Home > Worst Government US Has Ever Had’ Says Nobel Laureate Econom
Worst Government US Has Ever Had’ Says Nobel Laureate Econom
by Open-Publishing - Sunday 3 August 2003US Nobel Laureate Slams Bush Gov’t as "Worst" in
American History - Der Spiegel (Berlin)
================================================
George A. Akerlof, 2001 Nobel prize laureate who
teaches economics at the University of California in
Berkeley.
BERLIN - American Nobel Prize laureate for Economics
George A. Akerlof lashed out at the government of US
President George W. Bush, calling it the "worst ever"
in American history, the online site of the weekly Der
Spiegel magazine reported Tuesday.
"I think this is the worst government the US has ever
had in its more than 200 years of history. It has
engaged in extraordinarily irresponsible policies not
only in foreign policy and economics but also in social
and environmental policy," said the 2001 Nobel Prize
laureate who teaches economics at the University of
California in Berkeley.
"This is not normal government policy. Now is the time
for (American) people to engage in civil disobedience.
I think it’s time to protest - as much as possible,"
the 61-year-old scholar added.
Akerlof has been recognized for his research that
borrows from sociology, psychology, anthropology and
other fields to determine economic influences and
outcomes. His areas of expertise include macro-
economics, monetary policy and poverty.
"A FORM OF LOOTING"
Das Akerlof-Interview im englischen Orginal
SPIEGEL ONLINE: Professor Akerlof, according to recent
official projections, the US federal deficit will reach
$455 billion this fiscal year. That’s the largest ever
in dollar terms, but according to the President’s
budget director, it’s still manageable. Do you agree?
George A. Akerlof: In the long term, a deficit of this
magnitude is not manageable. We are moving into the
period when, beginning around 2010, baby boomers are
going to be retiring. That is going to put a severe
strain on services like Medicare, Medicaid and Social
Security. This is the time when we should be saving.
SPIEGEL ONLINE: So it would be necessary to run a
budget surplus instead?
Akerlof: That would probably be impossible in the
current situation. There’s the expenditure for the war
in Iraq, which I consider irresponsible. But there’s
also a recession and a desire to invigorate the economy
through fiscal stimulus, which is quite legitimate.
That’s why we actually do need a deficit in the short
term - but certainly not the type of deficit we have
now.
SPIEGEL ONLINE: Because it’s not created by investment,
but to a large extent by cutting taxes?
Akerlof: A short-term tax benefit for the poor would
actually be a reasonable stimulus. Then, the money
would almost certainly be spent. But the current and
future deficit is a lot less stimulatory than it could
be. Our administration is just throwing the money away.
First, we should have fiscal stimulus that is sharply
aimed at the current downturn. But this deficit
continues far into the future, as the bulk of the tax
cuts can be expected to continue indefinitely. The
Administration is giving us red ink as far as the eye
can see, and these permanent aspects outweigh the
short-term stimulatory effects.
SPIEGEL ONLINE: And secondly, you disagree with giving
tax relief primarily to wealthier Americans. The GOP
argues that those people deserve it for working hard.
Akerlof: The rich don’t need the money and are a lot
less likely to spend it - they will primarily increase
their savings. Remember that wealthier families have
done extremely well in the US in the past twenty years,
whereas poorer ones have done quite badly. So the
redistributive effects of this administration’s tax
policy are going in the exactly wrong direction. The
worst and most indefensible of those cuts are those in
dividend taxation - this overwhelmingly helps very
wealthy people.
SPIEGEL ONLINE: The President claims that dividend tax
reform supports the stock market - and helps the
economy as a whole to grow.
Akerlof: That’s totally unrealistic. Standard formulas
from growth models suggest that that effect will be
extremely small. In fact, the Congressional Budget
Office (CBO) has come to a similar conclusion. So, even
a sympathetic treatment finds that this argument is
simply not correct.
SPIEGEL ONLINE: When campaigning for an even-larger tax
cut earlier this year, Mr. Bush promised that it would
create 1.4 million jobs. Was that reasonable?
