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Nobel Economist Joseph Stiglitz on Obama's Stimulus Plan, Debt, Climate Change, and 'Freefall: America, Free Markets, and the Sinking of the World Economy'

As President Obama defends the success of his one-year-old $787 billion stimulus package, we speak to Nobel Prize-winning economist Joseph Stiglitz, who says the stimulus was both not big enough and too focused on tax cuts. Stiglitz is the author of the new book Freefall: America, Free Markets, and the Sinking of the World Economy, which analyzes the causes of the Great Recession of 2008 and calls for overcoming what he calls an “ersatz capitalism” that socializes losses but privatizes gains.

JUAN GONZALEZ: President Obama defended the success of his one-year-old $787 billion stimulus package Wednesday. Speaking on the first anniversary of the day he signed the American Recovery and Reinvestment Act into law, Obama said it helped prevent the country from sliding into a depression.

PRESIDENT BARACK OBAMA: One year later, it is largely thanks to the Recovery Act that a second depression is no longer a possibility. It’s one of the main reasons the economy has gone from shrinking by six percent to growing at about six percent. And this morning we learned that manufacturing production posted a strong gain. So far, the Recovery Act is responsible for the jobs of about two million Americans who would otherwise be unemployed.

JUAN GONZALEZ: President Obama’s comments come in the midst of a bitter debate between Democrats and Republicans over the success of the stimulus bill. The White House is now aggressively trying convince Americans of the virtues of the stimulus package.

This week Vice President Joseph Biden and other administration officials are traveling across the country, talking up the Recovery Act and trying to clear up public confusion between the bailout and the stimulus.

On Wednesday, Obama also acknowledged the limited success of his stimulus package in tackling rising unemployment.

PRESIDENT BARACK OBAMA: You can argue, rightly, that we haven’t made as much progress as we need to make when it comes to spurring job creation. That’s part of the reason why the Recovery Act is on track to save or create another 1.5 million jobs in 2010. That’s part of the reason why I expect Congress to pass additional measures as quickly as possible that will help our small business owners create new jobs, give them more of an incentive to hire.

AMY GOODMAN: Well, for more on the success of the stimulus, what to expect from the Obama administration and Congress, and the state of the American and global economy, we’re joined now from Chicago by the Nobel Prize-winning economist Joseph Stiglitz. His latest book analyzes the causes of the Great Recession of 2008 and offers suggestions for how this country can learn from what he describes as a “near-death experience” instead of continuing what he calls an “ersatz capitalism” that socializes losses but privatizes gains. His book is calledFreefall: America, Free Markets, and the Sinking of the World Economy.

Well, Joe Stiglitz, welcome to Democracy Now! Why don’t you start off by assessing this first anniversary of the stimulus?

JOSEPH STIGLITZ: Well, it has made a difference. I think President Obama is absolutely right that, were it not for the stimulus bill, unemployment would be higher, much higher, than it is today.

And we should be clear that the unemployment rate that we have today is unacceptable. Unemployment is almost ten percent. But more telling, more than one out of six Americans who would like a full-time job cannot get one now.

The problem with the stimulus was not that it didn’t work, but it wasn’t big enough, and it wasn’t as well designed as I would have—I would have liked. Two problems. What was needed was a stimulus of at least 50 percent larger. Even the President’s own economic adviser talked about the need for a $1.2 trillion bill. But unfortunately, President Obama wasn’t given that choice. Even before it was presented to him, it was downscaled to a choice between $600 and $800 billion, and he pushed for the larger number.

The second problem was that about a third of it is in tax cuts. And with Americans burdened with debt, with the uncertainties in the job market, much of that tax cut went into savings, not into spending. And the nature of a stimulus is you have to spend it. So while the money may have given them more security, may have provided individual benefits, it did not provide the stimulus that, for instance, directing money to help states maintain their universities, schools, teachers, would have done.

You know, the unusual situation we have today is there are a lot of youth unemployment, but the schools, the universities are being cut back so that they can’t use this time to build up their skills. Other countries have really tried to do it much better, tried to make sure that at least if you can’t get a job, you can get skills that increase your productivity.

