The Nobel Prizewinning economist Joseph E. Stiglitz asks why we seem to have learned so little from the recession and the financial crisis that precipitated it. Free-market ideology was allowed to do its thing for three decades, and the results are in. But Wall Street and too much of Washington appear determined not to notice -- or, having noticed, to forget. People who ought to know better are still taking shelter under the false certainties the crisis discredited. The consequence, writes Stiglitz, may be a "Great Recession, Part II."
Just a few years ago, a powerful ideologythe belief in free and unfettered marketsbrought the world to the brink of ruin. Even in its heyday, from the early 1980s until 2007, American-style deregulated capitalism brought greater material well-being only to the very richest of the richest country of the world. Indeed, over the course of this ideology's 30-year ascendance, most Americans saw their incomes decline or stagnate.Moreover, output growth in the United States was not economically sustainable. With so much of U.S. national income going to so few, growth could continue only through consumption financed by a mounting pile of debt.I was among those who hoped that, somehow, the financial crisis would teach Americans (and others) a lesson about the need for greater equality, stronger regulation, and a better balance between the market and government. Alas, that has not been the case. On the contrary, a resurgence of right-wing economics, driven by ideology and special interests, once again threatens the global economyor at least the economies of Europe and North America, where these ideas continue to flourish.
Lawrence Summers has come up with a good term for the tendency of policy-makers to respond to every crisis by saying whatever they said before the crisis, only louder. He calls it "Now-more-than-everism." We are seeing the syndrome, now more than ever, in the debate about deficits and the debt ceiling. Whatever the problem, low taxes are the solution. They cure recessions, protect economic growth, increase revenue, and discourage bureaucratic waste. Tax rates are never too low for anyone; they are never low enough, even now, when our revenue-to-GDP ratio is lower than it's been in sixty years -- and among the lowest in the developed world. The idea that the country might be undertaxed is, to the now-more-than-ever supply-sider, not so much wrong as inconceivable. It does no good to point out that the economy was in better shape -- and the national debt on its way to extinction -- under President Clinton's higher tax rates (which were still quite low, historically). It may be a fact, but it does not compute and so must be strenuously ignored. The frightening alternative is a character-shaking, potentially career-ending change of mind. It's worth recalling that the most impressive post-crisis confession of error by a prominent free-market economist came from someone who's career had already ended.
