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Economist Joseph Stiglitz on How War, COVID & Climate Crisis Cause Economic Crises Around the World

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As the U.N. secretary-general blasts wealthy nations for rigging the global economy for their benefit, we speak with economist Joseph Stiglitz about how war, the pandemic and the climate emergency are causing economic crises across the globe. He also says interest rate hikes by the U.S. Federal Reserve are making things worse for the Global South, as the cost of borrowing rises for many countries already struggling with debt. Stiglitz is a Nobel Prize-winning economist, Columbia University professor and former chair of the Council of Economic Advisers. He is also currently the chief economist of the Roosevelt Institute. His latest book is titled People, Power, and Profits: Progressive Capitalism for an Age of Discontent. Professor Stiglitz joins us on Democracy Now! to discuss the current global economy.

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This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: It’s been nearly three years since much of the world shut down as COVID-19 rapidly spread across the globe, and it’s just over a year since Russia invaded Ukraine. These two events, the pandemic and the war, have reshaped the global economy. Some have seen their wealth soar, but billions have suffered. Earlier this week, the U.N. Secretary-General António Guterres addressed the opening of the Summit of Least Developed Countries in Doha, Qatar.

SECRETARY-GENERAL ANTÓNIO GUTERRES: Easing the cost-of-living crisis grows most difficult by the day with the war in Ukraine accelerating the rising prices of energy and food. Add the impacts of conflicts, droughts, hunger and extreme poverty, and the result is a perfect storm for perpetuating poverty and injustice. We must end this storm. But we must recognize that to end this storm will require massive and sustained investment, and least developed countries require and deserve massive financial and economic support. For your countries, progress on the Sustainable Development Goals, starting with eradication of extreme poverty and ending hunger, is about more than lines on a chart leading to 2030. It is a matter of life and death. And it is unacceptable if you are held back by processes and decisions that are made far beyond your borders.

AMY GOODMAN: To talk more about the state of the global economy, we’re joined by the Nobel Prize-winning economist Joseph Stiglitz. He’s a Columbia University professor, former chair of the Council of Economic Advisers. Professor Stiglitz is also currently the chief economist of the Roosevelt Institute.

We welcome you back to Democracy Now!, Joe. It’s great to have you with us. These are very, very difficult times. Let’s follow up on what the U.N. secretary-general has talked about, the crisis in the world today, as we look at the international economic crisis, soaring inflation, devalued currencies, nations across the globe confronting catastrophic debt crisis. Can you talk about the situation globally?

JOSEPH STIGLITZ: Well, you’ve described it. What concerns me right now is that all of this is being made worse by monetary policies, the Federal Reserve raising interest rates, when the problem is not excess aggregate demand. The problem is supply-side interruptions, demand shifts, caused by the very forces that you described — the war, the pandemic. And let me be frank: Raising interest rates, designed to slow the economy down, increase unemployment, is going to be not the right policy for addressing the inflation that we face.

AMY GOODMAN: You’re talking about Jay Powell, the Federal Reserve chair, who’s going to be addressing Congress or speaking to, being questioned by Congress today and tomorrow. You are a fierce critic.

JOSEPH STIGLITZ: That’s right. I think they’ve misdiagnosed the problem. And because of the misdiagnosis, the solution is not only the wrong solution, it’s a solution that may make things worse. You know, raising interest rates from the level of zero, where they were, to a normal level was a right move. We needed to normalize interest rates. But continuing to raise the interest rates is having the effect of globally leading to exchange rate devaluations. It will worsen the global debt crisis. Countries already over debt will find it even more difficult to pay back. But even coming back to the United States, one of the major sources of inflation is housing. And what are the raising — increasing interest rates? Inducing a reduction in investment in housing, making the problem even worse. When we have all these supply-side interruptions and demand shifts, we need more investment. And his response is to have less investment.

JUAN GONZÁLEZ: Well, Joe Stiglitz, for those people who are not versed in economics, why are higher interest rates so detrimental, especially to the Global South? I mean, clearly, there’s going to be a flight of investment capital from other portions of the world into U.S. treasuries. And the impact that this has on the debt of the countries of the Global South, as well as their own monetary — the value of their own money?

