The Current - Nobel laureate says Trump could bring economic chaos

Episode Date: November 15, 2024

The Nobel Prize-winning economist Joseph Stiglitz predicts economic chaos under Trump, but says he also understands why many people feel that the system isn't working for them — and why they voted for change. He talks to Matt Galloway about inequality, Elon Musk and a more progressive form of capitalism.

In 2017, it felt like drugs were everywhere in the news, so I started a podcast called On Drugs. We covered a lot of ground over two seasons, but there are still so many more stories to tell. I'm Jeff Turner, and I'm back with Season 3 of On Drugs. And this time, it's going to get personal. I don't know who Sober Jeff is. I don't even know if I like that guy.

On Drugs is available now wherever you get your podcasts. This is a CBC Podcast. Hello, I'm Matt Galloway, and this is The Current Podcast. As pundits and analysts contemplate the results of the U.S. presidential election, the economy was a big part of the puzzle when it comes to the outcome. In an ABC exit poll, 45% of voters said they were worse off financially under the Biden administration. That's the highest result ever for that kind of question in a U.S. exit poll. Joseph Stiglitz does not believe that the economy is going to get any better under President

Donald Trump. He's one of 23 Nobel Prize winning economists who published an open letter in October, arguing that Trump's policies were, to quote him, counterproductive, and would result in higher prices, larger deficits, and greater inequality. Joseph Stiglitz is a professor at Columbia University. He served as an economic advisor to President Bill Clinton, and was the chief economist of the World Bank in the late 1990s. He's in Toronto for an event launching his new book, The Road to Freedom, Economics, and the Good Society. Joseph Stiglitz, good morning. Good morning. How do you make sense as an economist of the moment that your country is in right now? I think it's the culmination, the output of a three-decade increase in inequality.

I wrote a book about a decade ago called The Price of Inequality. And I said this growing inequality would, I couldn't tell when, lead to a demagogue. And I couldn't predict how bad that demagogue would be. But my interpretation when, as you said, so many people say that they're worse off, that they're expressing not a view about how they are today relative to a few years ago, but really relative to the trends of the last 30, 40 years. What they're really saying is, I see so many people doing well off, and I'm not doing very well. As you mentioned, by ordinary indicators, the unemployment rate is very low. It's a miracle at the extent to which inflation has been brought

down. Of course, there are specific problems like high housing prices, But any critical analysis would say that Trump's policies will make many of those things much worse. And yet people didn't feel that. I mean, when you spoke with people, we heard this when I was traveling through the United States, and we've heard it certainly in the wake of the election. People felt that those who were saying the economy is doing great and you should feel good about it, they're saying that they felt like they're being gaslit in some ways. That they would go to the gas station to put gas in their tank and they would see how much the gas cost in front of them. They would go to the grocery store and they would see how much the food was. They would try to pay their rent and they would understand that they were behind at the end of the month rather than feeling ahead.

Why do you think people didn't buy the argument that the Biden-Harris team, and I say this too because it was Joe Biden saying that he had done really well in the economy, that that team was selling? Why didn't people buy that argument? Well, you have to understand when economists look at this, they look at the numbers. The numbers said that wages had gone up even more than prices had. I think there's some psychological problems here. People tend to think that the wage increases they get are earned. And they may not notice that the wage increases, but they really notice prices. And what they really notice are the extreme prices, that is to say eggs or, as you say, gasoline.

But even in the case of gasoline, it went way up, but then it came down. And what they six in their mind is the fact that it had gone up. And this is an important insight into economics that the profession hasn't fully taken on board. We call it behavioral economics. There are a lot of irrationalities. What is salient, what is really perceived by people can be quite different from the ordinary numbers, as economists calculate them. Do you understand the anger that people would feel?

That they would, I mean, despite what you're saying, and despite the evidence that's being presented, that people would feel, in the book you talk about how, in some ways, the American dream is becoming a myth, that they don't feel that their children are going to do better than they are, and that they would be willing in that anger to make a change, no matter what that change the experts might say will do, but that they would be willing to make a change because of the anger that they feel. I do understand that. And that's precisely the more general point.

It's not what's happened in the last three, four years. It's what's happened over the last 30 years. And over the last 30 years, the American dream has eviscerated. The fact is that the percentage of people who will be better off than their parents has really dropped. They're more insecure. And that was one of the main themes in my book, that the economic changes that we've had over the last 30 years under the name of neoliberalism weakened our systems of social protection, made people more insecure. Large swaths of the country have faced deindustrialization. They've seen actually wages go down. So what we're talking about is not what's happened over the last three or four years, but happening over a quarter century.

Why did you predict all those years ago that inequality would lead to a demagogue? People feel the system is rigged. And that's an expression that President Trump used. They somehow feel that they've been conned. They talk about the American dream, it was there. But now they know it's not there. And so in that context, a politician, a strong man who promises, I will take care of your problems, they become susceptible to the promises of that kind of

politician. We've seen it all over the world, this kind of populism, authoritarian populism. Unfortunately, no matter how strong you are, you can't change arithmetic. Two plus two is still going to be four, not five. And if you have bad policies, you're going to have bad consequences. So if you impose tariffs on Chinese goods and Americans depend for apparels and plyings for steel, for construction, on Chinese imports, it's going to take a while for us to find alternative sources and they won't be as good. That means the arithmetic there means prices are going to go up. You said that if Donald Trump lives up to his promises, there will be problems.

