Economist Joesph Stiglitz writes about how he thinks societies should shift their incentive structures to encourage investment in the sources of economic growth. On Comment is free he writes How to combat scarcity in an age of plenty:
At the core of America’s success is technology, symbolised by Silicon Valley. The irony is that the scientists making the advances that enable technology-based growth, and the venture capital firms that finance it were not the ones reaping the biggest rewards in the heyday of the real estate bubble. These real investments are overshadowed by the games that have been absorbing most participants in financial markets.The world needs to rethink the sources of growth. If the foundations of economic growth lie in advances in science and technology, not in speculation in real estate or financial markets, then tax systems must be realigned. Why should those who make their income by gambling in Wall Street’s casinos or even through online gambling in California, be taxed at a lower rate than those who earn their money in other ways? Capital gains should be taxed at least at as high a rate as ordinary income. (Such returns will, in any case, get a substantial benefit because the tax is not imposed until the gain is realised.) In addition, there should be a windfall profits tax on oil and gas companies.
Given the huge increase in inequality in most countries, higher taxes for those who have done well – to help those who have lost ground from globalisation and technological change – are in order, and could also ameliorate the strains imposed by soaring food and energy prices. Countries, like the US, with food stamp programmes, clearly need to increase the value of these subsidies in order to ensure that nutrition standards do not deteriorate. Those countries without such programmes might think about instituting them.
Two factors set off today’s crisis: the Iraq war contributed to the run-up in oil prices, including through increased instability in the Middle East, the low-cost provider of oil, while biofuels have meant that food and energy markets are increasingly integrated. Although the focus on renewable energy sources is welcome, policies that distort food supply are not. America’s subsidies for corn-based ethanol contribute more to the coffers of ethanol producers than they do to curtailing global warming. Huge agriculture subsidies in the US and the European Union have weakened agriculture in the developing world, where too little international assistance was directed at improving agriculture productivity. Development aid for agriculture has fallen from a high of 17% of total aid to just 3% today, with some international donors demanding that fertiliser subsidies be eliminated, making it even more difficult for cash-strapped farmers to compete.
Rich countries must reduce, if not eliminate, distortional agriculture and energy policies, and help those in the poorest countries improve their capacity to produce food. But this is just a start: we have treated our most precious resources – clean water and air – as if they were free. Only new patterns of consumption and production – a new economic model – can address that most fundamental resource problem.