JOSEPH STIGLITZ: So, when the money leaves these other countries and goes into the United States, into the dollar, it increases the value of the dollar; it decreases the value of their own currency. The problem is that the money that they borrowed, overwhelmingly, is denominated in dollars. So, what they earn abroad, what they earn at home, is worth less relative to what they owe to their creditors. And so it makes it harder and harder for them to pay. And making it still worse is not only is the value of their currency lower, the interest rates they have to pay are higher.

And making it still worse, the intent of this is to have a global economic slowdown. And so, these countries, that depend vitally on exports, will find that they can sell less. The value of what they are — of their economy goes down. They’re paying higher interest rates. The IMF and the World Bank have warned about a debt crisis. And what the Federal Reserve is doing now is making the risk of a much worse global debt crisis. Countries that are poor will get even poorer.

JUAN GONZÁLEZ: I wanted to ask you about another impact of the war in Ukraine that is not often talked about. For decades now, we’ve had proponents of neoliberalism claim that free trade is the key to world economic development. But as you were mentioning, supply chain issues during COVID, as well as the war in Ukraine, have suddenly exposed the flaws of assuming that you’ve got a world economic system where you can get goods from any part of the world, just-in-time production of most of these companies. What is the future of free trade now, given the rising — not only the pandemic but the impact of the Ukraine war on the world?

JOSEPH STIGLITZ: Well, you put your finger on a major problem of the kind of economic system that we’ve developed in the last 40 years, what you call the neoliberal system. It was shortsighted. We saw that in 2008, the global financial crisis, caused by shortsighted banks, focusing on exploiting poor Americans, predatory lending, abusive credit card practices, excessive risk-taking. But part of this pattern of shortsightedness was saying, “If I can get oil, gas a few pennies cheaper, I’ll do it regardless of the risk.” I wrote in my book, Making Globalization Work, in 2006 that Europe’s becoming so dependent on Russian gas was foolish. It was shortsighted. Putin was not a reliable source of energy. And unfortunately, that prediction turned out all too true, and leading to the energy crisis that we faced, and Europe particularly faced, in the aftermath of the Russian invasion of Ukraine. So I think we’ve learned that markets are shortsighted. The just-in-time inventory production system made our economy very unresilient. And so, the economic consequences of the pandemic were amplified by this fundamental mistake in the market economy. You know, we always pointed out that markets don’t price carbon. That’s the reason that they go engage in excessive pollution. But they also don’t price risk.

And we are now rethinking the nature of the global economic system. Ironically, this is going on even on the part of those, say, Republicans, who supported free trade. The bipartisan bills on IRA, the Inflation Reduction Act, and the CHIPS Act both ignored basic rules of the WTO in trying to give preference to American firms and trying to resuscitate American production. They may be good policies, but they contravene international trading norms. So we are going to have to redefine the global international order.

JUAN GONZÁLEZ: I also wanted to ask you about the impact of the rising tensions between China and the United States for the world economy, and especially for the poorer sectors of our planet. We’ve seen the statement by President Xi Jinping recently claiming that the United States is seeking to encircle and contain China. Even more extraordinary was a statement issued by the Chinese Foreign Ministry just last week. It was an extraordinarily critical overview of how China sees the role of the United States in the world, claiming it’s the greatest source of violence and instability in the world, both militarily and economically. And I’m wondering what your sense is of the potential impact that a lot of people who are claiming that we’ve got to get tougher on China — what the implications are for the economy, given how much China has become the manufacturing center of the planet.

JOSEPH STIGLITZ: Well, first, let me say, my first concern is that there are a number of global problems that we need to work together. We have to address the problem of global warming. We are just getting over the pandemic, and most epidemiologists believe that there is likely to be another pandemic. We don’t know when, but certainly when it occurs, we will need high levels of global cooperation. So, this heightened rhetoric, from both sides, has diminished our ability to cooperate in areas where we have to cooperate. Of course, we have to be vocal in our criticism of the diminution of what China did to democracy in Hong Kong, what it’s doing with the Uyghurs. I think we have to be frank about that. At the same time, I think we have to be very targeted in our response. And broadsides of the kind that both sides have engaged in make it difficult for us to undertake the cooperative actions that we need.

