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Bernstein writes: "A lot of people argue that there's a tradeoff between growth and inequality - that you can have faster growth but you might have to take more inequality along with it."

Economist Joseph Stiglitz. (photo: Roosevelt Institute)
Economist Joseph Stiglitz. (photo: Roosevelt Institute)



Joseph E. Stiglitz: The Price of Inequality

By Jared Bernstein, Rolling Stone

26 June 12

 

oe Stiglitz, Nobel Laureate economist, is uniquely qualified to explain how the economy really works, or more precisely, how and why it's working far better for the top 1 percent than the bottom 99 percent. That's the topic of his new book The Price of Inequality.

The book is a model of clarity, but that's just one of its virtues. Another is how Stiglitz frames the problem; he doesn't start from a place of "vast inequality is a fact of life in our free-market system, and that's as it should be." He starts from a much more interesting, and frankly, humane place: "This is happening. Why? Is it a good thing? Is it the market functioning smoothly or is someone taking advantage of their power? Above all: Is society better or worse off?

I recently asked Joe a few questions about his new book.

In this book you develop an elaborate set of arguments about how the high levels of economic inequality we're seeing hurt our economy, our institutions, and our politics. Let's start with the economy. A lot of people argue that there's a tradeoff between growth and inequality - that you can have faster growth but you might have to take more inequality along with it.

It's well documented that countries that are more unequal don't do as well, don't grow as well and they are less stable. It's not an accident that in the period right before the Great Depression, our inequality reached another peak just like it did in the years before the Great Recession. Inequality destroys growth.

Not to mention opportunity.

That's right. America has become the country with the least equality of opportunity of any of the advanced industrial countries. That means children that are born of poor parents or poorly educated parents are not living up to their opportunities. We're wasting our most valuable asset – our human resources.

And that goes beyond economics to our sense of who we are as a country.

That's right. In the book I try to show how economic inequality puts our democracy in peril by undermining our basic principles of one person, one vote; and how our notion of America as a land of opportunity has been undermined and our principle of justice for all has been perverted into justice for those who can afford it. If you go through almost every social and important political economic debate, it's being shaped by the massive inequality we're facing today.

Talk more about the political impact. How do you see inequality undermining our democracy?

High levels of economic inequality lead to imbalances in political power as those at the top use their economic weight to shape our politics in ways that give them more economic power. If you look at so many of the outcomes in our political process, no one can say that they reflect the interests of most Americans. Most Americans don't think speculators should be taxed at a fraction of people that work for a living; or that banks should be allowed to engage in predatory lending or abusive credit card practices; or that drug companies be allowed to get special benefits out of the government in the form of overpayments; or that mining companies should be able to get natural resources at below competitive prices.

At the top [of the income scale], a lot of the inequality arises out of efforts that people take to get a larger share of the pie rather than to increase the size of the pie. As you know, economists call it "rent seeking." What they're doing is moving money from the bottom to the top. But they're not creating wealth; they're just shifting wealth around. And the people who have been exploited are not better off; in fact, they're worse off.

All of which breeds disillusionment.

Right. I was really struck that in the 2010 election only about 20 percent of young people bothered to vote. And that was an indication that in their mind politics doesn't matter. No matter who won, the outcome was going to be determined by the people at the top, and so why bother to vote? Even worse, disillusionment only reinforces the power of money.

Why don't more people recognize these inequities?

One of the reasons, I suggest in the book, is that our views on these issues have really been shaped. Corporations learned how to sell almost anything. An example that makes that clear is how the cigarette companies sold so many Americans on the idea that there was no credible evidence that cigarette smoking was bad for your health.

I'm surprised they didn't try to convince us that cancer wasn't bad for your health!

If you can sell a toxic product like cigarettes, you can sell pretty much any idea, good or bad. Today, those at the top have the tools, the resources, and the incentives to try to shape the public debate in ways that serve their interests. There are so many instances of this kind where they tried to deny the diagnosis of the problem and divert us from the right solutions.

Can you give an example?

Some people say we have this inequality because some people have been contributing much more to our society, and so it's fair that they get more. But then you look at the people who are at the top and you realize they're not the people who have transformed our economy, our society. They're not the inventers of the lasers the transistors, the computer, the discoverers of DNA. They're the bankers that exploited the poor, the CEOs who took advantage of the deficiencies of our corporate governing structure to a larger and larger share of the corporate revenues without increasing the productivity and performance of the companies or our economy as a whole.

I was struck by the fact that all of the Republican candidates for President had as one of their primary platform positions to repeal Dodd-Frank.

It's going back to 2007 to the kind of environment that created the crisis to me is amazing. I understand the criticism of Dodd-Frank that it didn't go far enough.

That's not where they're coming from. They want to recreate the circumstances that allow for bubbles, exploited predatory lending, abusive credit card practices. How anybody can say after those experiences that that's what make an economy good, strong, and that's an economy that will benefit most citizens, I find incredible!

