“The gap between rich and poor in the United States created the need for the housing credit bubble, which led in turn to the subsequent credit crisis and economic collapse, says Nobel Prize-winning economist Joseph Stiglitz.
Worse, it would take a new bubble to get back to full U.S. employment, he says.
Income “inequality is bad for growth, stability and efficiency,” Stiglitz told NorthJersey.com after speaking to students nearby. “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.”
The lack of economic balance created the need for increased consumption on credit, which appeared as home equity lending during the housing boom.
“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,” says Stiglitz, a former chief economist for the World Bank and adviser to President Bill Clinton.
He suggested that higher taxes on the rich to invest in education, technology, and infrastructure was a solution but rejected the idea that reducing the budget deficit matters to the economy….”
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