Joseph Stiglitz offers some economic advice to Barack Obama

by Jay McDonough

Nobel Prize winning economist, Joseph Stiglitz, wrote a sobering column the other day in the Washington Post, outlining the risks and rewards for the new president in addressing the sagging economy.  And like the emerging consensus, Mr. Stiglitz argues the way out of our financial morass includes both short and long term fixes.

During the campaign, (Obama) argued against cutting taxes on upper-income Americans, who have done so well in recent years. In addition to repealing the 2001-03 tax cuts for the wealthiest, Obama should also consider taxing dividends and capital gains at the same rate as ordinary income: It would reduce the deficit, have few short-term adverse effects on an already reeling economy and make the tax code more fair. After all, why should speculators -- whether on oil, food or real estate -- be taxed less than those who work long hours to make a living?

While the federal deficit looms over the Obama administration's economic deliberations, we must be careful not to let it block bold action. Sometimes, we're wiser to pay now rather than later. Borrowing for high-yielding investments (not just Wall Street bailouts) is common sense. The decisions not to reinforce the levees in New Orleans or upgrade the bridges in Minneapolis were penny-wise, pound-foolish blunders that we lived to regret.

Obama will also need to deal with some vast inefficiencies in our economy if we are to prevent further erosions in our standard of living. Some U.S. sectors are global leaders, such as our world-beating universities and the high-tech firms that thrive on the ideas hatched in our ivory towers. Others are embarrassing, such as health care, where Americans spend far more than citizens in many other industrialized countries and get underwhelming results. We need a bold approach here, reforming not just the way we provide medicine but also thinking more broadly about health.

Stiglitz also highlights energy policy as an opportunity.  The Obama plan includes an influx of funds into the development of alternative energy supplies, positioning the U.S. with greener energy sources and providing employment opportunities stemming from these new industries.  New energy polilcy with an eye on addressing the climate crisis will, no doubt, include a carbon tax and these taxes will provide a desperately needed, large revenue stream. To those that argue levying a carbon tax at this time risks stalling the economy, Stiglitz asserts it's a pay me now or pay me later issue - he warns if the U.S. doesn't begin to address climate control it's likely foreign importers of American goods will begin adding carbon import tariffs to U.S. goods.

Comments

[jeff in Chicago]

Yes, failing to reinforce these levees was pound-foolish (and this concerns more than just levees around N.O. since there are levees all over the US.) But technically, about 1700 people in N.O. didn't live to regret this.