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Well, our next guest follows the US economy, really the global economy has for decades. Weigh in on the trends that describe us and divide us financially, economically, and so much more. Let's get to the interview this hour with us as Nobel Laureate economist and Columbia professor Joseph Stieglitz. He was an economic advisor to presidents, including chair of the Council of Economic Advisors that was during the Clinton administration.
Former Chief economist at the World Bank, He's written numerous books and research papers. His latest book, The Road to Freedom, Economics and the Good Society. He joins us here in New York City. Professor Stieglitz, So great to be talking with you once again. It's been a while, but great to have you here, and we want to talk about the book. But we would be remiss not to ask you your take on today's economic environment and the stickiness
of inflation. What is the smart conversation that you think we should all be having here at Bloomberg when it comes to today's US economic environs.
From the point of view of economics.
Having two and a half or even three percent inflation is not a big deal.
You know, the two.
Percent target was pulled out of thin air. It was not based on economic science. What we want to be sure of is that we don't have runaway inflation. And inflation has clearly been tamed, it's been brought down. It's stable. It fluctuates from month to month, but it is not a major problem. We should be focusing on other things, continuing economic growth, making sure that all Americans share in that growth. Those are the kinds of things that we ought to be thinking more about.
So, Professor Stieglitz, should the Fed abandon the two percent inflation goal? Should they have a different inflation goal, a different metric that they should be held accountable to.
Yes, I think they should.
I think they should be talking about being within a range to maybe three, three and a half four percent.
You know, there's actually some economic science that says, especially in a time of major structural change such as we're going through, having a little higher inflation actually is helpful in realocating resources in the presence of downward nominal rigidities of wages, because what guides the movement of resources from one place to another is relative wages, and if some wages are sticky downward, you want other wages to go up enough to move labor, and that means you're going
to have to have more inflation. So actually a little higher inflation is actually good for the economy.
Do you think the FEDS management of the economy has been a good one in terms of policy?
Quite? Frankly, no, put it bluntly.
Let's go back to when inflation broke out after the pandemic and the Russian invasion of Ukraine. The question was what was the cause, the primary cause of the inflation.
It was unambiguous.
It was the pandemic and war related interruptions in supply chains and rising prices caused by shortages of oil and food. It was demand shifts. People wanted to live in different places, and that meant housing prices went up where there was a scarcity, but didn't go down as much where there was where people didn't want to live, like in.
Parts of New York.
Raising interest rates actually impedes the ability.
To the economy to respond to that kind of.
Structural To that that kind of challenge, we needed to build more houses in the places where there was a scarcity, and having higher interest rates actually works, makes it more difficult. They also have a modeled economy that's based on competition. That might have been true some time ago, but we have an economy with a lot of market power at
firms are trading off. If they raise their prices, they get more profits today, they lose profits in the future, and in that trade off is when you raise the interest rate, they value those future losses less and they were induced to raise their prices more.
So margins go up.
And a marked aspect of the inflation that we've just been through is that markets have increased enormously.
Hey, Professor Stieglitz, I just wanted to speaking of the FED, Carol, I know you would a well.
One one thing before we have a bigger, broader question, and it's certainly been a bigger jump in on Well, what do you think then we should be cutting rates already, that we're behind the curve right now?
Yes, I think I think the risks are asymmetric. I think with Europe already slowing down in recession, we don't know where.
China is going to be going.
I think proudents would have us going back to a more normal infrast rate. The higher interest rates are really not going to be taming inflation.
That that model was wrong.
In another way, they dramatically had said that we're going to need five percent of inflation for five percent unemployment for some time in order to get inflation down.
They were absolutely wrong. We got inflation down.
Where in a period where we kept unemployment relatively low.
So their analysis of the economy was just off.
And meanwhile, they have put at risk our banking system and we had a problem in sell Compalty Bank partly because of the enormous changes in terms structure which their policies led to. And we're facing a deck crisis in the developing countries and emerging markets. So there's enormous one sided risk.
I believe in the policies that they've been pursuing well.
On the FED, Professor Stieglitz, I got to ask you about this Wall Street Journal report that broke last night that said how former Trump administration officials are coming up with plans to take on the independence of the Federal Reserve essentially at one end of the spectrum, even allowing if President Trump gets re elected him to weigh in
on FED policy when it comes to interest rates. Talk a little bit about your reaction to if this were to come to fruition, how important the independence of the FED is, and if that would really put at risk the model of the independence of the US financial system.
