Stiglitz on Inequality

In Canada, there has not been much comment on an op-ed piece which Joseph Stiglitz published in The Washington Post two weeks ago. Stiglitz examines American economic policy over the last decade. Because Stephen Harper has followed the same policy, Canadians should ponder Stiglitz' analysis. The data, he writes, are not good:

The seriousness of America’s growing problem of inequality was highlighted by Federal Reserve data released this month showing the recession’s devastating effect on the wealth and income of those at the bottom and in the middle. The decline in median wealth, down almost 40 percent in just three years, wiped out two decades of wealth accumulation for most Americans. If the average American had actually shared in the country’s seeming prosperity the past two decades, his wealth, instead of stagnating, would have increased by some three-fourths. 

Stiglitz argues that all of this was not mere happenstance. American economic policy is driving inequality -- and the results have been disastrous:

The Great Recession has made this inequality worse, which is likely to prolong the downturn. Those at the top spend a smaller fraction of their income than do those in the bottom and middle — who have to spend everything today just to get by. Redistribution from the bottom to the top of the kind that has been going on in the United States lowers total demand. And the weakness in the U.S. economy arises out of deficient aggregate demand. The tax cuts passed under President George W. Bush in 2001 and 2003, aimed especially at the rich, were a particularly ineffective way of filling the gap; they put the burden of attaining full employment on the Fed, which filled the gap by creating a bubble, through lax regulations and loose monetary policy. And the bubble induced the bottom 80 percent of Americans to consume beyond their means. The policy worked, but it was a temporary and unsustainable palliative. 

And how do Republicans intend to remedy this problem? What the country needs, Mitt Romney says, is more austerity:

The austerity advocated by some Republicans will lead to higher unemployment, which will lead to lower wages as workers compete for jobs. Less growth will mean lower state and local tax revenue, leading to cutbacks in services important to most Americans (including the jobs of teachers, police officers and firefighters). It will force further increases in tuition — data published this month show that the average tuition for a four-year public university climbed 15 percent between 2008 and 2010, while most Americans’ incomes and wealth were falling. This will lead to more student debt, more profits for bankers — but more pain at the bottom and middle. Some, seeing the consequences of their parents’ debts, won’t be willing to take on the levels of debt necessary to get a college education, condemning them to a life of lower wages. Even in the middle, incomes have been doing miserably; for male workers, inflation-adjusted median incomes are lower today than they were in 1968.

Note that the Republican prescription for this problem is the same one contained in the recent Conservative budget. The difference, the Harperites argue, is that we pass austerity, The Americans -- mired in gridlock -- can't. All the conservatives have done is to find a shorter path over the cliff.