The Price of Inequality, by Joseph E. Stiglitz

[John F]

The CMG Review of Books is labeled "cozy" and "genteel." Stiglitz's economic and social criticism is anything but.


August 3, 2012

Separate and Unequal
By THOMAS B. EDSALL

THE PRICE OF INEQUALITY
By Joseph E. Stiglitz
414 pp. W. W. Norton & Company. $27.95.

Joseph E. Stiglitz’s new book, “The Price of Inequality,” is the single most comprehensive counter­argument to both Democratic neoliberalism and Republican laissez-faire theories. While credible economists running the gamut from center right to center left describe our bleak present as the result of seemingly unstoppable developments — globalization and automation, a self-­replicating establishment built on “meritocratic” competition, the debt-driven collapse of 2008 — Stiglitz stands apart in his defiant rejection of such notions of inevitability. He seeks to shift the terms of the debate.

It is not uncontrollable technological and social change that has produced a two-tier society, Stiglitz argues, but the exercise of political power by moneyed interests over legislative and regulatory processes. “While there may be underlying economic forces at play,” he writes, “politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest.” But politics, he insists, is subject to change.

Stiglitz is a Nobel laureate and a professor of economics at Columbia (where I too teach, but we are not personally acquainted). He holds a commanding position in an intellectual insurgency challenging the dominant economic orthodoxy. Among his allies are Jacob S. Hacker and Paul Pierson (the authors of “Winner-Take-All Politics: How Washington Made the Rich Richer — and Turned Its Back on the Middle Class”); Lawrence Lessig (“Republic, Lost: How Money Corrupts Congress — and a Plan to Stop It”); Timothy Noah (“The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It”) and Paul Krugman (“End This Depression Now!”). The collective argument of these dissidents is not only that inequality violates moral values, but that it also interacts with a money-driven political system to grant excessive power to the most affluent. In short, those with power use it to insulate themselves from competitive forces by winning favorable tax treatment, government-­protected market share and other forms of what economists call “rent seeking.”

Conservative advocates of pure free markets, in this view, fail to acknowledge how concentrated economic power converts into political power. The right, for example, has hailed the evisceration of the estate tax and the lifting of restrictions on campaign contributions, despite evidence that such policies work to restrict competition — by further concentrating wealth in the case of the estate tax, and by further empowering corporate America to control political decisions in the case of campaign finance.

Stiglitz and his allies argue that a free and competitive market is highly beneficial to society at large, but that it needs government regulation and oversight to remain functional. Without constraint, dominant interests use their leverage to make gains at the expense of the majority. Concentration of power in private hands, Stiglitz believes, can be just as damaging to the functioning of markets as excessive regulation and political control.

The importance of Stiglitz’s contribution (and that of other dissidents) to the public debate cannot be overestimated. The news media and the Congress are ill-­equipped to address the role of economic power in shaping policy. Both institutions are, in fact, unaware of the extent to which they themselves are subject to the influence of money.

Stiglitz describes the economic capture of regulatory authorities by the interests under their jurisdiction — and the more subtle intellectual capture of policy makers of all kinds. The calculated and purposeful shaping of public discussion allowed conservative analyses to dominate debate in the years before the collapse of 2008, and in the years since they have been dominant as well.

It is not just democratic politics that is threatened by huge disparities in wealth and income. Much of Stiglitz’s book is devoted to demonstrating that excessive inequality amounts to sand in the gears of capitalism, creating volatility, fueling crises, undermining productivity and retarding growth. Just as discrimination results in the failure of a nation to make the best use of all its citizens, inequality, when it leads to inadequate schooling, housing and neighborhood conditions for large numbers of people, acts in a similarly destructive fashion.

Stiglitz succinctly summarized his own argument in a recent online column: “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. . . . 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.”

Stiglitz wrote “The Price of Inequality” at the height of the uprisings in Tunisia, Libya and Egypt, and the Occupy Wall Street movement here in the United States. These revolts against established power helped make him optimistic about the prospect of change in the future. But he seems more sanguine at the beginning of his book — “There are moments in history when people all over the world seem to rise up, to say that something is wrong” — than at the end, which concludes on a note of warning: “Time, however, may be running out. Four years ago there was a moment” — the 2008 election — “where most Americans had the audacity to hope. Trends more than a quarter of a century in the making might have been reversed. Instead, they have worsened. Today that hope is flickering.”

