Part I - 2001 Nobel Winner Akerlof's 2003 Interview
Tonight's offering, submitted for your acceptance, one George A. Akerlof, 61 years, born 1940 in New Haven, Connecticut (US citizen). PhD from MIT 1966.
Dr. Akerlof has held professorships at Indian Statistical Institute and London School of Economics. Since 1980 Goldman Professor of Economics at the University of California at Berkeley.
Co-winner of the 2001 Nobel Prize in Economic Sciences: "for analyses of markets with asymmetric information".
Eleven years ago in 2003, SPIEGEL ONLINE reached George A. Akerlof on the phone while he was vacationing in New England. Following are excerpts of the conversation.
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.... This is the time when we should be saving.
SPIEGEL ONLINE: So it would, instead, be necessary to run a budget surplus?
Akerlof: That would probably be impossible in the current situation. There's the expenditure for the war in Iraq, which I consider irresponsible.
SPIEGEL ONLINE: Because it's not created by investment (fiscal stimulus), 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. ...
Our administration is just throwing the money away.... 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 voters 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... 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.... even a sympathetic treatment finds that this argument is simply not correct.
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 reasonable?
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... 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.... 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....What we have here is a form of looting.
More to come in Part II.
Dr. Akerlof has held professorships at Indian Statistical Institute and London School of Economics. Since 1980 Goldman Professor of Economics at the University of California at Berkeley.
Co-winner of the 2001 Nobel Prize in Economic Sciences: "for analyses of markets with asymmetric information".
Eleven years ago in 2003, SPIEGEL ONLINE reached George A. Akerlof on the phone while he was vacationing in New England. Following are excerpts of the conversation.
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.... This is the time when we should be saving.
SPIEGEL ONLINE: So it would, instead, be necessary to run a budget surplus?
Akerlof: That would probably be impossible in the current situation. There's the expenditure for the war in Iraq, which I consider irresponsible.
SPIEGEL ONLINE: Because it's not created by investment (fiscal stimulus), 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. ...
Our administration is just throwing the money away.... 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 voters 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... 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.... even a sympathetic treatment finds that this argument is simply not correct.
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 reasonable?
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... 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.... 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....What we have here is a form of looting.
More to come in Part II.
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