Sunday, April 10, 2011

Joseph Stiglitz on the failed risk analysis connection between the nuclear & global credit default swap meltdowns; wasteful military spending

In an interview, "Assault on Social Spending, Pro-Rich Tax Cuts Turning U.S. into Nation "Of the 1 Percent, by the 1 Percent, for the 1 Percent," with Democracy Now!, Joseph Stiglitz discusses the failed risk analysis connection between the Fukushima and credit default swap meltdowns.

The Nobel economist speaks of exorbitant, unaccounted for nuclear energy costs to the public via taxpayer subsidization and disaster clean-ups, adding that such corporate subsidization is "money stolen from the public."

Still on the subject of inefficient, wasteful government policies, Stiglitz discusses irrational, out-of-control military spending: "We are spending literally hundreds of billions of dollars for weapons that don’t work against enemies that don’t exist. The Cold War ended more than 20 years ago. And yet, if you look at our military, nobody seems to have told it that."
JUAN GONZALEZ: I wanted to ask you about another—something that you’ve written about: the connection, in terms of risk analysis, between the nuclear crisis in Japan and the meltdown of the reactors there and the credit default swaps. And I would even throw in perhaps the BP blowout, which was another example of a risk analysis that said it could never happen.

JOSEPH STIGLITZ: Yeah. Well, I just wrote an interesting article making a comparison between our ability to judge what are called small probability events, you know, rare—events that are supposed to be rare—those in the financial market said that the kind of collapse that we had should happen once in a thousand years, once in the history of the universe. But we had a collapse in the 1980s, we had a problem in the 1990s, we have them every 10 years. And that shows the models are very bad, our ability to judge rare events is very bad. Now, a lot of research in behavioral economics and psychology have explained why it is that these events that don’t happen very much, we don’t have a lot of experience.

But one of the points that I raised was that these people have an incentive not to see things accurately. You know, the nuclear power industry has an incentive to tell everybody, "Oh, don’t worry. Nothing—no risk there." The financial sector had an incentive to say, "Don’t worry about these derivatives, even if they’re already a quadrillion dollars. Don’t worry, because we can manage that risk. We have systems of diversifying the risk across the economy." Clearly wrong. So, you know, when there’s so much money at stake, people have a way of seeing—of discounting these risks, especially because those risks are borne by everybody else in our society.

And, you know, nuclear power is a really interesting case, because that industry has never been commercially viable. It has always existed on the back of a government-provided insurance, that we provide as taxpayers, that they don’t pay for. And we see now in Japan that, you know, they did the same thing, and we see the cost of that. The rest of society is paying an enormous price. There is no way that the slight savings in energy cost can make up for the loss to the Japanese economy that has resulted from the nuclear explosion. And the same thing could happen here in the United States.

AMY GOODMAN: I loved seeing on Meet the Press right after the tsunami and the earthquake and the terrible tragedy in Japan, they had on the head of the Nuclear Energy Institute, so, you know, they represent the nuclear industry, and the host of the show saying, "Thank you so much for running in at the last minute to be here with us." And I could only think about—I mean, here he is speaking to save the butts of the nuclear industry in this country and saying there’s nothing to worry about here, as we’re saying this—well, what is looking like a partial meltdown or more.

JOSEPH STIGLITZ: If the industry really believed it, let them make an unlimited liability and provide us with a guarantee that they would pick up for the financial cost of the kind of disaster that Japan is facing. And I can tell you that if you made them bear those costs, if we didn’t give them that free ride of limited liability, that industry would not exist in the United States today...

AMY GOODMAN: Joe Stiglitz...let’s end on the issue of war. You wrote with Linda Bilmes the book The Three Trillion Dollar War: The True Cost of the Iraq Conflict. That’s not talking about Afghanistan, what, $2 billion a week, the longest ongoing conflict in U.S. history. What about the cost of this?

JOSEPH STIGLITZ: It’s enormous. And since we wrote that book, we did—new numbers came in, and things are worse than we said. The disability rates are higher. The cost of caring for the disabled are higher. Almost one out of two people coming back from Iraq and Afghanistan are disabled. This is an unfunded liability of—we calculate now to be almost a trillion dollars, over $900 billion. So, one of the big ways of reducing our deficit is a—is cut back some expenditures.

I believe we could have more security with much less spending. We are spending literally hundreds of billions of dollars for weapons that don’t work against enemies that don’t exist. The Cold War ended more than 20 years ago. And yet, if you look at our military, nobody seems to have told it that.

Another way of thinking about it, we spend more money now than all the rest of the countries of the world, or almost as much as all the rest of the countries put together.

And yet, when you have a case where you might arguably want some use of it—you know, to protect people who are being killed—we say we can’t do it, even in a small country of a few million people. We say, "Oh, no. Our military can’t do anything." So we’ve been spending all this money and getting actually very little security for it. So my own feeling is that we could reduce our money, our expenditures markedly—particularly, get out of Afghanistan—and improve our security.

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