Monday, November 24, 2014

The Price of Inequality

NEW YORK – America likes to think of itself as a land of opportunity, and others view it in much the same light. But, while we can all think of examples of Americans who rose to the top on their own, what really matters are the statistics: to what extent do an individual’s life chances depend on the income and education of his or her parents?

Nowadays, these numbers show that the American dream is a myth. There is less equality of opportunity in the United States today than there is in Europe – or, indeed, in any advanced industrial country for which there are data.

This is one of the reasons that America has the highest level of inequality of any of the advanced countries – and its gap with the rest has been widening. In the “recovery” of 2009-2010, the top 1% of US income earners captured 93% of the income growth. Other inequality indicators – like wealth, health, and life expectancy – are as bad or even worse. The clear trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom.

It would be one thing if the high incomes of those at the top were the result of greater contributions to society, but the Great Recession showed otherwise: even bankers who had led the global economy, as well as their own firms, to the brink of ruin, received outsize bonuses.

A closer look at those at the top reveals a disproportionate role for rent-seeking: some have obtained their wealth by exercising monopoly power; others are CEOs who have taken advantage of deficiencies in corporate governance to extract for themselves an excessive share of corporate earnings; and still others have used political connections to benefit from government munificence – either excessively high prices for what the government buys (drugs), or excessively low prices for what the government sells (mineral rights).

Likewise, part of the wealth of those in finance comes from exploiting the poor, through predatory lending and abusive credit-card practices. Those at the top, in such cases, are enriched at the direct expense of those at the bottom.

It might not be so bad if there were even a grain of truth to trickle-down economics – the quaint notion that everyone benefits from enriching those at the top. But most Americans today are worse off – with lower real (inflation-adjusted) incomes – than they were in 1997, a decade and a half ago. All of the benefits of growth have gone to the top.

Defenders of America’s inequality argue that the poor and those in the middle shouldn’t complain. While they may be getting a smaller share of the pie than they did in the past, the pie is growing so much, thanks to the contributions of the rich and superrich, that the size of their slice is actually larger. The evidence, again, flatly contradicts this. Indeed, America grew far faster in the decades after World War II, when it was growing together, than it has since 1980, when it began growing apart.

This shouldn’t come as a surprise, once one understands the sources of inequality. Rent-seeking distorts the economy. Market forces, of course, play a role, too, but markets are shaped by politics; and, in America, with its quasi-corrupt system of campaign finance and its revolving doors between government and industry, politics is shaped by money.

For example, a bankruptcy law that privileges derivatives over all else, but does not allow the discharge of student debt, no matter how inadequate the education provided, enriches bankers and impoverishes many at the bottom. In a country where money trumps democracy, such legislation has become predictably frequent.

But growing inequality is not inevitable. There are market economies that are doing better, both in terms of both GDP growth and rising living standards for most citizens. Some are even reducing inequalities.

America is paying a high price for continuing in the opposite direction. Inequality leads to lower growth and less efficiency. Lack of opportunity means that its most valuable asset – its people – is not being fully used. Many at the bottom, or even in the middle, are not living up to their potential, because the rich, needing few public services and worried that a strong government might redistribute income, use their political influence to cut taxes and curtail government spending. This leads to underinvestment in infrastructure, education, and technology, impeding the engines of growth.

The Great Recession has exacerbated inequality, with cutbacks in basic social expenditures and with high unemployment putting downward pressure on wages. Moreover, the United Nations Commission of Experts on Reforms of the International Monetary and Financial System, investigating the causes of the Great Recession, and the International Monetary Fund have both warned that inequality leads to economic instability.

But, most importantly, America’s inequality is undermining its values and identity. With inequality reaching such extremes, it is not surprising that its effects are manifest in every public decision, from the conduct of monetary policy to budgetary allocations. America has become a country not “with justice for all,” but rather with favoritism for the rich and justice for those who can afford it – so evident in the foreclosure crisis, in which the big banks believed that they were too big not only to fail, but also to be held accountable.

America can no longer regard itself as the land of opportunity that it once was. But it does not have to be this way: it is not too late for the American dream to be restored.

Read more from our "Stiglitz on America" Focal Point.

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    1. CommentedDavid Martin

      I have been trying to tell this to people for more than 10-years and no one has listened. I liked your "Pie" as an example of how inequality has increased and opportunity has decreased.

    2. CommentedMichael Muoio

      32 Years of Wrong Turns and Tax Amnesia

      As we endure the ceaseless political rhetoric surrounding our national budget and debt, I have come to the conclusion that we as a nation, have actually chosen to put ourselves in this quasi-bankrupt insolvent position.

      There are a number of critical turning points where our political and business leadership chose the wrong path with our support. Here are some of the major wrong turns that occurred over the last 32 years.

      In 1980 we adopted “supply side economics”, also known as “trickle down economics” and we adopted the philosophy that budgets never needed to be balanced.

      The theory states that increasing the net wealth possessed by the economic elite generates the best stimulator of economic activity.

      These wealth-owners will invest any marginal wealth-gain from tax cuts on things that increase “supply”—factories, new businesses, innovative goods and services, thus “Supply Side Economics”.

      Belief in this economic heresy continues and many current candidates for public office actually advocate further tax cuts.

      Because of this heretic belief, politically driven and popular tax cuts were put into place that were based on expanding our national debt from $907 Billion in 1980 to $3 Trillion in 1990 to $5 Trillion in 2000 to $10 Trillion in 2008 and $16 Trillion in 2012. These tax cuts continue unabated and are expected to drive our national debt to $22 Trillion by 2016 or a 24-fold increase since 1980.

      We also entered diabolical free trade agreements with tax incentives that encouraged manufactured product imports and job exports. In 32 years we have managed to export over 60,000 factories and over 23 Million jobs. Our trade policy continues unabated.

