Stiglitz started his lecture with a discussion of some of the problems of today's economy. "In talking about what has happened in the economy, a good place to begin is to recognize that there has been an enormous gap over the last four years between the potential of the economy and its actual performance," he said.
Stiglitz went on to explain that the problem facing our economy is one of a failure to grow at the rate at which its potential allows. Productivity has remained strong, decreasing both the demand for work and the demand for labor.
Stiglitz emphasized the importance of the rate of unemployment. "One of the things I hope you are taught here is that the unemployment rate is not necessarily a good measure of what is wrong with the labor market," he said. "It understates the problem. When you have an extended period in which it's very difficult to get jobs people become discouraged. They don't enter the labor force. The long term unemployed have almost doubled. If you are unemployed long enough you just stop working," he said. Still, he said unemployment is not an all-encompassing term. "If you are so discouraged because you can't find a job that you stop looking, you aren't called unemployed."
Stiglitz also noted a problem regarding the national deficit. "The reason I am so concerned about the deficit is that we have nothing to show for it," he said.
Stiglitz noted that investment as a percentage of the GDP has fallen. "The wealth of the country is diminishing even as our liabilities abroad are increasing," he said. He added that, although we borrowed money to finance a tax cut hoping that the money would trickle down into investment, in the long run our poor fiscal position will put constraints on expenditures. "The deficit will undermine our ability to meet commitments to future generations. In that sense it risks abrogating the social compact across generations," he said.
"When you are facing a deficit situation you have to start cutting out everything," said Stiglitz.
The final part of the lecture focused on Stiglitz's "lessons for future textbooks." He said that there are several important principals to remember when analyzing the deficit. "When the economy faces worries about deficits it is important to maximize the 'bang for the buck.' [Furthermore,] deficits can grow quickly when fiscal discipline is dropped," he said. "Low interest rates may not lead to more productivity but rather to more consumption."
Stiglitz concluded his lecture with three lessons on economics. "Tax cuts for the rich are not the solution to every economic problem, nor are subsidies for corporations the best solution to every ailment," he said. "Finally, when a policy fails we [should] think why it might be failing rather than trying more of the same."
In 2001, Stiglitz was awarded the Nobel Prize for his work in information economics. Stiglitz's role as a public servant has earned him a reputable name throughout Washington. President Bill Clinton appointed Stiglitz to the Council of Economic Advisors in 1993; two years later he was made chair of the Council. In 1997 he became vice president of the World Bank.