Akerlof: The tax cut will have some positive impact on
job creation, although, as I mentioned, there is very
little bang for the buck. There are very negative long-
term consequences. The administration, when speaking
about the budget, has unrealistically failed to take
into account a very large number of important items. As
of March 2003, the CBO estimated that the surplus for
the next decade would approximately reach one trillion
dollars. But this projection assumes, among other
questionable things, that spending until 2013 is going
to be constant in real dollar terms. That has never
been the case. And with the current tax cuts, a
realistic estimate would be a deficit in excess of six
trillion.
SPIEGEL ONLINE: So the government’s just bad at doing
the correct math?
Akerlof: There is a systematic reason. The government
is not really telling the truth to the American people.
Past administrations from the time of Alexander
Hamilton have on the average run responsible budgetary
policies. What we have here is a form of looting.
SPIEGEL ONLINE: If so, why’s the President still
popular?
Akerlof: For some reason the American people does not
yet recognize the dire consequences of our government
budgets. It’s my hope that voters are going to see how
irresponsible this policy is and are going to respond
in 2004 and we’re going to see a reversal.
SPIEGEL ONLINE: What if that doesn’t happen?
Akerlof: Future generations and even people in ten
years are going to face massive public deficits and
huge government debt. Then we have a choice. We can be
like a very poor country with problems of threatening
bankruptcy. Or we’re going to have to cut back
seriously on Medicare and Social Security. So the money
that is going overwhelmingly to the wealthy is going to
be paid by cutting services for the elderly. And people
depend on those. It’s only among the richest 40 percent
that you begin to get households who have sizeable
fractions of their own retirement income.
SPIEGEL ONLINE: Is there a possibility that the
government, because of the scope of current deficits,
will be more reluctant to embark on a new war?
Akerlof: They would certainly have to think about debt
levels, and military expenditure is already high. But
if they seriously want to lead a war this will not be a
large deterrent. You begin the war and ask for the
money later. A more likely effect of the deficits is
this: If there’s another recession, we won’t be able to
engage in stimulatory fiscal spending to maintain full
employment. Until now, there’s been a great deal of
trust in the American government. Markets knew that, if
there is a current deficit, it will be repaid. The
government has wasted that resource.
SPIEGEL ONLINE: Which, in addition, might drive up
interest rates quite significantly?
Akerlof: The deficit is not going to have significant
effects on short-term interest rates. Rates are pretty
low, and the Fed will manage to keep them that way. In
the mid term it could be a serious problem. When rates
rise, the massive debt it’s going to bite much more.
SPIEGEL ONLINE: Why is it that the Bush family seems to
specialize in running up deficits? The second-largest
federal deficit in absolute terms, $290 billion,
occurred in 1991, during the presidency of George W.
Bush’s father.
Akerlof: That may be, but Bush’s father committed a
great act of courage by actually raising taxes. He
wasn’t always courageous, but this was his best public
service. It was the first step to getting the deficit
under control during the Clinton years. It was also a
major factor in Bush’s losing the election.
SPIEGEL ONLINE: It seems that the current
administration has politicised you in an unprecedented
way. During the course of this year, you have, with
other academics, signed two public declarations of
protest. One against the tax cuts, the other against
waging unilateral preventive war on Iraq.
Akerlof: I think this is the worst government the US
has ever had in its more than 200 years of history. It
has engaged in extraordinarily irresponsible policies
not only in foreign and economic but also in social and
environmental policy. This is not normal government
policy. Now is the time for people to engage in civil
disobedience.
SPIEGEL ONLINE: Of what kind?
Akerlof: I don’t know yet. But I think it’s time to
protest - as much as possible.
SPIEGEL ONLINE: Would you consider joining Democratic
administration as an adviser, as your colleague Joseph
Stiglitz did?
Akerlof: As you know my wife was in the last
administration, and she did very well. She is probably
much better suited for public service. But anything
I’ll be asked to do by a new administration I’d be
happy to do.
SPIEGEL ONLINE: You’ve mentioned the term civil
disobedience a minute ago. That term was made popular
by the author Henry D. Thoreau, who actually advised
people not to pay taxes as a means of resistance. You
wouldn’t call for that, would you?
Akerlof: No. I think the one thing we should do is pay
our taxes. Otherwise, it’ll only make matters worse.
Interview: Matthias Streitz