An ardent faith in austerity spending by governments around the globe is “effectively a suicide pact” for the international economy, Nobel Prize-winning economist Joseph Stiglitz warned Tuesday.
In a pessimistic speech in Toronto, the Columbia University economist said the economy has not recovered after three years because politicians underestimated the weakness and wrongly concluded only short-term stimulus programs were needed to fix the problems.
Instead, he said he fears economic recovery will be a needlessly slow process, leaving tens of millions of Americans unemployed or working part time because they can’t find full-time work.
“We don’t have to go through that slow process, and that’s what upsets me,” he told the Toronto Forum for Global Cities. “Government does have tools to shorten it, and it’s really a shame we are not likely to do what we could do.”
Mr. Stiglitz said the world’s weakest countries, including Greece, may not have the financial flexibility to introduce large spending programs to stimulate their economies, but countries such as the United States still have ample room to introduce new stimulus to build needed infrastructure like roads and transit systems.
“The austerity that is going on in Europe, America and so forth is effectively a suicide pact for our economies,” he said.
“Greece does not have much scope, but the United States and Germany and a number of other countries do have considerable space for stimulating their economy, and it is absolutely essential that they do that.”
Mr. Stiglitz, former chief economist at the World Bank, said President Barack Obama has unveiled a jobs bill with a “comprehensive plan” to create hiring in the economy, but said he believes “a very small fraction of that, if any,” will get through the fractured political system.
“I don’t think there’s any sense of optimism we’re going to get anything through Congress at this time,” he said. “We are likely to have a very small jobs bill.”
As a result, he said, economic growth is going to be too slow to make much dent in the jobs deficit.
In a media interview after his speech, he said there has been a fixation on the Greek debt crisis not because the country’s economy is critically important within the European Union, but because its problems have exposed “basic flaws” in the design of the euro zone, which lacks a mechanism for dealing with interest rates and making broad economic adjustments.
He also warned that people in North America should not hope they are insulated from European debt problems, saying, “if Europe goes into a crisis, then the whole world will be affected.”
In his remarks, he added he believes the odds are “fairly high” that Italy, Portugal or Spain will end up in the same crisis position as Greece, escalating Europe’s problems.