Apr 22nd 2009

Nathan Gardels Interviews Joseph Stiglitz

by Nathan Gardels

Nathan Gardels has been editor of New Perspectives Quarterly since it began publishing in 1985. He has served as editor of Global Viewpoint and Nobel Laureates Plus(services of Los Angeles Times Syndicate/Tribune Media) since 1989. These services have a worldwide readership of 35 million in 15 languages. Gardels has written widely for The Wall Street Journal, Los Angeles Times, New York Times, Washington Post, Harper's, U.S. News & World Report and the New York Review of Books. He has also written for foreign publications, including Corriere della Sera, El Pais, Le Figaro, the Straits Times (Singapore), Yomiuri Shimbun, O'Estado de Sao Paulo, The Guardian, Die Welt and many others. His books include, "At Century's End: Great Minds Reflect on Our Times" and "The Changing Global Order." Since 1986, Gardels has been a Media Fellow of the World Economic Forum (Davos). He has lectured at the Islamic Educational, Scientific and Cultural Organization (ISESCO) in Rabat, Morocco and the Chinese Academy of Social Sciences in Beijing, China. Gardels was a founding member at the New Delhi meeting of Intellectuels du Monde and a visiting researcher at the USA-Canada Institute in Moscow before the end of the Cold War. He has been a member of the Council of Foreign Relations, as well as the Pacific Council, for many years. From 1983 to 1985, Gardels was executive director of the Institute for National Strategy where he conducted policy research at the USA-Canada Institute in Moscow, the People's Institute of Foreign Affairs in Beijing, the Swedish Institute in Stockholm and the Friedrich Ebert Stiftung in Bonn. Prior to this, he spent four years as key adviser to the Governor of California on economic affairs, with an emphasis on public investment, trade issues, the Pacific Basin and Mexico. Gardels holds degrees in Theory and Comparative Politics and in Architecture and Urban Planning from UCLA. He lives in Los Angeles with his wife, Lilly, and two sons, Carlos and Alexander. Gardels plays the cello on his free time.

One of the more momentous power shifts in the last 500 years is taking place as we sift through the debris of America's busted credit bubble. The dominance of the West built up across those centuries is now yielding to the East. The latest sign of this shift is that those nations with surplus savings earned through our over-consumption of imports -- in particular China -- are proposing a new global reserve currency to replace the waning dollar. In order to protect their accumulated assets and diversify their risk they want to store their wealth in a basket of currencies instead.

I spoke with former World Bank chief economist and Nobel Laureate Joseph Stiglitz to ferret out the key issues:

Gardels: Among Obama's many challenges, isn't the overarching one correcting the imbalance in savings and consumption between the U.S. and China?

Stiglitz: In a globally integrated economy, the biggest challenge is to make sure there is adequate global aggregate demand, achieved through spending, when countries like China feel they must save high levels of dollar reserves to protect against international currency volatility.

After all, China's accumulation of reserves is a result of the IMF's mismanagement of the Asian financial crisis a decade or so ago. If countries know they can't rely on the IMF to help them, their best defense is their own reserve cushion. In a time of spreading global recession, too much emphasis on savings in surplus countries like China can impede prospects for global growth.

Gardels: Getting worried over the value of their billion-plus holdings in dollars as U.S. deficits mount and inflation threatens down the road, the Chinese have proposed a new global reserve currency based on a basket of currencies instead of just the dollar.

Is such a new currency a good mechanism for undoing the imbalance with a soft landing instead of the crash of the dollar, which would hurt the Chinese as well as the U.S.?

Stiglitz: The proposal for a new global reserve currency -- or Special Drawing Rights (SDR) -- is a good idea for many reasons. Yes, for the Chinese it would cushion any fall in the value of the dollar per se because it would only be part of a basket of other currencies, including the yen and the euro. But, above all, a new basket reserve currency would stimulate global aggregate demand by vastly reducing the fear of currency volatility, which, as I said, is what has led countries like China to put away so much money in reserves instead of spend it.