At the same time, I think not only do we have to be blunt about the violations of human rights and democracy, we have to call out some of the policies that have had devastating effects on developing countries. China has lent money to many countries without appropriately assessing the returns in that money. Sometimes there are allegations of corruption. But when countries have had problems, there has been a reluctance to restructure debt. Sri Lanka has become the poster child. If a debt crisis that has been anticipated turns out to be real, there will have to be debt restructurings, but there will have to be debt restructurings that are comprehensive, including China and the private sector in the West. The private sector from the West is often engaged also in reckless lending and occasionally in corrupt practices. So I don’t want to point my finger in one direction. This is a global problem. There will have to be debt restructurings, and we have to have ways of making sure that the money that is lent to these countries are lent for productive purposes, not for enriching the lender or for geopolitical reasons.

AMY GOODMAN: You’re the author, Joe Stiglitz, of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, as we come up on the 20th anniversary of this. And we are also seeing war right now taking place in Ukraine, the U.S. warning China not to send — that there’s a red line if they send weapons to Russia, interestingly, almost the same day that the Biden — that Secretary of State Blinken announced $600 million of U.S. weapons would be going to Taiwan. Can you talk about this and also how the war compares when — in dealing with conflict and the economy around the world, what it does?

JOSEPH STIGLITZ: Well, first, I mean, obviously, some of these asymmetries that you point out don’t make things better, they make things worse, that I find it a little bit difficult to understand how we could have such blinkers on what we do, as suggested by what you said.

The second thing, that concerns Linda Bilmes, who teaches at Harvard and wrote that book with me, we’ve been discussing how many of the lessons of the Iraq and Afghanistan war have not been learned. One of the points that we made is how expensive that war was. We estimated at the time $3 trillion. The true cost now has clearly exceeded that amount. Probably more like $5 trillion would be a bottom-line estimate. But the American people were never taken in, told this was what it was going to cost. The accounting systems used by the government, by the Department of Defense, are designed to obscure the true costs. There are special budgets. Not even Congress fully discusses the entire comprehensive cost of these wars. And while I strongly support backing Ukraine and resisting the Russian invasion, I think it’s important, as a matter of public policy, that we have greater transparency and greater accountability, and that we look full on on the cost, as well as the reasons for this war.

JUAN GONZÁLEZ: I wanted to ask you — one of the key points I think you make often about income inequality, the growing income inequality in the United States and the world, is that it’s not a result of market forces, but it’s actually a result of concrete policies adopted by political leaders. I’m wondering, as we head into — more decisions have to be made before the next presidential election by Congress in terms of its policies on the economy. What do you see as the key issues that have to be addressed that will not only lessen income inequality here but around the world?

JOSEPH STIGLITZ: Yes. I mean, you put it well. I’ve often written that inequality, poverty is a matter of choice, not of the people themselves but of our policy frameworks that lead to the levels of inequality. A wonderful example of that was the ability of the Biden administration, by the acts it took in responding to the pandemic, to reduce childhood poverty by an estimated 40, 50% in one year. We could have done it at any time in the past. We could have adopted the policies, which had this enormous effect on child poverty.

The reason I talk so strongly about childhood poverty, children who grow up in poverty are not going to be learning, not going to be as productive, effective citizens. What we do today affects our economy, our society in the future. What worries me right now, for instance, is that the special emergency food that was given during the pandemic has just ended this month — last month, in February. And the result of that is that millions — millions — of children who were moved out of poverty by that emergency food assistance are now being moved back into poverty.

AMY GOODMAN: You’re talking about SNAP, the Supplemental —

JOSEPH STIGLITZ: Exactly.

AMY GOODMAN: — Nutrition Assistance Program.

JOSEPH STIGLITZ: That’s right. And it’s estimated that 4.2 million people above the poverty line in 2021 depended on those — emergency assistance of SNAP, and the effect of that was to reduce poverty by 10% and childhood poverty by 14% in those states that had that assistance. So, we ought to be recognizing that we are now making another set of choices, seemingly, to increase poverty, a set of actions I find unconscionable.

