Biddy Martin:
I'm Biddy Martin, President of Amherst College. I want to welcome you to this first in a series of programs designed to help us think through the pandemic. And we're in for a big treat today. We have with us Joseph Stiglitz, the Nobel prize-winning economist and a winner, before the Nobel, of the prestigious John Bates Clark Medal, which is awarded to an American economist under the age of 40 for significant contributions to economic thought. Joe is well known for pioneering work on asymmetric information and his written work focuses on income distribution, risk, corporate governance, public policy, macroeconomics, and globalization. He's the author of many, many books and several bestsellers as well. His most recent titles include People, Power and Profits: Progressive Capitalism for an Age of Discontent, Rewriting the Rules of the European Economy, Globalization and its
Biddy Martin:
Discontents Revisited: Antiglobalization in the Era of Trump, and The Euro: How a Common Currency Threatens the Future of Europe. Also, a memoir, recently published. At Amherst, Joe Stiglitz majored in economics and math. He went on to get degrees from MIT and from Cambridge. He is currently co-chair of the High Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD. He is also the Chief Economist of the Roosevelt Institute. We're so delighted to have Joe here and to hear from him. He will be interviewed by Dave Novak, a trustee of Amherst College, uh, a graduate with a degree in economics who received an MBA from Harvard Business School with honors. Dave Novak was appointed to the board in 2018 he is the co-president of the private equity firm, Clayton Dubilier and Rice. He is based in London and has responsibility for CD&R's European business. He's a member of the firm's executive and investment committees. And in 2009, Dave Novak was selected to join The Forum of Young Global Leaders of the World Economic Forum. We're delighted to have you both. Thank you.
David Novak:
Thank you, Biddy, and welcome everyone. Joe, I'd just like to extend my thanks as well for you giving us your time today in this incredibly different times for all of us and I know everyone in the Amherst community really appreciates hearing what you have to say and what you think about the crisis. So before we dive into the topic at hand, how's lockdown treating you? Where are you sheltered in place? Have you picked up any new hobbies, dropped any hobbies?
Joseph Stiglitz:
Well, I'm sheltered in our apartment in the Upper West Side. It looks over the Hudson River, so that's very nice. We can look down at the flowering trees that I won't be able to enjoy as I do normally in the spring. I had thought when this shelter in place began that I'd have a lot of time to catch up and read some of the books that I haven't had the time to read, but actually it's turned out to be an incredibly busy time. I continue to teach my students, my graduate students on Zoom. There's a lot going on all over the world, and in the United States, you know, discussions about, shaping the recovery package. Didn't go very well. We'll probably come talk about that.
Joseph Stiglitz:
Talking about initiatives of the IMF, G-20. There's just been a lot of activities, so I don't think I've ever been busier. The fun thing about Zoom is, you know, it used to be, to get a taste of what was going on in the world, you had to spend a lot of time in the airplane. Right now I can go in the same day and have a morning meeting in Beijing, an afternoon meeting in Bolivia, an evening meeting, a discussion, with some journalists in Australia. I's an amazing moment in our technology.
David Novak:
Well, thanks for that. And we might come back to that later actually. Before we jump into the economics, I learned just last week that in addition to all your economics research, you've actually done a bunch of research on diseases and epidemics. Tell us about that. What was the driver of that? What'd you learn?
Joseph Stiglitz:
Well, there were actually several motivations. One of them was when I was Chief Economist of the World Bank, one of the important aspects of development is improvements in health. So one of our major programs was concerned with improving the health of developing countries, doing something about contagious diseases. And then roughly at the same time the HIV AIDS epidemic was going on. Contagious diseases are about human interaction and economics is about human interaction. There were some very nice models, mathematical models, describing contagion that I found fascinating at the time that I was doing my work 25 years ago. And of course those models have now been brought out of the closet by everybody as they try to understand the Covid-19.
Joseph Stiglitz:
I have to say, because I was so familiar with those models, I had an inkling that things were going to evolve in the way that they have evolved. You know, the exponential growth of the number of people with the disease, one could feel it, one could see it coming, one knew in the equations that it was a very good chance that it was there. That led us perhaps to be a little bit more cautious in the beginning, buy a little bit more food, other stuff, storing all kinds of medical stuff. We were in a little bit better position than a lot of other people.
David Novak:
Well, that's good to hear. Next time your models or your crystal balls gives you that indication, please let us know, at least pass it on to Biddy and she can send it to the community. Joe, the last time you and I were together actually with an Amherst group was in London in June of 2010. It Was just after the financial crisis of course. And you gave us an hour of your time to talk about your perspectives of the financial crisis as we were just coming out of it. What, as you reflect back to then and think about where we are today as it relates to markets, as it relates to some economic behaviors, what is similar today and what is different?
