Financial Institutions in the United States are no longer practicing capitalism when they pay big bonuses for good performance yet pass losses onto shareholders, says Nobel laureate Joseph Stiglitz.
“In old-style 19th Century capitalism, I owned my company, I made a mistake, I bore the consequences,” Stiglitz says.
“Today, (at) most of the big companies you have managers who, when things go well, walk off with a lot of money. When things go bad the shareholders bear the costs,” he told CNBC.
Socializing the loss but walking away with the gains is not capitalism, Stiglitz says.
Furthermore, the Obama administration is not doing enough to get the economy growing fast enough to really make a dent in unemployment rates.
The government's stimulus plan has made things better than they were a year earlier, Stiglitz tells NPR, but existing stimulus money is bailing out banks and not creating jobs, contrary to what Treasury Secretary Timothy Geithner has said.
“The government has rushed to save institutions it should have let sink and it has let individuals sink instead of coming to their rescue,” says Stiglitz.
“The fact is that even the growth that (Geithner) is talking about is not sufficient to really create the jobs the economy needs. Unless the economy is growing between 3 percent and 3.5 percent, it's not growing enough to create the jobs.”
Stiglitz adds the U.S. needs a new economic stimulus plan ready to be put into place beyond last year's $789 billion package.
Some economists have said stimulus packages will lead to inflation, while others say it's too early to jerk stimulus money out of the economy.
International Monetary Fund Managing Director Dominique Strauss-Kahn said recently governments around the world should keep stimulus programs in play, pointing out that private-sector demand is still weak to make up for a withdrawal in government intervention in the economy.
“If you exit too early (from the stimulus steps), then you'll have the risk of going back into recession,” says Strauss-Kahn, according to Dow Jones Newswires.
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