Because fiscal policy did not stimulate the economy, a greater burden was placed on monetary policy. Lower interest rates worked (a little), but for the most part by encouraging households to refinance their mortgages, not by stimulating investment. The increased indebtedness of households is already leading to higher bankruptcy rates, and will likely dampen the recovery.
National debt, too, has risen sharply. The huge trade deficit provides the spectacle of the world's richest country borrowing almost US$2 billion a day from abroad, contributing to the weak dollar and representing a major source of global uncertainty.?
There might be some hope for the future if Bush owned up to his mistakes and changed course. But no: Bush refuses to take responsibility for the economy, just as his administration fails to take responsibility for its failures in Iraq. Last year, having seen that its tax cuts for the rich had failed to stimulate the economy as promised, the administration refused to revise its strategies, but instead just prescribed more of the same medicine. It now promises to make those tax cuts permanent. The real risk is that this is one promise that Bush, if re-elected, will try to keep.
At the end of August, I joined nine other American Nobel Prize winners in economics in signing an open letter to the US public. It is hard to get any two economists -- let alone two Nobel Prize winners -- to agree on anything. But in this case our concerns were so grave as to overcome any disagreements.
We wrote: "President Bush and his administration have embarked on a reckless and extreme course that endangers the long-term economic health of our nation. .... The differences between President Bush and John Kerry with respect to leadership on the economy are wider than in any other Presidential election in our experience. President Bush believes that tax cuts benefiting the most wealthy Americans are the answer to almost every economic problem."
Here, as elsewhere, Bush is dead wrong, and too dogmatic to admit it.
Joseph Stiglitz is professor of economics at Columbia University and a member of the Commission on the Social Dimensions of Globalization. He received the Nobel Prize in economics in 2001.
Copyright: Project Syndicate
RSS