When I read a “tell-it-like-it-is” piece such as this from Columbia University professor and Nobel Prize-winning economist Joseph Stiglitz--and virtually everything the guy writes is exactly that--I’m reminded why, for many years, I’ve stated that he’s one of the most important people on the planet. (If only the “very
captured serious people” in Washington, D.C. would acknowledge this, IMHO, our world would be a much better place!)
Inequality Is Holding Back The RecoveryProfessor Stiglitz then points to “…four major reasons inequality is squelching our recovery…”
Joseph E. Stiglitz
January 19, 2013 6:47pm
The re-election of President Obama was like a Rorschach test, subject to many interpretations. In this election, each side debated issues that deeply worry me: the long malaise into which the economy seems to be settling, and the growing divide between the 1 percent and the rest — an inequality not only of outcomes but also of opportunity. To me, these problems are two sides of the same coin: with inequality at its highest level since before the Depression, a robust recovery will be difficult in the short term, and the American dream — a good life in exchange for hard work — is slowly dying.
Politicians typically talk about rising inequality and the sluggish recovery as separate phenomena, when they are in fact intertwined. Inequality stifles, restrains and holds back our growth. When even the free-market-oriented magazine The Economist argues — as it did in a special feature in October — that the magnitude and nature of the country’s inequality represent a serious threat to America, we should know that something has gone horribly wrong. And yet, after four decades of widening inequality and the greatest economic downturn since the Depression, we haven’t done anything about it…
1.) America’s middle class is too weak to support the level of “consumer spending that has driven our country’s economic growth.” Stiglitz notes that the 1% realized 93% of income growth in 2010. Meanwhile, the middle class – those “who are most likely to spend their incomes rather than save them and who are, in a sense, the true job creators” – once their incomes are adjusted for inflation, have lower incomes than they did in 1996.
2.) There has been an ongoing, “hollowing out” of our middle class since the 1970s, except for a period in the 1990s; and those in the middle simply don’t have the resources to invest in their future well-being via “educating themselves and their children and by starting or improving businesses.”
3.) “Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks.” Stiglitz notes that the fiscal cliff “quick-fix,” earlier this month, “did nothing to change this.” The Nobel Prize-winner takes aim at the very modest hike just passed with regard to the capital gains tax, and we’re reminded that this doesn’t even come close to the higher levels of taxation for other types of income. Stating the obvious, “Low tax receipts mean that the government cannot make the vital investments in infrastructure, education, research and health that are crucial for restoring long-term economic strength.”
4.) While Stiglitz acknowledges that “inequality did not directly cause the crisis,” it “…is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable.” He reminds us that, in the 1920s, the only other time in the past 100 years that inequality was as severe in America as it is now, we ended up with a stock market crash and the commencement of the Great Depression. And, while even the “International Monetary Fund has noted the systematic relationship between economic instability and economic inequality, but American leaders haven’t absorbed the lesson.”
I’m not going to paraphrase the rest of his post; instead, I strongly urge you to read it, because I’ve left out much, if not most, of his most important commentary about the subject.
I will say that Stiglitz is quite critical of how both the Bush and Obama administrations have addressed the issue, noting:
…Despite Mr. Obama’s stated commitment to helping all Americans, the recession and the lingering effects of the way it was handled have made matters much, much worse. While bailout money poured into the banks in 2009, unemployment soared to 10 percent that October. The rate today (7.8 percent) appears better partly because so many people have dropped out of the labor force, or never entered it, or accepted part-time jobs because there was no full-time job for them…Stiglitz closes with sane solutions to the problem. (Hint: they aren’t easy, but they are there. And, yes, they’re fairly obvious, too!) But, you’ll have to read his original piece for those answers…and, much, much more regarding his analysis and insights. As usual, IMHO, the Professor is spot-on.
…The Obama administration does not, of course, bear the sole blame. President George W. Bush’s steep tax cuts in 2001 and 2003 and his multitrillion-dollar wars in Iraq and Afghanistan emptied the piggy bank while exacerbating the great divide. His party’s newfound commitment to fiscal discipline — in the form of insisting on low taxes for the rich while slashing services for the poor — is the height of hypocrisy.
There are all kinds of excuses for inequality…
At some point, the "captured," partisan memes become meaningless. Our government is neither red nor blue. The only color that matters in Washington, these days, is green.
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And, if you're interested in another must-read from Professor Stiglitz, I'd strongly recommend this, from earlier in the month, over at Project Syndicate...
The Post-Crisis Crises
January 7, 2013
NEW YORK – In the shadow of the euro crisis and America’s fiscal cliff, it is easy to ignore the global economy’s long-term problems. But, while we focus on immediate concerns, they continue to fester, and we overlook them at our peril.
The most serious is global warming. While the global economy’s weak performance has led to a corresponding slowdown in the increase in carbon emissions, it amounts to only a short respite. And we are far behind the curve: Because we have been so slow to respond to climate change, achieving the targeted limit of a two-degree (centigrade) rise in global temperature, will require sharp reductions in emissions in the future.
Some suggest that, given the economic slowdown, we should put global warming on the backburner. On the contrary, retrofitting the global economy for climate change would help to restore aggregate demand and growth…