Once seen as the land of opportunity, the U.S. today is grappling with rising inequality and a political system that benefits the rich at the expense of others, resulting in lower growth and risking the death of the American dream, according to Nobel prize-winning economist Joseph Stiglitz.
“The U.S. worked hard to create the American dream of opportunity. But today, that dream is a myth,” Stiglitz wrote in an opinion piece in the Financial Times Tuesday.
Stiglitz said U.S. inequality is at the highest point in nearly a century and the gap between those with the median income and those at the top is growing.
“The U.S. used to think of itself as a middle-class country – but this is no longer true,” he said. “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.”
According to a Census Bureau report, U.S. household income inequality has grown by 18 percent since 1967, although this trend has slowed in recent years. Wealth disparity is also proving to be a hot topic during the 2012 election year, with Democrats arguing that Republican candidate Mitt Romney’s wealth makes him out of touch with ordinary Americans.
According to Stiglitz, regulations, particularly those governing the financial sector are contributing to the disparities.
“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,” he said.
Stiglitz argues that Americans were increasingly being made to think that higher income inequality was a byproduct of faster growth, but he says that’s a false choice. The U.S. economy grew faster in the decades after the Second World War, when inequalities were lower, than it did after 1980, he said.
“Textbooks teach us that we can have a more egalitarian society only if we give up growth or efficiency,” he said. “However, closer analysis shows that we are paying a high price for inequality: it contributes to social, economic and political instability, and to lower growth.”
Western countries with the healthiest economies, such as those in Scandinavia, have the highest degree of equality, Stiglitz noted.
To prevent the worsening disparities, Stiglitz argues that the U.S. should stop cutting public education and other programs that enhance opportunities for the middle class and the poor.
“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,” he said.
He criticized Republican proposals to extend the Bush-era tax cuts on capital gains. But a number of economists as well as Democrats have come out in recent months in support of extending the tax cuts.
“The country will have to make a choice: if it continues as it has in recent decades, the lack of opportunity will mean a more divided society, marked by lower growth and higher social, political and economic instability,” he said.