June 24, 2012 |
Nobel Prize-winning economist Joseph Stiglitz, one of America's most
prescient voices, wrote an article for Vanity Fair several months before
Occupy Wall Street was born. "Of the 1%, by the 1%, for the 1%" called
attention to the widening gap between rich and poor and its deadly
impact on our society and its democratic institutions. In his newly
released book, The Price of Inequality
Stiglitz returns to this theme of a divided society, delving into the
origins and consequences of economic unfairness. I caught up with
Professor Stiglitz and talked to him about how the persistent myths and
beliefs associated with our capitalist system help to drive this trend,
turning America from a land of opportunity to a land of broken dreams.
Lynn Parramore: An argument has been made, particularly since
the end of the Cold War, that capitalism is great at producing things
that can improve our lives, and so we ought to therefore tolerate some
unfairness. What's wrong with that narrative?
Joseph Stiglitz: Well, capitalism does have a lot of strengths,
including producing things that are very innovative. But what drives
capitalism is the profit motive. You can profit not only by making good
things, but also by exploiting people, by exploiting the environment, by
doing things that are not so good. The narrative that you describe
ignores the extent to which a lot of the inequalities in the United
States are not the result of creative activity but of exploitive
activity. And if you look at the people at the top, what is so striking
is that the people who've made the most important creative contributions
are not there.
By that I mean the really foundational things like the computer, the
transistor, the laser. And how many people at the top are people who
made their money out of monopoly -- exercising monopoly power? Like
bankers who exploited through predatory lending practice and abusive
credit card practices. Or CEOs who took advantage of deficiencies in
corporate governance to get a larger share of the corporate revenues for
themselves without any regard to the extent to which they have actually
contributed to increasing the the sustainable well-being of the firm.
LP: How does our current situation compare to other eras in terms of the differences between ordinary Americans and the richest among us?
JS: Doing a precise comparison is difficult because we don't have data
sets that go back that far. But we do have data sets that go back more
than 30 years and what is clear is that the share of the top 1 percent
has almost tripled since 1980. So, this kind of inequality at the top
has unambiguously gotten much, much, much worse. We also have data on
the extent to which there's been a hollowing out of the middle
class. The data that recently came out from the Fed indicated that we've
wiped out 20 years of increases and wealth for the middle American.
LP: It appears that for most of us, 20 years of economic
progress just went up in smoke. But the super-rich are doing very well.
What happened there?
JS: It's the peculiar nature of the American economy, which is that's
it's a very powerful machine that is working for a very few people, and
has not been delivering for most Americans. If you had an economic
machine that worked the way it was supposed to, everybody would be
getting better. And an economy that's normally growing, say, 3 percent,
even over a 20-year period. Steady accumulation would lead to their
wealth more than doubling in that period. And it clearly hasn't
happened. And adjusted for inflation, it would have even increased even
before, unadjusted for inflation, would have increased it even more. And
that clearly hasn't happened.
LP: There's a persistent myth that America is the land of
opportunity. Why is that myth so prevalent, even in the face of so much
evidence to the contrary?
JS: Well, there are two reasons for this. One of them is that the myth
is so much part of our sense of identity as Americans that it is
devastating for us to give it up -- for us to say we are less of a land
of opportunity than old ossified Europe. It was one of the things we
were most proud of, and clearly, it's not true. When you have something
that's so inconsistent with your self image, it's really, really hard to
face the facts.
The second reason has to do with the nature of evidence. Everybody know
examples of people who make it from the bottom or the middle-bottom to
the top. And our press talks about them. The media calls attention to
the successes. But when they call attention to successes they don't say
this is one of a million or one of a thousand. In fact, the reason they
write about it is because they are so unusual. If most people did it, it
wouldn't be an unusual story. So, in a sense that's how our media
works. It encourages us to think of the exceptions as the norm.
LP: Some say that if we redistribute income in a more equitable
way, people won't want to work as hard. Is that true? What happens to
our motivation to work when things are so inequitable?
JS: One of the myths that I try to destroy is the myth that if we do
anything about inequality it will weaken our economy. And that's why the
title of my book is The Price of Inequality
. What I argue is
that if we did attack these sources of inequality, we would actually
have a stronger economy. We're paying a high price for this inequality.
Now, one of the mischaracterizations of those of us who want a more
equal or fairer society, is that we're in favor of total equality, and
that would mean that there would be no incentives. That's not the issue.
The question is whether we could ameliorate some of the inequality --
reduce some of the inequality by, for instance, curtailing monopoly
power, curtailing predatory lending, curtailing abusive credit card
practices, curtailing the abuses of CEO pay. All of those kinds of
things, what I generically call "rent seeking," are things that distort
and destroy our economy.
So in fact, part of the problem of low taxes at the top is that since
so much of the income at the very top is a result of rent seeking, when
we lower the taxes, we're effectively lowering the taxes on rent
seeking, and we're encouraging rent-seeking activities. When we have
special provisions for capital gains that allow speculations to be taxed
at a lower rate than people who work for a living, we encourage
speculation. So that if you look at the design bit of our tax structure,
it does create incentives for doing the wrong thing.