      We deregulated the financial sector and freed Wall Street to be “creative”. This permitted the destruction of $16 Trillion of our collective wealth and returned us to 1992 wealth levels nationally. Financial deregulation essentially continues unabated along with super-sized banker bonuses with no bankers in jail.

      Following the 911 attacks, we committed over $4 Trillion (off-budget) to occupy Iraq and Afghanistan. Taxes were not imposed to finance the occupation. The occupation continues with no end in sight.

      We implemented Medicare Drug Plan D at an incremental cost of $180 Billion a year. No taxes for this were imposed and drug companies were not required to negotiate prices with Medicare. This mismanaged program continues and is growing.

      Student loans now total over $1 Trillion as our public and private universities and colleges took advantage of the easy money available to students for education. At UW Madison for example, resident undergraduate tuition in 1980 was $769, today it is $8592 or a 11-fold increase. Sadly, it was reported recently that a new retiree was having their Social Security check garnished to repay student loans over 30 years old.

      So are we broke? Indeed we are. And we have clearly chosen to be.

      Because of these major wrong turns we have also managed to
      concentrate wealth in the United States to levels not seen since 1929.

      For example, the Walton family of Wal-Mart fame now controls more wealth than the poorest 40% of Americans combined. This was largely driven by the reduction in marginal income tax rates.

      In addition, Reuters reported July 22, 2012 that over $32 trillion in wealth is held in offshore tax havens. While this is a global estimate, it would be fair to suggest 50% or $16 Trillion as “American”. When people and corporations do not pay tax on foreign tax haven accounts, the rest of us have to make up for the loss or we simply must expand the National Debt.

      American Corporations currently hold over $1.5 Trillion in profits offshore and are demanding to have taxes cut or eliminated on these profits before they are repatriated. “Negotiations” are taking place with our Congressional leaders as you read this.

      The reduction in top personal marginal income tax rates has been anything except modest. Rates have been reduced from 70% in 1980 to 35% currently. As late as 1964 they were 91%. The average top marginal rate from 1915 to 2012 is 57.8%. We are operating at 60.6% of the 97-year average.

      We did not stop there, our capital gains tax was reduced as well from 39.9% in 1978 to 15% currently. The 100-year average on capital gains is 26.9%. We are operating at 44% of the 100-year average.

      In 2003 we also reduced the top marginal dividend tax rate from 35% to 15%. This is 25% of the 91-year average.

      And to completely ensure we would never ever have a balanced budget, we reduced corporate income tax from 46% in 1980 to 35% today. The 100-year average on corporations is 46.7% and we are operating at 75% of the 100-year average.

      We are attempting to have our $16 Trillion economy operate with top marginal tax rates at essentially 50% of the 100-year average for the Republic!

      It should come as no surprise that this entire tax cutting strategy is not working, as we have accumulated $15.9 Trillion in national debt, 23 Million unemployed and underemployed not to mention state and local debt.

      We currently enjoy the lowest marginal tax rates since 1929 when the top marginal tax rate was 24%. In 1932 we increased the top marginal tax rate from 25% to 63% and we began to climb out of the Great Depression.

      The circumstances in 1928, just prior to the onset of the Great Depression, and today are strikingly similar. This should seriously concern every citizen in our Republic, but we seem blind to every warning sign our economy has provided.

      The ceaseless political “job creator” rhetoric suggesting that “if we tax business and high-income individuals, jobs and growth will not be generated”, is simply untrue historically.

      In fact, there is a direct correlation between higher taxes, higher employment and higher economic growth. While this may seem counter-intuitive, I will provide an example that may help reveal the subtleties of what is really going on after a historic review of the correlation between taxes, growth and unemployment.

      Jobs and economic growth in our Republic are largely driven by small
      Businesses, or “S Corporations”. According to the “S Corporation Association”, there are 25 million small businesses in America.

      For Federal income tax purposes, the income, deductions, and tax credits of an S corporation flow through to shareholders.
      Income is then taxed at the shareholder level.

      Payments to S shareholders, most often the “owner proprietor”, by the corporation are distributed tax-free. Also, the alternative minimum tax does not apply to an S corporation.

      Given these tax rules; if your marginal personal income tax rate were cut from 91% to 38%, which actually happened between 1964 and 2003, would you take larger cash distributions from your business?

      Of coarse you would, as it is very efficient to remove money from a business when you are taxed lightly. Higher marginal tax rates make it more difficult to remove money from an S Corporation, as it is less efficient and the alternative of investing in the business is likely more attractive.

      When corporations retain and invest money in businesses they tend to grow as they invest in technology, machinery, research and development, marketing, sales, training, and facilities.

      When this happens, jobs are created and the corporation grows and more taxes are generated from the business itself and new employees.

      Imagine if only half of the 25 million S Corporations hired just one employee, we would have 12.5 million jobs and we would not have an unemployment issue.

      Seems somewhat odd that raising taxes on the real “job creators” actually produces jobs, however it has been validated historically. (See Chart II)

      Large American corporations on the other hand, have really been the principal serial job killers since 1980.

      Companies like Wal-Mart (Currently under criminal investigation for bribery, tax evasion and money laundering. Source: Financial Times, 8/17/2012) in their incessant drive to produce the lowest priced products, have driven larger companies offshore and have advocated for free trade agreements that do nothing more than facilitate moving more jobs and manufacturing to lower labor cost countries.

      It is bitterly ironic that Wal-Mart is currently lobbying Congress to have the minimum wage rate raised as they have come to the realization that their customers no longer have enough income to shop at Wal-Mart. A more “enlightened” strategy from Wal-Mart thirty years ago would have been more helpful.

      Wal-Mart customers have moved to the “dollar” and “thrift” stores as 23 million of them have lost their jobs and have moved to unemployment, a lesser paying job or a part-time job as the result of the long term effect of off-shoring jobs.

      The average annual industrial wage in the USA is $44,600 compared to China at $ 6,200 and Viet Nam’s $2,200 which illustrates just how large the off-shoring labor issue is.

