Joseph E. Stiglitz , a winner of the Nobel Memorial Prize in Economic Sciences and a former chief economist of the World Bank, is University Professor at Columbia University. His most recent book is "The Price of Inequality.''

The International Monetary Fund is absolutely right that inequality is bad for stability. But even before the I.M.F. documented this relationship, the United Nations Commission of Experts on Reforms of the International Monetary and Financial System identified increasing inequality as one of the most important factors contributing to the Great Recession of 2008.

In “The Price of Inequality,” I explain the channels through which inequality commonly leads to instability. Both were in evidence in our recent crisis.

Well before the crisis, there was ample evidence that financial market deregulation was systematically associated with instability.

One is that inequality leads to weak aggregate demand — or demand that would be weak in the absence of countervailing actions, say by the Federal Reserve. The reason is simple: Those at the bottom and middle consume essentially all of their income; those at the top save 15 percent, 20 percent, or more. When money shifts from the bottom to the top — as has occurred in recent decades in the United States — this low demand would lead to unemployment and an anemic economy. The Fed, though, stepped in, with low interest rates and lax regulation. It worked, creating a bubble, which supported a consumption boom. But it was clear that it was only a temporary palliative.

Another channel is the link between economic inequality (at least in the extreme form that it has reached in the United States) and political inequality, imbalances in politics that have allowed corporations undue influence in shaping our laws and regulations, especially those pertaining to financial markets.

Well before the crisis, there was ample evidence in experiences throughout the world that financial market deregulation was systematically associated with instability. I saw it up close as chief economist of the World Bank. So, too, for the United States. The allure of the extra profits that would accrue to the banks from deregulation was irresistible, and they invested heavily. Their returns on these political investments — in deregulation and bailouts — were far higher than their return on their more conventional investments. Financial market deregulation led to more instability, not higher sustained growth.

A policy basket that addresses inequality would be multifaceted. A large component would be a more equitable tax system – including closing the loopholes that benefit the wealthiest, and making capital gains taxed at the same rate as wages and salaries -- the pay that people get from their work. Much of the excesses at the top are a result of lack of enforcement of competition laws, deficiencies in corporate governance, and inadequate regulation of the financial industry. Better and more equal access to education -- including more Pell Grants and better student loan programs -- are essential if we are to strengthen incomes in the middle and bottom. So too are stronger unions and more effective enforcement of anti-discrimination laws. And stronger systems of social protection are necessary if we are to reduce poverty.

The critical decisions are taken in the political arena -- and that's why the most important reform is stronger protections of our democracy against the disproportionate influence of money in politics.

Unfortunately, the policies advocated by one of the candidates in this election would almost surely make inequality worse. Meanwhile, the recession has increased inequalities, both in income and wealth. This does not bode well for our future.