Joseph Stiglitz challenges the orthodoxy that interest rate rise

Joseph Stiglitz challenges the orthodoxy that interest rate rises are the answer to inflation | 7.30

https://www.youtube.com/watch?v=1C9jjHVXg2Q&ab_channel=ABCNews%28Australia%29

ABC News (Australia) 2022年7月6日  

Former World Bank chief economist Joseph Stiglitz discusses his concerns about the global economy and the possibility of a windfall profits tax with Sarah Ferguson.

Introduction

professor stieglitz welcome to the program nice to be here what happens to the global economy if we can't get inflation under control

well，i'm not sure inflation is the most significant problem； that we have i
mean we're facing a crisis in our democracy we're facing climate change；to me these are far more important issues than inflation we will get inflation under control；i worry that if we raise the interest rates too fast and too much；we will have a
global recession and you know pay more for food is hard not having a job at all is even harder。
You have said that you think interest rates have to go up because they've been at artificial lows is that correct that's right?
I mean one has to be careful about the magnitude and speed the thing; i worry about interest rates is in some dimensions they can be counterproductive; so the question here is to get the right balance in terms of interest rates; it will be necessary to raise them question as i said is how much and how fast

We shouldn't obsess on interest Inflation target. Rates as the single lever

Exactly

Our official inflation target is two to three percent is that figure too low; i mean will it require too much pain to the economy to reach that target?

Well, first let me say where did that number two to three percent come from it
was pulled out of the thin air there was no scientific basis. 
It's now become a convention that every that's accepted but in fact economic research argues that when the economy is going through a transformation and we're going through a transformation of green economy digital economy post cover 19 economy you want to have probably a higher rate of target for your inflation would you care Runaway inflation to put a number on what you think that inflation target should be?

It should be higher and i want level of magnitude what order; i certainly think that there is no danger in having inflation at four or five percent possibly even higher than that for a short period of time; you know
uh one doesn't want to have runaway
inflation
but there's very little evidence that
uh going up to
four or five percent will lead to
runaway inflation you know economists
talk about anchoring
the evidence that
uh there'll be runaway inflation
is just
not there to put another way
a a word
a language that's sometimes used is
inflation is like an alcoholic
you fall off the wagon
and then you know once that happens you
just can't stop it gets worse and worse
no evidence on that moreover one of the
important things to do is to protect
especially middle income lower income
people from the effects of inflation and
one of the ways you could
do that is to have a windfall profits
tax on those who are making so much
profits out of the current uh
circumstances the energy companies uh
some of the food exporters and use that
revenue to help
those who are really suffering from the
current inflation of course the idea of
Forprofit tax
when for-profit tax is highly
controversial do you think that's a do
you think that's a message that that
this government will listen to
well uh i hope they will
i think it's a really important message
uh you don't have to call it a tax uh i
know the government's bad history here
because uh you know they say no new
taxes we've heard that kind of rhetoric
before
uh this can be
a one-time
levy levy a severance fee
uh there are many other names uh but the
important point is that
the government plays a very important
role in our society
and to play the important roles that it
needs to play
uh it needs revenues so as late as
Australian Reserve Bank
october last year the head of the
australian reserve bank said that rates
wouldn't rise before 2024 he said so
obviously the result of that was that a
number of people kept doubling down on
their mortgages how big a misjudgment
was that statement in your view well
one of the things is you know
there's an old song the future is not
our hardest to see something like that
uh
economists
are normally two-handed economists they
say on the one end and on the other uh
the fact is who could have anticipated
the pandemic who could have anticipated
the russian invasion of ukraine uh these
you know macroeconomics
always has to be aware of uh
contingencies that you don't count on um
who could have foreseen the election of
trump
uh or the insurrection on january 6. if
the head of the federal reserve had made
a comment like that would he have kept
his job do you think
uh
i think it is better for public
uh figures to admit the limits of our
knowledge than to pretend that they know
more than they do

What sort of tools could the government call on i think you've you've spoken a
lot about the importance of getting more women for example into into work are
those the sorts of policies that could make a difference along with the move on
interest rates

Oh very much so because you know right now in the united states unemployment is low employment by the way is also gone and that's partly because we have a
problem with health so better health
would would help
but in the short run the most important thing is getting women into the labor force and better immigration policy.

Let
Financial volatility
me just ask you to ask you this

You said before that no one could have predicted the the nature of the post pandemic recovery and Ukraine and the effect on energy prices; the effect on gas prices is, it also the case that these frequent episodes of financial volatility are something we're just going to have to get used to.

yes
but, we can do better, i think one of the things that we've learned is that the last 35 years 40 years of neoliberalism led to an economy, which was more volatile less resilient, we created an economy that actually doesn't respond to these kinds of events and actually creates events, that are destabilizing.

Message to new Treasurer, what will your message be to a relatively young new treasurer of australia?

The responsibility of the treasurer is really to make sure that the budget the money is used to improve the well-being of the people of australia. That's what money is about; that's what the economy is about; the economy is supposed to serve the people, not the people the economy and we sometimes get that
uh confused.

Thank you very much indeed professor stiglitz thank you.