LP: When ordinary people see this speculation and unfairness,
do you think it disincentivizes them to work harder, to take risks?
JS: Oh, very much so. It has a very enervating effect on our society
and our economy. I describe experimental results in in my book where
peoples' incentives to work hard are reduced when they believe they are
part of an unfair system.
LP: We also hear that deregulation and downsizing government is
somehow supposed to make capitalism work better for all of us. Why has
that persistent belief failed us?
JS: A lot of these are questions about perception. To the extent that
we can see waste, obviously we say that if we could get rid of that
waste, we would be a better economy. By definition, waste is waste. The
Republican rhetoric has focused on waste in the public sector. But
waste, at some level, is an inherent consequence of human fallibility.
We're going to make mistakes, and that's going to be true in the public
and the private sector. No government program has ever wasted resources
on the scale of America's private financial sector in the run-up to the
crisis. So the first thing you realize is there is waste everywhere
including in the private sector.
Now if you ask people about things there are important to them ...
obviously they care a lot about the school their children go to. They
worry about too-large classes. They worry about police protection. Those
are all things that people value a lot. They value the Internet, which
was created by government-funded research. Health care and drugs were
are all based on government-funded research. So the bottom line is that
government services have proved highly valuable. And this is where the
big lie, the big distortion is. By talking about the few instances of
inefficiency, they try to direct the attention away from the teachers,
the policeman, the fireman, the researchers, the people building the
roads to make our society function. And they turn our attention away
from the failures in the private sector.
LP: What is the connection between the increase of deregulation and the rise of inequality?
JS: I think there are a couple of things going on simultaneously. The
most important aspect for deregulation was in the financial sector. And
that deregulation led to this over-bloated financial sector, predatory
lending, abusive credit card practices and so forth. That did double
function. It lead to more wealth at the top. It took away wealth and
income from the bottom. So that really was very bad for American
inequality. Not good for American economic growth. So that's, that's one
aspect of it.
Deregulation was in part the result of an ideology. A lot of weight was
given to the business community and the people of the top. Corporations
and the one percent. It reflected increasing influence of money in
politics. That itself again led to more inequality. Under Bush, you get
bills where the government said that it would not bargain with the drug
companies, giving the drug companies over a half trillion dollars over
10 years, lowering progressive income taxes, special provisions for
capital gains and dividends. Things in turn which created a more
distorted economy and a more unequal society. So some of the forces that
gave rise to deregulation gave rise to these other activities that also
gave rise to inequality.
LP: Obviously there are lot of costs that this inequality
imposes upon us. What, in your view is the biggest cost, particularly to
JS: One aspect of it is the problem about student debt. Market forces
are global. America's inequality is distinctive because of the way we
shape those market forces and a good example are our bankruptcy laws
which are the kind of laws that regulate our economy. Our bankruptcy law
gave priority to the banks, to derivatives, to risky products and AIG
and so forth. But when you do that, you expand risk-taking by the banks.
You encourage the banks to go into risk, into gambling, rather than
At the other extreme, we passed a change in the bankruptcy code.
There's a provision that students in bankruptcy cannot discharge their
debt -- even if the school doesn't provide what was promised. Then you
combine that with this austerity going on today, where we're forcing
many of the states to raise their tuition enormously. So what you have
is the situation in which the students who want access to education have
no choice but to borrow. Their parents' incomes are doing very badly,
and yet if they borrow, there's no way, no matter what they do, to get
out from under this debt. Even if their education doesn't pay off.
That's compounded by the fact that we have this very high unemployment,
and particularly high youth unemployment. And data show very clearly
that if a young person graduates from college in a period in which
there's high unemployment, the income prospect for your entire life is
going to be greatly diminished.
LP: You've talked about the corruption in our political system.
What is our best hope in the political realm of reversing this trend
in economic inequality?
JS: On the positive side, let me just say that there are a number of
reasons for hope. One of them is that if we look at countries like
Brazil that seemed to be over the precipice, people saw where it was
going and the country came together and did things like education under
Cardoso. And hunger and nutrition and health programs. You can already
see in the data that inequality has been coming down. The United States
faced high levels of inequality in the Gilded Age, in the period in the
Roaring '20s. But it backed off. The social legislation of the '30s
reversed the trend. So there is hope that societies that are moving in
this direction that we've been moving will see the light and change.
And there's lots that you can do. In my book, I described this very
comprehensive economic agenda. It's not hard. And you don't have to do
everything. What I try to put forward are two hypotheses of how that
might happen. In one of them, what I call the "1 percent" will finally
realize that it's in their enlightened self interest, rightly
understood, to care about the rest of society. You cannot do well at the
top of the pyramid unless the base of the pyramid is strong. And the
other one is that the 99 percent realize that they've been sold a bill
of goods. And they realize that some of these ideas that we've been
talking about -- trickle-down economics that destroy the interests of
the poor, the middle class -- are just wrong. They come to realize that
the United States is not the land of opportunity, that the United States
has higher level of inequality of any of the other advanced industrial
countries. As they come to realize this, then maybe they'll wake up and
say, why is that?
