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Is it just me, or has anyone else noticed that America's top economists are running around with their hair on fire? (Or whatever passes for it with economists.) Nobel Prize winner Joe Stiglitz in Vanity Fair sounds the alarm about growing economic inequality in America. I wonder if anyone in a position to do something about it is listening?

America’s inequality distorts our society in every conceivable way. There is, for one thing, a well-documented lifestyle effect—people outside the top 1 percent increasingly live beyond their means. Trickle-down economics may be a chimera, but trickle-down behaviorism is very real. Inequality massively distorts our foreign policy. The top 1 percent rarely serve in the military—the reality is that the “all-volunteer” army does not pay enough to attract their sons and daughters, and patriotism goes only so far. Plus, the wealthiest class feels no pinch from higher taxes when the nation goes to war: borrowed money will pay for all that. Foreign policy, by definition, is about the balancing of national interests and national resources. With the top 1 percent in charge, and paying no price, the notion of balance and restraint goes out the window. There is no limit to the adventures we can undertake; corporations and contractors stand only to gain. The rules of economic globalization are likewise designed to benefit the rich: they encourage competition among countries for business, which drives down taxes on corporations, weakens health and environmental protections, and undermines what used to be viewed as the “core” labor rights, which include the right to collective bargaining. Imagine what the world might look like if the rules were designed instead to encourage competition among countries forworkers. Governments would compete in providing economic security, low taxes on ordinary wage earners, good education, and a clean environment—things workers care about. But the top 1 percent don’t need to care.

Or, more accurately, they think they don’t. Of all the costs imposed on our society by the top 1 percent, perhaps the greatest is this: the erosion of our sense of identity, in which fair play, equality of opportunity, and a sense of community are so important. America has long prided itself on being a fair society, where everyone has an equal chance of getting ahead, but the statistics suggest otherwise: the chances of a poor citizen, or even a middle-class citizen, making it to the top in America are smaller than in many countries of Europe. The cards are stacked against them. It is this sense of an unjust system without opportunity that has given rise to the conflagrations in the Middle East: rising food prices and growing and persistent youth unemployment simply served as kindling. With youth unemployment in America at around 20 percent (and in some locations, and among some socio-demographic groups, at twice that); with one out of six Americans desiring a full-time job not able to get one; with one out of seven Americans on food stamps (and about the same number suffering from “food insecurity”)—given all this, there is ample evidence that something has blocked the vaunted “trickling down” from the top 1 percent to everyone else. All of this is having the predictable effect of creating alienation—voter turnout among those in their 20s in the last election stood at 21 percent, comparable to the unemployment rate.

In recent weeks we have watched people taking to the streets by the millions to protest political, economic, and social conditions in the oppressive societies they inhabit. Governments have been toppled in Egypt and Tunisia. Protests have erupted in Libya, Yemen, and Bahrain. The ruling families elsewhere in the region look on nervously from their air-conditioned penthouses—will they be next? They are right to worry. These are societies where a minuscule fraction of the population—less than 1 percent—controls the lion’s share of the wealth; where wealth is a main determinant of power; where entrenched corruption of one sort or another is a way of life; and where the wealthiest often stand actively in the way of policies that would improve life for people in general.

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While Joseph Stiglitz wasn't happy with what he said was the inadequate size of the economic stimulus package, he still is a strong advocate for the Keynesian tactic and like most rational economists, contends that the economy would be much worse without it. Now he's calling for another round:

NEW YORK — Nobel Prize-winning economist Joseph Stiglitz called for another round of federal stimulus dollars to spur the economy. He spoke Sept. 30 to the Society of American Business Editors and Writers (SABEW) at its Fall Workshop.

“We will see in the next two years the real cost of there not being a second round of stimulus,” he said. “We will see the economy slow down at a very high economic cost.”

The Columbia University professor also said that the “new normal” as far as the unemployment rate is concerned may not be the 4 to 5 percent that existed before the financial crisis in 2008, but more like 7 to 8 percent.

