honoured.

No surprise in that lot.

What was dismaying, however, was the response of the academic community. Economists could have identified the parameters of a new model that would have delivered on the goals to which the Eurozone claims to be committed – new jobs, competitive prices, servicing sovereign debts.

Particularly disappointing was the letter authored by Professor Joseph Stiglitz and a raft of distinguished economists which the Financial Times published on February 19. They urged a settlement between the recently elected Syriza government and the architects of the austerity programme that had decimated the Greek economy and driven suicides to record heights.

But why did Stiglitz fail to grasp this opportunity to even hint at the way in which Greece could work its way out of the crisis? Why did he not even suggest that there is a viable way out of the financial mess? Stiglitz is aware that much more than money is at stake. This is what he wrote in The Price of Inequality:

We have created an economy and a society in which great wealth is amassed through rent seeking, sometimes through direct transfers from the public to the wealthy, more often through rules that allow the wealthy to collect “rents” from the rest of society through monopoly power and other forms of exploitation.

Stiglitz has no doubt as to the correct solution:

A stiff tax on all such rents would not only reduce inequality but also reduce incentives to engage in the kind of rent-seeking activities that distort our economy and our democracy.*

The 2008 seizure of Europe’s banking sector was caused exclusively by rent-seeking – the quest to grab the rents (in the form of capital gains) that we all help to create. This flow of income ought to be reserved as the legitimate source of revenue for funding public services. Why doesn’t Stiglitz pitch this bombshell into the middle of the debate between Greece and the debt-enforcers from Frankfurt?

The constraints on new and sustainable growth – artificial limits placed on consumption, distortions to capital formation, inflated rents and house prices – are all caused by taxes levied on people’s wages and savings. These taxes are imposed for one reason only: because governments fail in their duty of care to their citizens (they don’t collect the nation’s rents) they have to invent brutal forms of revenue-collection that damage the health and wealth of society. Getting rid of these taxes would boost aggregate income, raise employment and kick-start the renewal of Greece. Why doesn’t Stiglitz pitch this bombshell into the middle of the debate between Greece and the guardians of the rent-seeking ideology?

Public discussion is sterilized by those who wish to protect the legacy of past acts and omissions. One consequence is the dangerous state of Europe today, its institutions vulnerable to attacks from economic and religious fanatics.

It appears that the only way forward is for the people to take a grip of their destinies. But how will they be empowered to make informed decisions if the intellectuals in their midst fail to broadcast the truth?

*Josef Stiglitz (2012), The Price of Inequality, London: Allen Lane, pp. 213, 266

2 Responses to Stiglitz needs to speak up

  1. David Humphries 27 February 2015 at 8:18 pm #

    Great stuff Fred!

    Have you got any lectures coming up or more books on the way?


  2. Adam 1 March 2015 at 11:02 am #

    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” ~ Upton Sinclair

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