Stiglitz: Raising Interest Rates Would Hurt Working People

[eridani]

http://readersupportednews.org/opinion2/277-75/32080-focus-joseph-stiglitz-raising-interest-rates-would-hurt-working-people

As central bank governors, Federal Reserve officials, economists and reporters convene for the annual economic policy retreat in Jackson Hole, Wyo., this weekend, the question on everyone's mind is: Will the Fed raise interest rates come September?

The answer should clearly be "no." The preponderance of economic data indicates that the predictable costs of premature tightening — slower job and wage growth — far outweigh the risk of accelerating inflation.

Six years into a lackluster U.S. expansion, price growth for personal consumption expenditures — excluding food and energy — has averaged less than 1.5% annually in the recovery, well below the Fed's unofficial 2% inflation target. It slowed to 1.3% so far in 2015.

Global economic forces are poised to drive inflation still lower. Last week, oil prices fell to $42, a low not seen since February 2009. Europe's growth remains anemic and is likely to remain so: The IMF forecast for 2015 is just 1.5%. And while it is difficult to piece together a precise picture of what is happening in China, most experts see growth slowing markedly, with effects in other emerging markets.

With a weaker euro and yuan, our exports will decrease and our imports increase. Together, this will put pressure on domestic businesses and the job market, which is hardly robust.

[JDPriestly]

1. Stiglitz is right in my opinom.

The low interest rates are as he suggests an indication that the recovery in our economy is not just slow but very uncertain.

A downside to the low interest rates is that they encourage people whose wages are too low to permit them to live well, maybe even decently, in our country, to borrow and spend rather than to save and spend. As long as interest rates remain low, the debt is not onerous, not too great a burden for families. But if the interest rates edge up, watch out for families that are over-leveraged.

The low interest rates also encourage people who have savings (seniors for example) more money than they need for their daily living costs to invest in the stock market. That pushes the stock market up and gives the "investors," the small investors who are taking big risks with relatively little money (that is a lot of money to them) the false impression that they are making money. The truth is that as soon as interest rates go up, the stock market could go down.

The real problem is the disparity in wealth and pay.

And our trade policy is making that disparity worse.

From the article cited in the OP.

Global economic forces are poised to drive inflation still lower. Last week, oil prices fell to $42, a low not seen since February 2009. Europe's growth remains anemic and is likely to remain so: The IMF forecast for 2015 is just 1.5%. And while it is difficult to piece together a precise picture of what is happening in China, most experts see growth slowing markedly, with effects in other emerging markets.

With a weaker euro and yuan, our exports will decrease and our imports increase. Together, this will put pressure on domestic businesses and the job market, which is hardly robust.

Despite a headline unemployment rate of 5.3%, the true labor market situation faced by working families in the United States remains dire. Millions remain trapped in disguised unemployment and part-time employment. As of July, the nation faced a jobs gap of 3.3 million — the number needed to reach pre-recession employment levels while also absorbing the people who entered the potential labor force. The true unemployment rate, including those working part time involuntarily and marginally attached, is more than 10.4%.

Poor labor market conditions are also reflected in wages and incomes. So far this year, wages for production non-supervisory workers, which tracks closely to the median wage, fell by 0.5%. Median household income — a better indicator of how well the economy is doing as seen by the typical American than GDP — at last measure was lower than it was a quarter-century ago.

http://readersupportednews.org/opinion2/277-75/32080-focus-joseph-stiglitz-raising-interest-rates-would-hurt-working-people

The article is great, but Stiglitz, in my humble opinion (and I am not an economist) does not offer insight in how to deal with the basic problem in our economy, the disparity in wealth.

That disparity has been aggravated by our trade agreements. How does Mr. Stiglitz propose to deal with the effect that he seems to recognize of the downward spiral of wages and the lack of competitiveness of American goods in failing foreign markets?

The article is good, but as I read it, it offers no real solutions to the problems it so eloquently describes.

I would like to see what Stiglitz says about Bernie Sanders' proposal for a lot of government investment in infrastructure here at home.

I would also like to know what Stiglitz says about our trade deficit and how we can become more competitive in the world while still maintaining a decent living standard at home. Can that even be done or is it really better to focus on our own economy and limit our involvement in the world economy to what is really required?

I would love to know what Stiglitz thinks about this:

http://readersupportednews.org/opinion2/277-75/32080-focus-joseph-stiglitz-raising-interest-rates-would-hurt-working-people

I would also love to know in general what he thinks about the impact that the BRIC nations and their apparent cooperation on economic issues will have on the US and on the world economy.

That article is very interesting to me as one who thinks about these things a lot but does not have training in economics.

Thanks for posting.

[Enthusiast]

2. I trust the judgment of Stiglitz over the asshole thieves any day.

[TheFarseer]

3. and low interest rates hurt retired people

They can't invest in CD s or bonds because they can't make enough $ so they have to invest in the stock market or just try to make it mostly on social security. Not just retired people though are getting sucked into the stock market because of low rates. I'm just saying interest rates are a two edged sword.

Aw hell someone above already made that point!

[pscot]

4. That has never stopped them before

Got to fight inflation, dontcha know.

[jtuck004]

5. Artificially keeping them low has helped the bank$ters and other rentiers widen the

inequality gap tremendously.

It hurts to leave it as it is, hurts to raise it. Although at least the letting it find it's own level doesn't seem so much like you are purposely screwing the American people to benefit your favorite donors and keep the wealthy healthy, so one can pretend to the other 3/4 of the population that the economy is their friend.

The deck is stacked against the worker by people who are profiting from, but not doing any of the work wherever those interest rates are.

[eridani]

6. Krugman also agrees

http://krugman.blogs.nytimes.com/2015/08/29/artificial-unintelligence/?_r=0

And how would you know if the Fed is setting rates too low? Here’s where Hicks meets Wicksell: rates are too low if the economy is overheating and inflation is accelerating. Not exactly what we’ve seen in the era of zero rates and QE:

OK, there are arguments that the Fed should be willing to abandon its inflation target so as to discourage bubbles. I think those arguments are wrong — but in any case they have nothing to do with the notion that current rates are somehow artificial, that we should let rates be determined by “supply and demand”.

The worrying thing is that, as I’ve suggested, crude misunderstandings along these lines are widespread even among people who imagine themselves well-informed and sophisticated. Eighty years of hard economic thinking, and seven years of overwhelming confirmation of that hard thinking, have made no dent in their worldview. Awesome.

[mother earth]

7. Stiglitz, as usual, is right. K & R

[rusty fender]

8. and hurts working people who are trying to save

with zero interest rates there is no place for small income investors to put their money, i.e., CDs, savings accts., etc.

[eridani]

9. That's precisely where I have my money

In a credit union, so the returns are better than usual--0.5%. An economy that works better for current wage earners ultimately works better for retirees as well.