Some Observations on

The Siglitz Report

Adele Wick

[Comments prepared for discussion at a Roundtable held at the annual Council of Georgist Organizations conference, Minneapolis, Minnesota; 5 August, 2011]

As an Economics Professor at Columbia University, with both a John Bates Clark Medal and a Nobel Prize under his belt, Joseph Stiglitz has earned the attention of all professional economists and is heard by all but the most confirmed anti-Keynesians. As a former senior vice-president and chief economist of the World Bank and chair of President Clinton's Council of Economic Advisors, he has political credibility and contacts; and as an author, he has repeatedly demonstrated his ability to reach a wide audience of citizens as well as academics and politicians. He even won membership in Time's group of 100 most influential people, sharing the page of his write-up (by Gordon Brown) with Amy Poehler.

Perusal of The Stiglitz Report, commissioned by the UN to analyze the causes of the Great Recession and recommend remedies and prevention strategies, and released late in 2009, shows that Stiglitz has clearly seen the kitten. We have both the opportunity and the responsibility to make him also see the cat. The purpose of this paper is to show you four entry points the Report provides us in this regard.

Here's the first, on page 94 of the 239-page report:

Regulations affecting the direction of lending can also be used for macro-prudential reasons. While lending to the real estate sector can have a number of social benefits, it is also a common source of excessive lending and asset market bubbles. Consequently, limits to real estate-related lending, such as loan-to-value limits on mortgage lending, should be instituted. These limits should be counter-cyclical, rising in a boom and falling in a crash.

Restricting lending, e.g., to the real estate sector, may also be an important instrument in encouraging lending to other sectors. Such restrictions may enhance stability, development, and job creation.

Here is also a great opportunity for a conversation with Stiglitz about how increasing taxes on land rents (a) reduces the likelihood of both real-estate bubbles and regional, national and global recession; and (b) also reduces the size of mortgages, freeing up funds for fueling productive purposes. I'm indebted to Wyn Achenbaum for articulating this second point; to her goes the credit.

And what about Stiglitz's interest in "job creation"? Here's another opening to talk to him about shifting taxes from earned income to privileges, in this instance, the privilege of privately using natural resources that properly belong to all. Notable by its absence in this 239-page document is a discussion not just about the level of taxes but also about the kind of taxes we use to raise revenue. Nor is this distinction present in US debates about increasing taxes versus increasing spending. To Herb Barry I owe the insight that the revenue discussion should focus on the fact that all taxes are not created equal. Taxing labor discourages employment. Taxing interest discourages saving. Taxing land more heavily would allow reductions in other tax rates, encouraging investments that improve human productivity, both directly in labor skills to create human capital and by increasing and improving through invention and innovation conventional capital. Throughout the document, Stiglitz reveals a keen moral interest in income distribution and poverty. Changing taxes in a Georgist direction would be a strong first step in achieving his goals.

The following quotation from page 120 provides a second opportunity, this time to talk about the social waste of funding the purchase of an asset that by its nature redistributes rather than creates income:

In some banking systems, a large proportion of bank assets are loans to government in the form of holdings of government bonds. Banks that do so are failing to fulfill the critical social function of banks of providing credit to enterprises. This will almost inevitably impair growth and development. Governments should be encouraged to explore various mechanisms by which the banking system could be used to facilitate productive activity. One arrangement, for example, may be for the government to accept savings directly through a network of post offices to reduce the spread between the bank deposit rate and interest charged by banks for government paper and, in doing so, induce banks to look for other ways to enhance the profitability of expanding their lending to productive enterprises.

Taxing rent is more efficient and equitable than adding to the responsibilities of post offices. Done properly, it can reduce government deficits and debt creation in two ways: by raising revenue and by reducing poverty and therefore safety-net expenses. The latter is yet another winning point I owe to Wyn.

Throughout his report, Stiglitz laments tax evasion and competition amongst countries that create externalities across countries. Natural resources like location and the natural resources above and below below the surface cannot move. This is another Georgist point of which Stiglitz should and can be made aware.

Pages 187-188 provide a third instance revealing that Stiglitz shares awareness of the kitten but not the cat.

Some of the initiatives proposed encompass "solidarity levies" or, more generally, taxation for global objectives. To avert their being perceived as encroachments on participating countries' fiscal sovereignty, it has been agreed that these taxes should be nationally imposed but internationally coordinated. Some countries have already decreed solidarity levies on airline tickets, but there is a larger set of proposals.

