Scarcity in an Age of Plenty

Around the world, poor – and even the middle classes – are seeing their incomes squeezed as the global economy enters a slowdown, while protests against soaring food and fuel prices are mounting. As politicians struggle to respond, they should bear in mind an important lesson of our current era of unequal prosperity: across-the-board tax cuts are not the answer.

NEW YORK – Around the world, protests against soaring food and fuel prices are mounting. The poor – and even the middle classes – are seeing their incomes squeezed as the global economy enters a slowdown. Politicians want to respond to their constituents’ legitimate concerns, but do not know what to do.

In the United States, both Hillary Clinton and John McCain took the easy way out, and supported a suspension of the gasoline tax, at least for the summer. Only Barack Obama stood his ground and rejected the proposal, which would have merely increased demand for gasoline – and thereby offset the effect of the tax cut.

But if Clinton and McCain were wrong, what should be done? One cannot simply ignore the pleas of those who are suffering. In the US, real middle-class incomes have not yet recovered to the levels attained before the last recession in 1991.

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