Paul Krugman comments on the Joseph E. Stiglitz about inequality and recovery:
Joe Stiglitz has an Opinionator piece arguing that inequality is a big factor in our slow recovery. Joe is an insanely great economist, so everything he says should be taken seriously. And given my political views and general concerns about inequality, I’d like to agree.
The trend before the crisis was down, not up — and that surge with the crisis clearly wasn’t driven by a surge in inequality.
So am I saying that you can have full employment based on purchases of yachts, luxury cars, and the services of personal trainers and celebrity chefs? Well, yes. You don’t have to like it, but economics is not a morality play, and I’ve yet to see a macroeconomic argument about why it isn’t possible.
Joe also argues that high income inequality depresses tax receipts, fueling fiscal fears. Again, I have trouble with this point: our tax system isn’t as progressive as it should be, but it is at least mildly progressive even when you take state and local taxes into account. So I don’t know where this is coming from.
I wish I could sign on to this thesis, and I’d be politically very comfortable if I could. But I can’t see how this works.