There are other benefits. As a matter of sound economics, the well being of the world should not depend on the management of a single currency. Currency risk would be diversified through a basket reserve unit, creating stability and confidence all around. Finally, there is an equity issue. Because the dollar is the reserve currency of the world, especially in a downturn where investors flee to safety, the U.S. can suck up the savings of the rest of the world even though the interest rates it pays are near zero. That would not happen if there were a global basket reserve currency.

Gardels: What would it mean for the U.S. if the dollar were replaced by a new global currency?

Stiglitz: Actually, it would be very much in the long-term interest of the U.S. because it would help de-financialize the American economy. Of course, the U.S. gets a bit of a break by being able to borrow at low costs from the rest of the world. But that comes at a macroeconomic cost at home. One way of looking at it is that the U.S. has turned to exporting T-bills instead of automobiles or other commodities. Global demand for dollars has supplanted demand for manufactured goods and services, resulting in multilateral trade deficits and loss of jobs at home.

Gardels: At their summit in London recently, the G-20 leaders decided to create $250 billion in new SDR. Is that an important step on the way to creating a new global reserve currency?

Stiglitz: I think it is. The question is how quickly it happens. In my view, though, the IMF is not the best place from which to launch this currency unless it becomes a more fair and balanced institution that represents the real world economy instead of the post-World War II powers, dominated by the United States. The East Asian countries, Brazil and others need a much greater say.

For example, of the $250 billion in SDR committed, only $19 billion was allocated for developing countries. So, the idea of greater SDR is a good one. The institution is flawed.

Gardels: Even so, the fact that the Chinese have proposed a new global SDR currency and the G-20 has taken a step toward its creation surely marks a powershift in the world?

Stiglitz: Without question, it is a recognition of the reality of a genuinely multipolar world that requires moving to a genuinely multilateral system of governance. The powershift began already several years ago, under the Bush administration, when the dollar became very volatile and started declining. That is when China shifted from having almost 100 percent of its reserves in dollars to 75 percent. Some countries went completely out of the dollar. The dollar, for all intents and purposes, lost its special reserve status and people starting talking about a portfolio, or basket, approach as a store of wealth instead of the dollar.

The momentum today behind the idea of a new global reserve currency reflects, in effect, the rise of the rest in world politics and economics, led by China.

One of the more momentous power shifts in the last 500 years is taking place as we sift through the debris of America's busted credit bubble. The dominance of the West built up across those centuries ...
One of the more momentous power shifts in the last 500 years is taking place as we sift through the debris of America's busted credit bubble. The dominance of the West built up across those centuries ...


If you wish to comment on this article, you can do so on-line.

Should you wish to publish your own article on the Facts & Arts website, please contact us at info@factsandarts.com.