      The solution to this low wage labor issue was actually developed in 1789 by Alexander Hamilton as the Treasurer of the United States working in President George Washington’s administration.

      Hamilton believed it was necessary to impose tariffs on all imported goods for 2 reasons.

      First we needed to fund our new Republic and tariffs on imported goods were an effective and enforceable means to do it.

      The second was the strategic decision to develop new domestic industries by giving them a chance to develop with the protection of tariffs, which at the time ranged between 5-10%.

      We can do as our founders did before us, and impose tariffs in order to equalize the labor expense imbedded in an imported manufactured product. This would make the large corporations indifferent to where a product is manufactured and would most likely favor the USA, as international transportation would be avoided if they produced domestically.

      Most other industrialized nations currently do this through some form of value added tax.

      With this policy, jobs would return to America. Unfortunately, we continue down the diabolical path of free trade expansion with 14 agreements in-force and 12 more being negotiated. All of these agreements are driven by special interest and not the interest of American workers or our Republic.

      All this deceitful free trade nonsense started in 1985 with the first “Free Trade Agreement” with Israel.

      Free trade, without question, is the largest reason for the closing of 60,000 factories and the elimination of millions manufacturing jobs in the United States since 1980.

      Free trade is also the reason why the United States moved from being the largest importer of raw materials and the largest exporter of manufactured goods in the world to the largest exporter of raw materials and the largest importer of manufactured goods in the world all in an amazing 32 short years.

      We as a people have grown to believe that the economic issues facing our Republic are “complicated”, “global in nature” and almost “impossible” to solve. This is unequivocally untrue.

      Special interests have kept us from formulating sound strategic solutions just as they fought Franklin D Roosevelt as he fought to put programs together to move us out of the Great Depression.

      For example, there are 3 banking lobbyists working for each of our Congressional Representatives or 1605 Lobbyist to 535 Congressional Representatives. That is only the “Banking Lobby”. In 2011 there were 12,651 registered lobbyists harassing our Congress by spending $3.3 Billion to “get their way” as it were.

      On the Eve of Labor Day 2012, it is time to return our country to our original democratic beliefs and behaviors. Clearly, what we have believed and have been practicing since 1980 is economic heresy and is not working for the vast majority of Americans.

      We live in a wonderful country that has many significant challenges, none of which, mind you, is insurmountable.

      What is needed now is a personal commitment from each and every one of us, to support political and business leadership that can actually recognize right from wrong, truth from untruth, tell the truth and put the general well being of the Republic ahead of special interests including themselves.

      These new leaders will be the people that will create and implement the policies and programs that will get all of us out of this wretched economic ditch we have now been in for over 6 years from the seeds that were planted 32 years ago.

      As Franklin Delano Roosevelt opined in the depths of the Great Depression,

      “True individual freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made.”

      While some in our Republic would welcome a dictatorship, they clearly are not in the majority today but may be in the future.

      Election day on November 6th will provide us with the distinct opportunity to renew the wisdom expressed by Franklin Delano Roosevelt and Alexander Hamilton.

      On November 6th, it is critically important that as many of us as possible express our views at the polls as unlike many elections in the past, this one really counts for you, your children and your grand children.

      Choose wisely.

    3. CommentedMark Pitts

      Whether you look at absolute numbers or percentages, modern capitalist countries are the only societies that have allowed a significant number of people to escape poverty. Whereas in China, India, Russia, Eastern Europe and other countries that practiced socialism, virtually all except the government class remained in poverty. When those countries moved to capitalism, their citizens were able to escape poverty.

        CommentedDavid Martin

        Were you born black? Then you will never understand that inequality has widened. I grew up in poverty and I'm now a 100% disabled veteran. I was honorably discharged from the Marines during the Regan era and couldn't find a job until I moved to NY to build power supplies. I was an Aircraft Electrical Systems Technician for A-4 aircraft.
        I then came back to Seattle and worked in the racist insurance industry, where I was continually passed up on promotions, even though I was inundated with everyone else's work and I was tasked with training new personnel, who advanced over me.
        Never committed a crime, always everyone's friend.
        enrolled at the University of Washington, until they forced me to withdraw from school or lose my job.
        Went back into the military-Army this time.
        Was medevac'd from Landstuhl, Germany to Walter Reed Army Medical Center for 6-months and then medical's out.
        Met my wife in Germany and raised her three children.
        Our son finished high school, worked at Wal-Mart and then was hired in a leadership position at Microsoft Security. The same job I applied for, but got no response, even though I was an Army Sergeant and have 8-medals to show for it. Boeing was going to hire me. Told me I had the job, until they saw me. I'm a 6'1" black male; 200 lbs.
        When I couldn't get a job, to feed my family, I worked two jobs; as a security guard in the Jackson Federal bldg. and as a night records clerk at The Immigration and Naturalization Office. I would come home every other day to sleep and then back to work; days security, nights Immigration clerk.
        Had to move to Germany for a family emergency for my wife and her son they stayed with her ex. Came back and worked at Safeco. Passed up on opportunities and was told I had been black listed from my wife's manager because I went to HR about not being given the opportunity to even apply for a supervisor position, that I had already been doing whenever my supervisor was out.
        I later found that from there and at other Insurance positions, I was getting anywhere from $10,000.00 -$30,000.00 less than those I worked with in the same position. My CEO, later ran for Republican Senate against D-Maria Cantwell, after he had dismantled Safeco and laid off virtually all of the workforce. He lost, thank God.
        In HS I got mostly A's; 2 1/2 Latin, Physics, Calculus, History. I had a full ride for track to Western Washington University, but was upset because even though I was accepted to Princeton University and the Cross Country Coach had written me and was so excited about me running on their Cross Country team, they didn't provide athletic scholarships and we were too poor for me to enroll. I was so disheartened that I joined the Marines.
        Many of us, no matter what we do are placed on a different track than others in our society. It doesn't matter what you do to improve yourself.
        My son had a HS diploma, I had a Bachelor's from the University of Washington in Political Science-Comparative Legal Systems and a minor in Law, Societies and Justice-International Human Rights, yet he's making upwards of $80,000.00/ year and I barely cleared $25,000.00 to finally $38,500.00 when I became totally disabled because I was paid a salary wage, but was worked till 8 and 10 at night on a daily bases, then yelled at in front of other co-workers when I returned from sick leave, having recovered from pneumonia. I went to HR, nothing happened. I left the company and found that half of my co-workers left after I did.
        Everywhere I went, the co-workers respected me, but management, for some reason didn't.
        This book makes complete sense to me, complete sense!
        When you open your eyes and realize that you have now become black, because of your lack of wealth, and that it is shrinking exponentially every quarter, you will finally get it that we are now all in it together.
        Maybe not...Maybe you're one that doesn't look too closely for fear of what you know you might see. Kind of looks like doom and gloom, so I get it...but this book is giving you the tools to engage in the Logic of collective action, as Mancur Olson proposes, and use our rights to vote to get these Legislators out of the House of Representatives, get these lobbyist off of Capitol Hill, and take back our country from the obnoxiously greedy and selfish wealthy, because they are literally taking down our country.
        They are eliminating our market, to make us irrelevant in the world. They are weakening our government. We will then have no military, people will come in and handle us unless we wake up...get the picture?

