Chronic inequality isn’t just immoral: it’s also bad economics

Terrific Oped piece in the New York Times by Joe Stiglitz.

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.

Stiglitz argues that America’s skyrocketing inequality is economically as well as spiritually indefensible for four reasons:

1. The American middle class (funny how they never talk about the ‘working class’ in the US) is too weak to support the consumer spending that has historically driven the country’s 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”.

2. “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.”

3. The weakness of the middle class is reducing tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks. Lower 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. Inequality is correlated with more frequent and volatile boom-and-bust economic cycles.

Worth reading in full.

Aaron Swartz: cannon fodder in the war on internet freedom

This morning’s Observer column.

Even those of us who shared his belief in open access thought this an unwise stunt. But what was truly astonishing – and troubling – was the vindictiveness of the prosecution, which went for Swartz as if he were a major cyber-criminal who was stealing valuable stuff for personal gain. “The outrageousness in this story is not just Aaron,” wrote Lawrence Lessig, the distinguished lawyer who was also one of Swartz’s mentors. “It is also the absurdity of the prosecutor’s behaviour. From the beginning, the government worked as hard as it could to characterise what Aaron did in the most extreme and absurd way. The ‘property’ Aaron had ‘stolen’, we were told, was worth ‘millions of dollars’ – with the hint, and then the suggestion, that his aim must have been to profit from his crime. But anyone who says that there is money to be made in a stash of academic articles is either an idiot or a liar. It was clear what this was not, yet our government continued to push as if it had caught the 9/11 terrorists red-handed.”

The phrase that came to mind when I first saw the indictment against Swartz was Alexander Pope’s famous rhetorical question: “Who breaks a butterfly upon a wheel?” It would be possible to write off the Swartz prosecution (as some have done) as the action of a politically ambitious attorney general, but actually it fits a much more sinister pattern. It was clear that a decision had been made to make an example of this cheeky young hacker and in that sense this grotesque prosecution sits neatly alongside the treatment of Corporal Bradley Manning, not to mention the hysterical reaction of the US authorities to WikiLeaks…