Up   |  February 03, 2013

Joseph Stiglitz on inequality and the recovery

Nobel Prize-winning economist Joseph Stiglitz joins Bennett College’s Julianne Malveaux, BusinessInsider.com’s Joe Weisenthal, former Bain Capital partner Edward Conard, and Up host Chris Hayes to discuss whether our modest rate of job growth is the new normal.

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This content comes from Closed Captioning that was broadcast along with this program.

>>> two starkly different reports on the state of the economic situation. wednesday, there was the gas inducing news. the economy contracted in the fourth quarter of 2012 . gdp fell by 0.02%. the negative gdp number followed relatively steady growth of 2 to 4 point percentage points over the last four years. that fourth quarter number is likely to be revised, but it sent ripples through the parties and the political class. the recovery is still very, very fragile and there are still americans of americans out of work. in his weekly address yesterday, president obama blamed the weekly economic growth on manufacturing issues in washington like the fiscal curve.

>> 2013 can be a year of solid growth, more jobs and higher wages. but that will only happen if we put a stop to self-inflicted wounds in washington.

>> fortunately the bad gdp news was balanced with more hopeful signs and the labor department 's latest jobs report on friday. employers added more jobs for january. but in november and december, the added a combined 127,000 more jobs than initially reported. with those revisions, the lowest turn around looks fairly impressive. in 2009 , the u.s. economy lost an average of 421,000 jobs a month, staggering figure. by 2012 , we were gaining an average of 181 that you say jobs a month. that's good news, of course, but is not enough to get us back to full employment anytime soon. is the modest rate of job growth we're experiencing now the new normal or is the economy finally on the cusp of reaching the escaped velocity we need of returning to levels of employment? joining news know, julia malveau, joe wisenthal, nobel prize winning economist joseph stiglitz and a pro-ferrer economy university and edward connor, author of why everything in joe stigletz's book is wrong. not really. one of the things -- let's start with this enquestion about distribution in this recovery. because i think it's a really interesting one. one of the things about the recovery is if you look ate in the aggregate, and particularly if you look at it in the aggregate and campaign it to other places digging out of financial crisis , it looks pretty good. we've rebounded than some other areas coming out of financial crisis . if you look at it in terms of how does your median worker look, it looks not that good, right? one of the ways of looking at this is corporate profits and employee compensation in the recovery. corporate profits hit a new high of 10% gdp in 2012 . that top line is profits, that bottom line is combination. and you see in the recovery them moving in opposite directions. joe , you wrote an op-ed that got a lot of attention, basically making the case that inequality, the levels of an equality, this distributional issue we had is an impediment to macroeconomic growth. a robust recovery will be difficult in the short-term and the american dream , a good life in exchange for heart work is slowly dying. politicians typically talk about rising equality and the separate phenomenon when they were intertwi intertwined. inequality restrains and holds back our growth. why do you think that's the case?

>> the most obvious reason, particularly the american economy 's consumption. and the people at the top spend on consumption a smaller fraction than those at the bottom. in fact, those at the bottom have to, to get by, spend about basically 100%. so when you move money from the bottom and the middle to the top, overall spending gets constrained. and that weakens the economy. so in the current context, as you pointed out, with wages, income going up so modestly, 93% of all the gains went to the top 1%. with that kind of recovery, not a surprise that we're not going to have robust demand and without robust demand, we're not going to have a robust recovery. why is it the case? so that the standard gdp calculation rises, government versus consumption plus investment and minus your trade deficit , right? so if it's not going to consumption and it's going into the pockets of the top 1% or whatever, why aren't we seeing that reflected in investment? in fact, we saw very good business and investment numbers in the latest economic data . where are those dollars disappearing to?

>> people invest when there's no return.

>> excess capacity , you're not going to build more excess capacity just because the fed has low interest rates. i mean, if you look at investment overall, before the crisis, about 40% of all investment was in real estate. now, that is going to be dampen dampened just because we built too many houses.

>> and we had a bust, right?

>> and we had a bust. the good news was a lot of them were showedly built and they'll fall apart and we'll have to reconstruct them.

>> thank heavens.

>> but the fact is, we overbuilt. the other part is actually not doing badly, given how weak demand is. it's not a lack of money. it's not the weaknesses in our financial system . that was one of the big mistakes obama made, but the belief was that all we needed to do was to fix the financial system and everything would go back to before 2007 . that was wrong.

>> and my sense is that you don't agree with this sort of distributional point and i want to get your thoughts on it and bring you guys in and take