Joseph Stiglitz: The observation you have is what most people are experiencing. GDP is just the sum total of the output of the economy, it doesn't say how much of that is going into whose pocket. In the first three years of the recovery, 91 percent of all gains went to the top 1 percent. So the bottom 99 percent saw nothing. Many were actually becoming worse off: Their balance sheet had been destroyed, their major asset has been their home and the value of their home had gone down anywhere from 20 to 50 percent. Then came QE, and it created a stock-market but the average American has very little in the stock market. Overall ownership of stocks, is much more concentrated than the concentration of wealth itself, so QE was basically a gift to the 1 percent.
The people at the bottom are not doing very well, and wealth inequality, in that sense, has gotten worse. There are so many of these dimensions where the statistics that the Federal Reserve and the administration don't connect with the lives of ordinary Americans.
White: Do you think any of the groundwork has been laid to reduce that inequality going forward?
Stiglitz: We're in a little bit of better place, but not a lot better. It's obviously better to have 5 percent unemployment than 10 percent unemployment. And there's been the beginning of a housing recovery that has helped restore some of the wealth of ordinary Americans. But the damage that has been done is very deep and has persistent effects. The labor force participation rate of people in their 40s, 50s, is still lower than it's been in decades. People who lost their jobs in 2008, didn't get jobs in 2009, ‘10, ‘11, maybe aren't likely to get a job ever. If they do, it's not going to be anywhere near as good as their old job. There are many people for whom they lost their job at 50 or 55 and are unlikely to ever work again. The scar is permanent.
Another aspect of what I would say is the imperfect recovery, is that the marginalized groups remain marginalized. And while they've benefitted, the levels of unemployment are still very very high.
White: You were a vocal Janet Yellen supporter for Fed chair, do you think that the rate hike was a good idea and happened at the right time? Is the Fed moving monetary policy in a direction that helps the average American right now?
Stiglitz: I think they were right. They originally said, “When we hit 6 percent that's full employment.” Now they know that 4.9 isn't full employment, there's weak labor market. They should have focused more on improving the channel of credit to make sure that money was going to small and medium-sized enterprises They should have said to the bank—like some other countries have done—if you want access to the Fed window you have to be lending to SMEs. You have to be making sure the money isn't going to land speculation, real-estate speculation, not going abroad, not going to hedge funds, and so forth. Whether Janet could have done this on her own, I don't know, but she was following the standard macroeconomics view that asks how deep is the downturn and then using the one set of instruments they have, which is lowering or raising interest rates. The interest rate is not the right issue, the real issue is making sure credit is available to expand the economy. Just using the interest rate is not going to have a first-order effect on the economy as a whole. You're encouraging people not to focus on the really critical thing.