Must invest in future: Stiglitz

Are we responding in ways that exacerbate our long-term problems? Economist Joseph Stiglitz has a thought-provoking article on what is going wrong and how to set it right, as climate change crisis deepens. As he notes, the path marked out by the deficit hawks and austerity advocates both weakens the economy today and undermines future prospects. (Read on)

Given insufficient aggregate demand, we must invest in our future, in ways that help us to address simultaneously the problems of global warming, global inequality and poverty, and the necessity of structural change. Growing inequality is one of the reasons for the economic slowdown, and is partly a consequence of the global economy's deep, ongoing structural changes.

Just as the Great Depression arose in part from the difficulties in moving from a rural, agrarian economy to an urban, manufacturing one, so today's problems arise partly from the need to move from manufacturing to services… Before the 2008 crisis there was much talk of global imbalances, and the need for the trade-surplus countries, such as Germany and China, to increase their consumption. That issue has not gone away.

As China increases its consumption it will not necessarily buy more goods from the United States. In fact, it is more likely to increase consumption of non-traded goods – such as health care and education – resulting in profound disturbances to the global supply chain, especially in countries that had been supplying the inputs to China's manufacturing exporters.

Finally, there is a worldwide crisis in inequality. The problem is not only that the top income groups are getting a larger share of the economic pie, but also that those in the middle are not sharing in economic growth, while in many countries poverty is increasing. In the US equality of opportunity has been exposed as a myth...

Unfair trade agreements – including the persistence of unjustifiable agricultural subsidies, which depress the prices upon which the income of many of the poorest depend – have played a role. The developed countries have not lived up to their promise in Doha in November 2001 to create a pro-development trade regime, or to their pledge at the G8 summit in Gleneagles in 2005 to provide significantly more assistance to the poorest countries.

The market will not, on its own, solve any of these problems. Global warming is a quintessential "public goods" problem. To make the structural transitions that the world needs we need governments to take a more active role.