Joseph Stiglitz:
Well, the major difference that's very striking is that was a crisis that was a top-down crisis that began with a failure of our financial system. Excessive risk that then became global in nature, began in the United States but what became a world crisis and affected every part of our economy. This is beginning--obviously very different--it's not just a problem on demand [inaudible] supply. The disease, COVID-19, people don't want to buy, but they also don't want to get together to produce. In that sense it's totally different. But there are some aspects where there's some similarities. Whenever you have a very deep downturn, no matter what it's cause, it eventually gets translated into a problem in demand. The fact that people aren't going to work, that they can't work, is going to mean that going forward we are going to have a problem of insufficiency of aggregate demand or we would without adequate government intervention.
Joseph Stiglitz:
It's even possible that we could have financial problems, this time not coming from the top down, but coming from the bottom up as ordinary individuals can't pay their bills, businesses can't pay their bills. Any protracted economic downturn winds up as a financial crisis. There's one other element of similarity. In the 2008 crisis, we became very aware of the ways in which markets don't often work well. The markets engage in excessive risk-taking and we saw that markets weren't resilient. The collapse of one bank led to the collapse of the whole financial system. So the market economy as it had been constructed over the preceding years was not resilient. And I think we're seeing some of that same thing today. In a way we created an economic system that was again, focused very much on the short term.
Joseph Stiglitz:
We were proud that we had so few hospital beds because we were using every hospital bed very efficiently. And that's fine as long as nothing goes bad. But when you have a surge as we have now, the problem of the shortage of hospital beds becomes a real crisis. You know, I have a metaphor describing it. We took out the spare tires from our cars. The reasoning was most of the time you don't have a flat tire, so why carry the spare tire with you? But of course, when you have a flat tire, you really want the spare tire. The cost of not having the expert tire is enormous. So we didn't think about . And this is true not only obviously in the private sector and the public sector, the Trump administration got rid of the office of pandemics that was supposed to prepare us against this risk. It tried to defund the CDC, the Centers for Disease Control, which are the mechanisms that we have for responding to crisis. The argument was, well, we are aren't having a pandemic this year, so why fund it? That kind of shortsightedness, which was very pervasive in markets and in some politicians, not in general, but in some politicians has had a devastating effect on us.
David Novak:
Thanks for that. You know, when some people reflected on the financial crisis, some people thought, well, maybe the government didn't respond quick enough. I think this time, in terms of once the government figured out there was a problem, governments actually around the world started acting in different ways depending upon what part of the world they were in. In terms of where we sit today, the financial contributions by the governments are significant. Let's talk a little bit about some of the policy decisions that have been made. How's Trump doing? How is the Fed doing? How's the treasury doing? And maybe we can talk a little bit about what do you think would be the positive results from it, but also then some of the distortions that could result from some of these policy decisions.
Joseph Stiglitz:
First, you were talking about the speed of reacting. Going back to the models that we were talking about epidemics, one of the things is you have to act early. So if the administration had listened to the scientist, we would have acted earlier and we would have been better prepared. We would have had the test. We would have contained the growth of the disease. There would not have been the number of deaths that occur. And you see, in the state of Washington and the state of California, in Silicon Valley where the firms responded, there was a quick response. As soon as that uptick in incidents was seen, they responded and they contained the disease. But nationally, we didn't respond in a timely way. And quite frankly, thousands of people have died as a result of that untimely,
Joseph Stiglitz:
the failure to act in a timely way. Now in terms of the economic package, or I would say, economic and health package, I would say we responded massively in terms of dollars. Nobody can say $2.7 trillion is a little money. It's a lot of money, but it was not a well-designed program. And so what we've gotten out of it is a lot less than we should have given the amount of money spent. Let me just give you a couple of examples. As we went into this crisis, America was in some sense the least well prepared of of the advanced countries because we have the worst health conditions. In many ways the worst the health system. At the top, we have the best, but life expectancy in the United States is lower than any other advanced countries.
Joseph Stiglitz:
The life expectancy is not--2018, the latest data we have, is lower than it was, in 2015. So things are not good. This particular disease is not an equal opportunity killer. It goes after people with poor health conditions. And we have a lot of those people because not only do we have on average a healthcare system that doesn't deliver, but it's a healthcare system marked by huge inequalities. Some people do very well, but the disparity in life expectancy is larger, much larger than in other advanced countries. So one particular aspect of that is that we are the only advanced country that doesn't have a mandated paid sick leave policy. Where that relates to this disease is you don't want sick people going to work because if they don't, they have no income.
Joseph Stiglitz:
And remember part of the problem is that 40% of Americans are living paycheck to paycheck. And if they miss that paycheck, they can't buy food, they can't pay the rent. So in the absence of paid sick leave, they're going to be working. And if they're at work, they're spreading the disease. Now at one level, Congress recognized this and they passed a provision mandating paid sick leave. But then, under the influence of the major companies, they exempted 80% of American workers. So having recognized the principle, they then exempt 80%. And the poorest Americans are the ones who are particularly not only vulnerable, but most likely not to have paid sick leave as part of their compensation package. So that's an example of a really flawed policy. Let me give you a second example. And this again contrasts very starkly with what's happened in Europe.