JUAN GONZALEZ: Well, Joe Stiglitz, isn’t there a question in terms of how the administration even tried to sell this bill to the American public that’s created the enormous confusion and the pessimism now among the people, in terms of how many jobs were actually created? Because they always talked about saving or creating new jobs, when the reality is that it appears that the bulk of the stimulus basically went to saving jobs, not creating any, obviously, net gains in US employment.

JOSEPH STIGLITZ: Yeah, I agree with you. There were actually two problems in, you might say, marketing. The first is that the administration, at the same time, continued the massive bailout of the banks. And that was a terribly designed measure, where money was poured into the banks, that was defended on the grounds that it would restart credit and the flow of credit. It didn’t work. There were no restraints. And the fact that as we were pouring money into the banks, they were pouring money out in bonuses, really got the ire of the American people. So that was the first problem.

The second problem one is, as you said, that they talked about this ambiguity of saving or creating. But that was a difficult one to try to explain. The economists call this the “counterfactual”—what it would have been, but for the stimulus. And that’s a hard concept to try to explain to people: if we didn’t have the stimulus, the unemployment rate would have been even higher.

Interesting thing was, part of the problem, the administration was overly optimistic about where the economy was going, which is part of the reason that they didn’t have the size of the stimulus that they needed. They thought the unemployment rate was going to peak at about ten percent and that they were going to bring it down to eight percent, as opposed to other people, like Mark Zandi, who were talking about unemployment peaking around 12 percent, and they’d be bringing it down to ten percent. I was among those who were more pessimistic about where the direction of the economy was going, and unfortunately, the bears, people like me who didn’t—who thought that there were real problems, proved to be correct.

AMY GOODMAN: In that case, Joe Stiglitz, has the White House asked you to join them?

JOSEPH STIGLITZ: No, no. They have from time to time talked about, you know, advice on particular issues. We’ve kept in contact, but they have—you know, any administration has their team that they’re going to have to rely on.

AMY GOODMAN: But quite seriously, and then you look at President Obama’s team, and what is your assessment of them? So they don’t choose you, who’s gotten it right, but they do, for example, the bigger team, the ones in charge, Larry Summers, Timothy Geithner. What’s your assessment of them?

JOSEPH STIGLITZ: Well, you know, they’re—they are very devoted. I do think that they have the interest of the country at heart.

There is a problem, and a problem that I talked about in my book Freefall. Actually, there’s more than one problem. One of them is that they were so associated with the failures of the past that even were they to give the correct advice, there would be a suspicion. There would be a suspicion, partly, as I say, because they’ve been very closely connected with some of the measures that were clearly done to benefit the financial sector, the banks.

Two examples. They were—one of them was very closely associated with the repeal of the Glass-Steagall Act that allowed the “too big to fail” banks to get even bigger. For commercial banks, that are supposed to do boring banking, and the banks, the investment banks, that are supposed to manage money for high-income people, they allowed those to get together, and the culture of risk-taking took over the whole industry. They were responsible for the law that said we will not allow the regulators to regulate derivatives, these—what Warren Buffett called “financial weapons of mass destruction.” One bailout, that of AIG, costing taxpayers $180 billion. So, you know, that was the first problem.

The second one is that it’s not always clear that people change their mindset so quickly. If you believe that markets are always self-correcting, that they always take care of themselves, that you don’t need regulation—even when the evidence comes in, that that’s not true—the question is, do you think it’s a minor adjustment that’s required, or do you think there’s a more major overhaul that’s required? Is there a problem with the plumbing—we just need to unclog the plumbing, and everything will flow quickly? Or is the real problem with the design of the system, the balance between the market and the state? And the risk is that they will be too aligned with the mistaken economic philosophy that has dominated the last three decades.

AMY GOODMAN: We’re talking to Joseph Stiglitz, Nobel Prize-winning economist, professor at Columbia University, has just written a new book. It’s called Freefall: America, Free Markets, and the Sinking of the World Economy. We’ll be back with him in a minute.