Governments should focus on stimulus rather than austerity in order to encourage business spending, Nobel Laureate and noted economist Joseph Stiglitz told CNBC Wednesday.
"We have to get the economy going before firms are going to invest," said Stiglitz, who is also a Columbia University professor. "There is an idea somehow that when the government cuts back, the private sector will get confidence and that will lead to more spending. The fact is that the households in America and many other places around the world are burdened by debt, and business is not going to spend as long as government and exports and consumers are not spending."
Rather than cut spending and hike taxes, said Stiglitz, the country should focus on high-return investments in public technology, infrastructure and education.
"A little spending in New Orleans would have saved us billions of billions of dollars," he said. "Investments in wars- a lot of spending on the military- weapons that don't work against enemies that don't exist, are not high return investments."
This comes at time when governments across the globe are increasingly tightening fiscal spending. Just last week the U.S. Senate rejected another extension of jobless benefits to ailing state governments.
The dangers of falling into a double-dip recession in the U.S. are now "very high," Stiglitz said, as he voiced support of the economic warnings issued by fellow economist Paul Krugman in a New York Times op-ed Sunday.
Meanwhile, austerity measures in Europeare increasing uncertainty, he said.
"The austerity measures that are occurring in Europe are leading to downgrades because business and finance realize that if the government isn't supporting these economies, growth is going to be lower, and with growth lower, economic problems across the board are going to be greater," he said.