        CommentedJosé Luiz Sarmento Ferreira

        Your argument is off topic. Professor Stiglitz isn't comparing modern capitalist countries to archaic socialist ones. He is comparing a modern capitalist country to other modern capitalist countries. Socialism has nothing to do with this, unless you call "socialism" to basic economic fairness.

    4. CommentedAtul Bhardwaj

      The solution to the global environmental problems does not lie in increasing growth and boosting GDP figures. The answer is slow down. Let computers and individual tablets take all the load that human beings are unable to handle. Let there be no paper money. All money transactions happen through tablets/smarts phones. Taxes are deducted the moment you make a transaction on your mobile phone. No CAs required, no banks required to store cash. All your documents (verified) are on a tablet o prove your identity to anyone, the government interacts with you through your tablet (that is specific to you). No paper, no theft, no clerical work. 90% of the so-called WORK will get eliminated. People will have more time to indulge in creating and inventing. Less travel on roads - things will be smooth. All national wealth will be known to all - no room to hide, total transparency. the controls will not be in American hands. No drug money, no illegal trade, no body will be able to transact without his /her specific tablet, therefore, nobody will be ever able to hide. It may take us towards a perfect world. It may even elimntae the ugly dist

    5. CommentedMark Pitts

      Stiglitz no doubt supports tax increases on high earners as part of the "solution." But, would such tax increases solve anything? Consider:

      The amount to gained from the Buffet rule is only about 0.4% of the debt or of annual GDP. Such an amount is hardly going to change anything for the middle class. It may get votes, but it changes nothing. Only resumed economic growth will change the trajectory of the middle class.

        CommentedJosé Luiz Sarmento Ferreira

        "But, would such tax increases solve anything?" I don't think most sensible people are actually trying to "solve" anything. They aim instead at making things a little better, and then a little better again, and so on. Highly progressive income taxes have other desirable incomes besides increasing Government income. They are a powerful incentive for very rich people to decrease their taxes by plowing a greater part of their income back into the real economy. It's a win-win proposal.

    6. CommentedMark Pitts

      Professor Stiglitz forgets to point out that in the history of the world, capitalism is the only economic system that has allowed a significant number of its citizens to escape poverty.

        CommentedTony Phuah

        In the history of the world, capitalism is the economic system that has produced largest number of people in poverty.

    7. CommentedAlexander Shilyaev

      Does it really mean that underinvestment is the cause of inequality? I think inequality goes hand in hand with overconsumption, and as it seems to me the eradiacation (remediation) of inequality deals much more with redistribution (cutting the pie otherwise) of the wealth than with adding more and more resources (fermenting this pie even bigger).

        CommentedJosé Luiz Sarmento Ferreira

        It is not just as you cut the pie. It is that extreme inequality does make the pie shrink. Why should the extremely rich worry about a shrinking pie provided their slice keeps getting bigger? And it doesn't have to get bigger in absolute terms, either: if it gets bigger only in relative terms their power over other people will still increase. But if you have moderate inequality and very high top marginal rates in income tax, a fast growing pie will be in the interest of the productive rich as well as of the poor and the middle classes. Financial speculators and rent-seekers, on the other hand, will have an awful lot to lose.

    8. CommentedWilliam Hampton

      I would first like to say that I am a big Stiglitz fan! I would like to throw this out there as an uneducated guess as to what has gone down. Maybe it has some validity.
      In “The Big Short” by Micheal Lewis, it was pointed out that the real estate industry uses a lot of terminology that is hard for the average person not working in that industry to understand. You have probably heard therms like “credit default swap” and “mortgage backed securities”. Those are just two of many. Those two have made the news a lot, so you might know what they mean. This made me think that it might be nice to try to put the reason for the whole economic mess into one paragraph that maybe every one could understand. Here is my simple explanation. Of course I am sure it could be disputed, but maybe there is some truth in it.
      “Free trade agreement caused jobs to go to China. American people did not stop buying cheap foreign products made in China by American companies, when they seen their fellow Americans were loosing their jobs. People loosing their jobs could not make their house payments. Banks and mortgage companies seen this coming so they package loans into bonds. They got the bond rating agencies to rate bonds as triple A. Bonds were bought by pension funds and others. Upon having found a way to lend risk free, (turning loans into bonds) the banks and mortgage companies lent money to anyone and everyone. Some seen that it was all going to crumble, so they bought insurance on these bonds even though they did not own any of the bonds. Every thing soon came crumbling down when people were unable to pay their bills. Bond holders lost everything. Bond insurance policy holder made a killing. AIG and others that had sold the insurance policies on the bonds lost big time. Government steps in and bail out the insurance sellers. Banks, were not selling this insurance, but got bailed out anyway. Maybe so they would have the money to purchase all of those cheap mortgage bonds and foreclose on home owners for the purpose of making millions renting houses.”

