Stiglitz in Davos: US Needs to Change How It Spends

The US needs to change the way it is spending money if it wants to ensure a sustainable recovery, Joseph Stiglitz, economy professor at Columbia and a Nobel prize laureate, told CNBC Friday from Davos.

Joseph Stiglitz
Franco Origlia | Getty Images
Joseph Stiglitz

"The real problem is the way we're spending money not the amount we're spending," Stiglitz said in an interview. "What we really need to do is actually increase our spending on investments … and cut back our spending on weapons that don't work against enemies that don't exist," he added.

Stiglitz is a proponent of Keynesianism, which advocates, among other measures, that the government should stimulate the economy to help it to get out of crisis.

Because of the euro zone debt crisis, some critics have lately said that Keynesianism is dead, as high levels of government debt have eroded countries' creditworthiness.

"Anybody who says that doesn't understand economics," Stiglitz said, adding that Keynesian economics says that the economy must be stimulated when there is excess capacity but "over the long run, over the long run you have to have fiscal order."

Davos 2011 - See Complete Coverage
Davos 2011 - See Complete Coverage

The US does not need more quantitative easing, but fiscal stimulus, especially since in December the 2 percent payroll tax cut will stop and thus people's disposable incomes will decrease, he said.

Across the ocean in Europe, the single European currency is not necessarily in jeopardy but it faces hardships, Stiglitz said.

"Jeopardy is not the right word. I think there's going to be a lot of instability in Europe. The fact is that a weak euro is good for Germany and other parts of Europe that export. It's bad for the United States," he said.