Following the European Central Bank’s decision to unveil its “big bazooka” of quantiative easing, and ahead of tonight’s election vote in Greece, some stern words from Nobel Prize winning economist Joseph Stiglitz on what is missing from the world today:
For the past six years, the West has believed that monetary policy can save the day. The crisis led to huge budget deficits and rising debt, and the need for deleveraging, the thinking goes, means that fiscal policy must be shunted aside. The problem is that low interest rates will not motivate firms to invest if there is no demand for their products. Nor will low rates inspire individuals to borrow to consume if they are anxious about their future (which they should be).
What monetary policy can do is create asset-price bubbles. It might even prop up the price of government bonds in Europe, thereby forestalling a sovereign-debt crisis. But it is important to be clear: the likelihood that loose monetary policies will restore global prosperity is nil. This brings us back to politics and policies.
Demand is what the world needs most. The private sector – even with the generous support of monetary authorities – will not supply it. But fiscal policy can. We have an ample choice of public investments that would yield high returns – far higher than the real cost of capital – and that would strengthen the balance sheets of the countries undertaking them. The big problem facing the world in 2015 is not economic. We know how to escape our current malaise. The problem is our stupid politics.
The question that remains to be resolved here is: who is most to blame for this? Politicians, administrators or voters? Whatever your answer, it is hard not to echo Winston Churchill’s comments that those he most despised in public life were those “who failed to live up to the measure of events”. We certainly have plenty of those.