Browse articles by author

More Current Affairs

Jul 27th 2021
EXTRACT: "When it comes to the Chinese economy, I have been a congenital optimist for over 25 years. But now I have serious doubts. The Chinese government has taken dead aim at its dynamic technology sector, the engine of China’s New Economy. Its recent actions are symptomatic of a deeper problem: the state’s efforts to control the energy of animal spirits." ---- "... the Chinese economy, no less than others, still requires a foundation of trust – trust in the consistency of leadership priorities, in transparent governance, and in wise regulatory oversight – to flourish. --- Modern China lacks this foundation of trust ."
Jul 25th 2021
EXTRACT: "It seems that they are, as the last 18 months have seen a remarkable expansion of the central banks’ fields of activity, largely driven by their own ambitions. So they have moved into the climate change arena, arguing that financial stability may be put at risk by rising temperatures, and that central banks, as bond purchasers and as banking supervisors, can and should be proactive in raising the cost of credit for corporations without a credible transition plan. That is a promising new line of business, which is likely to grow. ---- Central banks are also trying to move into social engineering, specifically the policy response to rising income and wealth inequality, another hot button topic with high political salience."
Jul 25th 2021
EXTRACT: "The EU’s ambitious unilateral climate strategy will transform Europe into a trade fortress, encourage green protectionism worldwide, and give other regions the opportunity to develop using cheaper energy. And without China, India, and the United States on board, other countries will be careful not to follow the EU in its self-appointed role as the world’s green guinea pig. If Europe is not careful, it will risk finding itself in a climate club of one. "
Jul 9th 2021
EXTRACT: ".... ruminants belch and fart methane, an extremely potent greenhouse gas. As a result, rearing beef cattle brings about, on average, six times the contribution to global warming as non-ruminant animals (for example, pigs) producing the same quantity of protein. ..... if projected to 2050 [beef production], would use 87% of the total quantity of emissions that is compatible with the Paris climate agreement’s objective of staying below a 2° Celsius increase in temperature."
Jul 8th 2021
EXTRACT: " .... while China’s leaders never mention it, they are just as embittered over Russia’s theft of Chinese territory in the nineteenth century as they are over the West’s imperial predations. With Western imperialism having been largely rolled back, it is Russia’s continued occupation of historic Chinese territory that stands out the most to ordinary Chinese observers. For example, the city of Vladivostok, with its vast naval base, has been a part of Russia only since 1860, when the tsars built a military harbor there. Before that, the city was known by the Manchu name of Haishenwai." ---- "There is also a demographic argument for Putin to consider: the six million Russians spread along the Siberian border face 90 million Chinese on the other side. And many of these Chinese regularly cross the border into Russia to trade (and a good number to stay)."
Jul 7th 2021
EXTRACTS: "According to a new analysis by researchers at Brown University, America’s two-decade war in Afghanistan cost it nearly $2.3 trillion. Now, Afghanistan’s neighbors – Pakistan, Iran, China, India, and the Central Asian countries – are wondering just how much it will cost them to maintain security after the United States is gone." ----- "After clandestinely supporting the Taliban as a means to undermine the US war effort, Russia now fears broader destabilization in Central Asia and beyond." ---- "Similarly, after having made nice with the Taliban, China also now fears the greater regional instability that the US withdrawal may incite. In addition to disrupting Chinese President Xi Jinping’s Eurasia-spanning Belt and Road Initiative, a revitalized Taliban could re-energize the Islamist extremist threat in China’s western Xinjiang province."
Jul 1st 2021
EXTRACT: "When former Fed Chair Paul Volcker hiked rates to tackle inflation in 1980-82, the result was a severe double-dip recession in the United States and a debt crisis and lost decade for Latin America. But now that global debt ratios are almost three times higher than in the early 1970s, any anti-inflationary policy would lead to a depression, rather than a severe recession. ---- Under these conditions, central banks will be damned if they do and damned if they don’t, and many governments will be semi-insolvent and thus unable to bail out banks, corporations, and households. The doom loop of sovereigns and banks in the eurozone after the global financial crisis will be repeated worldwide, sucking in households, corporations, and shadow banks as well. ---- As matters stand, this slow-motion train wreck looks unavoidable."
Jun 19th 2021
EXTRACT: "Xi Jinping’s call for friendship gives us an opportunity to examine Chinese politics on both the domestic and international stage. On the face of it, it suggests the possibility of rapprochement between the rich liberal democracies represented by the G7 and the authoritarian Chinese state. However, despite appearances of a call for a closer relationship, there is more than one way of being friends – and Xi’s idea might be somewhat different to what many in countries attending the G7 might expect."
Jun 12th 2021
