Nobel Prize-winning economist Joseph Stiglitz is the author of the best-selling book “The Price of Inequality: How Today’s Divided Society Endangers our Future,” which was published in June. Formerly chief economist of the World Bank and head of President Bill Clinton’s Council of Economic Advisers, Stiglitz, a professor at Columbia University, was awarded the Nobel in 2001 for his work on income inequality and is widely considered one of the world’s leading economists. He spoke with GlobalPost about the growing gulf between rich and poor in America and around the world — and the cost of the failure of many world leaders to address it. Stiglitz argues that the price of allowing the US to continue down the path of inequality, as 1 percent of Americans now control 40 percent of the country’s wealth, is the undermining of economic growth, the erosion of democracy and the growing instability of American society itself. American income inequality presents a frightening specter, he argues, for the global economy.
What is the impact of a globalized economy on inequality within countries?
The hope was that globalization would enhance growth, and enhanced economic growth would benefit most citizens and that was true in some countries. But in recent years, most citizens in the United States and many other countries have not benefitted. Globalization, as it has been managed, has resulted in increased inequality, and as inequality increases, growth becomes weaker. The risk is that the middle class is going to be harder and harder hit, and that there will be prosperity for only the few at the top. But the middle class is important for stable growth and a strong democracy. When a society becomes more and more divided, it becomes increasingly class-driven, and it’s very hard for democratic processes to work well in that kind of society.
But the situation is not hopeless — there were very high levels of inequality in America during the Gilded Age and the Roaring Twenties and we were able to pull ourselves back from that. There have also been some experiences where other countries have pulled themselves back from the brink. On the other hand, the dynamic that is in place right now — increasing economic inequality leading to increasing inequality in political power, which, in turn, leads to further increased economic inequality — may make it more difficult for America to reverse its course than when it did so during those other periods.
What lessons can the US take from other countries? Are there any examples of success stories?
I talk about Brazil in my book and how they have been able to reduce their level of inequality, though they still have much to do. France has typically been pretty stable in equality, but very recently their inequality has gotten worse. The Scandinavian countries have maintained relatively high levels of equality and equality of opportunity.
What has allowed other countries to achieve more equality?
It has, I think, partly to do with a moral perspective on economics, and the value that is placed on community. For example, in some other countries, there is a deeper connection between religion and helping others. InEurope, helping others is a basic religious tenet. They look at America and wonder, “America says it’s a deeply religious country, but why doesn’t that show up in its values, in how it behaves?”
I think the answer has to do a little bit with our notion of rugged individualism which runs counter to a sense of community. In America, a lot of people think they are self-made, but nobody, of course, is self-made. We all need to recognize the role government and others play in helping us to get whatever successes we achieve — and understand that a more equitable society has moral, civic, and economic imperatives.
What kind of example is the US setting for the rest of the world as inequality grows?
A terrible example. Actually worse than that. To the extent that America is held up as a paradigm of what a market economy is, the way we manage the market economy is not what most individuals (here, or in other societies) want. We have become the country with the least equality of opportunity. People may differ about how much they care about equality of outcomes, but everybody believes in fairness and equality of opportunity. People that are born at the bottom now stay at the bottom whereas in the Scandinavian countries people are still able to work their way up the ladder. Those that start at the bottom have a much better chance of getting to the top than those in the United States.
More specifically, what other countries should find disturbing about America are three things:
One, we don’t recognize the benefits of people getting access to medicine and other basic necessities of life. In spite of being a rich country, those at the bottom in the US have inadequate healthcare and food. When I visitedIndia this year, I remember how scandalous they thought it was that not everybody had access to food. People in other societies view this as a lack of humanity. A kid born into a poor family should at least have access to adequate food and healthcare.
Two, America has become a rent-seeking society, a term of opprobrium we usually hear applied to oil-exporting countries. Rent-seekers extract profit from existing industries without contributing value – in the form of innovation, entrepreneurship, and growth – to the economy. They use their wealth to consolidate their power, by influencing regulations and government policies. This has happened in many instances – we see it in our military and drug companies, in our banks that succeeded in stripping away regulations, which allowed them to earn huge profits at the expense of the rest of society – and it’s not a model for a competitive dynamic economy.
Three, we do so little to correct the inequality in our country. In fact, we do much less than countries that have less inequality than we have, and that’s disturbing.
What’s the trajectory of our country if we continue down this path of inequality?
We are paying a very high economic price for this inequality – our economy is less productive and efficient. It may continue to be the case that the 1 percent does reasonably well, and they can take advantage of global markets, but in terms of the typical American we are sinking. As I note in my book, the median income of a male worker today is lower than it was in 1968.
We are not just paying an economic price, but we are also paying a price in terms of our politics and our society — inequality is undermining our democracy and our basic values.
What can America do to minimize our inequality?
