Tags: Stiglitz | Cutting | Taxes | Wont | Help | Recovery

Stiglitz: Tax Cuts Won't Revive Economy, Investment Will

Wednesday, 13 Oct 2010 12:42 PM

Nobel Prize-winning economist Joseph Stiglitz says the United States shouldn’t cut taxes to spark economic growth but instead should stimulate investment.

Stiglitz told CNBC that the first round of the stimulus did work for the U.S. economy and that without it unemployment would have peaked at 12 percent or even 13 percent.

The government underestimated the severity of the downturn and didn’t design the stimulus as well as it should have, he told CNBC. "Before the crisis we were very profligate, we consumed. The question is not spending, but how you spend," Stiglitz said.

"If we spend it on investment … we will grow today and we will grow in the future," he said.

If the economy continues to remain weak, the United States will be "wasting human capital" because a lot of people will be long-term unemployed, he said.

Earlier this month, he accused the Federal Reserve and the European Central Bank of throwing the world into "chaos" with their money printing.

"The irony is that the Fed is creating all this liquidity with the hope that it will revive the American economy," Stiglitz told Reuters. "It's doing nothing for the American economy, but it's causing chaos over the rest of the world. It's a very strange policy that they are pursuing."

Stiglitz also recently said the Fed’s policy of cutting interest rates to a record low has had repercussions worldwide, including currency misalignments and the risk of asset price bubbles.

“Fed policy was supposed to reignite the American economy, but it’s not doing that,” Stiglitz, a professor at Columbia University in New York since 2001, said in a Bloomberg Television interview.

“The worry is that the flood of liquidity is going to cause what is sometimes being referred to as an emerging-market bubble,” Stiglitz said. “Money is going in, and the worry is it will cause a real-estate bubble in one developing country or another.”

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Nobel Prize-winning economist Joseph Stiglitz says the United States shouldn t cut taxes to spark economic growth but instead should stimulate investment. Stiglitz told CNBC that the first round of the stimulus did work for the U.S. economy and that without it unemployment...
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