BERLIN - American Nobel Prize laureate for Economics
George A. Akerlof lashed out at the government of US President George
W. Bush, calling it the "worst ever" in American history, the online
site of the weekly Der Spiegel magazine reported Tuesday.
George A. Akerlof, 2001 Nobel prize laureate who teaches economics at the University of California in Berkeley.
"I think this is the worst government the US has ever had in its
more than 200 years of history. It has engaged in extradordinarily
irresponsible policies not only in foreign policy and economics but
also in social and environmental policy," said the 2001 Nobel Prize
laureate who teaches economics at the University of California in
"This is not normal government policy. Now is the time for
(American) people to engage in civil disobedience. I think it's time
to protest - as much as possible," the 61-year-old scholar added.
Akerlof has been recognized for his research that borrows from
sociology, psychology, anthropology and other fields to determine
economic influences and outcomes.
His areas of expertise include macro-economics, monetary policy
©2003 Islamic Republic News Agency ( IRNA)
Text of Der Spiegel interview by Matthias Streitz
SPIEGEL ONLINE: Professor Akerlof, according to recent official projections, the US federal deficit will reach $455 billion this fiscal year. That's the largest ever in dollar terms, but according to the President's budget director, it's still manageable. Do you agree?
George A. Akerlof: In the long term, a deficit of this magnitude is not manageable. We are moving into the period when, beginning around 2010, baby boomers are going to be retiring. That is going to put a severe strain on services like Medicare, Medicaid and Social Security. This is the time when we should be saving.
SPIEGEL ONLINE: So it would be necessary to run a budget surplus instead?
Akerlof: That would probably be impossible in the current situation. There's the expenditure for the war in Iraq, which I consider irresponsible. But there's also a recession and a desire to invigorate the economy through fiscal stimulus, which is quite legitimate. That's why we actually do need a deficit in the short term - but certainly not the type of deficit we have now.
SPIEGEL ONLINE: Because it's not created by investment, but to a large extent by cutting taxes?
Akerlof: A short-term tax benefit for the poor would actually be a
reasonable stimulus. Then, the money would almost certainly be spent. But
the current and future deficit is a lot less stimulatory than it could be.
Our administration is just throwing the money away. First, we should have
fiscal stimulus that is sharply aimed at the current downturn. But this
deficit continues far into the future, as the bulk of the tax cuts can be
expected to continue indefinitely. The Administration is giving us red
ink as far as the eye can see, and these permanent aspects outweigh the
short-term stimulatory effects.
SPIEGEL ONLINE: And secondly, you disagree with giving tax relief
primarily to wealthier Americans. The GOP argues that those people deserve it for working hard.
Akerlof: The rich don't need the money and are a lot less likely to spend
it - they will primarily increase their savings. Remember that wealthier
families have done extremely well in the US in the past twenty years,
whereas poorer ones have done quite badly. So the redistributive effects
of this administration's tax policy are going in the exactly wrong
direction. The worst and most indefensible of those cuts are those in
dividend taxation - this overwhelmingly helps very wealthy people.
SPIEGEL ONLINE: The President claims that dividend tax reform supports the
stock market - and helps the economy as a whole to grow.
Akerlof: That's totally unrealistic. Standard formulas from growth models
suggest that that effect will be extremely small. In fact, the
Congressional Budget Office (CBO) has come to a similar conclusion. So,
even a sympathetic treatment finds that this argument is simply not
SPIEGEL ONLINE: When campaigning for an even-larger tax cut earlier this
year, Mr. Bush promised that it would create 1.4 million jobs. Was that
Akerlof: The tax cut will have some positive impact on job creation,
although, as I mentioned, there is very little bang for the buck. There
are very negative long-term consequences. The administration, when
speaking about the budget, has unrealistically failed to take into account
a very large number of important items. As of March 2003, the CBO
estimated that the surplus for the next decade would approximately reach
one trillion dollars. But this projection assumes, among other
questionable things, that spending until 2013 is going to be constant in
real dollar terms. That has never been the case. And with the current tax
cuts, a realistic estimate would be a deficit in excess of six trillion.
SPIEGEL ONLINE: So the government's just bad at doing the correct math?
Akerlof: There is a systematic reason. The government is not really
telling the truth to the American people. Past administrations from the
time of Alexander Hamilton have on the average run responsible budgetary
policies. What we have here is a form of looting.
SPIEGEL ONLINE: If so, why's the President still popular?
Akerlof: For some reason the American people does not yet recognize the
dire consequences of our government budgets. It's my hope that voters are
going to see how irresponsible this policy is and are going to respond in
2004 and we're going to see a reversal.
SPIEGEL ONLINE: What if that doesn't happen?
Akerlof: Future generations and even people in ten years are going to face
massive public deficits and huge government debt. Then we have a choice.
We can be like a very poor country with problems of threatening
bankruptcy. Or we're going to have to cut back seriously on Medicare and
Social Security. So the money that is going overwhelmingly to the wealthy
is going to be paid by cutting services for the elderly. And people depend
on those. It's only among the richest 40 percent that you begin to get
households who have sizeable fractions of their own retirement income.
SPIEGEL ONLINE: Is there a possibility that the government, because of the
scope of current deficits, will be more reluctant to embark on a new war?
Akerlof: They would certainly have to think about debt levels, and
military expenditure is already high. But if they seriously want to lead a
war this will not be a large deterrent. You begin the war and ask for the
money later. A more likely effect of the deficits is this: If there's
another recession, we won't be able to engage in stimulatory fiscal
spending to maintain full employment. Until now, there's been a great deal
of trust in the American government. Markets knew that, if there is a
current deficit, it will be repaid. The government has wasted that
SPIEGEL ONLINE: Which, in addition, might drive up interest rates quite
Akerlof: The deficit is not going to have significant effects on
short-term interest rates. Rates are pretty low, and the Fed will manage
to keep them that way. In the mid term it could be a serious problem. When
rates rise, the massive debt it's going to bite much more.
SPIEGEL ONLINE: Why is it that the Bush family seems to specialize in
running up deficits? The second-largest federal deficit in absolute terms,
$290 billion, occurred in 1991, during the presidency of George W. Bush's
Akerlof: That may be, but Bush's father committed a great act of courage
by actually raising taxes. He wasn't always courageous, but this was his
best public service. It was the first step to getting the deficit under
control during the Clinton years. It was also a major factor in Bush's
losing the election.
SPIEGEL ONLINE: It seems that the current administration has politicised
you in an unprecedented way. During the course of this year, you have,
with other academics, signed two public declarations of protest. One
against the tax cuts, the other against waging unilateral preventive war
Akerlof: I think this is the worst government the US has ever had in its
more than 200 years of history. It has engaged in extraordinarily
irresponsible policies not only in foreign and economic but also in social
and environmental policy. This is not normal government policy. Now is the
time for people to engage in civil disobedience.
SPIEGEL ONLINE: Of what kind?
Akerlof: I don't know yet. But I think it's time to protest - as much as
SPIEGEL ONLINE: Would you consider joining Democratic administration as an
adviser, as your colleague Joseph Stiglitz did?
Akerlof: As you know my wife was in the last administration, and she did
very well. She is probably much better suited for public service. But
anything I'll be asked to do by a new administration I'd be happy to do.
SPIEGEL ONLINE: You've mentioned the term civil disobedience a minute ago.
That term was made popular by the author Henry D. Thoreau, who actually
advised people not to pay taxes as a means of resistance. You wouldn't
call for that, would you?
Akerlof: No. I think the one thing we should do is pay our taxes.
Otherwise, it'll only make matters worse.
© SPIEGEL ONLINE 2003