Stephen Dover, chief market strategist and head of Franklin Templeton Investment Institute, interviewed Joseph E. Stiglitz, Nobel prize economist and professor at Columbia University, on June 29, 2021.
KEY TAKEAWAYS FROM THE INTERVIEW
- Post-2008, the extremely loose monetary policy and high levels of deficit spending sparked concerns over the long-term impact that excessive debt-to-GDP ratios could have on economic growth, and the threat of potentially excessive inflation. While this is certainly something to be monitored, some inflation may be positive for the economy, and we may need to accept additional deficit spending to get there.
- According to Stiglitz, we need interest rates to rise somewhat so that we have a more accurate cost of capital. Capital allocation needs pricing, and pricing gets totally distorted when you get down to zero interest rates. It would be healthier for the economy over the long run if we returned to a world with more normal interest rates.
- According to Stiglitz, we would have better economic performance overall, a better return on capital, if we had a better balance between the private sector and the public sector. And that includes a better balance in investments in infrastructure. There’s a strong complementary relationship between private and public investment; they’re not substitutes. They each have a role in our society.
- If we want companies to make sustainable decisions, they need to be aware of the consequences of those decisions. Right now, they don’t get any signals. And that’s where a carbon tax could play a very important role.
WHAT ARE THE RISKS?
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