Circumstances in the summer of 2012 justify Stiglitz’s more apprehensive conclusion. Prospects for programs boosting public investment are virtually nil. Republicans stand a good chance of taking control of both branches of Congress after the next election. Their presumptive presidential nominee, Mitt Romney, may capture the White House. If so, his tax and regulatory proposals will most likely embody all that Stiglitz finds repugnant. Even if Romney loses, the American political system does not appear ready to respond to Stiglitz’s call to arms.

Stiglitz may prove most prescient when he warns of a society governed by “rules of the game that weaken the bargaining strength of workers vis-à-vis capital.” At present, he says,“the dearth of jobs and the asymmetries in globalization have created competition for jobs in which workers have lost and the owners of capital have won.” We are becoming a country “in which the rich live in gated communities, send their children to expensive schools and have access to first-rate medical care. Meanwhile, the rest live in a world marked by insecurity, at best mediocre education and in effect rationed health care.” Except for a brief period in 2008-9, when the stock market decline hit the wealthy the hardest, the trends would seem to be moving toward Stiglitz’s pessimistic vision of the future, with little prospect of change no matter who wins office on Nov. 6.

http://www.nytimes.com/2012/08/05/books ... glitz.html

[jbuck919]

I may read the book, though it seems, as it does with John F and Paul Kruger, that I'm only going to have affirmed what i already know. What I wonder is why this to me obvious interpretation of the state of things is considered "dissident." Not universally held, certainly, but if this is not at least a mainstream view, isn't that an argument that the level of control exercised by the plutocracy is operating at an even more sinister level--that of controlling the terms of public discourse (as Stiglitz himself appears to imply)? I imagine that a social studies teacher would still have his head handed to him if he introduced (in the context of opposing views, critical thinking, and discussion) the idea that our problems are the result of a small very rich group of people (almost too small to be called a "class") imposing its narrow interests in a nakedly self-serving fashion at the expense of everybody else. Of course, only a tiny amount of school time if any is ever spent on such things, so I guess one more omission doesn't make much difference. But no substantial portion of the population is ever going to be fired up by ideas that remain confined to the works of academics (even in general publication), or liberal columnists for the NY Times.

[lennygoran]

Bill moyers has been giving a similar message on his pbs show for months now
-the influence of the rich is an outrage! Len

[John F]

Lots of people are saying that, but if Stiglitz's book was merely the same old song, I wouldn't have bothered to post this review. What's different about this book, and others named in the review, is that they make a reasoned case that inequality is actually bad for economic growth - contradicting the Republican mantra of trickle-down economics and the rest of it. Stiglitz bases his argument not on moral outrage, which is easy and cheap, but on hard facts and figures and economic logic.

Right wingers will shrug this off if they read it at all, just as some here shrugged off Michael Sandel's moral argument that there are things money shouldn't buy, even if it can. But we know we're right, don't we?

[lennygoran]

Moyers guests also discuss that trickle down is a myth. Len

[jbuck919]

Lots of people are saying that, but if Stiglitz's book was merely the same old song, I wouldn't have bothered to post this review. What's different about this book, and others named in the review, is that they make a reasoned case that inequality is actually bad for economic growth - contradicting the Republican mantra of trickle-down economics and the rest of it. Stiglitz bases his argument not on moral outrage, which is easy and cheap, but on hard facts and figures and economic logic.

I was taking the economic argument into account when I made my post because it also seems to me to be obvious, but I see the point that most of the arguments so far have been moral rather than economic.

Right wingers will shrug this off if they read it at all, just as some here shrugged off Michael Sandel's moral argument that there are things money shouldn't buy, even if it can. But we know we're right, don't we?

