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.