Joseph Stiglitz:
The principle that you want to maintain people's connection with their employer is very important. It means that you can restart the economy much quicker. In America, it's particularly important because most Americans depend on their employer for health insurance. If they lose that health insurance, they've get put on Medicaid. The Medicaid system is not equipped to have a massive increase in the burden. So, when workers get disconnected with their employer, the productivity effects, the wage effects are really significant. So everybody understood that it was really important to keep the connection with the workforce. You're figured out how to do it right.
David Novak:
You know, it's really interesting, Joe, because sitting here in Europe quite close to the European approach to that issue, and you're absolutely right. Across Europe, even though the decision was made by individual governments, the British government made their own decision. The French government made their own decision, the [inaudible] et cetera, they all came to that same conclusion
Joseph Stiglitz:
And it worked. And now we see the data that the increase in the unemployment rate in the United States, you know, 24 million in the last three weeks, is so much greater than in every other country. We used to pride ourselves in having the most dynamic, flexible labor market. And it's the one now that's most afflicted. We knew what to do. Let me make it very clear. I was talking to, you know, trying to put things into the political process. The Democrats were very much aware of it, but unfortunately, there was enormous resistance to getting the kind of program that Denmark and France and all the other countries. So there was a model we could have used and there was just resistance. And this comes then to the third part, the third example of this where things have not gone very well.
Joseph Stiglitz:
We wanted to maintain health. We wanted to protect the most vulnerable. When we didn't do that very well. We still haven't been able to get their paychecks out to the lowest-income Americans. The President said it could be done in two weeks. Now they're saying for those who are at the bottom, whose income is below the level that they had to fill the tax return out last year, that they may not get the checks until September. They're supposed to go for five months without any source of income. So we failed in that. We failed to protect jobs. The other thing is, creating the preconditions for a quick recovery. And that was getting money to the small businesses, particularly that needed it. And that was what was called the PPP program. That's been a disaster.
Joseph Stiglitz:
The money didn't go to the small businesses. The banks were paid to administer it, not to make judgments about who was creditworthy. That wasn't the issue. It was to be nothing more than electronic transfer of the forms from the government when the government already has all the information on every company and the IRS and the social security because they have to. They have that electronic information and they're getting paid more than $6 billion for just sending these electronic forms to the IRS. Then the problem is the banks are frustrated because the government is changing regulations. Nobody knows what's going on. The first traunch of money, $350 billion or so, went in 13 days. They ran out of it. And the poorest, smallest firms--I've talked to some of those firms--so frustrated. They've got their application in right away. They couldn't get it through their banks. What they said is the banks categorize people into two categories, good customers, the bigger firms, and others. And so the construction companies, which were not listed as the most vulnerable, were the largest recipients of money. The second traunch, people are talking about that money will be gone in a couple of days. So the point is, that program has been a disaster and in the end, hundreds of billions of dollars have gone out and it was supposed to protect jobs. It didn't do that. That means going forward, I think when the pandemic is put under control, we can anticipate a rocky recovery.
David Novak:
Let's build on that a little bit, Joe because I think that's a really important point, this what maybe you'd call an inefficient allocation of capital during this period of time, will invariably lead to capital in the wrong places. And we'll give some companies a second lease on life potentially. And others who could benefit from the capital to grow won't have access to it. How do you think that does play out both in terms of the shape of a recovery, but also once we get through the recovery, the allocation of capital then, the cost of captial, for in its inefficient way, what kind of impact could that have ultimately on?
Joseph Stiglitz:
Let me say one other thing. It's going to have a lot of effect on politics too because of the sense of injustice is very strong and we saw a little bit of that after 2008. I think we'll see another big dose of that. Now, you're absolutely right, you know, in the government, through these programs, is giving life and death to different companies, but it's not at different sectors of the economy. But it's not doing it in a coherent way, in a way of prioritization. It's being left to the randomness of who has good bank connections, who gets their form into the government in this rush to get your form in first. And that means capital is being massively misallocated. But it's more than capital misallocating. These are life and death decisions for small enterprises. So we're giving --I don't want to call it euthanasia because it's not painless.
Joseph Stiglitz:
We're giving a painful death to a lot of small firms and then we're giving a lot of money to firms that shouldn't be. We didn't do any sense of accountability for instance in saying if you got a big tax cut in 2018, you took that money and rather than create a capital buffer, you bought back shares so that you're in a more precarious position. They didn't say those firms were not going to give you so much money. You're in the predicament that you are because you make some bad decisions. There was no sense of accountability. So some firms are going down who did behave very badly, some firms going down, are being rescued, who behaved very badly. It's a totally random process except for this issue of who has good connections, which is biased toward the rich and the large.
Joseph Stiglitz:
So, to me, we're going to emerge with a more distorted economy, more inequality than we had before. I think it's going to have a long-run cost. Let me just give you two examples and misallocation of funds which I think absolutely...the first may sound a little self-serving since I work at Columbia, but that is, one of the sectors of our economy, of our society that's very important, is higher education. To a very large extent, the strength of America depends on science, on investments in education and higher education. It's in many ways one of the strongest sectors of the U S economy. It's why we have done so well and the higher education sector is going to be suffering very, very seriously.