How do you explain it?

Ideology. This is economics being used to pursue a political agenda. I feel very intensely about that, because my own work over 30 years ago showed that whenever there's "asymmetric information," which just means some people know something others don't, whenever there were incomplete risk markets which there always are, markets are not in general efficient, and there is an important role for government regulation, government providing goods like basic research or support of the internet, and that kind of thing. But the ideology totally ignores this.

Let's talk for a second about current events. So much economic policy today both here and especially in Europe, seems like medieval medicine: bleed the patient, and when she gets worse, add more leeches. In other words, "austerity."

Let me put it very forcefully: No large economy has ever recovered from an economic downturn through austerity. It's not going to happen in the United States and it's not going to happen in Europe.

The book ends on a hopeful note. You say the way out of this unsustainable inequality is "self-interest, properly understood." What do you mean by that?

It's basically the realization that unless the country does well together, even the 1% won't do well. We've put a lot of money at the top, and the people in the middle, let alone the bottom, have done very badly. So let's focus on what makes our society as a whole work well.

What would you include in that category?

Education, investments in technology, infrastructure; and you have to start looking at our legal framework: anti-trust, corporate governance, financial regulations, tax laws that are riddled with loopholes that distort our economy - all these have to be changed to try to make our society and our economy work for all Americans, not just the top.

But what are the chances of getting any of it done?

When you have a highly divided society, it's hard to come together to make investments in the common good. One of two things - or both - can happen: One, the 1 percent will realize that the direction we're going is not even in their own self interest, and, two, the 99 percent realize that they've been sold a bill of goods. And I hope my book will make it clear that we have reached a level of inequality that is really intolerable and that we are all paying that price. And there really are simple remedies that we could implement if we only had the political will.



Joseph E. Stiglitz, a Nobel laureate in economics, has pioneered pathbreaking theories in the fields of economic information, taxation, development, trade, and technical change. He is currently a professor at Columbia University, and is the author of "The Price of Inequality: How Today's Divided Society Endangers Our Future."

 

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+6 # ronnewmexico 2012-06-26 17:41
There exist a pendulum of the political in the US.
There are those that hold the opinion that as with the great depression great harm produces in the US occasionally the greatest good. Only when forced will the politician and peoples act humanely.

For those that hold this view the pendulum of inequality is still moving upward not really noticed mainstream...

But for those that hold harm to cause good eventually take heart.......foo d stamps are the latest target for cutting.

Some also believe (though I am certainly not advocating fgr it) that well fed peoples only very rarely commit acts of social disorder such as riots.

Taking a look at footage from the sixties.....no well fed rioters are found, all were...skinnny.

Armies they say fight on their stomachs (if they eat well they win like as not)

Rioters..fight well on the opposite it seems....hunger drives them.

This pendulum seems pushing up against that.
With so many now on food stamps, and the republicans cutting them.......what will be the consequence?

Social unrest as I see it on a large scale....they know not what they are hazarding in cutting that thing.
And social unrest like as not mandates political change, as the vietnam protests and civil rights related riots did in the past.....

So they will destroy the food stamps program for many peoples...they are playing with social fire.... that action.
 
 
+3 # lobdillj 2012-06-27 03:33
What bothers me about this new book by Dr. Stiglitz is that since he only now, when it is to late to stop the bleeding, is telling people what was done wrong that got us into this mess.

He knew this--or should have known it--before it happened. I did, and I am just a grass roots economist. I even wrote to him and to every seemingly progressive economist I knew about urging immediate action on their part. Not one of them did a damned thing, and now they want us to buy their books telling us what they should have said when it might have been some help.

Sorry, but I need those dollars now to buy food and medicine.
 
 
+3 # Texas Aggie 2012-06-27 08:06
This isn't the first time that Dr. Stiglitz has made his observations. He has been talking about this for a very long time but no one paid any attention. Finally he wrote his book, but he didn't say anything in it that he hasn't been saying all along.
 
 
+4 # Granny Weatherwax 2012-06-27 05:58
The Greedy One Percent really sounds like mobsters saying
"Hey, we are doing fine and we have been robbing the bank - Just all of you rob the bank tooo! Let's make laws that facilitate robbing the bank and we will all be swimming in cash!"
 
 
0 # ronnewmexico 2012-06-27 07:52
Stiglitz did not get it then, perhaps, and does not get it now.

As the sudden arising of the occupy movement caught all including the progressive media with their pants down, not believing such a thing could occur such will be found to be the real price of inequality not this thing Stiglitz speaks of.

Several years from now as the corporate interests take complete control of democrats and republicans, there being no alternative to that to get elected, and a constitutional amendment not yet fact...it will happen.
The pendulum then hsving swept so far to the right in the interests of budget cutting and jobs jobs jobs by the corpratists, which means no taxes for the corporations. Social programs then so eroded, significant amounts of people are not only poor but now destitute, basically starving, food stamps pretty much eliminated, welfare unemployment insurance long expired...it will happen.