    9. Commentedphilip meguire

      First: income inequality should be measured using income that is gross of transfer payments, food stamps and refundable tax credits, and net of income tax.

      The main event of the past 6 years that bears on this topic is the 55% decline in the market value of owner-occupied real estate. This explains all of the decline in the net worth of households since 2006. This is a form of wealth that by its very nature is widely held. The mass of Americans are homeowners with no more than, say, 300K in bank accounts and retirements funds. Hence the owner's equity in their houses is quite significant. And in many cases, it's gone, so that wealth inequality has risen.

      A secondary event is something that, to my knowledge, the BLS and its ilk don't measure: the number of households where there used to be two earners and there now is only one. It is possible to cope with this reduction in household wages, especially if the household has cleared its mortgage. But the result is a subtle increase in income inequality.

    10. CommentedAllen Cohen

      Proffesor Stiglitz writes: "most importantly, America’s inequality is undermining its values and identity"

      But according to recent science, inequality is also responsible for a rapidly approaching enviornmental catastrophe.

      Many of the worlds leading climate scientists, under the auspecies of the UN, are preparing for the upcomming Rio conferance on sustainability. They stress we are headed for "tipping points" which will result in drastic enviornmental changes.... And that the main remedy to devestating levels of global warming, is immediatly advancing greater social equity!

      they can explain the specific data better, so I highly recommend acquainting yourself with information they spelled out at their recent preperatory conferance :

    11. CommentedChilde Hassam

      Given the Citizens United decision, how do we turn things around?

      Given the entrenched forces it seems that a Constitutional amendment to undo Citizens United is extremely unlikely. What does that leave us for other strategies?

        CommentedJosé Luiz Sarmento Ferreira

        The United Citizens decision may well be regarded by future historians as the spark that inflamed a worldwide revolution. Starting in the United States of America, as foreseen by Karl Marx, who never expected and would never have approved of any such revolution starting in Russia.

    12. CommentedFrancisco Amaral

      Futhermore I would like to point out, what I think is, one of the biggest problems of this crisis, the constant comparison between the United States and the EU. To my mind it's a silly comparison, because the historical, economical and political differences make it impossible for Governors to implement american-like measures in Europe and vice-versa. So, and after reading this text, when I hear Obama and rating agencies talking about what needs to be done in Europe I question their credibility. First of all, because the american "recovery" did not deal and hasn't been dealing with the structural problems that were the source of this crisis. You may say somethings have been changed, but then again I ask how can you change the system if you don't get to change the people who have power in the system. Second of all, and most importantly, as Stiglitz says, inequality brings economical instability. And when you speak of inequality, you can't just speak on a financial level, because this phenomenon has repercussions also on an educational level, on a social level and so on. While in Europe things have been changing. In other words the current measures of austerity may be undermining growth in the short-term, but they are building the foundations, through structural changing-measures, of a much more stable and, most importantly, lower risk economy. On the other hand the US continues on investing in a high-risk financial system, that to my mind is the source of greater economical instability in the long-term, than the current measures of austerity in Europe.

    13. Commentedsande cohen

      Stiglitz is not very acute on the politics of money. The banker's extractions/dominations are one thing, but the separation of the 'well-educated' from society, trained by universities, is another. All academic positions are highly politicized and we have the most 'quiet' academic class in modern American history. To take an example: tenure at research institutions in the arts and humanities is not the selection of the 'best and brightest' but often of those with minimal production who will "fit" with administrative/imagistic requirements of the institutions involved. At the Institute I taught at in L.A., the President had been denied tenure years before for lack of publication, but he became President through his work at the Rockefeller foundation--the trustees hired him to revamp the image of the Institute. Tuition soared as reading requirements for students plummeted. In short, inequality of educational outcomes is baked into American society--the brand name trumps actual knowledge and experience. The politics of money is destroying the intellectual opportunities of millions of students. The Professors, regardless of ideology, have vacated their critical functions.

    14. CommentedDavid Doney

      Globalization has benefitted low-wage countries and the elite at the expense of the middle and lower classes in high wage countries.

      However, this more complex message is tough to get past the "free trade is good" nonsense we've been fed over the past 30 years.

      Time to start rolling-back globalization. It finally collapsed the U.S. economy, as we now have a $650 billion goods trade deficit and can barely grow with even a $1 trillion annual national debt increase.

    15. Commentedjean nutson

      The fact that inequality causes economic instability is a testament to the fact that the ongoing economic crisis will be very tough to tackle since inequality seems to be a natural phenomenon.

        CommentedJosé Luiz Sarmento Ferreira

        Oh no. Beyond a certain, "natural" measure, inequality is an artifact. And a very hard one to maintain if we consider the huge investment it requires in propaganda, surveillance, lobbying, weaponry and war.

    16. CommentedShana Davis

      I agree with how the unethical actions of mortgage bankers contributed to the current crisis.

      However, one cannot ignore the conscious choices of those who "purchased" homes (especially with no down payment) that they could not afford, whether a traditional mortgage, balloon mortgage, etc. A simple excel spreadsheet or a mortgage calculator that anyone could access free via internet at their local library discounts the claim that "they couldn't have known".
      It is popular to "blame the rich", but as one who has lived in the lower range of the economic spectrum for a number of years, I believe it is important for everyone in society to have a sense of personal responsibility, not just the wealthy.

