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Tuesday, June 10, 2008

Stiglitz: Rethink the Sources of Growth

Joseph Stiglitz says we need to change our ways:

The world must rethink the sources of growth, by Joseph E. Stiglitz, Commentary, Project Syndicate: Around the world, protests against soaring food and fuel prices are mounting. The poor – and even the middle classes – are seeing their incomes squeezed... Politicians want to respond..., but do not know what to do. ...

Hillary Clinton and John McCain took the easy way out, and supported a suspension of the gasoline tax... Only Barack Obama stood his ground and rejected the proposal... But if Clinton and McCain were wrong, what should be done? One cannot simply ignore ... those who are suffering. ...

When George Bush was elected, he claimed that tax cuts for the rich would cure all the economy’s ailments. The benefits of tax-cut-fuelled growth would trickle down to all...

Tax cuts were supposed to stimulate savings, but household savings in the US have plummeted to zero. They were supposed to stimulate employment, but labour force participation is lower than in the 1990’s. What growth did occur benefited only the few at the top.

Productivity grew, for a while, but it wasn’t because of Wall Street financial innovations. The financial products being created didn’t manage risk; they enhanced risk. ... Millions of Americans will likely lose their homes and, with them, their life savings.

At the core of America’s success is technology, symbolised by Silicon Valley. The irony is that the scientists making the advances..., and the venture capital firms that finance it were not the ones reaping the biggest rewards in the heyday of the real estate bubble. ...

The world needs to rethink the sources of growth. If the foundations of economic growth lie in advances in science and technology, not in speculation in real estate or financial markets, then tax systems must be realigned.

Why should those who make their income by gambling in Wall Street’s casinos be taxed at a lower rate than those who earn their money in other ways? Capital gains should be taxed at least at as high a rate as ordinary income. ... In addition, there should be a windfall profits tax on oil and gas companies.

Given the huge increase in inequality in most countries, higher taxes for those who have done well – to help those who have lost ground from globalisation and technological change – are in order, and could also ameliorate the strains imposed by soaring food and energy prices. ...

Two factors set off today’s crisis: the Iraq war contributed to the run-up in oil prices..., while bio-fuels have meant that food and energy markets are increasingly integrated. ...

Huge agriculture subsidies ... have weakened agriculture in the developing world... Rich countries must reduce, if not eliminate, distortional agriculture and energy policies, and help those in the poorest countries improve their capacity to produce food.

But this is just a start: we have treated our most precious resources – clean water and air – as if they were free. Only new patterns of consumption and production – a new economic model – can address that most fundamental resource problem.

The list of criticisms and proposals sounds somewhat like a campaign speech. And that makes me wonder, four years from now, what will be different?

    Posted by on Tuesday, June 10, 2008 at 12:51 AM in Economics, Environment, Oil, Politics, Taxes | Permalink  TrackBack (0)  Comments (66)

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