Joseph Stiglitz:
Every one of their sources of revenue is being attacked. Endowment contributions, tuition enrollment. You know, the whole thing. It's a disaster. And yet almost no money is being given to protect the higher education sector. A few of our institutions of higher learning got some money, which they said was going to go for fellowships, scholarships for poor students, and the administration attacked, even [inaudible] ]there was money going to these universities for poor students. So that's one sector that's suffering. The other sector that's really suffering a lot is the state and local governments. One-third of all the public sector is state and localities. It's a very big sector. The 2008 crisis, the decline in tax revenues of the states was twice, almost twice that of the GDP.
Joseph Stiglitz:
If anything like that happens now, we know how much GDP is going to likely go down, much larger than before. Their tax revenues, income, profits [inaudible] are going to go to sales taxes. That's going to plummet. All the states at balanced budget frameworks. That means that when the revenues go down, they have to have cut back expenditures. That means that unless they get assistance from the federal government, there are going to be enormous cutbacks and states provide education, health, general welfare. They're central to our society. They've been central. Their response to the pandemic. And they are going to be really constrained, and it will mean that we will not have a robust recovery because they're going to have to fire workers, a lot of workers. A striking statistic is that after 2008, so many workers were fired from the public sector in the states it led, it's a kind of austerity which you know about in Europe. It's an austerity that comes not from the federal government, but austerity imposed by the federal government on the states. And so we're going to be experiencing that austerity and our unemployment rate is going to go way up just because of this.
David Novak:
I want to build on that a little bit, Joe, because as you point out, from a European perspective, the whole, the political decision-making process is quite different because once you have a parliamentary type system, for example, once you have a government, the government can make its decision. There's a lot less negotiating between the executive and Congress, etc. So decision-making is a little faster, a little bit cleaner. And then you also don't have the differences between the federal government and the state government. So you spent a bunch of time in the government, you chaired Clinton's Council of Economic Advisors. What do you think, how do we get through some of that? Because some of the, both the time lost and the inefficiency in the decision making combined with the risks that you just pointed out, which is if there is not a strong supportive relationship between the federal government and the state and local governments, that could significantly delay the recovery.
Joseph Stiglitz:
This is a central question on fiscal federalism and if we had a more cooperative spirit, you know, a more typical politics where you face a crisis and everybody says, let's pull together,
Joseph Stiglitz:
this was a kind of an occasion where, you know, in a normal government, you would have said, look at you, states, you're closer to what's going on. We're going to give you a lot of responsibility for doing it, for making decisions. But we know you have fiscal constraints. And we, as a result of that, we're going to have a kind of, we're going to help the states that are most affected both on the expenditure side and the revenue side. You know, this principle of shared responsibility has been a mark of bipartisan support. It was part of Nixon's administration. We've had it for a very long time. We could have done it. I mean it's a little bit more complicated in the United States and other countries, but it's not that complicated to say, in this current context,
Joseph Stiglitz:
let's compensate the states for the loss of revenue and the extra COVIT-19 expenditures. A simple formula, a one-line bill that could do it. You know, maybe it'll take five pages, but we're not talking about a 500, 800-page bill like we had. This isn't that complicated. it should have been at the basis of where, you know, what is the best way to use the instruments of government to deal with the problem that we individually can't deal with. We're going to need collective action at some level. And in some sense, it's the mayors and the governors that are at the forefront of this, of this fight. But there are some things that have to be done at the national level, making sure that the tests are available, making sure that there's a supply of masks. You know, those are things that have to be done at the national level, the supply, the national stockpile, the CDC. There were certain things that have to be done at the national level. We haven't done those, but we also haven't provided the support for the states and localities to do the part of the job that they need to do.
David Novak:
I want to shift focus a little bit. You know, Biddy mentioned your recent book, People, Power and Profits: Progressive Capitalism for an Age of Discontent. And in that book you argue for something you call progressive capitalism. I think it's very related to some of the topics that you're raising now. You describe it as a system that basically shares benefits more evenly, more fairly across the population, all while can still encourage growth. So tell us a little bit more about this because you've kind of touched the inequities that we're seeing right now and tell us where do we go from here if we wanted to embrace a more progressive capitalism, particularly given some of the challenges around the politics of it all.
Joseph Stiglitz:
Some people, when I came out with the book Progressive Capitalism, some people said that's an oxymoron. My view was no. Any well-functioning society of the complexity of ours has to have some degree of decentralization. A key part of that has to be the market economy capitalism, but it can't be unfettered capitalism that hasn't been working for very large fractions of our population. That's why I used the term "progressive capitalism." Try to evoke the progressive era at the end of the 19th century where once before we realized capitalism wasn't working for most citizens, and we have these progressive reforms. I guess I would identify two aspects of this that are absolutely critical. I begin the book by saying why is it that we have a higher standard of living, so much higher today, than we did 250 years ago?
