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Sun Jan 20, 2013, 10:48 AM

Stiglitz: Inequality Is Holding Back The Recovery

There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth. While the top 1 percent of income earners took home 93 percent of the growth in incomes in 2010, the households in the middle — who are most likely to spend their incomes rather than save them and who are, in a sense, the true job creators — have lower household incomes, adjusted for inflation, than they did in 1996. The growth in the decade before the crisis was unsustainable — it was reliant on the bottom 80 percent consuming about 110 percent of their income.

Second, the hollowing out of the middle class since the 1970s, a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses.

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. The recent modest agreement to restore Clinton-level marginal income-tax rates for individuals making more than $400,000 and households making more than $450,000 did nothing to change this. Returns from Wall Street speculation are taxed at a far lower rate than other forms of income. 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.

Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable. Though inequality did not directly cause the crisis, it is no coincidence that the 1920s — the last time inequality of income and wealth in the United States was so high — ended with the Great Crash and the Depression. The International Monetary Fund has noted the systematic relationship between economic instability and economic inequality, but American leaders haven’t absorbed the lesson.


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Reply Stiglitz: Inequality Is Holding Back The Recovery (Original post)
Redfairen Jan 2013 OP
Igel Jan 2013 #1

Response to Redfairen (Original post)

Sun Jan 20, 2013, 03:31 PM


1. The research that Stiglitz cites, which he read in the NY Times, reposted from a WSJ article that itself reposted repeated a WSJ blog was http://elsa.berkeley.edu/~saez/saez-UStopincomes-2010.pdf .

If any of the articles added any information not in the original WSJ blog, I wouldn't have put the claim that way. They don't, even though the paper is all of 10 pages long and dripping additional salacious sound bites.

In 2007-2009 the top 1% had 39% drop in income. Mostly from reduced capital gains. They got 49% of the hit. (The previous recession saw them get a bigger hit as a percentage of the total loss to the economy, but the recession was milder and so the bottom 99% had a smaller percentage of the hit.)

From 2009-2010 most of the increase in the top 1%'s income was realized capital gains. This is income, to be sure, but sort of a different kind of income. Sporadic, tentative, and volatile. Then the increase is based on the reduced capital gain numbers.

2. The hollowing out of the middle class is often portrayed as having the middle class fall on hard times. That's what a 2004 (?) NYT article said. The graph published with that article said something quite different, but people like soundbites and don't like reading graphs.

As of 2009, more of the "hollowing out" saw more middle-classers move *up* the economic ladder than down. This is portrayed as a bad thing. I think having middle-classers fall into a lower class is bad. But I also think that if everybody in the middle class moved into the upper-middle and upper class so the (economic) middle class vanished it wouldn't be a bad thing. Then again, I didn't win a Nobel Prize in economics.

3. What's holding down tax receipts isn't just or primarily the upper class' machinations. When capital gains plummetted we lost a lot of federal revenue. When bonuses decrease, windfall gains taxes plummet. When you cut all kinds of taxes under * and Obama, and add tax reductions on top of those, receipts plummet. Taxes paid by the wealthy have, apart from the year or two after a new tax structure is put in place, remained remarkably constant (as a percentage of their income) since the 1940s.

4. He knows he doesn't employ logic in argumentatin, he employs a rhetorical device. Association is fine, but causality is golden. He makes a point to disavow any claim of causality, but then says there's a lesson (presumably causal) that he wants us to infer. He sets us up and has high expectations that we, not him, will be responsibility for the fallacy he wants us to believe.

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