The reviewer of the book, if not Stiglitz himself, seems to think that there is practical value to having the economic argument emphasized, but I seriously wonder if we are not about to find out that US economic growth is not a priority of our new monied masters (abetted, as you imply, by ideologues who won't give an inch on their positions even in the middle of another great depression). It might be that full US employment in mainly quality jobs would benefit the oligarchs, but I know of no reason to think that it is really needed for them to pursue wealth by the means they currently employ.

Another consideration is that economic advantage to the country is not mainly what brought blacks and women closer to equality with white men. To me, the real question is how badly off the middle class will have to get before it asserts itself by extraordinary action. Badly enough so that most Americans living today will find themselves either in decline or starting out with reduced hopes and prospects, I imagine.

[lennygoran]

You are so right about the middle class! Sue and I are okay but when you see what the
Super rich are getting away with you gotta act! Wake up America!
Len

[John F]

The reviewer of the book, if not Stiglitz himself, seems to think that there is practical value to having the economic argument emphasized, but I seriously wonder if we are not about to find out that US economic growth is not a priority of our new monied masters (abetted, as you imply, by ideologues who won't give an inch on their positions even in the middle of another great depression).

I don't understand you. Economic growth is hammered away at week after week as the numbers are released. The assumption is that voters believe growth is important and the economic argument will sway their votes. There's the "practical value" of making the contrary economic argument. And what should an economist do, if not make economic arguments?

[jbuck919]

The reviewer of the book, if not Stiglitz himself, seems to think that there is practical value to having the economic argument emphasized, but I seriously wonder if we are not about to find out that US economic growth is not a priority of our new monied masters (abetted, as you imply, by ideologues who won't give an inch on their positions even in the middle of another great depression).

I don't understand you. Economic growth is hammered away at week after week as the numbers are released. The assumption is that voters believe growth is important and the economic argument will sway their votes. There's the "practical value" of making the contrary economic argument. And what should an economist do, if not make economic arguments?

It's time to offer my own "dissenting," perhaps radical idea. I propose (and I hope I'm wrong) that the Republicans--the power structure among them who are calling the shots anyway--are using the economy to get votes without having any intention themselves of ever again being held accountable by something as inconvenient as voter anger if they gain power. I think they plan on staying in power through a combination of gerrymandering, voter suppression, and buying elections, all practices of which they are already taking the fullest possible advantage. That way they can run the country for the benefit of their narrow and privileged clientele while the country benefits only if its interests happen incidentally to coincide with those of the few, which will not be often enough for general prosperity. That's why I envision the possibility of people eventually having to take to the streets when things get bad enough.

[John F]

What you're saying isn't far from what Stiglitz, Lessig, and others are saying, according to the book review. (Lessig's theme is the corruption of American politics and government by the moneyed interests; he gave my class his standard lecture, PowerPointed to the nth, at our 50th reunion.) They're on our side, and they're making the case to a much larger audience than we CMGers can. I believe there's practical value in that, as long as the people still can vote. Don't you? Or is it all wasted effort and the publishers might as well spared those trees?

[jbuck919]

What you're saying isn't far from what Stiglitz, Lessig, and others are saying, according to the book review. (Lessig's theme is the corruption of American politics and government by the moneyed interests; he gave my class his standard lecture, PowerPointed to the nth, at our 50th reunion.) They're on our side, and they're making the case to a much larger audience than we CMGers can. I believe there's practical value in that, as long as the people still can vote. Don't you?

Yes, and I hope the open the exchange of ideas at a level more effective than the speakers' corner in Hyde Park does not become an end-stage casualty of snowballing corruption.