    17. CommentedStephen Pain

      Inequality and immobility have the hallmarks of a feudal system, not a postmodern economy. We know that in Russia for example that a small percentage control the distribution of wealth and make sure that their money is secured in offshore accounts - often not in the interest of Russia at all. Similarly, the super rich and rich barring a few, seek ways to make sure that their capital makes a maximum profit - and that again is not always in the interest of the US - if it were - why does the US have the largest sovereign debt in the entire history of mankind? Moreover the super rich seek not to invest in manufacturing, but in leverage or speculative ventures.

    18. CommentedDmitry Kalinchenko

      I think that one purely economic case that can be made against inequality is immobility of money. Rich save higher percentage of their income than does middle/lower class, so, while this capital is being invested, it is not creating a lot of additional demand. Lack of demand is what US is going through right now, hence we have the stimulus bills and other government spending that is used to prop up the demand. Had this money been spent of buying domestically produced goods, we would see companies starting to hire and unemployment going down. The money needs to be spent to keep the economic system going and with concentration of wealth it is not happening as fast as we would like it to be.

    19. CommentedStephen Pain

      I am totally in agreement with this article. The US has one of the greatest gaps between those with and without. The tax system needs to be overhauled. Every day we are confronted with pictures of absolute poverty in a nation that professes to be rich. We see an incredible number of people in prison, numerous without proper housing, welfare, education - and on the other hand we see the super rich, an estate who own and govern the rest, who wallow in wealth. A terrible, terrible situation. Poverty is not a matter of ideology - it is a matter of facts - those who deny that l- are ideologues.

    20. CommentedRon Denhardt

      It is an unfortunate quality of human beings to reject information in favor of the pre-determined views. While there are valid criticisms of some of the analysis, a very large number of very respected economists have been documenting the increased inequality of income and wealth distribution. In addition, money now owns the political and economic system so we bail out banks and don't prosecute those who have clearly broken the law.

      My interest is how work together to change the system to treat everyone as equal before the law and to provide everyone an equal opportunity for education, health etc.

    21. Commentedjohn terry

      I was sad reading this article, seeing a once great academic like Joe Stiglitz engaging in a crude attempt to bamboozle his readers. Drenching them in a constant stream of cherry picked, crudely distorted, highly debatable points trying to sell his ideological preconception. I would have expected better from a supposed serious academic.

    22. CommentedDavid Ziegelheim

      A particularly weak article. The first is a misuse of income distribution data. He doesn't address transfer payment and tax effects. The OECD tries to, and with those included the distributions close significantly. He doesn't deal with wealth, just income. It is common for business owners, from the local auto dealership to Warren Buffet, to have their wealth in an asset that grows in value but isn't reflected in income. Wealth often only becomes measurable during the transfer of an estate.

      But most significantly he makes the erroneous leap from presumed static inequality in income distribution to the availability of opportunity. By definition, opportunity is a measure of time, who migrates from the bottom to the top and from the top to the bottom, or places in between. Static distribution, especially distribution of income, is not a measure of this. Measures of movement between income strata show significant mobility, in both directions.

      Beyond that he makes unsubstantiated claims on how those "at the top" acquired their wealth, claiming is has a "disproportionate " high percentage of people who obtained their wealth unethically. There are probably a higher percentage of professors at Columbia, where Stiglitz teachers and where I am an alum, who got their positions unethically than among the wealthy. It is hard to make wealth unethically; it requires a contribution to some activity that adds value. On the other hand, the activities leading to professorships are very political.

        CommentedJosé Luiz Sarmento Ferreira

        I agree with Jack Davis. By current rules, in the USA and elsewhere, it is much easier to make money in unethical than in ethical ways. One of the reasons for this is that top rates in income tax are far too low; so the highest earners have no incentive to reduce their taxes by investing in the productive sector of the economy

        CommentedJack Davis

        I agree with Shana Davis (no relation) completely. A lot of home buyers acted unethically. Being poor doesn't give u the right to commit fraud.

        David Z. said:"It is hard to make wealth unethically; it requires a contribution to some activity that adds value."
        He must live in an alternate universe. All the time unscrupulous prople make lots of money . In fact, it may well be easier to make money unethically.Madoff, Abrahamoff,the list goes on.

    23. CommentedCharlie Savelle

      A simple rule to advocate might be to look at who a particular policy, or more broadly, ideology benefits; if it's not you, or the majority of your nation, or the world, then you're being duped. You could evaporate most of the vim of conservative ideology after perfoming that kind of analysis.

    24. CommentedJacque Vilet

      John Kenneth Galbraith: ”As the economy develops as it has in the United States, you move more people into brackets where self-satisfaction is in some measure, normal, and where people are more and more inclined to the oldest tendency of the affluent, which is to say, ‘I made it, and so can anybody else,’ and to say that government and public health stand in the way of progress, to develop all sorts of theories which reward them and their well-being and, effectively, deny it to those who are still in need.”

    25. CommentedJosué Machaca

      Muy cierto eso acerca de que el sistema de salud no cumple con rigor los postulados por los que se desenvuelve la economía clásica.

    26. CommentedMisaki H.

      This is not meant to be spam, but basically all I have to say is that we can fix unemployment and reduce inequality by adopting an accelerated work week.

      I have commented on a previous article by Joseph E. Stiglitz but it is unlikely those comments were read.

    27. CommentedYoshimichi Moriyama

      Mathematics can be said to be truly universal thinking but this cannot be said true with economics. Economics is not so much a universally applicable discipline as a parochial one; there are much geography, religion, culture and history in it. If the land where the Pilgrim Fathers arrived were an icy land, they would have developed a different creed; the American people would have a different sort of economics. The French settlers in Quebec did not expand all over Canada in spite of its geographical immensity. What we call primitive people would not be impressed with our economics. The Western people who lived in the medieval times would not comprehend it.

      The American people have a very strong belief in capitalist market as something which gives each citizen the best chance of fulfillment and society the best allocation of resources. The belief has become so strong that it is now taken not simply as a social philosophy but as an ethical dictate.

