Nobel Economist Stiglitz: America Being Devoured by 'Parasites'

Wednesday, 25 Apr 2012 07:29 AM

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Nonperforming sectors of the economy and social ills are eating away at U.S. growth and recovery like parasites, says Nobel economist Joseph Stiglitz.

The country is undergoing a "very difficult" transition from running a manufacturing economy to a service economy, and the transition hasn't gone smoothly.

"My concern is that we have set in motion an adverse economics and an adverse politics. A lot of American inequality is caused by rent-seeking: Monopolies, military spending, procurement, extractive industries, drugs," Stiglitz tells The European.

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"We have some economic sectors that are very good, but we also have a lot of parasites. The hopeful view is that the economy can grow if we rid ourselves of the parasites and focus on the productive sectors. But in any disease there is always the risk that the parasites will devour the healthy body parts. The jury is still out on that."

Some noted market watchers point that monetary policy is creating problems, including Mohamed El-Erian, CEO of Pimco, which runs the world's largest bond fund.

The Federal Reserve and other central banks have flooded the global economy with liquidity to spur economic recovery.

Stock prices have risen amid such policy, which has made the rich even richer and widened income gaps worldwide.

"The unusual activism of central banks may, at the margin, have worsened further wealth distribution," El-Erian said in a speech at the St. Louis Fed, Business Week reports.

"To the extent that such policy activism succeeds in bolstering asset values, but not the real economy, the rich benefit disproportionately."

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