At the same time, you know, we were talking a little bit earlier about the Federal Reserve increasing interest rates, slowing the economy. It all sounds so technical. Let’s make it clear about what the Fed is trying to do. And they’ve been a little bit explicit about it. It wants to increase unemployment. Now, that seems all like just a number, but increasing unemployment means that millions of people will have no jobs. Millions of people will move into poverty. Millions of people’s lives will be broken. Education will be interrupted. And it is particularly going to affect certain subgroups within our population. For instance, when the Fed, seemingly innocuously, says, “Oh, we’re trying to target — increase unemployment to a number like 5%” — can you believe it, the government saying we want there to be more unemployment? — what that means for minorities is that they’re going to have unemployment rates twice that, and for minority — youth minority, four times that. That means the Federal Reserve wants there to be an unemployment rate of excess of 20% for these groups.

Now, they should call on the government, on the fiscal authorities to do everything they can to improve the safety net, improve training programs for those thrown out of work. I haven’t heard a peep, not a word saying that these increases in interest rates have to be accompanied by these measures, if we are not going to increase the inequalities in our society, not going to increase the numbers of people in our society in poverty.

AMY GOODMAN: And at the same time, you have student loan forgiveness being challenged by the Supreme Court.

JOSEPH STIGLITZ: That’s right. And again, some people are saying, “Oh, it’s going to have enormous macroeconomic effects.” That’s wrong. We’ve looked at the numbers. It’s very clear the effect on inflation is nil. The effect on aggregate demand is very, very low. The reason is obvious. These are lifetime debts. Just because — much of this will never be paid back in any case, because you can’t squeeze water out of a stone. But even for those who will be paying back, their annual payments are relatively low, and they’re certainly not going to be willing or able to borrow to get their debts back to offset the debt reduction.

So, the reality is that all this, what is going on in the courts, will have the effect of putting the chain of debt around the neck of millions of Americans, affecting how these young people can start their life, whether they can get married, whether they can buy a house, or even buy a car, impeding their ability to search for a job better matched to their abilities. So, in that sense, the evidence is pretty clear. When you have that kind of debt chained around the neck of young Americans, it actually hurts national productivity.

JUAN GONZÁLEZ: And, Joe Stiglitz, I wanted to ask you about the recent announcement by Colombia’s minister of finance, José Antonio Ocampo, to convene the first-ever ministerial summit for the Latin American and Caribbean — or, tax summit for the Latin American and Caribbean region. Do you have any hope that this will help put an end, an effective end, to the abuse of tax havens and tax evasion by some of these — especially some of the countries in the Caribbean that are notorious for hiding money?

JOSEPH STIGLITZ: Well, I think Ocampo’s measure is very welcome. And the response, I think, has been very positive. It’s only one step, but it’s an important step. Another important step was the EU’s agreement to go ahead with a minimum tax, corporate minimum tax, that makes it more difficult for these tax havens to try to attract corporations, or at least to pretend that the profits were generated in these tax havens. So, it’s an important step, but a lot more is going to have to be done.

The global proposal to have a global minimum tax was too weak. It was only 15%. It should be 25%. There is a worry that the effect of that agreement will be actually to lower tax rates in some countries, because many countries have a corporate tax rate that exceeds the 15%. So I worry that the minimum will actually wind up being the maximum, and more corporations will not be paying their fair share of taxes.

AMY GOODMAN: Joe —

JOSEPH STIGLITZ: But it — go ahead.

AMY GOODMAN: We’re going to have to leave it there, but we thank you so much for being with us, Joseph Stiglitz, Nobel Prize-winning economist, Columbia University professor, former chair of the Council of Economic Advisers, currently the chief economist of the Roosevelt Institute. Among his many books, People, Power, and Profits: Progressive Capitalism for an Age of Discontent.

Coming up, on this 20th anniversary of the U.S. invasion of Iraq coming up, we’re going to speak with Medhi Hasan, the broadcaster, MSNBC host, now author of Win Every Argument. Stay with us.

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