Business Report
*Stiglitz advocates Chinese model of boosting demand* *Donwald Pressly, Business Report, Johannesburg, 8 May 2012*The austerity model chosen by Europe was the wrong model as it addressed the supply side of the economy and emerging markets like South Africa could benefit from the Chinese lesson of stimulating the demand side, Nobel prize winner for economics Joseph Stiglitz said yesterday.
Such measures included intervening in the value of the rand through various mechanisms and stimulating investment by companies by allowing tax incentives for investing.
Taxes on dividends were also a way of discouraging businesses from paying them out and, instead, investing the cash in new projects, he argued.
"Increasing taxes and spending in tandem stimulates the economy," he said, and this was the opposite of what was happening in Europe. "Growth won't come from austerity. No larger economy has ever recovered through austerity."
Addressing a media briefing in Cape Town during an Absa Capital Markets conference attended by central bankers from various African countries, Stiglitz said the EU austerity model meant that Europe had not fully recovered from the 2008/09 crisis and there was a chance of a double-dip recession this year.
There were predictions of a 0.3 percent contraction in 2012, with Greece moving from a retraction of 6.9 percent in 2011 to 7.1 percent this year. Portugal was predicted to contract by 3.9 percent in 2012, worse than the 1.6 percent fall in gross domestic product in 2011.
Pressed on whether it was appropriate for the Reserve Bank to intervene in the value of the rand, he said high exchange rates meant lower prices of imports but made it difficult to export "and more difficult for domestic (producers) to compete with imports".
There was a need to create a dynamic economy, with the help of a weaker currency.
"A more competitive exchange rate is critical. You cannot survive in terms of job creation and creating a vibrant economy."
There were a number of mechanisms to be used to reach this competitiveness. Brazil had placed various controls on capital inflows while Turkey had lowered interest rates, the opposite measure to that normally taken. "If you are selling rand and buying dollars (it) has the effect of depreciating the currency." The key issue in South Africa was high unemployment, he argued.
*From: http://www.iol.co.za/business/business-news/stiglitz-advocates-chinese-model-of-boosting-demand-1.1291151
* -- You are subscribed. This footer can help you. Please POST your comments to [email protected] or reply to this message. You can visit the group WEB SITE at http://groups.google.com/group/yclsa-eom-forum for different delivery options, pages, files and membership. To UNSUBSCRIBE, please email [email protected] . You don't have to put anything in the "Subject:" field. You don't have to put anything in the message part. All you have to do is to send an e-mail to this address (repeat): [email protected] .
<<inline: Business Report.jpg>>
