GEORGE A. AKERLOF Koshland Professor of Economics 2001 Nobel Laureate in Economics author of "Near Rational Wage and Price Setting and the Optimal Rates of Inflation and Unemployment" From his interview with the German magazine Der Spiegel
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. 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 re-distributive 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 correct. 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. 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. 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 resource. 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.
WHAT CAN ANYONE SAY THAT THIS NOBEL LAUREATE HAS NOT. "the WORST government the US has ever had."