Joseph Stiglitz:
What can account for that or another way of putting it? What is the real source of the wealth of nations? Why are we so much better off? And the answer very simply is the advances in science, our understanding of nature and the advances of social science, understanding how we can coordinate, cooperate, work together in a complex society. And these two advances are really foundational to our progress. Behind them, of course, are systems of ascertaining the truth, buying the truth, discussing it, but it's basically knowledge in the end. And the second point is that a well-functioning society requires a balance between the market states and civil society. And that we've lost that balance. And part of that balance is you need governments to make investments in science, infrastructure, education.
Joseph Stiglitz:
You need government to regulate. You need government for social protection. You need government to act collectively when we have to act, do things that are beyond what are individually able to do. So in many ways, this crisis illustrates very forcefully those things. Just to mention two examples. When the pandemic occurred, it was very clear that was beyond the ability of any of us individually to deal with it. We turned to government. We had to turn to government. Economists would use the word externality. When people are out spreading the disease, they're imposing costs on others that they don't take into account. And so this is like climate change, a classic example of an externality. And that's why we have to have government regulations. We need government help for dealing with the risks that are beyond
Joseph Stiglitz:
the market's capability of handling these risks. We turned to government because markets are not simply up to the task. But the second thing is we turned to science. It was science that enabled us so quickly to identify what was the source of people dying. Science identified the particular virus. And now you know, the pace of what is going on and developing an antiviral, figuring out how to control the contagion is absolutely fantastic. Epidemiologist, social scientists, businesses, chemists are all working together all over the world. And you know, we wish it happened faster, but the reality is if weren't for science, this would have been much more like a black plague. And so we, we really should appreciate what science has contributed and recognized that what's been happening, the defunding of science, has put us...and the weakening of our protection aspects like the CDC have put us at much greater risk and undermined our ability to respond to this pandemic and this risk to our economy and to our health.
David Novak:
We're getting a number of questions from the community. So before we turn to those, let me just build on this last point because you talked about potentially two positives that are coming that could come out of this. One is a better appreciation for the role governments can play, and two a better appreciation and need for science, an investment in science.
Joseph Stiglitz:
It's science and knowledge more broadly, but science particularly.
David Novak:
What else can we be hopeful for? What other positives could that could come out of this?
Joseph Stiglitz:
I think two other things that might come out this, I talked in the very beginning about our coming to understand the limitations of the market. That we've not created resilient system. It was too shortsighted. We can, you know, like 2008, we need to think a little bit more how to make our economic system more resilient, thinking more longterm. And the second thing I think is thinking about the many aspects of globalization. Climate change made it very clear that we share one planet. I used to joke that the carbon dioxide molecules didn't carry visas and didn't carry passports. And wherever they originate, they go all over the world and they cause climate change all over the world. And of course, this virus also doesn't recognize boundaries. It doesn't carry a visa. It doesn't carry passwords.
Joseph Stiglitz:
And it's a global problem. And both of these have to be solved globally. There's any part of the world in which the pandemic is raging it's threat to the rest of the world. So we need global cooperation. Policies that undermine multilateralism are going exactly in the wrong direction. One example of a kind of policy that will come back and bite us is the U.S. had talked about putting restraints on the export of medical supplies. You can understand that except if you look at the data and you realize that America imports so many more medical supplies that we're dependent on then we export. So if other countries reciprocate and do what we're doing, if we set the role model for them, then we're going to be in a big pickle because we are so more dependent on others than they are on us.
Joseph Stiglitz:
So this is just one example of global cooperation. Right now there is a big effort being made within the IMF to generate $500 billion in what are called special drawing rights, a way the IMF creates money that can give resources to the developing countries. Emerging markets that may wind up being hit much worse than we've been. They don't have the healthcare systems. They're packed together. Their health is weaker. They don't have the economic resources. So, it's imperative. So far the U.S. has been an impediment to the provision of this assistance. Hopefully, we'll be able to persuade it's in our self-interest that this be done. So I think one of the other things that I hope comes out of this is a better understanding that we do live, we share one planet and we have to learn about how to cooperate and we have to support our multilateral institutions that help us work together to address these global problems.
David Novak:
It's a really interesting point, Joe, because as you know, one of the conclusions some people are taking from this is quite the contrary. This is evidence that we all need our own supply chains. We all need to make our own decisions, goes back to, of course, duplicative investment across a lot of different countries and across companies. How do we kind of balance that concern with the one you just raised?
Joseph Stiglitz:
I mean, you're right. We became too reliant on global supply chains that were not sufficiently diversified and resilient. So that was a mistake and that's very much linked with the point I made before. Lack of resilience. But going the other extreme of saying self-reliant, we can't be self-reliant. You know, some of the critical raw materials that we use in our cell phones, and to make it possible to have this Zoom conference, come from developing countries. So the reality is that a modern technology requires interdependence. We have to manage that interdependence, manage it better than we have. And that's why I wanted to emphasize the need for cooperation, but it's also the point that you raised. We also need to make sure that we have a higher degree of resilience than we've had in the past.
David Novak:
Good. Well, thanks for that. So let me turn to some questions from the community if I can. This one has come up a bunch. Given all the support from the government and the Fed, the national debt is growing a lot. I guess we came into this well north of 20 trillion and it's only growing. How's the US going to be able to pay that down? Does it matter if they pay it down or not? And what's the balance sheet look like if there's another crisis in the future?