Inequality has tarnished our democracy by giving money a disproportionate amount of influence — from the role of lobbying to campaign contributions to the role of revolving doors. In almost all democracies, those three things exist to a certain extent. In the United States, they’ve gotten out of control. To help change them, there needs to be small reforms and big reforms. We could, for instance, reverse the ruling on Citizens United, which allows, in effect, corporations to give an unlimited amount of money to campaigns. We could also work within the framework of Citizens United and require the company’s shareholders to approve campaign contributions. We could pass corporate governance laws that would give shareholders a voice, which I think would reduce the influence of corporate campaign contributions.
Outside of politics, there are many other steps we can take to minimize both inequality and its deleterious effects. Capital gains income could be taxed at the same rate as income derived from working, for one. And government can use those increased revenues to invest in those areas that will give a boost to the opportunities of the middle and bottom income earners – especially investments in education, health, technology, and infrastructure.
What other sort of reforms need to take place?
Elizabeth [Warren] is fighting very effectively for one set of reforms that are very, very important— reforms in our financial system. We need to make sure that our banks better manage risk, and engage less in securities fraud and market manipulation. Through predatory lending and abusive credit card practices, banks have taken an enormous amount of money from the bottom and have given it to the top. The discriminatory lending that has gone on is just morally wrong. It’s moral turpitude. It may not be outright theft, but it should be considered equally wrong.
Those engaged in such behavior either try to make such practices legal or in the cases where it is illegal, they try to make sure the laws aren’t effectively enforced. Ultimately, we need equal access to justice. To this day, in the aftermath of the foreclosure crisis, when some people were being thrown out of their homes who did not owe any money, and banks were in effect lying to the court, saying that they had examined the mortgage records, but hadn’t, those banks still haven’t been properly prosecuted.
How and when did our society get so off track?
Day by day. Our society took a turn around 1980 around the time when Reagan came into office. During World War II, our country fought together and was brought together by the war. In the decades after, the country grew together: the incomes of the people at the bottom grew more than those at the top. We passed the GI bill which provided our veterans with the opportunity for higher education, enabling them to get a better job, buy a home, and to move up in the world, and many seized that opportunity. During this time, our economy grew quickly and there was shared prosperity.
But then attitudes started to change and Americans were sold a bill of goods — that lower taxes, de-regulation, more corporate welfare, and less help for the poor would help our economy grow even faster, but it didn’t. Ultimately, they sold Americans on the bill of goods that if those at the top did well, the benefits would trickle down and everyone would benefit. But those in the middle and the bottom have not fared well. Instead, we became a more divided society. We passed bad bankruptcy laws, we didn’t enforce anti-trust laws as effectively as we should have. The effect of individual laws may have been small in and of themselves, but together they had a great impact. As I state in my book, inequality didn’t happen overnight. Instead, it grew as a result of a large number of seemingly small decisions.
If it took us decades to get into this mess, will it take us decades to get out of it?
We could reverse this situation fairly rapidly — in principle. The full effects, of course, wouldn’t be felt overnight, but if we can start reforming our politics — it’s all in the politics — then we have a shot.
First, though, we need to get over the belief that we don’t live in an unequal society. Many people still buy into this mythology and ideology that we [America] have more equality than other countries. Many people either don’t believe we have inequality or don’t believe that rent-seeking has created this inequality. And many of those who do believe we have inequality and would like to get rid of it, are stuck in the belief that doing so would hurt our economy too much. In this view, it doesn’t “pay” to get out of the inequality cycle. A major thrust of my book is to show that, to the contrary, we can have a more productive and efficient economy, with more rapid growth, by reducing inequality.
But given our current set of political rules, it’s very difficult getting over our influence of money. We see that so forcefully in bank reform. Almost all Americans understand the central role that the banks played in causing the crisis, and 75 percent of Americans believe that we need to regulate the banks better. But banks have the power to fight reform and they are fighting it rather successfully. This is not to say that we haven’t made some reforms, and this is not to say that all banks are bad. There are good bankers and banks. What’s worrisome is the political power of those who don’t want reform.
When did government become the devil?
Demonizing the government goes back to the 1980s. The irony is that those who demonized government often did a very poor job in running the government — while the Republicans preached fiscal responsibility, both President Reagan and President Bush rang up unprecedented peace time deficits.
Those that demonize government seldom mention the failures of the private sector. Furthermore, no democratic government has ever wasted resources on the scale of the waste caused by the financial sector’s misdeeds and misjudgments in the run-up to the crisis.
So what’s your outlook for America now?
Things are better than they were four years ago, when we were in free fall. But, unless we have another round of fiscal stimulus and do something about the continuing foreclosure crisis, it is unlikely that we will return to robust growth, with full employment, any time soon. More likely, we will continue with anemic growth, too slow even to provide jobs for what would normally be the new entrants into the labor force, let alone make a quick dent in the some 23 million Americans who would like to get a full time job and can’t get one today.
This story was originally published by Global Post.