This interview is part of a series of talks with leading intellectuals, editors, activists, economists and politicians who help to describe the state of affairs before the elections. You can read the other deliveries here.
The United States was experiencing the longest period of growth in its history when, last March, the pandemic plunged the country into the worst debacle since the Great Depression. Republican Donald Trump was left without that great electoral asset that is a buoyant economy. However, economic management remains one of the highest valued issues of the president, who, before completing his first year in power, managed to pass the largest tax cut since Ronald Reagan. For many economists, this tax reform represents an unsustainable hole in the public purse and a driver of inequality. One of them is the progressive Joseph Stiglitz (Gary, Indiana, 77 years old), author of titles such as The great gap or progressive Capitalism (Taurus). The Nobel Prize, who was an advisor to the Bill Clinton Administration (1993-2001), addresses the Trump era and the challenges of the first power in a telephone conversation with EL PAÍS. These are interesting times, Wall Street behaves as if the world were good and a presidential candidate, Democrat Joe Biden, asks the citizens to vote with the flag of a tax increase.
Question. Regardless of the current crisis, what legacy do you think Trump's economic policy will leave behind?
Answer. Trump has been an economic disaster. Our country's strength is investment in science, technology, and education, and he has undermined that. He has called for cuts to the science budget every year. It has attacked our best universities, it has taxed them, when what most governments do is give them subsidies. Also, in a modern economy you need global cooperation and he has moved away from it and gone against international agreements, to the detriment of the United States. I have also been critical and have said that the rules should be decided in a more democratic way, but that is not an argument to abandon them. For me, these four years have been an economic disaster, and if we don't reverse it, it will mark the beginning of America's decline.
P. Biden campaigns by warning that he will raise taxes. Today in the United States can you win an election saying that?
R. Remember that Trump reduced taxes for billionaires and companies in December 2017 and, in the same law, raised them for most of the people in the middle, which is the one who has been struggling in the last 40 years . What Biden has promised is to reverse this and make companies and large fortunes pay fair taxes, which seems like good economic policy to me. The 2017 tax cut gave the economy a sugar boost, but any economic model will tell you that this is not sustainable, that it will lead to record deficits. Of course, you will grow faster, but it is not sustainable. Also, it was a poorly designed reform. Before the pandemic, the US growth forecast was already anemic, below 2%, and the money did not turn into more investment, but rather more dividends or share buybacks. Inequality is one of the biggest problems in this country.
P. Inequality in the United States has been a problem for decades, with Republican governments and with Democratic governments. It has a solution?
R. You need a thorough set of policies. First, we must give more bargaining power to the workers, strengthen the unions, rewrite the rules of globalization, corporate governance, reduce the power of the monopolies. Second, obviously, we need a more progressive fiscal and public spending policy. It is very curious that in the United States people at the top pay less taxes than people at the bottom. Warren Buffet pointed it out: he pays a lower tax rate than his secretary. In terms of spending, the United States is not only the country with the highest level of inequality, but also the only one that does not recognize health as a basic right, so we need better spending policies.
P. Biden does not sing Trump's "America First," but he has placed the "Made in America" slogan at the center of his economic policy. Did the governments of Bill Clinton (1993-2001) and Barack Obama (2009-2017) underestimate the damage that globalization caused to the American working class?
R. I can speak more for the Clinton Administration. Parts of that Administration believed in the theory of economics trickle-down (trickle, that is, that economic growth, per se, would benefit everyone), not everyone believed, but Clinton himself did. Some like me, or like Bob Reich (advisor also in the governments of Gerald Ford or Jimmy Carter), we had more doubts and we believed that more aid was needed for the injured. Here was the critical mistake. When we talked about globalization, we vehemently defended aid for workers who were displaced, aid for trade adjustments. But the Republicans rejected it.
P. With different strategies, Biden and Trump also agree that China must play by new rules in the economy. Do you think it is a general consensus?
R. Yes, but most economists focus on multilateral trade imbalances, not the bilateral trade deficit, between the United States and China, which has been Trump's focus of concern. Regarding China, Democrats and traditional Republicans are more concerned with democracy and human rights issues than with trade. There used to be a lot of talk about whether China would open its market to US insurance companies, to Wall Street companies … But that is not going to solve the problem of the US industrial sector, many of those jobs have already disappeared, global employment as a whole in the industry is going down. Trump has diverted the focus from other issues we should be focusing on, such as cybersecurity, surveillance, and human rights.
P. For months, Wall Street has seemed oblivious to this great crisis. What explains the United States such a large gap between the stock market and the so-called real economy?
R. It reflects a great inequality. You have to realize that the Stock Market is not even a reflection of the business sector. Small businesses are not part of the stock market, but they are the ones that provide half of the jobs in the economy and are not doing well. The internet giants, on the other hand, are doing well. In addition, contributions go up when wages are low and are low now. On the other hand, low interest predicts more future profits and dividends, so that also favors them on the stock market, but those interests are low because the economy is weak. And the liquidity that the Federal Reserve is injecting into the market is not going to buy goods and services, people are saving it because of uncertainty and putting it in assets. So, in a way, the success of the Stock Market is a reflection of the failure of economic policy.
P. Are you optimistic about a rapid recovery in the United States?
R. It is clear that we will not have a V-shaped recovery, as expected in March. Remember that the first approved aid program was designed on the assumption that the economy would return to normal by the end of June at the latest, so the plan was scheduled for 10 weeks or so. But we have fallen down the ravine. It is October and we have not returned to normal. At the moment I am very pessimistic, the aid has long expired and the negotiations (between the White House, Republicans and Democrats) for a new program have been broken. And the recovery is slowing down. I believe that we will not reach a Great Depression, that governments will end up taking a step forward, but we cannot rule it out.
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