Joseph Stiglitz on Transparency in Government

Card: Does the government have a transparency problem?

Stiglitz:    Well, the first point is a broader point.  You know, I begin talking about the problems in our financial system related to lack of transparency.  Well, one of the problems in our government is also been a lack of transparency.  The way we financed this war, we’ve been using emergency appropriations, 24, 25 of them, you know, it’s understandable at the beginning of the war while we use emergency appropriations but 6 years into the war to say we are surprised?  The reason why that’s important is that normal appropriation process entails a lot of scrutiny to make sure there’s not [waste], there’s not fraud.  But the Bush administration deliberately wanted to avoid that kind of scrutiny.  They wanted to say that victory is around the corner and we keep turning the corner and turning the corner and turning the corner, no victory.  And so, we have to have another appropriation, another appropriation, another appropriation until we wrote our book.  I don’t think there was any real comprehensive accounting of what this… the war is costing.  Well, that was one of the reasons that we wrote the book.  I testified before Congress and I said, “We should not to have to write this book.”  You know this is your responsibility, to come to the American people and say, “This is what the war is costing.  This is a big project.”  This is what it’s costing, you have to make the judgment about the benefits versus the cost but we couldn’t tell you what the costs are.  You… but this is a vast undermining of democratic processes, the… so the lack of transparency, the lack of good accounting.  I talked before about the bad accounting procedure in Wall Street.  Well, government’s accounting procedures are similarly very bad and for a similar reason, deception.  One of the… one of the problems was they didn’t want us to know what the future cost were going to be.  Every firm in the country, every responsible firm, uses what is called a [IB] accounting, that is to say when you’re taking action, you’re taking to account the future cost.  We’ve been using cash accounting.  So we don’t report the cost of the future disability payments, the future healthcare cost of those who are disabled.  Until we talked about it, there was no real accounting of what these future liabilities are going to be, the 600 billion dollars, that’s a lot of money.  So… but we’ve seen in Wall Street is that there are consequences of bad accounting and the same thing is true of the government.  [IB] bad accounting, bad information, you make bad decisions.  So, an example was, the President said he’ll get the military everything that it needs.  Well, in writing our book, one of the things we discovered and since been reported in a lot of the press, was the military commanders in 2005 has asked for these special vehicles called MRAPs.  They have resistant to explosive devices… the devices that caused so many injuries and deaths.  We didn’t give it to them.  Why?  Because it would increase the up front cost.  The cost that the people would be injured was not on the books.  If that was on the books then we would see what was going on and we’d say, “We’re being penny wise and pound foolish,” but our accounting encourages us to do exactly that.  So, the accounting framework is led to decisions that have increased total cost and of course, [IB] huge human toll on our troops and on their families.  So, you know, deliberate deception and another example of this deliberate deception is, if you go to the government’s website about the number of people injured.  When they talk about the deaths, they talk about deaths whether they’re due to hostile action or non-hostile action, now over [4,000].  When they talk about injuries, they only talk about hostile injuries and it’s how they classify some of these hostile injury.  So, for instance, a plane… a helicopter that shot down at night is a hostile injury but if it’s flying at night because it can’t fly in day because it would be shut down, that’s just an accident, not reported in the hostile injuries.  Another example is you have a convoy, the first vehicle in the convoy hits a mine, a explosive device, somebody’s injured, that’s a hostile injury.  The second vehicle crashes into the first vehicle because of the other mine, that’s just an automobile accident, not reported.  And what we’ve discovered is the total number of injuries was twice, injuries and diseases, people evacuate, twice what the government is reporting.  We had to use, working with the veteran’s groups which had been very supportive of our book, discovered that… we had to use the Freedom of Information Act to find out what was going on.  So, the first piece of what needs to be done is to have better accounting systems so that we know what is going on.  But now on the contractors themselves, it’s not just that the contractors cost us so much money, they actually undermine our mission.  Let me give you an example, in the beginning of the war, the unemployment rate soared to 60%.  We knew that we had to win and hearts and minds of the people, we knew that young men with arms and unemployed are an explosive mixture, we knew that we had not protected the [arm caches] in our march to Baghdad, we got them… those arms get in the hands of potential insurgence.  But as the unemployment soared, we turned to contractors to do all kinds of things and the contractors were not focusing on our mission and we’re not focusing on what was necessary for us to win the hearts and minds of the people, they’re focusing on their bottom line, maximizing profits, whatever the consequences.  So, they could find cheaper labor and they [IB] the Philippines, that’s what they did.  They brought in cheap labor from outside when the unemployment rate was 60%.  Of course, that contributed to the resentment, to the anger in Iraq and that explosive mixture of unemployed people with arms exploded and thus began the insurgency.  Meanwhile, of course, we were getting… alienating other countries around the world, like the Philippines, one of our close allies.  The Philippines has a minister who’s in charge of people from the Philippines working abroad and wanted to make sure that they are treated well, that they’re safe, obviously worried about what was going in Iraq.  They said, “This is too dangerous, we don’t want them to be kidnapped and put all kinds of stress,” so they stamped the passports, Not Valid for Iraq.  Well, a little while ago, I was talking to the Philippines’ minister and he said, you know what?  They discovered that there are 7,000 Filipinos working in Iraq, they go through American checkpoints.  We know that they are violating their… their, you know, their… that we are going against Filipino law but, you know, our focus is on minimizing cost, whatever it does, whatever the consequences.  Another example that we talked about in our book is… it was discovered that one of the [IB] subsidiaries through a lot of the contractors go is in the Cayman Islands, why?  I mean, is Cayman Islands such a great place to do business?  Well, obvious, they’re avoiding Social Security Medicare taxes.  And what kind of example is the US government setting for private employers?  That you should go to the Cayman Islands so you avoid Medicare taxes and Social Security taxes?  But those are costs that we are going to have to pick up, we, the taxpayer.  Because if they get sick, when they’re old, we will pay those bills.  We will still have to pay their Social Security benefits.  So again, it’s a… one of those things where the accounting system is… they’re trying to hide the total cost, save money in a penny wise way, [IB], burden it on American taxpayers and their future.  But, you know, that’s under somebody else’s is watch.  That would be gone and we’ll have to be paying the problems, dealing with the problems for decades to come.

Joseph Stiglitz on Transparency in Government

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