Stiglitz says inequality if bad for the economy

http://www.northjersey.com/news/141149483_Economist_says_wealth_gap_is_bad_for_growth.html

Q. Occupy Wall Street has forced income inequality into national discourse. Putting aside the question of whether disparities in income and wealth are fair, what is the impact of income and wealth inequality in this country, and if that gap continues to grow, what could be the economic consequences?

Inequality is bad for growth, stability and efficiency. … Inequality peaked both before the Great Depression and before the Great Recession, and it's not an accident. So basically, when we have a lot of inequality, demand goes down. … All this inequality was offset by creating a bubble. The bubble allowed people to consume more. Now we have the inequality but we don't have a bubble, and that means that we will have persistent, weak demand, and therefore unless we create another bubble it's going to be very difficult for us to get back to full employment.

A lot of the inequality that we have in the United States is created by distortions – excessive financial sector, monopolies like Microsoft … giving the oil companies, mining companies resources at a discount. … These things distort the economy, while they create wealth at the top. So it's not wealth creation – it's wealth redistribution, which makes the size of the pie smaller.

Q. And how do you go about decreasing inequality, just by taxing the wealthy and ending breaks for big companies?

And the loopholes, the distortions, the giveaways. … When you tax capital gains at half the rate of others, you encourage speculation. And so you divert resources to speculative activity, including the best brains at Columbia, into speculation rather than into creative activities.

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