January 2013, Week 2


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Tue, 8 Jan 2013 22:52:52 -0500
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Climate Change and Poverty: The Post-Crisis Crises

An economic and political system that does not deliver for
most citizens is one that is not sustainable in the long run

By Joseph Stiglitz

January 7, 2013
Project Syndicate


In the shadow of the euro crisis and America's fiscal cliff,
it is easy to ignore the global economy's long-term problems.
But, while we focus on immediate concerns, they continue to
fester, and we overlook them at our peril.

The most serious is global warming. While the global
economy's weak performance has led to a corresponding
slowdown in the increase in carbon emissions, it amounts to
only a short respite. And we are far behind the curve:
because we have been so slow to respond to climate change
achieving the targeted limit of a 2C rise in global
temperature will require sharp reductions in emissions in the

Some suggest that, given the economic slowdown, we should put
global warming on the backburner. On the contrary,
retrofitting the global economy for climate change would help
to restore aggregate demand and growth.

An economic and political system that does not deliver for
most citizens is one that is not sustainable in the long run.
Eventually, faith in democracy and the market economy will
erode, and the legitimacy of existing institutions and
arrangements will be called into question.

At the same time, the pace of technological progress and
globalisation necessitates rapid structural changes in both
developed and developing countries alike. Such changes can be
traumatic, and markets often do not handle them well.

Just as the Great Depression arose in part from the
difficulties in moving from a rural, agrarian economy to an
urban, manufacturing one, so today's problems arise partly
from the need to move from manufacturing to services. New
firms must be created, and modern financial markets are
better at speculation and exploitation than they are at
providing funds for new enterprises, especially small- and
medium-size companies.

Moreover, making the transition requires investments in human
capital that individuals often cannot afford. Among the
services that people want are health and education, two
sectors in which government naturally plays an important role
(owing to inherent market imperfections in these sectors and
concerns about equity).

Before the 2008 crisis there was much talk of global
imbalances, and the need for the trade-surplus countries,
such as Germany and China, to increase their consumption.
That issue has not gone away; indeed, Germany's failure to
address its chronic external surplus is part and parcel of
the euro crisis. China's surplus, as a percentage of GDP, has
fallen, but the long-term implications have yet to play out.

America's overall trade deficit will not disappear without an
increase in domestic savings and a more fundamental change in
global monetary arrangements. The former would exacerbate the
country's slowdown, and neither change is on the cards. As
China increases its consumption it will not necessarily buy
more goods from the United States. In fact, it is more likely
to increase consumption of non-traded goods - such as health
care and education - resulting in profound disturbances to
the global supply chain, especially in countries that had
been supplying the inputs to China's manufacturing exporters.

Finally, there is a worldwide crisis in inequality. The
problem is not only that the top income groups are getting a
larger share of the economic pie, but also that those in the
middle are not sharing in economic growth, while in many
countries poverty is increasing. In the US equality of
opportunity has been exposed as a myth.

While the Great Recession has exacerbated these trends, they
were apparent long before its onset. Indeed, I (and others)
have argued that growing inequality is one of the reasons for
the economic slowdown, and is partly a consequence of the
global economy's deep, ongoing structural changes.

An economic and political system that does not deliver for
most citizens is one that is not sustainable in the long run.
Eventually, faith in democracy and the market economy will
erode, and the legitimacy of existing institutions and
arrangements will be called into question.

The good news is that the gap between the emerging and
advanced countries has narrowed greatly in the last three
decades. Nonetheless, hundreds of millions of people remain
in poverty, and there has been only a little progress in
reducing the gap between the least developed countries and
the rest.

Here, unfair trade agreements - including the persistence of
unjustifiable agricultural subsidies, which depress the
prices upon which the income of many of the poorest depend -
have played a role. The developed countries have not lived up
to their promise in Doha in November 2001 to create a pro-
development trade regime, or to their pledge at the G8 summit
in Gleneagles in 2005 to provide significantly more
assistance to the poorest countries.

The market will not, on its own, solve any of these problems.
Global warming is a quintessential "public goods" problem. To
make the structural transitions that the world needs we need
governments to take a more active role - at a time when
demands for cutbacks are increasing in Europe and the US.

As we struggle with today's crises, we should be asking
whether we are responding in ways that exacerbate our long-
term problems. The path marked out by the deficit hawks and
austerity advocates both weakens the economy today and
undermines future prospects. The irony is that, with
insufficient aggregate demand the major source of global
weakness today, there is an alternative: invest in our
future, in ways that help us to address simultaneously the
problems of global warming, global inequality and poverty,
and the necessity of structural change.

© 2012 Project Syndicate

Joseph E. Stiglitz is University Professor at Columbia
University. His most recent book is The Price of Inequality:
How Today's Divided Society Endangers Our Future. Among his
many other books, he is the author of Globalization and Its
Discontents, Free Fall: America, Free Markets, and the
Sinking of the World Economy, and (with co-author Linda
Bilmes) The Three Trillion Dollar War: The True Costs of the
Iraq Conflict. He received the Nobel Prize in Economics in
2001 for research on the economics of information.


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