Joseph Stiglitz:
I don't know if, you know, the CBO just a couple of days ago came out with the estimate that our debt GDP ratio will be 101% by September. I'm not greatly worried. Let say that the first priority is getting us over the pandemic and you know, there's no economy to save, then we don't have to worry about the debt. So, first thing, let's save the economy. Let's save our people. Those are the first two priorities. I think we have to go back and think about World War II. When we fought in World War II, we didn't ask could we afford it? We said, we have no choice. We've made the right decision. There wasn't a lot. It was debt, and we wound up at the end of World War II, with a debt GDP ratio of about 135%. Like this,
Joseph Stiglitz:
it wasn't debt that was spent, money that was spent in increasing our infrastructure. We had some things to sell [inaudible]. There were a lot of advances in science, but it was basically munitions that got destroyed and we didn't have anything to show for it. But our response to that was not the kind of policies that Europe has done, which is austerity. Eisenhower and Truman took the view that the right way to deal with the debt was to grow the economy. You know, you've talked about the debt GDP ratio. There's a numerator and there's a denominator. And what they said is, let's focus on the denominator. If we can get the GDP up, the debt GDP ratio will go down. And that's why under Eisenhower, we add the massive highway program, massive research programs and massive education programs. You know, it was a very successful set of programs that led, in 15 so years, that debt GDP ratio went down from 135 down to 45% of GDP.
Joseph Stiglitz:
We had cooperation from the Fedck, keeping interest rates low. That was called the accord. So it's a little bit more complicated than that, but it worked. And I think that's the lesson that we ought to learn, that we ought to begin from a focus on expanding GDP. Now what some people worry about is, well, won't there be inflationary, in the immediate aftermath of a crisis? I'm actually worried about just the opposite. Deficiency in aggregate demand for two reasons. A lot of households and firms are going to see their balance sheets devastated, especially because of the randomness of the way that the $2.7 trillion is being given. Secondly, the nature of this disease is, we don't know whether it's going to come back. You know, whether there's going to be a second way, a third wave. We don't know even whether the antibodies, how long they last. They're just a lot of things that we don't know.
Joseph Stiglitz:
We've never been through an economic trauma like the trauma that we've just been through. The implication of all this is there's going to be a lot of uncertainty. Uncertainty leads to precautionary behavior. That means low consumption, low investment. So I'm more worried about a deficiency in aggregate demand that will require more stimulus. Not inflation if we're wrong. What I think is we have to monitor it very carefully and if that turns out to be wrong, what we need to do clearly is increase taxes and we have a lot of scope for increasing taxes in ways that would actually strengthen an economy. Environmental taxes, increasing corporate profits' taxes, monopoly taxes, lots of scope for natural resource taxes, lots that we can raise that will actually stimulate the economy in certain key areas.
David Novak:
So if you take your premise says there'll probably be less demand coming out of this and probably ongoing role for government action here, both in terms of from the Fed's perspective, keeping interest rates low and then the government, federal government supporting investment of sorts. You talked about potential infrastructure. And then in the beginning of the conversation, I said I'd come back to this, some of the learnings from, for example, the efficiency that you mentioned of being able to sit in Manhattan and do a lot of your meetings, to be a Zoom and spend less time on planes and other ways you used to spend time. So if you think about the combination of the role for the government to help us get out of this and some changing, both demand drivers and behavioral factors, what industries do you think should be prioritized? To the extent the government can do that and why, and then how would we do that while at the same time making sure that we don't bomb out some other industries that still employ a lot of people?
Joseph Stiglitz:
First of all, let me say, you know, I think one of the pivotal things we have to do is the green transition. This is an existential threat to our planet. The first priority right now is the investments need to be green investments to help shift the basis of our economy to renewable energy and to energy conservation. That will entail a lot of innovation. I think that it's going to make us much more dynamic, but that would be one set of priorities I would put very high on the agenda. The second thing is we're transitioning increasingly to a knowledge economy. And you know, part of that is supporting our knowledge institutions. That goes back to the problems that I talked about before. The third thing is I think, we have to address some of the deep weaknesses in our society, the inequalities, the disparities in health and income and wealth that we face. That's a rich agenda. That's a lot for us to do that would really stimulate the economy. So that's the framework. But as we do that, I think the point that you made is important.
Joseph Stiglitz:
There are some people who will lose their job as we make this transition. We're probably going to be traveling a little bit less than we did before. We've discovered that the wear and tear on our body is a little bit less with Zoom than it is on an airplane. So, you know, we'll continue to do some airplane travel, but I don't think we'll get back to where we were before.
Joseph Stiglitz:
The markets do not do a good job in that kind of restructuring. One of the things that we've learned, the people who lose their income typically don't have the resources to make the investments in human capital that are necessary to move to the new sectors. The new jobs may be in a different place from the old jobs. So that transition is extraordinarily difficult and we are going to need assistance in helping the economy make that structural transformation. So, I think, we have to
Joseph Stiglitz:
bear that in mind as we think about the priorities, among the priorities of protecting those people who are going to be structured out as we make that structural transformation.
