Tags: Stiglitz | American | Dream | Myth

Stiglitz: American Dream Now a ‘Myth’ Thanks to Income Gap

Tuesday, 26 June 2012 12:11 PM

The American Dream of working hard to forge a better life is a myth thanks to a widening income gap, says Nobel economist Joseph Stiglitz.

"America used to be thought of as the land of opportunity. Today, a child’s life chances are more dependent on the income of his or her parents than in Europe, or any other of the advanced industrial countries for which there are data," Stiglitz writes in a Financial Times OpEd.

"The U.S. worked hard to create the American dream of opportunity. But today, that dream is a myth."

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Blame government policies and regulations for widening the income gap instead of narrowing it.

Market economies, meanwhile, don't have to end up as societies of haves and have-nots if regulations work.

"Markets are shaped by the rules of the game. Our political system has written rules that benefit the rich at the expense of others," Stiglitz writes.

"Financial regulations allow predatory lending and abusive credit-card practices that transfer money from the bottom to the top. So do bankruptcy laws that provide priority for derivatives," Stiglitz adds.

"The rules of globalization — where capital is freely mobile but workers are not — enhance an already large asymmetry of bargaining: businesses threaten to leave the country unless workers make strong concessions."

Americans shouldn't buy into the argument that faster growth widens income gaps.

History shows otherwise.

"The U.S. grew far faster in the decades after the second world war, when inequality was lower, than it did after 1980, since when the gains have gone disproportionately to the top," Stiglitz writes.

"There is growing evidence looking across countries over time that suggests a link between equality, growth and stability."

Backing off on spending cuts to education would help halt the trend, Stiglitz concludes.

"We can once again become a land of opportunity but it will not happen on its own, and it will not happen with a politics that focuses on cutting public education and other programs to enhance opportunities for the bottom and middle, while cutting taxes for those at the very top," Stiglitz says.

"President Barack Obama’s support for these investments, as well as the 'Buffett rule' that asks those at the top to pay at least as much in tax as a share of their income as those who are less fortunate, are moves in the right direction."

Otherwise, expect a more divisive society to evolve, Stiglitz says, criticizing Republican presidential hopeful Mitt Romney's calls for spending cuts.

"Republican candidate Mitt Romney’s suggestion that we cut back on public employees is worrisome; as is his silence on whether capital gains on speculation should be taxed at a lower rate than income derived from hard work."

Such fiscal matters will take center stage towards the end of the year, when tax cuts are due to expire and automatic spending cuts are set to kick in, a combination widely known as a fiscal cliff that could begin to siphon hundreds of billions of dollars out of the economy next year and send the country back into recession.

Some experts says the country has been too focused on Europe and not enough on fiscal matters at home, which could lead to a market meltdown if left unchecked.

"It is unlikely that the cliff is fully priced into the markets," says Ethan S. Harris, North American economist for Bank of America Merrill Lynch, according to CNBC.

"The economic consensus and markets have recognized the fiscal cliff for some time, but are only beginning to understand the size and timing of the shock to the economy."

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Tuesday, 26 June 2012 12:11 PM
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