2024-01-14 13:02:52
Joseph Stiglitz, winner of the Nobel Prize in Economics in 2001, during the 48th edition of the Cernobbio Economic Forum, Italy (2022) / Pier Marco Tacca-Getty Images
Photo: Getty Images – Pier Marco Tacca
If there is one event that can be dominant in 2024, it will almost certainly be the US presidential election. Unless something unexpected arises, it is very likely that we will see a new contest between Joe Biden and Donald Trump, with a dangerously uncertain outcome . With a year to go, polls in key swing states give Trump a lead.
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The election will be important not only for the US, but for the world. The outcome may depend on the economic outlook for 2024, which in turn will depend, in part, on how the latest conflagration in the Middle East evolves. My best guess (and worst nightmare) is that Israel continues to ignore international calls for a ceasefire in Gaza, where 2.3 million Palestinians have lived in distress for decades. What I saw in the late 1990s as the World Bank’s chief economist was disheartening, and the situation has only gotten worse since Israel and Egypt imposed a total blockade 16 years ago in response to Hamas’s takeover of the enclave.
Beyond the atrocities perpetrated by Hamas on October 7, the Arab street will not tolerate the brutality suffered in Gaza. In this context, it is difficult to see how we can avoid a repeat of 1973, when the Arab states of OPEC organized an oil embargo once morest the countries that supported Israel in the Yom Kippur War. This retaliatory measure would actually not be costly to Middle East oil producers, because the increase in prices would offset the reduction in supplies. Not surprisingly, the World Bank, among others, has already warned that oil prices might rise to $150 a barrel or more. That would unleash another supply-driven inflation, just as post-pandemic inflation is coming under control.
In this scenario, Biden will inevitably be held responsible for higher prices and accused of mishandling the situation. It will matter little that the conflict was reignited by the Trump administration’s Abraham Accords and Israel’s lurch toward a de facto one-state solution. Regardless of whether it is fair or not, regional unrest might tip the balance in Trump’s favor. A highly polarized electorate and mountains of misinformation might hand the world an incompetent liar who is willing to eliminate America’s democratic institutions and welcome authoritarian leaders like Russian President Vladimir Putin and Hungarian Prime Minister Viktor Orbán.
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The best we can hope for with a Trump return may be political gridlock, but only if Congress remains, in part, under Democratic control. On a global scale, however, international agreements and the very idea of an international rule of law will become worn-out forces, as Trump impulsively withdraws the United States from agreements and institutions that he does not like.
The tragedy is that Biden has been an extraordinarily successful president. He has handled the situation in Ukraine better than perhaps anyone else would have. He has set the United States on a new economic course with a major infrastructure bill, the CHIPS Act and the Science and Inflation Reduction Act (IRA), which provides funding for the green transition. . And since the beginning of 2023, he has had to deal with a House of Representatives controlled by Republicans who have proven themselves unfit to govern, and uninterested in trying.
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To the extent that the Republican Party has a political agenda, it is not what Americans want. Most voters oppose regressive taxation and anti-labor policies (which contribute to inequality), attacks on universities and science (which will undermine future growth), and atavistic rollbacks of women’s rights. Still, Republicans have been very successful in tilting the electoral battlefield in their favor and painting Biden as too old.
Likewise, some renegade Democrats have openly echoed Republicans in embracing the idea that inflation was caused by the Biden administration’s spending on pandemic recovery. But that spending was implemented in the face of deep uncertainty, before the magnitude and scope of the pandemic crisis were known. The new administration was wise to choose to do too much and not too little, and Biden ultimately offered a dose of stimulus that came considerably close to what was needed. Careful analysis of the data shows that post-pandemic inflation was not caused primarily by excessive aggregate demand, but by supply shortages and shifts in demand caused by the pandemic (and exacerbated by Russia’s invasion of Ukraine in February 2022).
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Those of us who defended this position suggested that inflation would be contained and then begin to decline (although no one might predict exactly when). That’s what happened. Unfortunately, central banks misidentified the cause of inflation as excessive demand and did everything they might to dampen it. That involved raising interest rates fast and furious.
Still, the United States is lucky, since two mistakes will compensate each other. While fiscal policy is on track to be more robust than anticipated—the IRA is now projected to increase spending three times as much as expected—the U.S. Federal Reserve’s overtightening of monetary policy has offset that effect to produce a soft landing. That outcome alone would have substantially improved Biden’s prospects, had he not had to deal with the turmoil in the Middle East.
Looking ahead, America’s energy independence means that high oil prices essentially serve to redistribute income from consumers to oil producers. True, this regressive outcome might be reversed with a well-designed windfall tax. Even if Biden fails to get such a bill through Congress, defending it strongly might help politically. Consumers would know that he is fighting for them and taking on the oil companies and the Republicans whose campaigns they finance. But I fear Biden will balk at this option, as he did with windfall tax proposals during the pandemic.
The rest of the world is not so lucky. In Europe, where weaker fiscal policies have failed to offset contractionary monetary policy, higher energy prices will be devastating. There are also serious questions regarding China’s ability to overcome the growing problems in its real estate sector or the impact of the new cold war on its exports; especially now that his own government is tightening control over the private sector. And across the Global South, many countries have excessive debts that might become unsustainable with a global slowdown, especially if combined with high interest rates and higher oil and food prices.
Before the Gaza conflagration, I expected a soft landing in the United States, but tougher times in the rest of the world. Today, I anticipate hardship everywhere, with a greater chance of Trump returning to the White House. The world is perhaps entering its most dangerous period since the 1930s.
* Joseph E. Stiglitz is a university professor at Columbia University and co-chair of the Independent Commission for the Reform of International Corporate Taxation.
: Project Syndicate, 2023. www.project-syndicate.org
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