The Price of Inequality, Joseph E. Stiglitz
By now we know most of the numbers.
One out of six Americans who would like a full-time job can’t find one. Eight million families have been thrown out of their homes. The top 1% of Americans captured 93% of all the additional income created in the country in 2010 (as compared to 2009). The six heirs to the Wal-Mart empire, with a combined wealth of $69.7 billion, possess the equivalent wealth of the entire bottom 30% of U.S. society on the economic ladder. Between 2005 and 2009, the typical African-American household lost 53% of its wealth; Hispanic households lost 66% of their wealth. Almost one out of 100 Americans is in prison.
Slowly, we are easing the hold that myths about American life have had on our society.
There is no free market in the US. The market is shaped by politics. Politicians write the rules that determine the winners and the losers. Inequality in America has effectively killed the possibility of upward mobility for most poor people. Poor kids that succeed academically are less likely to graduate from college than rich kids who do worse in school. Higher taxes don’t necessarily slow economic growth. From 2000 to 2010, high-taxing Sweden’s economy grew 25% faster than ours did.
Our economy has also gone through structural changes that will continue to shape our future. Steel plants today can produce the same amount of steel as they did in the past with 1/6th the labor. Because so much wealth has been shifted to the richest people, overall consumption has declined. Rich people spend less of their income than poor people do. Because the rich save 15–25% of what they make, and poor people spend it all, the more money that goes to the rich, the less there is available to be spent.
Before the financial crisis of 2008, 40% of all corporate profits were generated by the financial industry – up from only 10% a decade earlier. How has this happened? In the retail industry, credit card companies often make more money from the fees charged to process a transaction than the retailer makes on the sale of its merchandise.
While some complain endlessly about the economic cost of investing more money on the poorest Americans, how it will impact our debt, and that it’s simply unaffordable in the current economic climate. Stiglitz points out that in 2008, the insurance company AIG was given $150bn by US taxpayers – more than the total spent on welfare to the poor in the 16 years leading up to 2006.
The industries that most effectively elect politicians end up with regulations that ensure outsized profits. American businesses pay more to credit card companies than businesses around the world. Americans pay higher cell phone fees and get poorer service than people in other countries. We pay enormous fees for health care – twice what the English pay – for a quality of care that is half as good.
Yvonne Roberts of The Guardian writes in her review of the book, The Price of Inequality, that “Joseph E. Stiglitz passionately describes how unrestrained power and rampant greed are writing an epitaph for the American dream. The promise of the US as the land of opportunity has been shattered by the modern pleonetic tyrants, who make up the 1%, while sections of the 99% across the globe are beginning to vent their rage.”
In 2001, Stiglitz, a former chief economist at the World Bank, won the Nobel Prize for economics for his theory of markets with “asymmetric information.” Roberts writes that, “When some individuals have access to privileged knowledge that others don’t, free markets yield bad outcomes for wider society. Stiglitz conducted his work in the 1970s and 80s, but asymmetric information perfectly describes the Libor scandal, rigging the interest rate at a cost to the ordinary man and woman in the street. Stiglitz details the profound consequences not just of the current financial meltdown but of the previous decades of neoliberal interventions on the incomes, health and prospects of the 99%, and the damage done to the values of fairness, trust and civic responsibility.”
Stiglitz is one of a growing band of academics and economists, among them Paul Krugman, Michael J. Sandel and Raghuram Rajan, who are trying to inject morality back into our capitalist system. Stiglitz argues throughout the book that we have reached a level of inequality that is dangerous, intolerable and morally corrupt.
The Price of Inequality is a powerful plea for the implementation of what Alexis de Tocqueville termed “self-interest properly understood.” Stiglitz writes: “Paying attention to everyone else’s self-interest – in other words to the common welfare – is in fact a precondition for one’s own ultimate wellbeing . . . it isn’t just good for the soul; it’s good for business.” Unfortunately, that’s what most of the 1% have never understood – and we are all paying the price.