- Nobel laureate Joseph Stiglitz said the current US stock market environment isn’t sustainable.
- A tight labor market forces employers to include marginalized groups into the workforce, the economist said.
- A tighter labor market and restoration of interest rates to more normal levels would be a good move, he said.
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell.
US economist Joseph Stiglitz told CNBC on Thursday the current bull run in the market isn’t sustainable, and he welcomes the tightness in the US labor market.
“A tight labor market is really good for our society, for our economy,” he said on CNBC’s “Squawk Box Europe.”
There is an acute shortage of available labor in the US economoy at the moment, with many still jobless people unwilling to fill vacancies, for example. Wages are rising as demand for workers is outpacing demand.
“The only time the United States has succeeded in including marginalized groups into the labor force, reducing inequality, is when we have a very tight labor market,” Stiglitz said. “So I welcome this situation, and I’m 100% in agreement with the diagnosis of the Fed that most of what we are seeing are the hiccups of restarting an economy that had to shut down because of COVID-19.”
The reason he welcomes the ongoing recovery towards maximum employment is that it would move the economy “out of this world of zero-interest rates.”
“It distorts risk-taking. It creates bubbles,” he said about major US indices hitting record highs on a daily basis. “It would actually be a good move – have a tighter labor market and a restoration of interest rates to more normal levels.”
Stiglitz used the expression “something that’s not sustainable won’t be sustained” to explain why the record run won’t last.
The monthly jobs data for August due later Friday is expected to show a slowdown in hiring. Non-farm payrolls are expected to rise by 725,000 for the month, according to economists polled by Bloomberg, down from the 925,000 increase in July.
Fed Chair Jerome Powell has indicated the central bank expects continued economic progress as it seeks to lay out plans for a tapering program. That would represent a reversal of the Fed’s economic support.
But Powell has said the labor market still needs support. Analysts say any weakness in the August jobs report would likely highlight how such a move would likely be some way off.