After the Fiscal Cliff - The Joe Stiglitz Recipe for American Recovery

In a recent op-ed in The Guardian, Nobel laureate economist Joe Stiglitz lays out his recipe for America's economic rehabilitation.

"...here is what Americans should hope for: a strong "jobs" bill – based on investments in education, health care, technology, and infrastructure – that would stimulate the economy, restore growth, reduce unemployment, and generate tax revenues far in excess of its costs, thus improving the country's fiscal position. They might also hope for a housing programme that finally addresses America's foreclosure crisis.

A comprehensive programme to increase economic opportunity and reduce inequality is also needed – its goal being to remove, within the next decade, America's distinction as the advanced country with the highest inequality and the least social mobility. This implies, among other things, a fair tax system that is more progressive and eliminates the distortions and loopholes that allow speculators to pay taxes at a lower effective rate than those who work for a living, and that enable the rich to use the Cayman Islands to avoid paying their fair share.

America – and the world – would also benefit from a US energy policy that reduces reliance on imports not just by increasing domestic production, but also by cutting consumption, and that recognises the risks posed by global warming. Moreover, America's science and technology policy must reflect an understanding that long-term increases in living standards depend upon productivity growth, which reflects technological progress that assumes a solid foundation of basic research.

Finally, the US needs a financial system that serves all of society, rather than operating as if it were an end in itself. That means that the system's focus must shift from speculative and proprietary trading to lending and job creation, which implies reforms of financial-sector regulation, and of anti-trust and corporate-governance laws, together with adequate enforcement to ensure that markets do not become rigged casinos.

Stiglitz has long championed redressing America's staggering inequality crisis.   In his book, The Price of Inequality, which ought to be a must-read for Canadians too, Stiglitz chronicles how most of American inequality is not merit-driven but the creature of a government, "in which the rich have disproportionate influence – and use that influence to entrench themselves."  

The U.S. government has sacrificed the poor and working classes, blue and white collar, to the benefit of the very richest, effecting since the Reagan era, the most massive, unearned transfer of wealth in America's history, mainly out of the pockets of the middle class and into the portfolios of the rentiers.   Reversing this societal disease is the key to kickstarting a progressive restoration.