Economist Says Government Policies are Hurting the Economy

Our economy is promoting the hoarding of cash and assets at the top

July 30, 2015 2:00AM ET

by David Cay Johnston   @DavidCayJ

Around the world, financial pages report that the global economy is slowing and might even contract.

Prices of commodities are falling, with copper, cotton, grains and oil all down by about half in the last five years — a strong signal of slowing growth.

Companies are tightening their belts, with fewer perks and fringe benefits. An inadvertently leaked report showed that staff economists at the Federal Reserve are more pessimistic about the near future than the official Fed positions. And big companies with nowhere else to put their piles of cash are buying back their stock or buying up competitors, which means fewer well-paying management jobs.

Yet hardly any of these reports citing official sources and economic data connect the dots to outline what’s behind this unwelcome trend in the U.S.: government policies.

Governments are helping big industries by diminishing competition, providing abundant cheap credit for speculation rather than investment and failing to rein in price gouging. In turn, these policies produce a growing concentration of income and wealth at the top while the vast majority struggle with falling wages, flat incomes, job insecurity and a shrinking slice of investment assets.

Highly concentrated ownership

U.S. economic malaise has been clear for some time.

Greece, Sacrificed

Joseph Stiglitz,

ATHENS — AS the Greek crisis proceeds to its next stage, Germany, Greeceand the triumvirate of the International Monetary Fund, the European Central Bank and the European Commission (now better known as the troika) have all faced serious criticism. While there is plenty of blame to share, we shouldn’t lose sight of what is really going on. I’ve been watching this Greek tragedy closely for five years, engaged with those on all sides. Having spent the last week in Athens talking to ordinary citizens, young and old, as well as current and past officials, I’ve come to the view that this is about far more than just Greece and the euro.

Some of the basic laws demanded by the troika deal with taxes and expenditures and the balance between the two, and some deal with the rules and regulations affecting specific markets. What is striking about the new program (called “the third memorandum”) is that on both scores it makes no sense either for Greece or for its creditors.


As I read the details, I had a sense of déjà vu. As chief economist of the World Bank in the late 1990s, I saw firsthand in East Asia the devastating effects of the programs imposed on the countries that had turned to the I.M.F. for help. This resulted not just from austerity but also from so-called structural reforms, where too often the I.M.F. was duped into imposing demands that favored one special interest relative to others. There were hundreds of conditions, some little, some big, many irrelevant, some good, some outright wrong, and most missing the big changes that were really required.Photo

Krugman- Greece's Economy and the U.S.

Greece is a faraway country with an economy roughly the size of greater Miami, so America has very little direct stake in its ongoing disaster. To the extent that Greece matters to us, it’s mainly about geopolitics: By poisoning relations among Europe’s democracies, the Greek crisis risks depriving the United States of crucial allies.

But Greece has nonetheless played an outsized role in U.S. political debate, as a symbol of the terrible things that will supposedly happen — any day now — unless we stop helping the less fortunate and printing money to fight unemployment. And Greece does indeed offer important lessons to the rest of us. But they’re not the lessons you think, and the people most likely to deliver a Greek-style economic disaster here in America are the very people who love to use Greece as a boogeyman.

To understand the real lessons of Greece, you need to be aware of two crucial points.


The first is that the “We’re Greece!” crowd has a truly remarkable track record when it comes to economic forecasting: They’ve been wrong about everything, year after year, but refuse to learn from their mistakes. The people now saying that Greece offers an object lesson in the dangers of government debt, and that America is headed down the same road, are the same people who predicted soaring interest rates and runaway inflation in 2010; then, when it didn’t happen, they predicted soaring rates and runaway inflation in 2011; then, well, you get the picture.

The second is that the story you’ve heard about Greece — that it borrowed too much, and its excessive debt led to the current crisis — is seriously incomplete. Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.

New Glass-Steagal Act

Seven years ago, Wall Street’s high-risk bets brought our economy to its knees.

We’ve made progress since then. The Dodd-Frank Act was the strongest financial reform law in three generations, and it gave regulators a number of common-sense tools to prevent future crises.

But let’s get real: Dodd-Frank did not end the “too big to fail” problem – the problem posed by financial institutions that are so large that their failure would threaten the whole economy. Last summer, both the Fed and FDIC reported publicly that eleven of the big banks were still so risky that if any one of them started to fail, they would need a government bailout or they would risk taking down the American economy – again.

That’s not a statistic that should make anyone sleep well tonight.

That’s why I’ve partnered with Senators John McCain, Maria Cantwell, and Angus King to reintroduce the 21st Century Glass-Steagall Act, a bill to reduce taxpayers’ risk in the financial system and decrease the likelihood of future financial crises. Sign up now to show your support.

Four years after the 1929 Wall Street crash, Congress passed the original Glass-Steagall Act to build a wall between boring, commercial banking – savings and checking accounts – and riskier investment banking.