What's the problem that you're most concerned about? Well, the problem I'm most concerned with is the undermining of our democracy, of our institutions. mining of our democracy, of our institutions. There is a broad consensus now in economics, reflected in this year's Nobel Prize, that these kinds of institutions are really important for the economy. If you don't have a kind of institution of stability, it's hard to have the sense of stability that investors want. One of the areas of debate right now is what he will do to the Federal Reserve. Once they're fired, the head of the Federal Reserve. Well, he can't fire him. That's the point.

He said he won't leave either. He has two more years of his term, and that will be one of the critical tests. Will he try to break the law? We've had in this country, and I'm not sure how much you know, but the leader of the opposition, who polls suggest could very well be the prime minister of Canada when our election is held, has said that he would fire the head of our central bank as well. What does that tell you about, I mean, beyond the specifics, it goes back to the health and the need for those institutions. What are you most concerned about when those institutions that people feel perhaps aren't serving them, but those who are in power would like to go at, what worries you about that? law, as I said, you need a kind of overall stability for economies to flourish. Countries that have provided that have done better. That's clear. Yes, over time, you need changes.

And we have procedures for making changes. That's Parliament, Congress. I may have disagreements with the Federal Reserve, judgments about what the effects of interest rates. I worry that high interest rates make it more difficult to get housing and could actually therefore exacerbate one key aspect of inflation. So, you know, I'm sympathetic that we need democratic debates and at times we will, if I can persuade other people, change. But if you have somebody coming in who doesn't understand economics, and let's be clear, Donald Trump does not understand economics, you add an element of chaos. And that is bad for the economy. It's bad for society. It's bad for politics. In 2017, it felt like drugs were everywhere in the news.

So I started a podcast called On Drugs. We covered a lot of ground over two seasons, but there are still so many more stories to tell. I'm Jeff Turner, and I'm back with season three of On Drugs. And this time, it's going to get personal. I don't know who Sober Jeff is. I don't even know if I like that guy. On Drugs is available now wherever you get your podcasts. How do you think, you're here in Canada this week? How do you think this country

should be prepared to navigate, I'll use your word, that chaos that might be coming and whatever Canada's economic relationship with the United States is under another presidency of Donald Trump? We are in many ways tied at the hip. First of all, you have a competitive advantage if you maintain your institutional stability because there will be some Americans who will want to leave, but there will be many people from all over the world who, talented people, who otherwise would have come to the United States will say, Canada is the place to go. Do you think that that's realistic? Oh, yes. If you maintain your. Do you think that that's realistic? Oh, yes.

If you maintain your institutional stability, I know that's true. The other piece of advice that I would say is Donald Trump is very transactional. He doesn't have an overall ideology except, you might say, the strong man being powerful and an ideology of rank-seeking, doing the deal, transactional. And that means you have to, if the U.S. imposes tariffs, you have to retaliate and impose

tariffs. And then you negotiate. We worked for 70 years now since World War II to create a rule of international law that enables us to work out these differences. He's torn that apart. And so you can't rely on the WTO. You just have to realize this is the new transactional world. And you can't be a wimp. You have to stand up and say, we have a trade relations.

And if you start putting tariffs on Canada Steel, we'll retaliate. It's a much more optimistic view than I think a lot of people in this country have right now. A lot of industries are spooked because they worry, I mean, whether it's the auto industry, whether it's other industries that trade substantially with the United States. When you have a protectionist administration come in that's talking about tariffs, people worry that they'll have their legs cut out from underneath them. This goes back to the point I made before, a high level of uncertainty, which is really bad for business. What we saw in the first Trump administration was that he would announce very high tariffs, and then there were these kinds of negotiations that went on.

Still, at the end, there were tariffs. There were distortions. Would I expect the magnitude of the tariffs against Canada will be small compared to what he will do against China? he will do against China. And American firms are even more spooked because they buy a lot of goods from China. It will manifest itself then into higher inflation. All those tariffs will lead to higher prices. Restrictions on immigration

are going to lead to shortages of labor, and higher wages will feed into higher prices. And then finally, more inequality, which is the original problem that we began talking about, because he has proposed tax cuts for the billionaires, for the corporations. What do you make of the fact, you mentioned billionaires, what do you make of the fact that the richest person in the world, Elon Musk, tech gazillionaire, is one of the closest advisors to Donald Trump?

Apparently they can't get him out of Donald Trump's resort. He's there every day. What do you make of that? I think this is very dangerous in the following sense. He has literally billions of dollars of defense contracts. Through SpaceX and through Starlink. And he claims to be a libertarian, believes in small government, and yet he's getting these billions of dollars of government contracts.