      Economics is the product or effect of history bound by time and space. It is also the cause of history. American capitalism, which has been the effect of environments, has been also the cause, working on its environments and imperceptibly and slowly changing them but it may be that people's habit of thinking has not caught up. Prof. Paul Samuelson said that American economics ignores Malthusian limits and, on account of this, can remain optimistic.

    28. CommentedProcyon Mukherjee

      Capitalism, the only surviving economic system, needs a transformation as never before, as deep fissures tend to portend its flaws, the most visible is its inability to allocate resources to the most productive and innovative sectors of the economy which brings the highest social good. The case in point is the asymmetry that one finds in the market allocation of funds to the highest bidder, who invariably has the highest power while smaller players with higher zeal to make experiments and innovate to create new products and services that could have benefitted a higher majority of people, stand to lose ground. America can only survive when smaller people, smaller corporations, first generation entrepreneurs, start-ups, small groups of students, succeed in their quest for new things. Essentially Capitalism fails to do the balancing act, thus making success only bounded and limited to big players, which is the very reason we have inequality as such a dramatic statistic. This was not the case in the last century, in America itself.

      Procyon Mukherjee

    29. CommentedLuke Lea

      I agree with the main thrust of Mr. Stiglitz's article but would like to add that economist also share part of the blame. I am thinking of their failure to warn of the probably effects of Nafta, Gatt, and China's admittance to the WTO on the distribution of income in America. [See here: ] I don't blame the corporations for taking advantage of these changes however. The do what they gotta do to survive in the marketplace under the rules of the game. As for solutions I prefer GET for GATT -- ie, wage subsidies financed by a graduated expenditure tax as an alternative to protective tariffs (though both may be necessary, at least in the short-run).

      In other words the solution is political -- and just at the moment when organized labor is losing its last teeth. We need a new form of organized labor -- a New Labor Party -- to represent the interests of working people of all races and religions if we expect to change the rules in Washington.

    30. CommentedGunnar Rundgren

      I agree with almost all of the article. However, I think the jury is still out regarding the exact effects of inequality on growth. On the one hand there are certainly data backing the view that equality is good for growth, see e.g.

      on the other hand I do suspect that the inequality feeds a desire to HAVE more, to have the same as the rich etc. and in that way stimulate growth.

      Having said that, the obsession with growth is not doing humanity good. In the end, as Mr Stiglitz writes, it is more about values and what kind of society we want to live in.

        CommentedMelissa Fry

        Some level of inequality can and does promote growth, but when we gut the middle class and achieve a level of inequality that decreases economic mobility, inequality no longer functions as an effective driver of growth. Without ladders of mobility and a higher level of shared prosperity, evidenced by a strong and broad middle class, the result is economic instability as Mr. Stiglitz suggests. The economy effectively collapses in on itself as the share of the population that can afford to buy the goods and services produced declines.

        CommentedCharlie Savelle

        Sorry. Have you seen this yet:

        I accidentally copied the link you already posted.

        CommentedCharlie Savelle

        Have you seen this yet:

        I don't think anyone argues for absolute equality. One problem is an increasing lack of mobiity. the Harvard Business Review had an interesting special about the recession, and an article about the lack of mobility a few months back.

    31. CommentedJ St. Clair

      "But it does not have to be this way: it is not too late for the American dream to be restored."....restored by who....

    32. CommentedJean Noble

      Thank you Professor Stiglitz! As an employee of a large corporation, I see first hand what you are describing in your book. In my case, after the employees took a 30 percent pay cut in 2004 the top executives took larger and larger bonuses leading up to our company's bankruptcy, they are still blaiming labor for their financial woes and determined to take more pay cuts. Thank you for casting light on this matter, vivre la lutte!

    33. CommentedMark Pitts

      Professor Stiglitz has created a masterpiece of cherry-picked statistics and half-truths. Here are some of the most obvious:

      1) Even if there is less equality of opportunity in the US, that does not mean there is less opportunity in the US. In fact, countries that have highly equal economic outcomes (socialist and communist countries) offer their citizens the least opportunities.

      2) Most of the newly very rich in the US had middle class parents.

      3) It is true that the wealthiest came out ahead in 2009-2010. But so what? In 2007-2009, the wealthiest did much worse than average.

      4) For his audience that hates bankers, the author tries to equate the wealthy to those in finance. Yet, as he no doubt knows, only a fraction of the top 1% work in finance.

      5) As the author knows, if total compensation (not just salary) of workers is considered, the middle class is much better off than they were in 1997. That’s because much of the increase in compensation has been in the form of increased company payments for health care.

      Professor Stiglitz expresses many personal opinions and offers many cases of correlation that have little to do with causation. He would do better taking a more scientific approach.

      Finally, in the last 30 years almost a billion people have escaped poverty and entered the middle class. And, as the author knows, almost all of them live in newly capitalistic countries with very rich elites. Now that is a case of causation as well as correlation.

        CommentedMark Pitts

        Mr. Broming does not seem to actually refute the accuracy of my statements. Instead, his objections are based almost solely on his beliefs about what Mr. Stiglitz really meant (but did not say), as well as on how he believes we should "interprete" the author's statements.

        CommentedGunnar Rundgren

        "Finally, in the last 30 years almost a billion people have escaped poverty and entered the middle class. And, as the author knows, almost all of them live in newly capitalistic countries with very rich elites."
        - Most of them live in a dictatorship - China. If you consider China capitalist or not is a question of definition, some do call it state capitalism. Regardless of how you define it, it is hardly a role model for other countries. AND looking in the long term, China is just recapturing the global position it has had most of the last three thousand years.

        CommentedA. T.

        Mark, communist countries in practice offer highly unequal outcomes – all of the economic gains are extracted by the small ruling elite, leaving everyone else poor. Those countries fail due to excessive inequality (all political and economic power held by a small number of people) not due to excessive equality. In fact, the whole point of Smith's observations of the free market is that a more distributed decision-making capacity (i.e. greater equality of opportunity) leads to greater economic efficiency. Free market vs. central planning is not a case of government vs. business – it is a case of distributed vs. concentrated, of "many, small" vs. "few, big".