Unemployment is about 9.5 to 9.6 percent officially, he said, but many people who are working part-time involuntarily or who have stopped looking but want work are not counted in the official rate.

Congress passed the first stimulus on Feb. 11, 2009, approving a $787 billion bill, the American Recovery and Reinvestment Act.

He said one reason that stimulus has not had more effect is that state and local governments have cut spending, undoing about one-half of the impact of the money that the feds have injected.

He said the stimulus also could have had more effect if more money had been put into making up for the shortfalls of state budgets, stopping layoffs; if less had been put into tax cuts that wary consumers just ended up saving; and if safeguards to prevent waste had not slowed the money from being spent.

Still, he said, “The stimulus absolutely worked.” Without it, unemployment could have peaked at more than 12 percent.

Economist Joe Stiglitz told Bloomberg that Wall Street is hyping up the economy to sell stock:

Jan. 7 (Bloomberg) -- Nobel laureate Joseph Stiglitz said investors are “talking up” signs of a global economic recovery in a bid to boost equities.

“Wall Street is talking up the recovery because it would like to sell stocks,” Stiglitz told reporters at a conference in Paris today.

The MSCI World Index of stocks has surged 73 percent since its low of last March even while the economies of advanced nations grow below their potential rates following the worst recession since the Great Depression.

Stocks are rallying because interest rates are low and companies have been cutting costs by reducing payrolls, factors that suggest economies remain weak, said Stiglitz, a professor at Columbia University in New York.

“Whenever rates are low, stock markets are often high,” he said. By contrast, economists are “almost universally pessimistic.”

[...] He recommended a tax be introduced on financial speculation as a way of generating revenue and forcing investors to focus on the longer-term.

It's not as though I didn't already think this, but hearing someone like Joseph Stiglitz say it out loud is pretty chilling. And he's not the only one, either:

Sept. 13 (Bloomberg) -- Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.

Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.

Words of Power: While the econonomic royalists and their enforcers in politics and the media live the high life, will we he people fade into oblivion?

AMERICAblog News: Joseph Stiglitz predicted the global financial meltdown. So why can't he get any respect?

Calitics: In California, the Democrats caved. It's taken 31 years, but Howard Jarvis is finally going to get the wholesale destruction of public services he always wanted.

Intrepid Liberal Journal: The Death of Why: An interview with author Andrea Batista Schlesinger. It is Schlesinger’s contention that our culture promotes instant answers at the expense of inquiring.

The Satirical Political Report: In tribute to Cronkite, Fox changes its slogan

OFF THE BEATEN PATH: Pancake City, The Blue Horde, Maggie's Madness, Al's Ozone Repair Kit

Another Nobel Prize-winning economist checks in! Joseph Stiglitz echoes Krugman on the idea of establishing a so-called bad bank, in which the federal government would subsidize toxic assets:

Feb. 1 (Bloomberg) -- Nobel laureate Joseph Stiglitz said any decision by President Barack Obama to establish a so-called bad bank to rid financial companies of toxic assets risks swelling the national debt.

Obama’s administration is moving closer to buying the illiquid assets currently clogging bank’s balance sheets and preventing them from boosting lending, people familiar with the matter said this week.

That amounts to swapping taxpayers’ “cash for trash,” Stiglitz said yesterday in a panel discussion at the World Economic Forum in Davos, Switzerland. “You shouldn’t chase good money after bad. We’re talking about a national debt that’s very hard to manage.”

Stiglitz, a professor at Columbia University in New York and a former adviser to President Bill Clinton, says the plan would leave taxpayers paying for years of excess lending by banks. It would also deprive the government of money that would have been better spent shoring up Social Security, he said.

