While many in Washington agree that government spending needs to be cut, Nobel laureate economist Joseph Stiglitz begs to differ. The country needs more fiscal stimulus, he tells CNBC. The government just needs to change how the money is spent.
"The real problem is the way we're spending money not the amount we're spending," the Columbia University professor says.
"What we really need to do is actually increase our spending on investments … and cut back our spending on weapons that don't work against enemies that don't exist."
Stiglitz is a firm believer in fabled economist John Maynard Keynes’ view that the government should stimulate the economy to help it emerge from crisis.
"Anybody who says that [Keynesianism is dead] doesn't understand economics," Stiglitz says. The economy must be stimulated when there is excess capacity, but "over the long run, you have to have fiscal order."
Fiscal stimulus would be more effective than the Federal Reserve’s quantitative easing, especially because the 2 percent payroll tax cut will stop in December and thus disposable personal income will decrease, Stiglitz says.
Given that more fiscal stimulus is probably off the table politically, the Fed’s easing is important, counters former White House chief economist Christina Romer.
“The economy needs as much monetary help as possible given the deficiency in demand and the impediments to more short-run fiscal expansion,” she said in a speech reported by Bloomberg.
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