LP: And if we wake up, if we understand it, how do we get our
politicians to listen to us? What can we do to fix our political system?
JS: Well, you know, just as in the case of the economic agenda, I don't
think there is any single magic bullet that is going to make a big
difference -- one that will be definitive. There are lots of things.
Economic inequality has many dimensions and has manifested in many
levels of our complex political system. I guess I have to believe that
the single thing that probably distorts our democracy the most is
campaign finance. So that would be a place to start. Public funding of
all campaigns would probably take away a lot of the power of money.
So in one way, you have to ask the fundamental question, how is it that
we've become a country that's more accurately described as one dollar,
one vote, than one person, one vote? And one has to say it has something
to do with that power of money in the political process. There are
other changes in legislation that would make a great deal of difference.
We have a system where you need a lot of money to get out the vote. So
if you went to the Australian route, and said you have
to vote, that would also have an impact.
LP: I want to paint a picture, particularly for the young
people. What might life actually look for them 20 years down the road,
30 years down the road, if we can reverse this trend? And what might life look like if we don't?
JS: Let me step back and say that economists always like to think about
the counter-facts or what life would be if we go down one course versus
another. We're not gonna to be entering the Garden of Eden. But if we
go down the route that we're going, we're going to a world where people
live in gated communities. We already have by far the largest fraction
of our population locked up in prison. We will have an increasingly
insecure society. Americans will be facing insecurity, of economic
insecurity, healthcare insecurity, a sense of physical insecurity. We
will be worrying politically about the role of extremism. Extremism on
the right, extremism on the left. So that's the kind of picture that I
can see as going down towards. I see so many other countries that have
these divided societies going down this directions.
The other one is a society where most Americans are actually better
off. I mean, the reality is that Americans are wonderfully optimistic.
Even when things are not going very well, they'll smile and say well,
you know, we're just having a temporary setback. A 20-year,
zero-increase in wealth is not a small setback, and so I think the
alternative is that they can see a world in which our increasing wealth
is more equitably shared, and that will be a world where they will have
more security, more wealth, more time to spend doing what they really
care about. Some individuals will be absorbed in their work, other
individuals will have sufficient income that they'll be able to have a
hobby. A society in which everybody will be able to exercise their
creativity in their own way.
LP: Has there been any reaction to your book that you didn't anticipate as you were writing?
JS: I guess the thing that was most moving in a number of the talks
that I've given is the large number of young people that have come to
the microphone and asked questions where you can sense their sense of
despair, their sense of frustration at being saddled by student loans,
their sense of job prospects being not very good. A couple of them
really articulated a sense of unfairness. One kid said "To get a job,
you have to have an internship. I don't have the connections. I don't
have the money to live on to accept one of these low-paying
And then another one said "You know, to get a job now, you need a
master's degree. I can't afford it. I already have too much student
debt." And these were you know, intelligent kids, who obviously played
by the rules, done everything right, worked hard at school. But they
were hitting the kind of frustration that you shouldn't be getting from
young people. To me, that was really heart-rending. And it came from not
just one kid. Not in just one talk.
LP: Do you sense that they have energy for action? Political action or participation in social movements?
JS: I don't see them enervated. These are kids who have not dropped
out. They really have a thirst. They want to know what could we do.
But I didn't get the sense that they felt very confident that either the
political system or protest movements work. So they were expressing a
sense of frustration, despair, that, you know, "Occupy Wall Street
didn't work, political system hasn't been reformed, the economy's not
functioning, we're saddled with these debts, job prospects are bleak.
And, we don't have the money like a rich kid to stay in school. What do
LP: And what's your answer to them?
JS: Well, all I can say is that I just felt enormously empathetic with
them. And I think the only hope at this point is to try to get political
activism, including protests like Occupy Wall Street. But also engaging
in the political movements. Or trying to make the protest movements
more linked to our political process.
LP: When you were saying that young people felt a sense that Occupy Wall Street didn't work, do you think that's really true?
JS: I think it did move the conversation. What is clear is that it
hasn't yet reached fruition. It did move the conversation, but
certainly, in the context of one of the political parties, things
haven't really changed where they're going. It may have succeeded in
getting President Obama to talk a little bit more forthrightly about the
problems of inequality in our society. And in that sense, it has made, I
think, Americans more receptive to the fact that economic inequality is
one of the major problems we're facing today.
Lynn Parramore is an AlterNet
contributing editor. She is cofounder of Recessionwire, founding editor
of New Deal 2.0, and author of 'Reading the Sphinx: Ancient Egypt in
Nineteenth-Century Literary Culture.' Follow her on Twitter
Post a Comment