Well, I think Trump is himself a major argument why you want to have de pendings.
Of the FED.
You don't want somebody who doesn't understand monetary policy, who would, uh put at risk the long run stability of the economy for the short term electoral advantage of having a hot economy right before an election. That's precisely why there is an argument for independence. So you know, I believe in the accountability of the FED. Uh, it is a public institution. Uh.
We had previous chairmen of the FED. We're very cognizant of that.
I remember Paul Voker saying Congress created us and Congress can uncreate us. So there is a kind of accountability that responsible heads of the FED understand. But we certainly don't want Donald Trump to be running monetary policy. All right.
We do want to into your book because you've been thinking a lot about the meaning of freedom, and I think we throw the word abown a lot.
I think.
The folks who created the United States are founding fathers thought about freedom a lot and the difference though between what that really means, and maybe it comes down to, as you think about it, the values that we all have in society tell us about how we need to kind of maybe redefine freedom and what it means in terms of citizens more broadly and generally, as well as economically in terms of their success.
Sure, you know, I approached the issue obviously as an economist, and as an economist we think of freedom is free to do what you can do.
What are the choices that you can make.
Somebody who is at the point of starvation doesn't really have any freedom.
He has to do what he can to survive.
And expanding the set of choices that an individual is available is a.
Way of saying that he has more freedom.
And here there are a couple of ideas I put forward in my book.
The first is.
That in our integrated urban twenty percentury economy, one person does the expansion of his freedom may lead to less freedom of others. Isaiah Berlin, the great Oxford philosopher, put it this way. He said, freedom for the wolfs has often meant death for the sheep, and in the context of the US, for instance, freedom to carry in AK forty seven means that people will die, and it means that our school children are not free from fear.
They have to.
Learn how to what to do if a gunman comes into the classroom and teachers have to go to school worried about whether they'll be attacked. Freedom not to wear a mask is exposed, taking away the freedom of others to live. So we have to balance these freedoms. There are trade offs. Many cases, those trade offs are easy. Freedom to pollute takes away the freedom to have somebody with asthma to even live, let alone the freedom of.
All of us to live on our planet.
So there, I think we have to constrain the freedom of the polluters and the freedom of exploiters.
So we're talking with Joseph Stieglitz, Nobel Laurate economist, Professor of economics at Columbia University, and we're talking about his new book, The Road to Freedom, Economics and the Good Society. All Right, So if we think Professor Stieglitz the idea of freedom, so it's maybe more inclusive or it's a broader definition, how do we do that within society? With corporations, the need to be profitable for those we are in earning season. We look at companies and their reports, and
that's how we kind of measure them grade them. What does government need to do? How can we maybe be better if you will for more?
Well, first, let me emphasize that in the world I've just described, there's an important role for regulations. Corporations often don't like that, but we have to remember the purpose of our economy is to improve the lives and live goods of our citizens.
It's not the other way around.
That the economy is supposed to serve society, not the other way around.
There's another aspect.
Regulations can't actually expand the freedom of all of us. Think about stop likes. If we don't have stop likes, we have good luck. None of us have the freedom to move. Stop likes ors are a little bit of a coercion, mean that I have to take turns, but by taking turns, we all have more freedom. And that basic idea extends much more broadly. People don't like to
pay taxes. That's they often feel kind of coercion. But when those tax revenues are used productively, like they were to invest in the Internet and invest in the m r any platform that led to the vaccine against COVID nineteen, that expands our freedom to do. And so we have to look at this and I would say, in a little bit more holistic way, Well.
I want to go to your taxes point, because I'm curious if you could wave a magic wand fplement some sort of tax policy here in the US, what would it be. How could you reinvent it? Would you broaden the tax space, would you lean more on corporate taxes, would you tax wealth more? What, in your opinion would work?
Well, I begin by.
Analyzing what are some of the key problems on our society basis, And one of them is inequality and one of the reasons. And a second problem is the growth of market power, which has been enormous in the last few decades.
And those two are obviously linked.
When you have more market power, the fruits of that market power go to those at the top. We also have more economists called monopsity power. Firms have market power over workers and have driven down their wages significantly below a competitive level. So I want to have more anti trust policy, more competitive labor market policies, but.
That can take time.