David Novak:
Let me build on transformation. Here's an interesting question. Do you think the virus and how it's spread could impact some of the migration and growth toward major urban centers that we've been seeing for a while now? And if so, how would you advise cities to respond to that?
Speaker 4:
Uh, I think
Joseph Stiglitz:
we will live learned a lot about contagion and about health. So, you know, I think there'll be some social norms that don't change. Handshaking is a medieval custom that will finally come to an end, we'll be more elbow and foot-tapping and there'll be other changes. You know, I think we'll learn, washing the hands will be much more deeply ingrained. There are things like that that will change.
Joseph Stiglitz:
Humans are social beings. The agglomeration advantages in terms of knowledge of people being together. The cities have always been
Joseph Stiglitz:
the center of the, you know, where knowledge is bubbling up, and we may have a more diversified, you know, not all concentration in the way we [inaudible] up, but I think cities will continue to be very important part of the structure of our society. It may be that we will have to think a lot about how we maintain more distances within the city. But I think the advantages of cities, of the interactions which are so much part of our being, especially part of a knowledge economy, are just so great that I think we'll figure it out.
David Novak:
Here's a question that I think many people want to know. It's our own little version of either Scrabble or alphabet soup. So what do you think the recovery is going to look like? Is it a V, is it a W, a U, or dare I say an L? And then someone asked, is there any chance we can avoid a major depression?
Joseph Stiglitz:
Yes, there is a chance we'll avoicd, a major depression if we put in place the right policies. A depression that we had was a lack of aggregate demand. And we know how to stimulate demand now, but of course if we don't give the assistance to the states and localities, we will have a serious economic downturn. If we leave some important sectors like the higher education sector behind, there's going to be unemployment in those sectors and that will, through a multiplier process, be magnified. Let me say we have a knowledge of a how to avoid a depression, and it's only the politics and I think we should have a resolve not to allow this to develop into a depression. There are a set of problems that we haven't confronted since World War II, which is supply-side shortages in the short run.
Joseph Stiglitz:
And we saw that in the case of masks. We're beginning to see it in the case of certain foods. Early indication, the price of rice may have increased two or threefold. The wholesale markets. I mean there are problems that are very significant. In World War II, we stepped up and we figured out we had to use rationing. We ought to be thinking about, you know, in the allocation of masks, we would have been a lot better if we had a more rational way of making sure the people who really needed it in the hospitals got the mask rather than leaving it to the highest bidder. So in the context that we have the markets are not the best way of sorting out these problems. And sometimes we have to do things that are unusual.
Joseph Stiglitz:
We wouldn't want it as part of our normal life, but this is not part of normal. Now, in terms of the shape, I think there is a high likelihood of a second wave, possibly a third wave. The other countries have had that second wave. If you look at the dynamics of the disease, grows sort of exponentially. Social isolation quarantining has gotten the numbers down, but once it opens up, if we haven't succeeded in social distancing enough, if we start interacting too much, the interaction effects will mean that it will start to grow again. We know that. And so we know that there's a significant probability that the numbers will start growing again and we will respond to that by having another clampdown. So the fact that there might be what you call W seems quite possible. What worries me is not the W so much as when you talk about the W, there's a V-shape at the second part of the W. I don't think it's going to be a V shape at the second part of the W. That may be a long L-shape if we don't get things right. So if a lot of small businesses go bankrupt, if our municipalities and states are in bad shape, if our higher education institutions are in bad shape, I could very easily see a long slog getting out of the pandemic.
David Novak:
Do you think, Joe, that once we're through the pandemic, there'll be a kind of post-pandemic of who are good actors and who were not. How will history look back on not just the policy decisions that were made, but how people reacted to them, corporations, other institutions, individuals?
Joseph Stiglitz:
Inevitably, I mean, that's the nature of history. There's a whole profession of historians saying, you know, counterfactuals. What would have happened if only we had done such and such. This is particularly, going to be, I'd say both a contentious and difficult issue. The standard story of accountability is who knew what when and should have acted. Clearly there was a lot of uncertainty. We hadn't experienced anything like this before, but that having been said,
Joseph Stiglitz:
China, Korea, Singapore went through it before we did. Italy was going through it before we did. We had lots to learn from. And we have a wide body of scientific information about previous epidemics, SARS. And we had a very well developed theory of epidemiology, what I referred to when you asked me in the beginning. So we had actually a wide body of knowledge that even though we hadn't been through this particular thing before, we've been through things that had a lot of similarities. So if we had done what we should have done, which is at the national level, assembled the wisest people, the best scientists, the best epidemiologist, the best doctors, and said, what can we learn? And brought them from other countries and say what has your experience been? You know, China could do things in quarantine that we couldn't in our democracy, but why were they doing it?
