What Yellen Must Do
Dec 2, 2020JOSEPH E. STIGLITZ
Although the United States has survived four years of gross incompetence and
pathological mendacity, it now faces the daunting task of achieving a
sustainable post-pandemic recovery. Fortunately, no one is better equipped to
deal with today’s economic challenges than the next US treasury secretary.
NEW YORK – US President-elect Joe Biden’s decision to appoint Janet Yellen
as the next Secretary of the Treasury is good news for America and the world.
The United States has survived four years under a mendacious president who has
no understanding of, let alone respect for, the rule of law, the principles
undergirding democracy and the market economy, or even basic human decency. Not
only has Donald Trump spent the weeks since the presidential election spewing lies
about non-existent voter fraud; he has also convinced a large majority of his
party to embrace these lies, thus revealing the frailty of American democracy.
Undoing the damage will not be easy, especially with the COVID-19 pandemic
compounding America’s problems. Fortunately, no one is better equipped – in
intellect, experience, values, and interpersonal skills – to deal with today’s
economic challenges than Yellen, whom I first met when she was a graduate
student at Yale University in the 1960s.
First on the agenda will be recovery from the pandemic. With multiple
vaccines in sight, the immediate task is to build a bridge from here to the
post-crisis economy. It is too late for a “V-shaped recovery.” Many businesses
have gone bankrupt, and many more will do so in the coming weeks and months;
household and firm balance sheets are being eviscerated. Worse, headline
figures may belie the depth of the crisis. The pandemic has taken a massive
toll at the bottom of the income and wealth distribution. Those who have
availed themselves of policies to prevent evictions and foreclosures are
nonetheless falling deeper into debt, and could soon face a reckoning.
The current outlook would have been much better if only we had had a
president and Congress that recognized back in May that COVID-19 would not
just disappear on its own.
Strong initial support programs that needed to be extended were not, resulting
in avoidable economic damage that will now be hard to reverse.
The devastation of the restaurant and travel industries has received plenty
of attention, but this may be merely the tip of the iceberg. Educational
institutions, especially many colleges and universities, have been hit badly.
And state and local governments constrained by balanced-budget laws now face
plummeting revenues. Without federal aid, they will have to make deep cuts to
employment and public programs, which will weaken the broader economy.
The US desperately needs large rescue programs targeted specifically at the
most vulnerable households and sectors. The resulting debt from increased
spending should not be viewed as a hindrance, given the enormous cost of doing
too little. Besides, with interest rates near zero and likely to stay there for
years to come, the costs of servicing new debt are exceedingly low.
Moreover, many of the necessary recovery programs can be designed to serve
multiple goals, by putting the economy on a more sustainable, resilient, and
knowledge-based footing. Much will depend on Congress, but the economic case
for providing more support is clear, and Yellen is well equipped to articulate
it.
Much will depend on the global recovery as well. Here, the new
administration will have more room to maneuver. There is already strong global
support for a massive $500 billion issuance of Special Drawing Rights, the
supranational currency overseen by the International Monetary Fund, which would
go a long way toward supporting many struggling economies. Trump and Indian
Prime Minister Narendra Modi blocked this option. It should now be at the top
of the agenda.
Moreover, with many countries soon to be unable to meet their debt
obligations, a quick and deep restructuring would help enormously. To move that
process forward, the Biden administration should state clearly that it is in
America’s own national interest to uphold the basic principle of sovereign
immunity, as endorsed by the
overwhelming majority of United Nations member states in 2015. Debt
restructuring is necessary for the global recovery and is the humanitarian
thing to do. If there was ever a time when the principle of force majeure should apply, it is
now.
Restoring multilateralism would help, too. For the past four years,
innumerable conflicts between the US and everyone else has cast a pall of
uncertainty over the global economy. It should go without saying that
uncertainty is bad for business and bad for investment. A return to normalcy on
the part of the US – rejoining the Paris climate agreement and the World Health
Organization, for example, and re-engaging with the World Trade Organization
(and allowing judges to be appointed to its Appellate Body) – would thus go a
long way toward restoring confidence.
But a return to normalcy must not mean a return to neoliberalism. On trade
and many other aspects of the twenty-first-century economic framework, policy
agendas need to be revisited and reformed. It is unclear how far Biden will go
down this road. But we can at least be confident that the new administration
won’t embrace the zero-sum logic that underpinned Trump’s approach to
everything.
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Ensuring global stability will require deep cooperation in combating
climate change, pandemics, and many other threats. The challenge will be to
find ways to do so while remaining fully and vocally committed to our values.
While Trump severely undermined the international political and economic order,
its fissures were long evident before he arrived.
After all, the 2008 financial crisis discredited neoliberalism, with its
belief in unfettered deregulation; and the subsequent euro crisis demonstrated
that austerity under such conditions does not work. It is clear that
neoliberalism has led to lower growth, higher inequality, and all of the social
and political consequences that we have seen in recent years. Now, the pandemic
has put the final nail in neoliberalism’s coffin, revealing an economy utterly
lacking in resilience and a state left incapable of responding effectively to a
crisis.
Yellen can help to provide the leadership necessary to build a better
post-pandemic world. To succeed, an ideology that serves the few at the expense
of the many must give way to one based on democratic values and
shared prosperity.
Writing for PS since 2001
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Joseph E.
Stiglitz, a Nobel laureate in economics and University Professor at Columbia
University, is Chief Economist at the Roosevelt Institute and a former senior
vice president and chief economist of the World Bank. His most recent book
is People, Power, and Profits: Progressive Capitalism for an
Age of Discontent.
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