The Nobel Prize in Economics Joseph Stiglitz last Monday slammed interest rate hikes in the US and the eurozone, saying they would exacerbate the recession and not affect inflation, which he said was due to supply shortages and problems.
“The central banks’ response will create a deeper recession than necessary, and that is a mistake,” said the American economist in Vienna, where he was attending a seminar on the economic situation in Europe.
The 2001 Nobel laureate in economics argued that inflation is being caused by excess demand following a crisis in supply chains due to COVID-19, a situation exacerbated by the Russian invasion of Ukraine.
“The world may be on the verge of a major recession and high inflation, and usually these two factors are on opposite sides: when the economy is weak there is deflation and when the economy is strong there is inflation,” he said.
The response of the Federal Reserve and the European Central Bank made the recession worse, comparing these policies to the bloodletting practiced by medieval doctors on patients, which not only failed to help the patient but sometimes ended his life.
“Sometimes the cure is worse than the disease,” he said of rate hikes exacerbating the recession and lower prices, only causing serious damage to economic activity.
Stiglitz: Intervention in energy prices in Europe
On the other hand, Stiglitz said that many of the European Union’s energy problems are “self-inflicted” due to an unregulated energy market that does not produce enough of its own energy, particularly in the renewable energy sector.
He also called for greater intervention in the market so that consumers don’t foot the bill for the war in Ukraine.
“My biggest concern is that Europe and the US have not understood that we are at war. In times of war, the market still exists, but it needs to be more regulated. By not understanding or understanding that we are at war, Europe will make people suffer a lot more,” he said.
The American economist also defended a reform of the EU’s energy market, in which the price of electricity is linked to the highest production costs generated with gas in recent months.
With information from EFE