Meanwhile, there's a lot of monopoly rents, and so part of what I would begin by doing is increasing corporate conflicts taxes, which are not a tax on return to capital, they are tax on this monopoly profits. I'd also like to have environmental taxes firms that are engaged, including the environment, on to pay for the damage that they're doing. Remarkably, America, those at the top pay a lower percentage of their
taxes than those down below. Even some of our richest people have commented that they think that's right wrong.
We can I ask you, like on a day when we're looking at a company, and forgive me, I'm just singling out because it popped. Shares of Alphabet are now a two trillion dollar market cap company this week, you know next week.
Last week.
We've been obsessed with, certainly what we call the Magnificent seven, the big megacap technic companies.
They're very big.
Amazon, we talked with an author recently, so entrenched certainly in our world, and you think about their reach. Are these the companies the individuals, whether it's an Amazon, whether it's a Meta, whether it's an Alphabet that you think you talk about growth of market power? Is it too much at this point in your view that something needs to be done to rain them in or do the benefits outweigh the downside here, Well, they do.
Give benefits, but they have a lot of downsides. They need to be better regulated. Europe has done a better job of regulating with them. The digital harms are quite obvious and have been by now well documented. But talking narrowly now about market I think they we ought to do what we can to limit their market power, but tax the fruits of that market power, the revenues that
they get at a much higher rate. You know, if you ask the question, would Jeff Bezos or the founders of Google or Zuperbird stop working if we tax their wealth in a way, say a three percent you know, so any answer is obviously they would continue to work.
Do you think that they would leave the United States?
Well, we have imposed what we call an exit tax that those with a lot of wealth and don't feel who don't feel loyalty in the United States.
Can leave.
We allowed them to leave, but they have to pay tax that represents attacks on the groups of the wealth that they've accumulated while they've been in the United States. And that tax is significant, and it is a deterrent, and if it's not, it may be that we ought to.
Consider raising that tax.
But I don't think people like at Zuckerberg Musk are going to leave the United States. They realize the benefits of American citizenship.
We're speaking right now with Professor Joseph Stieglitz, Nobel Laurate Economists. He's a professor of economics at Columbia University. He's got a new book out, The Road to Freedom, Economics and the Good Society. Professor, as I mentioned, you are up at Columbia. You've been there for a long time. We've been watching everything that's been happening on the campus there,
as well as campuses including USC, Yale, MIT. The list continues to go on here in the United States, as we've seen pro Palestinian protests and encampments take over some of these campuses. Freedom in the academic context, how are you looking at the protest protests and the context of freedom of speech.
That's a good question.
I mean, person, let me comment that up where my office is, which is the Manhattanville campus.
Uh, things are.
Very quiet at the Business school at the Business School, but you've been.
That campus a long time and you've seen different protests over the years, and it seemed to be I was there when there were protests, and it seems like that's what students are should be doing, exploring and pushing back when they don't feel like things are right. But what is what is the what is it does protests and the context of freedom of speech.
So I agree with you very strongly.
I'm actually happy the students are engaged in the world, you know, That's that's one of the things I probably kept them to be interested in the world, and also to reason about the world, to come to understand it, and to debate how how could should things be changed?
So that's a good thing.
And in my own life, protests have played a very important role.
Back in nineteen.
Sixty three, I was down there in the march in Washington with Martin Luther King, and you know that speech he gave about I have a dream has been a lifelong inspiration to me. So even civil disobedience in certain
circumstances can be an important mechanism for social change. We have a special responsibility, of course, to make sure on our campus that all views get heard, that we can have civil debates, and so on the one hand, academic freedom is really important, and I'm really took offense to Speaker Johnson coming up to our campus and calling for the resignation of our presidents.
I hadn't seen anything.
Like that, maybe since the HUAC hearings the House on American Activities Committee back with McCarthy in the fifties.
I mean, that kind of.
Direct interference in academia is just unheard of. And we know some of the Republicans have been trying to undermine universities because universities teach children how to our young our youngsters, our young men and women how to think, and a lot of people don't like that idea that they should be thinking for themselves. But at the same time, we have to create on campus a community where all voices are heard, and I think we're actually working very much towards that.
There were only a few people.
Raising problems, and I think having outside a takers like the speaker is not hopeful.
We're going to leave it on that note. We always appreciate hearing you talk about hearing from voices. We always appreciate hearing from you. Professor Stieglitz, Thank you so much, Nobel lorid Economist Columbia professor Joseph Stieglitz.
Here in New York City.
Check out his book his latest book, The Road to Freedom, Economics and the Good Society. Really appreciate us spending some time with you.