Wednesday 3 October 2012

Why's it called the American dream?

'Cuz to believe it you have to be asleep.

Not a new joke, but it sums up what Columbia University economist and Nobel laureate Joe Stiglitz said in an interview with Der Spiegel.

"The life chances of a young US citizen are more dependent on the income and education of his parents than in any other advanced industrial country for which there is data ...

"There has been no improvement in well-being for the typical American family for 20 years. On the other side, the top one percent of the population gets 40 percent more in one week than the bottom fifth receive in a full year ... 

"... the top 1% in the United States has an average tax rate of less than 30 percent of their reported income, and the large proportion who take much of their income as capital gains pay far less. And we know that they are not reporting all of their income ...

"There is nothing wrong if someone who has invented the transistor or made some other technical breakthrough that is beneficial for all receives a large income. He deserves the money. But many of those in the financial sector got rich by economic manipulation, by deceptive and anti-competitive practices, by predatory lending. They took advantage of the poor and uninformed, as they made enormous amounts of money by preying upon these groups with predatory lending. They sold them costly mortgages and were hiding details of the fees in fine print."

(If you'd rather read personal stories than statistics, try the story of how wheelchair-bound Ana Wilson is trying to keep Wells Fargo from evicting her from the house she's lived in for 37 years.)

Der Spiegel: Why didn't the government stop this behaviour?

"... The financial elite support the political campaigns with huge contributions. They buy the rules that allow them to make the money. Much of the inequality that exists today is a result of government policies."

Der Spiegel: 99% against 1 percent: That actually sounds like the perfect setting for a revolution. Why are things still so calm in the US?

"The United States doesn't have much of a revolutionary spirit. My real concern is that people get alienated from politics. In the last election we had a voter turnout among young people of around 20 percent. These are the people whose future is most at stake, and 80 percent of them think it's not worth to vote because it is a rigged system and in the end the banks are going to run the country anyway."

"... More than a quarter of all homeowners owe more money than the value of their houses ... We haven't invested enough for 30 years -- in infrastructure, technology, education... The United States can borrow at close to a zero percent interest rate, we would be stupid not to invest more money and create jobs. And we could also make efforts to ensure that the super-wealthy pay their fair share  ..."

His aim looks pretty good on Europe too ...

"... Europe's crisis is not caused by excessive long-term debts and deficits. It is caused by cutbacks in government expenditures. The recession caused the deficits, not the other way around. Before the crisis Spain and Ireland ran budget surpluses. They cannot be accused of fiscal profligacy. More fiscal discipline will only worsen the downturn. No economy ever recovered from a downturn through austerity."

Der Spiegel: Really? What about Estonia or Latvia? With severe pay cuts the Baltic states boosted productivity and recovered.

"They are small economies. They can make up for the loss of government spending by more exports. But that doesn't work with a fixed exchange rate and when your trading partners are not doing well. The crisis countries don't suffer from excessive spending. The problem is not supply but demand. It is the responsibility of monetary and fiscal policy to maintain the economy at full employment."

Der Spiegel: No matter what the costs? No private household can live beyond its means permanently. Why should governments be exempted from that rule?

"Because countries are different from households. If a citizen cuts back his spending, it is without any consequences for the country. Unemployment does not increase. But if the government cuts back its spending, it has a major effect. An expansion of spending can increase production by creating jobs that will be filled by people who would otherwise be unemployed."

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