Both China and EU austerity measures are to blame for the slowdown in the global economy, says Nobel laureate Joseph Stiglitz. At Davos, he called for investing in human capital and stopping looking back at GDP growth

Nobel Prize winner in economics Joseph Stiglitz (Photo: Reuters/Pixstream)

“Austerity measures in Europe, which have also affected the United States on a smaller scale, have been a major factor in the weakening of the global economy,” Joseph Stiglitz, an American economist, Nobel Prize winner and consistent critic of spending cuts, said at the Davos Forum on Thursday. “The main problem of the modern economy is the lack of aggregate demand, weak demand around the world.” Together with Irish Prime Minister Enda Kenny and Brazilian Finance Minister Nelson Henrique Barbosa-Filho, he participated in the session “How to reboot the world economy.”

The slowdown in economic growth in China, which showed the lowest GDP growth in a quarter century, of course, also affected the modest results of the global economy. “China has been the main driver of global economic growth over the past 15 years, especially the last seven years, primarily due to high demand for natural resources. It was obvious that this could not last long, but markets are always short-sighted in such matters,” the economist said.

The discussion on the topic of “rebooting the global economy” did not start at the beginning, but the session participants returned to it at the end: in response to a question from the audience, Suzanne Lynch from the Irish Times asked the American economist to comment on the success of the Irish economy, which managed to emerge from the crisis with the help of the austerity measures he criticized. cost reduction. In response, Stiglitz noted that it is too early for the Irish authorities to talk about “victory” over the crisis, and savings measures, even if they worked, by 2018 will actually throw the economy back to the level of 2008.

Irish Prime Minister Enda Kenny, in turn, noted that the 2013 “fiscal pact” on increasing financial discipline in the eurozone was approved by a majority in a national referendum. He added that the country's authorities are taking measures to protect the economy from future external economic threats by investing in human capital, science and innovation. As an example, he and Stiglitz cited Switzerland, which does not have large mineral reserves, but relies on the potential of its citizens for its development.

Stiglitz also announced that the key problems of modern economies are the growing level of inequality and the impossibility of self-reforming market structures. The session participants did not argue with these theses, agreeing that the government should take an active part in the process of transition to new economic conditions, controlling the direction of business development.

“Someone wins, someone loses, but the increase in spending of the former is not comparable with the scale of saving of the latter,” Stiglitz emphasized. This situation leads to stagnation, which, against the backdrop of stringent cost-cutting programs, slows down economic development.

In this regard, panelists discussed the shortcomings of GDP as a key way of assessing the state of the economy. “GDP is a bad indicator of economic development, a bad indicator of well-being, and it is important to understand that the use of such indicators affects decisions: if you measure the wrong thing, you can do the wrong thing,” the economist emphasized.

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Stiglitz recalled that Bhutan uses the concept of “gross national happiness,” which includes not only financial indicators, but also an assessment of the psychological state of the nation: “What good is GDP if the planet is so polluted that our lives are in danger?”

Joseph Stiglitz called for GDP not to be considered an indicator of development