Joseph Stiglitz:
And you know, if you can't do that, what would you have done as the second best? There was a lot that we could have learned if we had only asked those questions. And then what if we had a science-based policy looking at what was going on in Italy and Korea and Singapore? We would have been able, I think, to have responded so much better. And as I said before, I think so many thousands of lives would have been saved. So I do think that when history is written, the judgments will be harsh because even though there was a lot of decisions being made with a lot of uncertainty, we knew a lot, but we didn't marshall the scientific evidence that we had in ways that would have protected as well as it could have.
David Novak:
Thank you for that. Well, I want to bring it a little bit closer to home to Amherst now. There's been a lot of speculation with remote learning and all that, that things will change a lot in the world of higher education. How do you think this crisis will impact higher education? And do you think the future of schools like Amherst is certain, is their risk, will Amherst thrive as a result of this? How do you think about that?
Joseph Stiglitz:
Well, I think I'd like to come back to what we've been talking about, the importance of knowledge and almost, I would say the importance of a liberal arts education because what we needed was not only science, we had to think about the social interactions, what were going to happen to poor people if they couldn't get to work. We were making decisions about the interactions, the design of a whole society, with an awareness of our health system, with our awareness of the social inequalities that were preexisting. So that kind of broad view that you need science, you need public health, but you also needed a broader perspective. I think that was, something that's essential and that's the kind of thing that a liberal arts education is particularly good at engendering. So to me, I think that the value of higher education will be enhanced.
Joseph Stiglitz:
The valuable liberal arts education will be enhanced. Not for everybody, but there is clearly an important part of the role for this in our society. I think the economics of it for the next few years are going to be very difficult. I mentioned before all the revenue streams of universities are being hit., Amherst is not as dependent as many others on tuition from foreign students. And those that are very dependent, foreign students are very worried that the foreign students won't come. Particularly in the context of the kind of atmosphere that sometimes being created an anti-foreign atmosphere. I think we're going to go through a difficult time, not Amherst so much, but of our universities that do depend on foreign students whose endowments are not quite so large, who before the crisis, we're in a more fragile position.
Joseph Stiglitz:
How well they do, how many survive, and I think some of them will not survive, will depend on the kind of assistance that is provided. You talked to before what our priority sectors and I believe that knowledge in a knowledge economy has to be a priority sector. So it ought to be given, but they didn't have the lobbyists that the airline industry had, so they didn't get, you know, we would have been able..what we spend in saving three airlines would have transformed American higher education. It gives you a sense of, we were talking about the allocation of money. Money that went to three airlines could have supported the whole entire American higher education system. Rally a misallocation, I think, of resources. I think there will be changes. I think we'll probably do more classes, online learning.
Joseph Stiglitz:
There are contexts in which it works. There are local seminars that I participated in that have been very exciting. You know, 700 people on Monday, discussing the economics, COVID-19, from all over the world. These are actually new communities being created. But in the end, I think all of us who've taught online miss being in the classroom with our students. It doesn't, it's not the same. It's not the same for the teacher. It's not the same for the students. And so I think that the kind of education where you're in a small room with a small number of students interacting, is, you know, it's just vital and I think we'll go back to that.
David Novak:
Well, that's a great lead into my last question for the day. You spent a lot of time at a number of great universities, as Biddy mentioned. You've traveled the world. Let's stick to Amherst. What do you miss most about your time at Amherst?
Joseph Stiglitz:
Well, I suppose, you know, it's hard to name one thing. You know, you think about your friends that you had in college. I think a lot about my teachers and how much I learned from them. We spent a unit in our
Joseph Stiglitz:
world history course talking about what we call it encounters, which was the early version of globalization. So when I started to write about globalization, I reflected a lot on what I've learned in my Amherst class, as a freshman and sophomore about encounters, about the globalization over time. And it really did shape my mind in a very important way. And I think I brought a perspective that a lot of people who haven't gone through that historical, those historical studies. But at the end, I guess that what brings me back to the nostalgia is the setting and beauty, looking down from Memorial Hill, the fall and the leaves, walking through the woods. So I think in the end, it's the beauty of Amherst that I miss now. One of the things I enjoy so much about being on the trustees, besides having wonderful fellow trustees that stayed friends, is going up four times a year and seeing Amherst in all the seasons and going for those walks through the woods.
David Novak:
Well, thanks for that. I think that's a memory that we all share and I think we're all looking forward to getting out of our houses and our apartments and finding our way back on campus. So with that, Joe, thank you for your time. I'm going to turn it back to Biddy. I do want to give a shout out to Austin and Davis and the Amherst events team that helped make this all happen and to Andy with Jx2 who helped us with the technology. So thank you for that as well. Biddy, over to you.
Biddy Martin:
Thank you, Dave. Thank you, Joe. I can't thank the two of you enough. That was an extraordinary nearly hour and a half. Just amazing. Thank you for your generosity. I urge any of you who are interested please to join us on Thursday at 7:30 in the evening, at least our time day, a little later in London, when we'll have Nobel prize-winning biologist, Harold Varmus and former commissioner of the food and drug administration, David Kessler in conversation with Shirley Tilghman, herself a cell biologist, a member of our board of trustees and the former President of Princeton. In many of the same issues will emerge I'm sure. Thanks again. This was just wonderful. Thank you. Thank you.