Stiglitz: Budget plan a 'near suicide pact'

By Charles Riley, staff reporter


NEW YORK (CNNMoney) -- Nobel economics laureate Joseph Stiglitz issued a harsh indictment of the Bowles-Simpson deficit reduction proposal Monday, arguing the plan would slow economic growth and lead to a weaker America.

If enacted, the plan would be "counterproductive" and "constitute a near-suicide pact," Stiglitz wrote in an op-ed published in Politico.

Just what does Stiglitz object to?

The plan put out in December by President Obama's debt commission, headed by Erskine Bowles and Alan Simpson, would cut defense and domestic discretionary spending, end most tax breaks while lowering rates and reduce health care spending.

It would make Social Security solvent by raising the retirement age, lowering benefits on the upper end and raising taxes. It would also increase the gas tax.

But Stiglitz has his own plan. "Deficit reduction is important," Stiglitz writes. "But it is a means to an end -- not an end in itself."

Stiglitz would instead ramp up investments in public-sector projects as a way to kickstart growth and reduce the deficit.

"Years of underinvestment in the public sector -- in infrastructure, education and technology -- mean that there are ample high-return opportunities," he said.

And reforming the tax system would be an equitable way to increase revenue and close the budget deficit, Stiglitz said.

"With a quarter of all U.S. income going to the upper 1%, and America's middle class actually facing lower incomes than a decade ago, there is only one way to raise more taxes: Tax the top," he writes.

Policy makers should avoid removing middle class tax breaks on housing and health care, Stiglitz said. Even if phased in over time, the housing market would suffer, serving only to exacerbate the sector's malaise.

And the government should spend less on outdated military programs -- something Bowles-Simpson advocated. But Stiglitz wants further reductions.

"The Cold War ended more than two decades ago," Stiglitz said. "But we continue to spend tens of billions on weapons that don't work against enemies that don't exist."

In the long run, Stiglitz agrees with Bowles and Simpson that reducing health care costs will be the biggest challenge. And the Affordable Care Act won't be the ticket.

"Congress and the Obama administration have not gone far enough," Stiglitz writes, arguing that the government should more aggressively negotiate the price it pays for pharmaceuticals.

For Stiglitz, Bowles-Simpson is too much political compromise, and not enough big-picture thinking.

"We need to think about what kind of economy, and what kind of society, we want to create; and how tax and expenditure programs can help achieve those goals," he said.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,804.80 26.65 0.15%
Nasdaq 4,765.38 16.98 0.36%
S&P 500 2,070.65 9.42 0.46%
Treasuries 2.18 -0.03 -1.27%
Data as of 11:26pm ET
Company Price Change % Change
Bank of America Corp... 17.62 0.09 0.51%
Apple Inc 111.78 -0.87 -0.77%
General Electric Co 25.62 0.48 1.91%
Intel Corp 36.37 -0.65 -1.76%
Microsoft Corp 47.66 0.14 0.29%
Data as of Dec 19

Sections

New York Magazine reporter Jessica Pressler, who has been caught up in controversy this past week, will not be moving on to a new job at Bloomberg News. More

Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More

Forums in dark corners of the web sell the kinds of hacks that befell Sony. More

Unilever sued Hampton Creek over its egg-free mayonnaise spread Just Mayo. But the company behind Best Foods and Hellman's mayonnaise has now dropped the lawsuit. More

The income of the top 1% jumped significantly in 2012, far outpacing inflation. Not only did this group make a larger share of the country's income, their share of total taxes also jumped from 35% to 38%. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.