This interview with Joe Stiglitz orginally aired on March 31, 2008 after Hank Paulson floated his proposal for sweeping reforms of our regualatory environment with the Fed taking a key role.
What brought this to mind is the spin that we saw in the financial media today based on remarks made by Paul Volcker. The financial powers are promoting the Fed as the regulator of choice, largely we think as a reaction to some proposals the Democrats are working on in Congress to reform our regulatory environment.
The Fed is a private bank. It must remain 'independent' of the administration and the Federal government to some degree. It maintains an opaque privacy to a fault, not subject to audits or closer scrutiny by Congress and the OMB.
Self-regulation is the last resort of miscreants caught in the act.
DOBBS: The Bush administration today, as we have reported, called for what some say is the most sweeping overhaul of Wall Street regulations since the stock market crash of 1929. And Treasury Secretary Henry Paulson today said this new proposal isn't a response to the circumstances of the day. It's much more high blown than that.
Joseph Stiglitz is Nobel Prize winning economist, former chief economist at the World Bank, also, the coauthor of the new book, "Three Trillion Dollar War: The True Cost of the Iraq Conflict," and also professor of economics at Columbia University just to keep busy.
Good to have you with us.
JOSEPH STIGLITZ: Makes me work.
DOBBS: Let's start with this proposal. I -- I have to tell you, I'm just shaking my head as I think about Henry Paulson, the treasury secretary, saying it's neither accurate nor fair to suggest that this is a failure of regulation, what's happening with our credit markets.
STIGLITZ: He's wrong. It is a failure of regulation. In fact, one of the ironies of this whole discussion is they want to give more power to the Fed. The Fed, which flooded the market with liquidity, which did not put in regulations until after the crisis, In fact, closing the barn door after the horse is out. And now to reward them for their excellent job, they want to give them more power.
DOBBS: Is -- the arrogance and the incompetence of this administration. I have seen incompetent administrations, of course, before in various quarters, but it's so pervasive in this one.
But when talking about regulation, the idea that first of all this administration after of its nonsense about free markets unfettered and free trade, irrespective of cost, to be coming back to even talking about regulation, there is -- the lack of intellectual honesty here is just, to me, horrific.
STIGLITZ: Well, one aspect that I -- they bailed out Bear Stearns.
DOBBS: Right.
STIGLITZ: So you know, if you believe in free and unfettered markets, why not let it just collapse? Well, good reason. The good reason is that it might have led -- led to the collapse of the whole financial market.
But that's why you have regulation. You just don't build better hospitals. You try to stop the diseases before they lead you to be in the hospital.
DOBBS: There are so many, I guess, pandemics at large right now, whether it is in terms -- in terms of economic policy, foreign policy, domestic policy, as a result of this administration's misguided policies. But nothing more toxic, more corrosive than the war in Iraq where we've lost, as I just reported and as I report each night, more than 4,000 fatalities and almost 30,000 wounded, and more than 13,000 of them seriously.
But the economic costs, as well. It is, again, just simply tremendous, as you document in your new book, "The Three Trillion Dollar War."
STIGLITZ: It's hard to conceive...
DOBBS: Three trillion dollars.
STIGLITZ: It's hard to conceive of what that number means. But just to put a couple of examples, to put it in a frame, you know, a few years ago the administration said we have a fundamental problem with our Social Security system.
DOBBS: Right.
STIGLITZ: They wanted to scare the American people.
DOBBS: Right.
STIGLITZ: Well, in the last five years, we've created an unfunded entitlement...
DOBBS: Right.
STIGLITZ: ... for our veterans, the people who fought for us.
DOBBS: And many of whom -- whom will have to -- will require intensive care for the rest of their lives.
STIGLITZ: Yes. And we're talking about hundreds of billions of dollars.
DOBBS: Right.
STIGLITZ: This is the first war in America's history when, as we went to war we already had a deficit, the administration asked our young people to go fight, but didn't say we ought to have shared sacrifice. Instead, it gave a tax cut for the richest Americans.
DOBBS: Right.
STIGLITZ: And so every dollar of this war has been financed by borrowing; 40 percent of this has been borrowing from abroad. First time since the Revolutionary War.
DOBBS: For the first time since the Revolutionary War, as well, we have a -- we have a national debt of $9 trillion, a trade debt of $6 trillion. And that trade debt is rising faster, including the capital that we have to borrow to sustain ourselves. That -- that debt is rising faster than our national debt.
I mean, is there at any point at which we're going to come to terms with the devastating reality of our economy? Whether it's $53 trillion in unfunded liabilities or that $9 trillion national debt, a $6 trillion trade debt, and a $3 trillion war?
STIGLITZ: No. But the war is in one sense at the core of the problem we're facing today, because it's the one thing that is a single, you know, the single biggest piece.
Over $1 trillion of the amount of the increase in the debt, national debt, in the last five years, going forward, is due to the war alone. By 2017, the war, itself, will be responsible for over $2 trillion of the national debt.
DOBBS: And we don't have an election until November, I might point out. Joseph Stiglitz, it's always good to have you here.
STIGLITZ: Nice to be here.
DOBBS: Thanks.
The book is "The Three Trillion Dollar War."
CNN Transcript of the Lou Dobbs Show with Joseph Stiglitz