EXTRACT: "China’s recently published census, showing that its population has almost stopped growing, brought warnings of severe problems for the country. “Such numbers make grim reading for the party,” reported The Economist. This “could have a disastrous impact on the country,” wrote Huang Wenzheng, a fellow at the Center for China and Globalization in Beijing, in the Financial Times. But a comment posted on China’s Weibo was more insightful. “The declining fertility rate actually reflects the progress in the thinking of Chinese people – women are no longer a fertility tool.” "
Jun 12th 2021
EXTRACT: " I remember recounting fellow leaders of the story of a Rwanda schoolboy caught up in the genocide of the 1990s and now immortalized in the Kigali Genocide Memorial museum, where, in a section devoted to children, one can find his photograph and a plaque that reads: ----- David, age 11 ...... Ambition: to be a doctor ...... Favorite sport: football ...... Favorite hobby: making people laugh ...... Death: by mutilation ...... Last words: the UN are coming to save us ----- In his idealism and innocence, David believed the international community would save him and his mother. We didn’t. "
Jun 8th 2021
EXTRACT: " While many conservative Republicans opposed Trump and saw that he posed a danger to their party and democracy itself, they were hesitant to buck the mass movement they had created, fearing that it would turn against them. Some of these same conservatives assumed that with Trump's defeat, the horror of January 6th, and the former president's banishment from social media, the time had come to restore sanity to their party. But the GOP leadership’s continued cowering in the face of what they now call "Trump's base" has caused them to circle the wagons and purge their ranks of those who call for sanity. "
May 26th 2021
Editor's Note: This article is about the Federal Reserve, inflation in the 1970's, and possible similarities to today.
May 25th 2021
EXTRACT: "Netanyahu claims to be acting in the name of the Jewish people. He certainly is not. Many Jews around the world, including me, despise Netanyahu’s racist politics. As an American, I am also deeply troubled by the US government’s knee-jerk support of Israel. Fortunately, I am not alone in this view. A growing number of Democratic Congressmen, Jews and non-Jews alike, have called on the United States to stop supporting Israel’s lawlessness. The truth is that the US government’s uncritical support for Israel has come to depend more on evangelical Christians, such as former US Secretary of State Michael Pompeo, than on American Jews, who are deeply divided by Netanyahu’s actions. And the evangelicals’ real interest in Zionism is not Jews’ security, but Armageddon, the end of the world, which they believe will come only when all Jews are in Israel."
May 18th 2021
EXTRACT: "This period in US history could go down as the moment when America’s democratic system for electing a president – the most consequential duty of US citizens – was broken, perhaps for good."
May 16th 2021
EXTRACT: "While reading Human Rights Watch’s (HRW) monumental report “A Threshold Crossed,” I felt a range of emotions. It also left me with one big question. I was deeply impressed by the report’s rigorous scholarship. At the same time, it brought to the surface feelings of anger and profound sadness. It’s an extraordinarily complete study detailing not only the many ways Israel has violated a broad range of Palestinian human rights, but the ideology of racial superiority and entitlement that Israel has used to justify its repression." ..... "My advice to both Israel’s defenders and weak-kneed liberals is​, “Read the damn report.” "
May 16th 2021
EXTRACTS: .... "He transformed a transitioning market economy into a stable statist project that rests on an alliance of his inner circle," ..... "He transformed Russia from a respected member of the international community into a rogue state" .... ". He energized NATO by providing it with the adversary it lacked after the end of the cold war," ..... "He befriended hopelessly corrupt, dysfunctional, and unstable dictatorships..." ..... "He forged a quasi-alliance with China, thereby enhancing Russia’s dependence on the one country that might have reason to appropriate those Russian territories inhabited by Chinese."
May 15th 2021
EXTRACT: "On the face of it, the latest escalation of violence is following the template of all inter-ethnic wars. Muslims observing Ramadan shouted nationalist slogans and clashed with Israeli right-wing groups chanting “Death to the Arabs.” The Israelis haughtily marched with their national flag on Jerusalem Day, marking Israel’s capture in 1967 of East Jerusalem and the Temple Mount, the site of the biblical Second Temple, and of Al-Aqsa, completed in the year 705. Battles in and around the Al-Aqsa compound erupted, with worshipers inside throwing stones at the Israeli police, who responded by firing rubber-tipped bullets and other projectiles, wounding hundreds."
May 13th 2021
"Regardless of how the current and future violent conflicts between Israel and the Palestinians in Jerusalem will end, there will be no Israeli-Palestinian peace unless East Jerusalem becomes the capital of a Palestinian state while the city remains united."
May 7th 2021
EXTRACT: " Would the United States be prepared to risk a catastrophic war with the People’s Republic of China to protect the Republic of China, better known as Taiwan? "
May 5th 2021
EXTRACT: "Human history, ancient and contemporary, is replete with instances of genocide – that is, the effort to eradicate a people, erase their history, denigrate their culture, and destroy their physical presence. Many of these atrocities have been recognized by the victims and other nations who support them. But, with the notable exception of the German acknowledgment of the Holocaust, rarely have the perpetrators of these crimes accepted responsibility and offer recompense "