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Stiglitz, inequality and five myths about right wing economics

The NY Times has an excellent piece by Joeseph Stiglitz on why the current, increasingly unequal situation in the US is unsustainable. 

Here’s a excerpt, where he points out five myths peddled by the Romney camp and others:

“(1) America is a land of opportunity.

While rags-to-riches
stories still grip our imagination, the fact of the matter is that the
life chances of a young American are more dependent on the income and
wealth of his parents than in any of the other advanced countries for
which there is data. There is less upward mobility — and less downward
mobility from the top — even than in Europe, and we’re not just talking
about Scandinavia.

(2) Trickle-down economics works (a k a “a rising tide lifts all boats”).

This idea suggests that further enriching the wealthy will make us all
better off. America’s recent economic history shows the patent falsehood
of this notion. The top has done very well. But median American incomes
are lower than they were a decade and a half ago. Various groups — men
and those without a college education — have fared even worse. Median
income of a full-time male worker, for instance, is lower than it was
four decades ago.

(3) The rich are the “job creators,” so giving them more money leads to more and better jobs.

This
is really a subset of Myth 2. But Romney’s own private sector history
gives it the lie. As we all know from the discussion of Bain Capital and
other equity firms, many made their money not by creating jobs in
America but by “restructuring,” “downsizing” and moving jobs abroad,
often using debt to bleed the companies of money needed for investment,
and using the money to enrich themselves. But more generally, the rich
are not the source of transformative innovations. Many, if not most of
the crucial innovations in recent decades, from medicine to the
Internet, have been based in large measure on government-financed
research and development. The rich take their money where the returns
are highest, and right now many see those high returns in emerging
markets. It’s not a surprise that Romney’s trust fund invested in China,
but it’s hard to see how giving the rich more money — through more
latitude to escape taxation, either through low taxes in the United
States or Cayman Islands hide-aways — leads to a stronger American
economy.

(4) The cost of reducing inequality is so great that, as much as
idealists would like to do so, we would be killing the goose that lays
the golden egg.

In fact, the engine of our economic growth is the
middle class. Inequality weakens aggregate demand, because those at the
middle and bottom have to spend all or almost all of what that they get,
while those at the top don’t. The concentration of wealth in recent
decades led to bubbles and instability, as the Fed tried to offset the
effects of weak demand arising from our inequality by low interest rates
and lax regulation. The irony is that the tax cuts for capital gains
and dividends that were supposed to spur investment by the wealthy
alleged job creators didn’t do so, even with record low interest
rates: private sector job creation under Bush was dismal. Mainstream
economic institutions like the International Monetary Fund now recognize
the connection between inequality and a weak economy. To argue the
contrary is a self-serving idea being promoted by the very wealthy.

(5) Markets are self-regulating and efficient, and any governmental interference with markets is a mistake.

The
2008 crisis should have cured everyone of this fallacy, but anyone with
a sense of history would realize that capitalism has been plagued with
booms and busts since its origin. The only period in our history in
which financial markets did not suffer from excesses was the period
after the Great Depression, in which we put in place strong regulations
that worked. It’s worth noting that we grew much faster, and more
stably, in the decades after World War II than in the period after 1980,
when we started stripping away the regulations. And in the former
period we grew together, in contrast to the latter, when we grew apart.”

Here’s a couple of other interesting bits:

“That American inequality is at historic highs is undisputed. It’s not
just that the top 1 percent takes in about a fifth of the income, and
controls more than a third of the wealth. America also has become the
country (among the advanced industrial countries) with the least
equality of opportunity. Meanwhile, those in the middle are faring
badly, in every dimension, in security, in income, and in wealth — the
wealth of the typical household is back to where it was in the
1990s. While the recession has made all of this worse, even before the
recession they weren’t faring well: in 2007, the income of the typical
family was lower than it was at the end of the last century. “

And:

“Romney has not explained why those, like him, in the hedge fund and
equity fund business should be able to use a loophole in the tax law to
pay 15 percent taxes on their earnings, when ordinary workers pay a far
higher rate.”

While Romney of course now matters a lot less than he did 24 hours ago, tax inequality is going to be addressed at some point. Just not, I hope, in the way promised in France, where Hollande appears to want to use a sledgehammer to crack a nut.

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