There have also been suggestions to auction global natural resources -- such as ocean fishing rights and pollution emission permits -- for global environmental programs. Receipts from these innovative initiatives could be directed to support developing countries in meeting their development objectives, including their contribution to the supply of global public goods, as well as international organizations active in guaranteeing the provision of such goods. The existing taxes on airline tickets, for example, are being used to finance international programs to combat malaria, tuberculosis, and HIV/AIDS

The proposal of taxes that could be earmarked for global objectives has a long history. While universal participation is not indispensable, it would serve the interest of development, as more resources would be raised. Some suggestions aim at both raising funds for global objectives and mitigating negative externalities at the global level. Two suggestions deserve special attention: a carbon tax and a levy on financial transactions. Since carbon dioxide is the main contributor to global warming, a tax on its emission (or the auctioning of emission rights) can be defended on environmental efficiency grounds; it would simultaneously correct a negative externality and be a significant source of development financing. Revenues generated from the sale of emission rights in developed countries (or from the imposition of a tax in developed countries) would be transferred to developing countries, either for narrow purposes of climate change mitigation and adaptation (in fulfillment of obligations to which the developed countries have already agreed) or for broader purposes of development and poverty alleviation. The design of any tax/cap and trade system must, of course, take into account distributional impacts within countries and between countries. Some of the revenues generated would have to be devoted to ameliorating any adverse distributional impacts.

Similar mechanisms can be designed to pay for environmental services. Such schemes are already in operation locally in different areas of the world. They allow for consumers of a given public good to compensate for some of the costs borne by those producing or preserving it, and they provide incentives for the provision of the good. For instance, downstream users of water can pay those who manage the upstream forest to ensure a sustainable supply into the future. Similar instruments could pay for the provision of global environ- mental services, such as the conservation of rain forests. These forests play an important role both in protecting bio-diversity and in carbon sequestration. Payments to developing countries for providing these ecological services through maintaining their rain forests would provide incentives for them to continue to do so and, at the same time, provide substantial sums that could be used for development and poverty alleviation.

Taxes on pollution are an example of instruments that simultaneously raise revenue as they improve economic efficiency by correcting a negative externality. It is more efficient to tax bad things (like pollution) than good things (like work and savings).

Note that Stiglitz praises the solidarity of levies on airline tickets because of the noble uses to which the consequent revenues are put, while introducing the possibility of auctioning global natural resources as just a "suggestion". He focuses more on the possible uses of these income streams rather than on their source. Pace Stiglitz, it is the uses of these natural resources rather than the resources themselves that should be at issue.

But Stiglitz is very close to seeing the cat. Throughout the document, he speaks of the importance of getting incentives right, in and out of government. To mix metaphors, "thoroughly, like a salad" as Rupert Hart-Davis once put it, I note that Stiglitz also sees the [cash] cow -- a metaphor for which credit or infamy should go to Drew and Matt Harris. When Stiglitz talks about taxing bad things, he just needs to add "privilege" to "pollution". And, as already noted, he's that near-oxymoronic individual, an economist interested in equity, most notably in addressing poverty, as evidenced in this fourth entry point, on page 194:

It is essential that, as the international community works for a robust and sustainable recovery and for reforms that ensure long-term, democratic, equitable, stable, and sustainable growth, it do so with a broader respect for a wide range of ideas and perspectives. At the very least, we need to be more modest about our confidence in particular economic theories, and our policies have to be robust enough not only to withstand shocks to the economy but also to hold us in good stead if some of the premises of our theories turn out to be wrong.

It is also imperative that policies be framed within a set of goals that are commensurate with a broad view of social justice and social solidarity, paying particular attention to the wellbeing of the developing countries and the limits imposed by the environment. It would be wrong and irresponsible to seek only quick fixes for this current crisis and ignore the very real problems facing the global economy and society, including the climate crisis, the energy crisis, the growth in inequality in most countries around the world, the persistence of poverty in many places, and the deficiencies in governance and accountability, especially within international organizations. To many, the crisis is but one symptom of a deeply dysfunctional set of global arrangements. Our Report approaches the current crisis from these broader perspectives.

We Georgists approach advancing efficiency, equity and employment, and ameliorating or even eliminating poverty with ideas and perspectives to which Stiglitz and arguably the seventeen other powerful individuals comprising his committee are clearly open. We must take advantage of this opportunity to create a paradigm shift the size of which will inspire instead of intimidate them. Ours is not a patch job but a long-term and integrated fix.

Stiglitz talks about how we have become so connected across our planet that our visions and the actions they support or inspire must be "global" economically, environmentally, and ethically. No sane person can deny these points. The challenge will be getting people to feel responsible for more than their families, more than their towns, cities, states, more even than their nations. Perhaps the most valuable element of the Georgist approach is that it promotes "association in equality", a mindset key to Henry George's values and thought, and one the awareness of which I owe to Cliff Cobb. We cannot change the world, even to save the world, without introducing this ethical stance. The most important element of the Georgist tax stance may be not how it raises revenue but rather how it raises consciousness, a consciousness necessary for the survival of a small and fragile planet that can sustain human life.

We have nothing to lose and a planet to save by deepening Stiglitz's insights and strategies. We must simply make certain not to overstate our case to make our case. We must present our economics of efficiency and equity firmly, politely, and positively. Rather than playing the anger game, we must think as inclusively as the message we bear. Stiglitz is ready for new paradigms. He could make our theories and values a movement. Our cat needs not just to be let out of the bag but to be encouraged and helped out. We know what to do. Let's do it.