Euro Exim Bank



Donald Trump’s unexpected victory in the US presidential election has prompted much debate on the future path of US economic policy. According to American economist Joseph Stiglitz, the rules of America’s economic system have been rewritten over the past third of a century in ways that serve a few at the top, while harming the economy as a whole, especially the bottom 80%. Stiglitz says that if Trump is serious about tackling inequality, he must rewrite the rules, in a way that serves all of society, not just people like him. Stiglitz makes the following recommendations:

Investment: The item on the agenda should be to bolster investment, thereby restoring robust long-term growth. Trump should emphasise spending on infrastructure and research. Improved infrastructure would enhance the returns from private investment, which has been lagging. Ensuring greater financial access for small and medium-size enterprises would also stimulate private investment. A carbon tax would provide (i) higher growth as firms retrofit to reflect the increased costs of carbon dioxide emissions, (ii) a cleaner environment and (iii) revenue that could be used to finance infrastructure and direct efforts to narrow America’s economic divide. However, given Trump’s stance on climate change, this is unlikely to happen.

Income distribution: A comprehensive approach is needed to improve America’s income distribution, which is one of the worst among advanced economies. Trump has promised to raise the minimum wage but is unlikely to undertake other vital changes such as strengthening workers’ collective bargaining rights and negotiating power, and restraining CEO compensation and financialisation. Regulatory reform must move beyond limiting the damage that the financial sector can do and ensure that the sector genuinely serves society.

Tax: America’s regressive tax system, which promotes inequality by helping only the rich, must also be reformed. An obvious target should be to eliminate the special treatment of capital gains and dividends. Another is to ensure that companies pay taxes – perhaps by lowering the corporate-tax rate for companies that invest and create jobs in America, and raising it for those that do not. As a major beneficiary of this system, however, Trump’s pledges to pursue policies that benefit ordinary Americans are not credible. As usual with Republicans, tax changes will largely benefit the rich.

Equality of opportunity: Trump will likely also fall short on enhancing equality of opportunity. Ensuring preschool education for all and investing more in public schools is essential if the US is to avoid becoming a neo-feudal country where advantages and disadvantages are passed on from one generation to the next. Restoring shared prosperity would require policies that expand access to affordable housing and medical care, secure retirement with a modicum of dignity, and allow every American, regardless of family wealth, to afford a post-secondary education commensurate with his or her abilities and interests.

Unconventional solutions: The problems posed by disaffected Americans, resulting from decades of neglect, will not be solved quickly or by conventional tools. An effective strategy will need to consider more unconventional solutions that Republican corporate interests are unlikely to favour. For example, individuals could be allowed to increase their retirement security by putting more money into their social security accounts, with commensurate increases in pension benefits. Comprehensive family and sick leave policies would help Americans achieve a less stressful work-life balance. Likewise, a public option for housing finance could entitle anyone who has paid taxes regularly to a 20% down-payment mortgage, commensurate with their ability to service the debt, at an interest rate slightly higher than that at which the government can borrow and service its own debt. Payments would be channelled through the income-tax system.