Cliff Schecter: September 11, 2001: They knew but did nothing

Tennessee Guerilla Women: Madeline Albright: Sexism in Politics

Whistle-Blower: Feds have a backdoor into wireless carrier - Congress reacts

Cynics' Party: Farted, Sat, and Nothing More

Sunday Bookchat: This week, Joseph Stiglitz tallies the real cost of the Iraq war, Steve Weinberg tells the tale of the tycoon and the muckraker, and Carl Zimmer describes the Republican Party's favorite bacterium. Meanwhile, Philip K. Dick gets another long-overdue honor and Jonah Goldberg gets a pantload of dishonor.

OFF THE BEATEN PATH: MobLogic, black woman unhinged, Pruning Shears, Middle East Diaries

I just can't figure out why the Obama administration sees this as a bad thing. Maybe it'll cut into Wall Street's obscene profits, but other than that, what's the down side?

A Senate proposal to force banks to shed their lucrative yet risk-laden derivatives units -- which is vehemently opposed by Wall Street -- is gaining steam, picking up the support of some regional Federal Reserve chiefs with more on the way.

Yet President Barack Obama's Treasury Department, led by Timothy Geithner, continues to oppose the measure, Senate aides say, who add that Treasury is supporting Wall Street over Main Street by opposing the measure considered of "utmost importance" to financial stability.

"It shows the access of the major Wall Street banks in the Treasury Department in spades," one Senate aide said on the condition of anonymity. Assistant Treasury Secretary for Financial Institutions Michael S. Barr is said to be leading Treasury's efforts.

Senate aides say that more letters of support from other regional Fed presidents are on the way.

Treasury is joined in its opposition to the measure by the Federal Reserve's Washington-based Board of Governors and the head of the Federal Deposit Insurance Corporation, Sheila Bair.

Meanwhile, supporters include the longest-serving policy maker in the Fed, Federal Reserve Bank of Kansas City President Thomas Hoenig, Federal Reserve Bank of Dallas President Richard Fisher, Nobel Prize-winning economist Joseph Stiglitz and House Speaker Nancy Pelosi.

Hoenig and Fisher wrote letters of support last week to Senate Agriculture Committee Chairman Blanche Lincoln, the author of the provision, referring to it as "of utmost importance to our nation's long-term financial and economic stability."

Seems like a common-sense move, right? Actually, the federal government has been subsidizing the derivatives market for a long time. Robert Reich explains why it should stop:

Bernanke’s logic is absurd on its face. In a May 12 letter to Christopher Dodd, he argues that “depository institutions use derivatives to help mitigate the risks of their normal banking activities.” True, but so what? Lincoln’s measure would allow banks to continue to use derivatives. They just couldn’t rely on their government-insured deposits for the necessary capital.

Banks would have to do their derivative trading in separate entites. This would require them to raise additional capital, but why is that a problem? If derivative trading is so useful to them in order to “mitigate the risks” of other banking activities, the banks should be willing to foot the bill. There’s no reason taxpayers should do so. And absolutely no reason taxpayers should have to pick up the tab when banks make bad bets on derivatives.

Bernanke also says Lincoln’s measure would force derivatives activities “into foreign firms that operate outside the boundaries of our Federal regulatory system,” giving foreign banks “a competitive advantage over U.S. banking firms in the global derivatives marketplace.” Even if Bernanke is right, since when is it the business of American taxpayers to guarantee the profitability of America’s largest banks relative to foreign ones?

If policy makers base their decisions on this specious logic, America’s big banks shouldn’t be required to hold any capital at all – for fear they might lose business to a foreign bank that’s not required to.

The trading of derivatives is not so crucial to the American economy that taxpayers should continue to subsidize the practice. If the last two years have taught us anything, the lesson is just the opposite: Derivatives can generate huge risks for the economy unless carefully regulated. Neither logic nor experience suggests that you and I and every other taxpayer should be subsidizing this gambling.

Worse yet, if we continue to subsidize these derivative trading operations, Wall Street’s biggest banks will grow even bigger. They’re already too big to fail.