        The fastest economic growth always occurs under conditions of decentralising power (and, therefore, distributing equality of opportunity). Of course, fast economic growth also tends to PRODUCE power centralisation (reducing equality of opportunity through resultant inequality of outcome). This is why some fundamental ground rules (e.g. protection against monopolies, monopsonies, collusion, insider trading, and cronyism) and the encouragement of creative destruction are fundamental to the smooth running of a free market economy. The relationship of economic inequality (even by outcome) to economic efficiency and economic growth must therefore peak at a certain (and probably quite low) value, with efficiency and growth falling at both higher and lower inequality levels. High inequality and winner-take-all market outcomes are strong indication that the system is being gamed somewhere for the extraction of economic rents.

        On a side note, inflation is not the same as real gains – a massive increase in on-paper healthcare costs has benefitted no one. The average doctor today is not wealthier than they were 15 years ago, hospitals are not more comfortable, and people are not healthier.

        CommentedCharles Broming

        Mr. Pitts offers even fewer statistics than Dr. Stiglitz - none. Is he less guilty of cherry picking or is this comment simply ideology flogging? Point by point:
        1) Yes, it does, in the same sense that Dr. Stiglitz means "opportunity". Attempting to refute a point by shifting the meaning of a key term is disingenuous. Btw, socialist and communist countries (which countries are these, anyway?) don't now and never have had highly equal outcomes. For reference, see the income distribution profiles for the BRIC nations (Brazil, Russia, India and China). Unfortunately, the US profile now resembles those profiles more than any of fully developed industrialized nations. Brazil's and China's appear to be trending toward the European/Japanese profile, while ours and Russia's are trending away. Not sure about India's, although recent data suggests that it's trending similarly to Brazil's.
        2) No kidding - that's why they're "newly rich". There's no content in your comment; it's true that bachelors are unmarried men.
        3) Doing "much worse" for the wealthiest means reducing a net worth of $10,000,000 to $5,000,000 and annual income and capital gains to less than $750,000 from more than $1,000,000; whereas, doing "much worse" for the middle class or poor means losing your house, being unable to sell it or having your 401k reduced to $50,000 from $75,000 - or maybe to $0 due to unemployment. These circumstances aren't even comparable.
        4) Hating bankers is not new, nor is it limited to the poor or middle class borrowers. Many small and mid-market businesses dislike or disdain their bankers even as they use the money they borrowed from them to support their growth or fund their losses. The data to which Dr. Stiglitz refers is that the portion of the 1% who obtained their wealth from banking activities has increased even faster and more than the portion of finance industry income has grown as a portion of GDP. This statistic is documented; it's not in dispute.
        5) The author "knows" no such thing. In fact, "better off" is a relative thing. This argument - that the middle class or poor is "absolutely" wealthier is classic ideology at its worst. Mr. Pitts' comment here suggests that he didn't read the entire article; he seems to have stopped at the end of paragraph seven, in which Prof. Stiglitz obliterates this objection.

        If you have statistics that contradict Prof. Stiglitz's statistics or mitigate his explanations of his statistics, cite them. If the best you can do is to repeat thoroughly discredited arguments (as seems to be the case with so many other commentators on this particular column) or simplistic ideology, don't bother.

    34. CommentedCharles Dover

      The evidence is that newly minted millionaires in the USA is constantly rising; never mind the Harvard drop-out who became a billionaire this year, making the myth a reality. And, would not mathematics prove that inequalities would necessesarily be larger in the richest country in the world, containing the majority of the world's wealth, not to mention the source of the creation of the majority of new wealth in the world? Might it also be possible that (human nature being what it is) the "myth" of American exceptionalism becomes a self-fulfilling prophecy for the hard-working and/or lucky? Could it also be possible that the poor are poorer because of the inability of America to ditch the current 19th Century educational model that is a victim of political decisions that result in standards and outcomes that are ever falling to lower and lower levels?

    35. CommentedZsolt Hermann

      It all comes from our inherent human nature.
      We are all based on a desire to receive fulfillment for ourselves. All our life is based on the pleasure/pain principle, chasing the maximum pleasure for ourselves and avoiding any pain the best way possible.
      The only difference in between human beings is the hunger, how far an individual is willing to go in order the get what fulfills him/her, how much sacrifice, ruthlessness he/she is capable of.
      According to this humanity is rendered around a pyramid system, those with the largest, hungriest desires at the top, and the larger masses with smaller desires at the bottom.
      America is the pinnacle of human evolution which evolution is based on the ever increasing egoistic desire, the hunger for self fulfillment.
      In the American society, in the American Dream this constant, never ending self fulfillment portrayed and accepted shamelessly.
      And as the article itself shows those at the top of the pyramid are not happy with their share they even bend the system to their advantage as we can observe even now through the financing and support for the Presidential Campaign, and through the work of the different lobby and interest groups, thus the inequality gap continuously increases.
      Today we are going through a self adjustment as this unnatural, exploitative arrangement has run into a dead end, it has exhausted itself, and we have plunged into a global crisis which will not turn around as this system is unsustainable.
      What we can do is to prepare for a new system, where we can avoid the mistakes we did in the past.
      But it can only happen if we start the correction with our inherent human nature as foundation, if this nature of ours is not adjusted we will continue to commit the same mistakes again and again.

    36. CommentedA. T.

      No less importantly, excessive and persistent inequality undermines innovation and progress. Progress requires a large amount of small scale experimentation. A large amount of small-scale experimentation can happen if many people can run experiments individually/without involving others (so initial success can be empirically determined through actual results as opposed to the ability to a priori convince a small group holding the purse strings) without the fear of losing everything should the experiments fail.

      Privilege should not be significantly easier to keep than it is to gain.