Noble prize winning economist calls for $1 trillion stimulus

Noble prize winning economist Joseph Stiglitz has joined the ranks of those urging that the stimulus package being developed by President-elect Barack Obama's economic team be "very big."

Stiglitz writes: "A large stimulus package can always be trimmed later if it’s not needed because the economy returns to health faster than most economists think. But we need to plan for what looks to be a deep and long downturn. By relying heavily on automatic stabilizers — expenditures like increased unemployment benefits and revenue sharing with states — we can dose out the medicine as needed. The deeper and longer the downturn, the greater the spending.

Faint measures would be foolhardy. A weaker economy will suffer lower tax revenues, more foreclosures and more bankruptcies. Once a firm is bankrupt, you can’t unbankrupt it by providing a stronger stimulus later on."

The op ed is linked.

BIG OIL COMPANIES ANNOUNCE RECORD PROFITS

Last week, Royal Dutch Shell announced that profits for the company soared to $26.7 billion in 2007, a record-breaking figure for a European company.

The next day, The New York Times reported that "Exxon Mobil's performance last year was a blowout." The oil giant revealed last Friday "that it beat its own record for the highest profits ever recorded by any company, with net income rising 3 percent to $40.6 billion." Exxon Mobil's sales exceeded the gross domestic product of 120 countries.

From the beginning of President Bush's tenure in office, the combined profits of the big five oil companies have skyrocketed from just under $40 billion in 2001 to $120 billion in 2007. President Bush has devoted his presidency to protecting and subsidizing oil company profits.

In December, 2007 he killed tax incentives for wind and solar power, alternative fuels, energy efficiency, clean coal, and cleaner cars in a successful effort to preserve more than $1 billion in annual big oil tax loopholes. These subsidies remain in place in the President's latest budget.

The worldwide increase in demand for crude oil from developing economies like China and India and from mature ones like the United States is one of the reasons crude oil prices and oil company profits have soared.

But as Nobel laureate Joseph Stiglitz recently noted in Vanity Fair, "The soaring price of oil is clearly related to the Iraq war. The issue is not whether to blame the war for this but simply how much to blame it."

Stiglitz explains how to stop the economic downturn

Joseph E. Stiglitz, 2001 Nobel prize winner, a professor of economics at Columbia and the author, most recently, of “Making Globalization Work,” has written a short, but excellent article describing the kind of economic stimulus policies that would be most effective.

He writes:

The country needs a stimulus, but anything we do will add to our soaring deficit, so it is important to get as much bang for the buck as possible...

In 2001, the Bush administration used the impending recession as an excuse to cut taxes for upper-income Americans — the very group that had done so well over the preceding quarter-century. The cuts were not intended to stimulate the economy, and they did so only to a limited extent. To keep the economy going, the Federal Reserve was forced to lower interest rates to an unprecedented extent and then look the other way as America engaged in reckless lending. The economy was sustained on borrowed money and borrowed time.

The day of reckoning has come. This time we need a stimulus that stimulates. The question is, will the president and Congress put aside politics to get the job done?

Read the entire article, "How to Stop the Downturn."

Stiglitz: the economic consequences of Mr. Bush

Nobel laureate and former Chairman of the President's Council of Economic Advisers, Joseph E. Stiglitz, has written a scathing critique of the Bush administration's failed economic policies.

In a column entitled "The Economic Consequences of Mr. Bush," he writes:

When we look back someday at the catastrophe that was the Bush administration, we will think of many things: the tragedy of the Iraq war, the shame of Guantánamo and Abu Ghraib, the erosion of civil liberties. The damage done to the American economy does not make front-page headlines every day, but the repercussions will be felt beyond the lifetime of anyone reading this page.

I can hear an irritated counterthrust already. The president has not driven the United States into a recession during his almost seven years in office. Unemployment stands at a respectable 4.6 percent. Well, fine. But the other side of the ledger groans with distress: a tax code that has become hideously biased in favor of the rich; a national debt that will probably have grown 70 percent by the time this president leaves Washington; a swelling cascade of mortgage defaults; a record near-$850 billion trade deficit; oil prices that are higher than they have ever been; and a dollar so weak that for an American to buy a cup of coffee in London or Paris—or even the Yukon—becomes a venture in high finance.

And it gets worse. After almost seven years of this president, the United States is less prepared than ever to face the future. We have not been educating enough engineers and scientists, people with the skills we will need to compete with China and India. We have not been investing in the kinds of basic research that made us the technological powerhouse of the late 20th century. And although the president now understands—or so he says—that we must begin to wean ourselves from oil and coal, we have on his watch become more deeply dependent on both.

Up to now, the conventional wisdom has been that Herbert Hoover, whose policies aggravated the Great Depression, is the odds-on claimant for the mantle “worst president” when it comes to stewardship of the American economy. Once Franklin Roosevelt assumed office and reversed Hoover’s policies, the country began to recover. The economic effects of Bush’s presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting. There is no threat of America’s being displaced from its position as the world’s richest economy. But our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush.

It's a long, comprehensive critique that is well worth the read. Here's the link.