Redistribution of Income – The Way Forward
Mr. Joseph E Stiglitz, professor at Columbia University, believes that the US economy is the downward part of the trajectory and will get worse than getting better. The measures that are necessary to get out of the downturn have not been taken. The stimulus package has to be passed by the US Congress and the president elect would sign it once he assumes his role. This would take time. US economy is about one fourth the global economy and thus collateral damage is inevitable.
The Central Banks of nearly all large economies have been shoring up the credit lines to their respective financial markets inorder to arrest the downward spiral. Their presumption has been that by providing liquidity to the markets they induce some immediate demand. The flip side of the argument has been that the investor confidence has been so badly shattered that it would take while before the dust settles.
Will the deficit financing of demand really stimulate growth in the sagging economies. Isn’t it really the same that was being done earlier. Cheap and unsecured credit to those who do not have the repayment capacity. The problem lies at repayment capacity of individuals and this should be addressed as a systematic change.
The world has reached a stage where redistribution of income has to take place. The poor and low income groups have to be provided with higher disposable incomes. This could happen through differential tax rates from the revenue point of view and the same could be redistributed by increasing salary levels (along with accountability levels), higher farm reserve prices, social security, etc. All in all, more money with more people. This would stimulate real growth.
Vivek Parti, CEO, http://www.indiabusinessdatabase.com, Business Credit Information Company
