Stiglitz slams inflation-targeting

It is “nonsense” that inflation-targeting is necessary for strong and stable growth, Nobel Prize-winning economist Joseph Stiglitz said in Johannesburg on Wednesday. And the “moral depravity” of financial institutions is partly the cause of the current global crisis.

Speaking in a packed auditorium at the University of the Witwatersrand, Stiglitz rejected the idea that the most appropriate way to cope with macroeconomic shock was through inflation-targeting.

He said he strongly opposed rigid inflation-targeting in all countries, and believed that the economic crisis was at least partly “the result of banks focusing excessively on inflation”.

For small, open economies such as Botswana, only 25% or more of the price of commodities is affected by the interest rate, “so to put all of the burden of adjustment on [it] is absurd”, he said.

“Inflation-targeting should be just one of the things that should be addressed,” said Stiglitz, arguing that other factors affecting the economy, such as growth and financial stability, should not be ignored.

He would not be drawn into discussion on whether South Africa’s inflation rate was acceptable. “There’s no single number [for inflation rates], and it really depends on the global economy,” he said, pointing out that if global food or energy prices increased, the public would have to accept a higher inflation rate.

Speaking more broadly, he said the world economy had been indelibly changed by the financial crisis. “The system where countries hold on to dollar reserves is falling apart. The dollar is no longer a good store of reserve because it is no longer stable. I think it’s a good idea for the world to move away from the dollar reserve. It’s simply a question of how soon that will happen,” he said.

For Stiglitz, the solution would be to create a new global reserve. “A global currency would be much more stable, much more diversified.”

Stiglitz said the economic crisis was the result of a “dysfunctional economic system” and financial institutions engaged in “moral depravity”. He said the crisis was a form of poetic justice and that institutions were eventually “hoist on the petard of their own greed”, unfortunately at the expense of the taxpayer

Of the United States, Stiglitz said the “green shoots” of economic recovery had not yet materialised, and that while the economy will be “somewhat helped” by the strong stimulus provided by the government, he did not expect employment to return to an acceptable level next year.

He said it was imperative for the structure of the US economy to change in order to make it more capable of addressing the deeper, more fundamental problems that the world will face in the future.

“We will eventually emerge from this crisis, but others will not go away. The climate crisis is not going to go away,” he said. The Intergovernmental Panel on Climate Change, of which Stiglitz was once the lead author, says a move to a low-carbon economy is one of the factors that can help avoid catastrophic climate change in future.

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories

Big retailers need to step up to the plate

To stave off a multi-generational malnutrition crisis, the food industry must work with government to provide highly nutritious foods at cost during the pandemic

Crime stats mark a bitter start to Women’s Month

We must celebrate women’s achievements this month while agitating for structural change, argues Luke Waltham

South Africa prioritises fossil fuels over clean energy in post-Covid-19 recovery packages

The country is among the G20 countries who have invested in electricity produced from coal, oil and gas at the cost of addressing climate change

Challenges and opportunities for telemedicine in Africa

Telemedicine in Africa is currently limited by the availability of basic infrastructure, but, considering the lack of doctors in rural areas, it is a vital component in addressing the continent’s healthcare needs

Fight the disease of corruption in the same way we fight the coronavirus

Gogo Dlamini, Themba Dlamini’s mother, died of Covid-19, but Mzanzi has a chance to rid the country of fraud and exploitation and instead serve ‘Gogo Dlamini’, the people of South Africa

This time it’s different: African economies may not survive

Amid the headwinds created by the Covid-19 pandemic, it’s time the Aloe ferox, which survives in dry, harsh conditions, is nurtured — but the options are limited

The PPE scandal that the Treasury hasn’t touched

Many government officials have been talking tough about dealing with rampant corruption in PPE procurement but the majority won't even release names of who has benefited from the R10-billion spend

ANC still at odds over how to tackle leaders facing...

The ANC’s top six has been mandated to work closely with its integrity committee to tackle claims of corruption against senior party members

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday