How to put America back to work (Joseph Stiglitz)

How to put America back to work
By: Joseph E. Stiglitz
September 7, 2011 10:54 PM EDT

(into snipped- anticipation of jobs speech)

Around the country there is growing pessimism. The rhetoric will be fine. But is there anything that anyone can really do — given the country’s looming debt and deficit?

The answer from economics is: There is plenty we can do to create jobs and promote growth.

(snip)

First, we must dispose two myths. One is that reducing the deficit will restore the economy. You don’t create jobs and growth by firing workers and cutting spending. The reason that firms with access to capital are not investing and hiring is that there is insufficient demand for their products. Weakening demand — what austerity means — only discourages investment and hiring.

As Paul Krugman emphasizes, there is no “confidence fairy” that magically inspires investors once they see the deficit go down. We’ve tried that experiment — over and over. Using the austerity formula, then-President Herbert Hoover converted the stock market crash into the Great Depression. I saw firsthand how the International Monetary Fund’s imposed austerity on East Asian countries converted downturns into recessions and recessions into depressions.

(snip)

The second myth is that the stimulus didn’t work. The purported evidence for this belief is simple: Unemployment peaked at 10 percent — and is still more than 9 percent. (More accurate measures put the number far higher.) The administration had announced, however, that with the stimulus, it would reach only 8 percent.