I am not calling for it nor saying it is a good thing but it will happen.

Widespread rioting and social disorder. Stiglitz does not see it coming...none do....

Then the status quo will be left running around trying to find out how to handle this totally unexpected new thing. How now to equalize things a bit so it will not happen again and reoccur......

The whole playing field will have changed overnight.
This is the real price....death distraction and disorder.
Hello again these horsemen I see you coming.
 
 
+1 # John Steinsvold 2012-06-27 10:54
An Alternative to Capitalism (if the people knew about it, they would demand it)

Several decades ago, Margaret Thatcher claimed: "There is no alternative".
She was referring to capitalism. Today, this negative attitude still persists.

I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to an essay titled: "Home of the Brave?" which was published by the Athenaeum Library of Philosophy:

http://evans-experientialism.freewebspace.com/steinsvold.htm

John Steinsvold

“Insanity is doing the same thing over and over and expecting a different result."~ Albert Einstein
 
 
0 # dovelane1 2012-06-28 00:43
Just out of curiosity, how long is this essay. You never mention anything about it, other than the fact that it exists. I think more info than just your saying so might help bring people to the site.

Also, I've not seen any feedback about this site anywhere. Is this your utopian dream?
 
 
+1 # John Steinsvold 2012-06-28 11:16
dovelane1,

Perhaps for the first time in history, we, as a nation and as a people, have the ability to conduct our internal economic affairs without the need to use money. We have the necessary democratic government, we have the abundant resources, we have the educational facilities and also the technical knowledge to do so. In light of what is happening in our economy today, should we not, at least, explore this possibility?


Today, we live in a materialistic society. Material wealth is a status symbol. Currently in the USA, wealth directly symbolizes competence, power, and intelligence. In a way of life without money, we will all be economically equal (or nearly so; at least poverty will be eliminated). You will not be able to tell a CEO from a janitor by the clothes they wear or by the cars they drive or by the homes they live in. The aristocracy in a way of life without money will be those who contribute the most to society in the way of achievement, leadership & ideas. They will be held in our esteem.

John Steinsvold

Note: The essay:"Home of the Brave?" is four pages long and was authored by myself:

http://evans-experientialism.freewebspace.com/steinsvold.htm

The true business of people should be to go back to school and think about whatever it was they were thinking about before somebody came along and told them they had to earn a living.
--Elizabeth Barlow
 
 
0 # dovelane1 2012-06-29 05:29
Hi John, Thanks for responding. Seeing as how you comment in the RSN blogs, please go the the Robbert Reich article (The True Meaning of Patriotism) posted in the same section as the Stiglitz article.

In the comment section, towards the bottom, you will find a number of comments posted by me, regarding a couple of articles former Washington Post syndicated columnist Sydney Harris wrote more than 30 years ago. The quotes are from a column about the difference between patirotism and nationalism. I'd be curious to see how you respond to them.

Regarding your first paragraph, I would suggest a book by Anne Wilson-Schaef titled "When Society Becomes An Addict."

Based on this and other sources, I believe most people have been socilaized to become addicts, in one form or another. What people beomce addicted to is an individual thing, but the basis for all addictions is the same, and the corresponding actions and reactions are the same as well.

I believe we line in an addictive society, where materialism is one of the many things people become addicted to. Without dealing with the addictive socialization process present in our society today, money will be rpelaced by something else people will either get addicted to, or use in support of whatever they happen to be addicted to.

The hallmark of all addictions is denial. This culture is in denial, not only in what we are addicted to, but also of the consquences of their addictions.
 
 
0 # John Steinsvold 2012-06-30 11:48
dovelane1,

Patriotism vs Nationalism? I am reminded of what President Eisenhower once felt the need to say:
“What is right for America is politically right.”

A society addicted to materialism? I offer the following analogy:

There was once a master in need of a servant. He found a servant that proved to be most valuable. The master was able to achieve great wealth with the help of this unusual servant.

One day, the servant stumbled and fell; but the master lifted him to his feet. The servant stumbled and fell again; but again, the master lifted him to his feet. The servant, however, continued to stumble and fall; but the master kept lifting the servant to his feet. In time, the servant was carried by the master.

Yes,we have allowed the use of money to take control of our way of life. Indeed, what was once a valuable servant has become the master of our way of life.

Yes, some form of money has existed since biblical times. However, it is the first time in history we are faced with the economic problems we have today. Unfortunately, nearly everyone believes “money is a necessary evil”. We have all been brainwashed since childhood to accept this slogan as an undeniable truth.

John Steinsvold

If you want people to fight, throw them a bone; if you want them to cooperate, have them build a tower.
--Saint-Exupéry
 

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