The US Deficit Economy: Project Syndicate

The Trump administration is delivering shocks to the economy before experts can assess the consequences, suggests economist Joseph Stiglitz. All that is sure about the US economy is volatility and uncertainty. Reductions in the interest rate by the US Federal Reserve as central bank have little effect. “Long ago, John Maynard Keynes recognized that while a sudden tightening of monetary policy, restricting the availability of credit, could slow the economy, the effects of loosening policy when the economy is weak can be minimal,” explains Stiglitz. “Large corporations are still sitting on hoards of cash: it’s not a lack of liquidity that’s stopping them from investing.” Reduced interest rates contribute to lower exchange rates and, as Europe has learned, interest rates that go too low weaken the economy. The US unemployment rate is low, and growth continues, but the quality of jobs is questionable, wages for many remain stagnant, business and infrastructure investment is low, budget and trade deficits are climbing, and inequality is widening despite ample fiscal stimulus in recent years. Stiglitz concludes that the US and global economies could suffer because of a widespread lack of understanding of economics. – YaleGlobal