America's shortsighted, lopsided capitalism was never built to last
Compared to almost any other economy in the world, the U.S. is in great shape today, but with three important caveats:
First, the economic divides are too great. Second, the shortsighted behavior of corporations has led to underinvestment and a lack of resilience. Third, the right’s drive to hamstring governments has led to insufficient public investment, inadequate public services and deficient regulations.
The last has resulted in a fraying infrastructure, poor health and education among large portions of an insufficiently motivated labor force and costly pollution and market power.
Despite these handicaps, the U.S. economy is performing well, with GDP growth last quarter of 2.8 percent, because of the strong stimulus provided by the landmark bills passed during the Biden-Harris administration — the Inflation Reduction Act and the CHIPS and Science Act. These bills improved infrastructure, strengthened science and helped remedy a key resilience weakness in the U.S. microchip market. Inflation has come down rapidly, as markets have worked to cure the shortages that drove up prices.
There is more that needs to be done, however.
Market power (reflected in the size of monopoly rents and markups) soared during the pandemic from already high to astronomical levels. The Biden-Harris administration began the arduous task of bringing it down, but new legislation must be passed, tempered to the 21st-century threats to the digital competitive economy.
Homelessness is a sign, in part, that our housing system is broken. A rich country should manage to do better.
Our health care system is broken, and we need to fix it. We spend far more per capita than any other country with poorer results than other advanced countries, including a lower life expectancy and greater health divides.
Climate change is an existential threat, but it is clear that even in the short run we will have to spend an increasingly large share of GDP just to repair the damage caused by extreme weather events associated with it and to adapt to rising sea levels.
The Inflation Reduction Act should be seen as the beginning of the green transition — we will need more concerted regulation, public investment and carbon pricing. We also need to become true leaders in getting the global cooperation needed to address this issue. We shouldn’t be the laggard.
Neoliberal capitalism has been markedly shortsighted. The 2008 financial crisis and the lack of resilience in the face of the pandemic are two dramatic illustrations. The greatest challenge will be to encourage more long-term thinking.
Changes in corporate governance laws and corporate thinking could make a difference, shifting from a focus on short-term stock market value maximization to a greater concern for the long-term well-being of all stakeholders, including customers, employees, the communities in which firms operate and the environment more broadly. One way to do this might be to give more voice to long-term owners through loyalty shares.
The economy faces four big threats in the short run.
First, we have a Federal Reserve that doesn’t seem to understand the sources of today’s inflation, which are sectoral shortages — including in housing — not a real excess of aggregate demand. High interest rates did not create the additional supplies of chips that brought down car prices, and high interest rates won’t create the additional housing needed to bring down housing costs. Quite the contrary. They will exacerbate these problems.
Second, if Donald Trump is elected, the reversal of key legislation of the Biden-Harris administration and the imposition of high tariffs will be highly inflationary and will slow down growth.
Third, financial deregulation will enhance the risk of another financial meltdown, and environmental deregulation will not only put us on the wrong side of history but also result in our being less competitive in the green technologies of the future.
Finally, if Trump is elected, the renewal and deepening of the Trump-era tax cuts will increase inequality, lead to less high-return public investment — when we really need more — and risk lowering even private investments. The 2017 Trump corporate tax cut did not generate more investment or growth, but it did generate larger deficits and greater inequality, with firms buying back shares and paying higher dividends to the tune of a trillion dollars or so.
As the cash in firms’ treasuries is weakened, they are less able to undertake some of the big, new profitable opportunities that come along. And savers put their money into firms whose market value has increased as a result of lower taxes and more market power, taking away funds that could and would have gone into productive investment.
In short, the greatest risk to our economy — to fixing the multiple problems I have identified — is political, with the two parties presenting two different visions for what makes for a successful economy.
One party doesn’t understand how a 21st-century economy functions and wants to return to a bygone world and undertake policies that would not reverse time but would undo the progress we’ve made and create a more dysfunctional system. It might succeed in making a few people at the top better off, but I doubt even that. When the economy doesn’t perform well even the wealthy suffer some.
The other party doesn’t offer panaceas because there are none. But it has correctly diagnosed the economy’s problems, seeks shared prosperity and has outlined a fiscally responsible strategy — although in some arenas more conservative than I would like — for achieving it.
This op-ed is part of The Hill’s “How to Fix America” series exploring solutions to some of America’s most pressing problems.
Joseph E. Stiglitz is an American economist and a professor at Columbia University. He is also the co-chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD and the chief economist of the Roosevelt Institute. Stiglitz was awarded the Nobel Memorial Prize in Economic Sciences in 2001.