01/20/2013 03:16 pm ET

Paul Krugman On Joe Stiglitz's Income Inequality Argument: 'I Can't See How This Works'

Paul Krugman is taking issue with his Nobel Prize-winning colleague’s argument about income inequality.

Krugman, responding to a column by Joseph Stiglitz arguing that inequality is slowing the economic recovery, wrote that he “can’t see how this works.” Though Krugman describes Stiglitz as “an insanely great economist,” he says, he’s not convinced “this particular morality tale is right.”

“I wish I could sign on to this thesis, and I’d be politically very comfortable if I could,” Krugman wrote in a blog post Sunday. “But I can’t see how this works.”

Stiglitz points to four reasons why inequality is slowing economic growth: America’s middle class is too weak to support the kind of consumer spending required for a robust recovery, the middle class is too weak to invest in its future, the weak middle class means a smaller tax base and income inequality causes more intense boom and bust cycles.

Krugman argues in his blog post that while many of those factors played a role in causing financial crisis, they’ve been less of a cause of slowing growth in its aftermath.

Since 1960, income inequality has jumped more in the U.S. than in any other major Western country, according to a November analysis from noted economics professors. In the U.S., the top one percent’s share of total income spiked 9 percent during that period, while it declined in some European countries.

Stiglitz isn’t the first to argue that income inequality stymies economic growth. A 2011 report from the International Monetary Fund found that a 10 percent decline in income inequality could boost the duration of a period of economic growth by 50 percent. And though Krugman doesn’t buy Stiglitz’s particular rationale in this case, he has argued in the past that “inequality is a major reason the economy is still so depressed.”



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