And Tesla was saved by the government by a half a billion dollars of government loans at a critical time in Tesla's life. So you understand somebody who is totally, you might say, corrupt, in that he takes government money and then says he doesn't believe in government. in that he takes government money and then says he doesn't believe in government. I understand how he and Trump could be bedfellows because they're equally chaotic. And he says he's going to find billions and billions of government waste. What I worry about is what he defines as waste are programs that are basic to ordinary individual well-being. I mean, for instance, one of the things that Trump has promised to get rid of is Obamacare. It speaks to, I mean, part of the title of the book is around freedom, the road to freedom.

And people will define freedom as either freedom from or freedom to. I had this conversation with the historian Timothy Snyder about this, who's trying to been thinking about recently about this idea of what freedom is. How do you define freedom when it comes to economic freedom? What is that? That is the central, a central message of my book. And I'm glad you raised that because what I emphasize is that part of freedom is freedom to live up to your potential, as you say, freedom to do. And that means if you're going to live up to your potential, you have to get the education. You have to have health care so you're not burdened by disease. But there's another fundamental idea in my book that relates to a broader notion of freedom. Many in the right talk about their freedom to carry guns, their freedom not to wear masks. And here I say in a

complex integrated society, one person's freedom may impinge on that of another, or one person's freedom may be the unfreedom of another. The idea that the freedom to guns can also lead to school shootings. Exactly. Exactly. So Isaiah Berlin put it, freedom for the wolves is often meant death for the sheep. was as often meant death for the sheep. And that central idea that we have to balance those freedoms,

the right doesn't seem to understand. And in many of the cases that I've described, it's very clear how we would, if we had a rational discussion, balance those freedoms. What is the good society then that you talk a lot in the book about progressive capitalism and people feel that some people feel that the capitalist system has let them down that that's in part why they are angry that's why they lash out and vote against the indicators that might present information to the contrary to that. What is that good society that progressive capitalism could lead the United States?

So I try to contrast neoliberal capitalism, the kind of capitalism that we've had for the last quarter century that's led to all this inequality, that's led to the financial crisis, that has led to all this grievance. Freedom to choose meant freedom to exploit, and we see the exploitation of market power and that kind of anger that we were talking about, and I understand. Progressive capitalism says we have to balance these freedoms and we have to take into account areas where we can work together. By working together, we can all do better.

So, for instance, stoplights, a simple regulation that says you can't move until your light turns green. But in the absence of those stoplights in a city like New York, you have gridlock. No one can move. So a little regulation gives everybody more freedom. And the freedom to pollute is taking away many people's freedom to live and the freedom of our planet to survive. So what I've been advocating

is this kind of progressive capitalism that really understands how we as a society are integrated and then tries to analyze how do we balance these when we have trade-offs? What are the areas where when we work together we can get more and how do we do that working together? I sort of advocate for a rich taxonomy, a rich ecology of institutional

arrangements that, for instance, we're moving to a service care economy. I feel better having an NGO, somebody that focuses on care, than a Wall Street hedge fund taking care of somebody who has Alzheimer's disease. You know, hedge funds are more likely to be specialized in how can I take most advantage of them? And we've seen the failures of hedge funds owning prisons and old age homes and schools. Newspapers. Newspapers. So it realizes different kinds of needs can be served by different kinds of institutions, sometimes government, sometimes the private sector,

but sometimes civil society, NGO, sometimes cooperatives. So that's the kind of society that I try to describe and say that kind of arrangement will do better at creating a good society, creating people who themselves are more honest, more caring, more concerned with others, the kind of children that we would like to have. You say in the book, just finally, that there are good reasons to worry whether America's form of ersatz capitalism and flawed democracy is sustainable in the face of that and in the face of what you've been talking

about where where do you find signs of hope right now it's a difficult time for a lot of people it's a difficult time for a lot of people and and uh if you would ask me that question four or five years ago, I would have said, I find hope in our young people. I still teach at Columbia, and our students are committed. Many of them are committed to change, committed to the values that I try to articulate in my book. They know that the current arrangements are not sustainable, our planet won't be sustainable if we don't do something about climate change. So they recognize that,

and that was where I put my hope. My caution is so many of the young people also supported Trump, and I think they too have a grievance. There's an intergenerational equity. When I talk about inequality, it has many dimensions, racial, gender. But one dimension that's become very clear is across generations. They feel like they can't get on the track of owning a home.

In the United States, they owe huge student loan debts. So they're not even sure what their future looks like. And so they feel the system is rigged, there's grievances. And I am hopeful that if we get a good government, it's going to take us four years to have another shot at it. But there are policies that will address these intergenerational inequalities. And I think the grievance is not that deep that if we began to address their concerns, they would join with, you know, it was a close race. If we just persuade a few more percentage, and I think the young are persuadable, that we can start with the progressive agenda that I lay out. And if that happens, more and more people will come to understand we don't have to have

that system that failed. It was 40 years of a failed system, so it's deep. It's not going to be corrected overnight, but we will begin to correct it. And then maybe that level of anger will come down and we will be able to work together for better solutions to our problems. Joseph Stiglitz, it's a great pleasure to have you here.

Thank you very much. It's a real pleasure. Joseph Stiglitz is a Nobel Prize winning economist and the author most recently of The Road to Freedom, Economics and the Good Society. For more CBC podcasts, go to cbc.ca slash podcasts.