But you know, academia is still heavily populated with enabling economists of mainly conservative bent whose views coincide more with Republican than Democratic politics and who apparently think that it's only a question of electing the party with the better taxing/spending plan for economic growth (if either) to obtain same. You would think to listen to them that the concentration of power in wealth of the last 30 years never happened. One of them is the department chair in economics at your Alma Mater, whom I heard on that dubious NPR program "Marketplace" the other day. He framed his entire segment on the premise that the trickle-down, excuse me supply-side benefits of what he was advocating would accrue to Americans in general, and no one bothered to ask him "how?"

http://en.wikipedia.org/wiki/N._Gregory_Mankiw

[lennygoran]

It's time to offer my own "dissenting," perhaps radical idea. I propose (and I hope I'm wrong) that the Republicans--the power structure among them who are calling the shots anyway--are using the economy to get votes without having any intention themselves of ever again being held accountable by something as inconvenient as voter anger if they gain power. I think they plan on staying in power through a combination of gerrymandering, voter suppression, and buying elections, all practices of which they are already taking the fullest possible advantage. That way they can run the country for the benefit of their narrow and privileged clientele while the country benefits only if its interests happen incidentally to coincide with those of the few, which will not be often enough for general prosperity. That's why I envision the possibility of people eventually having to take to the streets when things get bad enough.

Other than the taking to the streets I think your ideas are correct and this is what Moyers and his guests have been saying for months--he's interviewed a lot of tax experts, economists and other people in the field and they have convinced me that the system is rigged by the rich--the ideas that started this thread are not new to me but they are valuable for sure. Now can we send at least one banker to jail already! Regards, Len

[jbuck919]

It's time to offer my own "dissenting," perhaps radical idea. I propose (and I hope I'm wrong) that the Republicans--the power structure among them who are calling the shots anyway--are using the economy to get votes without having any intention themselves of ever again being held accountable by something as inconvenient as voter anger if they gain power. I think they plan on staying in power through a combination of gerrymandering, voter suppression, and buying elections, all practices of which they are already taking the fullest possible advantage. That way they can run the country for the benefit of their narrow and privileged clientele while the country benefits only if its interests happen incidentally to coincide with those of the few, which will not be often enough for general prosperity. That's why I envision the possibility of people eventually having to take to the streets when things get bad enough.

Other than the taking to the streets I think your ideas are correct and this is what Moyers and his guests have been saying for months--he's interviewed a lot of tax experts, economists and other people in the field and they have convinced me that the system is rigged by the rich--the ideas that started this thread are not new to me but they are valuable for sure. Now can we send at least one banker to jail already! Regards, Len

OK, after you and John and Stiglitz are done with me, America taking to the streets to win back the blessings of broad-based democracy is the only original part left. I just want everyone to know that I don't have this unpleasant vision of what I consider to be a realistic possibility because I feel a need to be original.

[lennygoran]

I just want everyone to know that I don't have this unpleasant vision of what I consider to be a realistic possibility because I feel a need to be original.

I sympathize with your feelings but what is the more realistic possibility--a total French revolution type action or maybe just reelecting Obama and keeping the Senate--okay maybe the Dems get a few seats in the House and every once in a while the March on Wall St. people do a little demonstration? Regards, Len

[jbuck919]

I just want everyone to know that I don't have this unpleasant vision of what I consider to be a realistic possibility because I feel a need to be original.

I sympathize with your feelings but what is the more realistic possibility--a total French revolution type action or maybe just reelecting Obama and keeping the Senate--okay maybe the Dems get a few seats in the House and every once in a while the March on Wall St. people do a little demonstration? Regards, Len

I am not predicting the inevitable victory of the forces of evil. Every possibility between that and something resembling an enlightened functional government is in the realm of possibility, though things are weighing toward the sorrier end. We will probably muddle by for a time, one way or another, but if things develop in the direction indicated, people aren't going to put up with everything forever. I'm not talking about the French Revolution. Put together the Vietnam protests, the US history of labor unrest, and the Civil Rights Movement. Somewhere in that mix is what we might eventually see, the extent of it depending on how much it takes to get the job done.

But don't worry Len. It probably won't come to that in our lifetime. Speaking for myself, it has come to this: I have given up on the hope of living in a more or even stable-as-is decent society in my lifetime. I'm at the stage of just hoping the whole mess doesn't destabilize my own modest hopes for the rest of my life, which in terms of my own character and interests are not unlike those you had and have enjoyed for your retirement. And the mentality of "as long is it doesn't affect me personally" is both uncomfortable to acknowledge and already accepting of the likelihood that I live in a time of diminished hope, something Americans my age were not raised to be prepared to cope with.

[lennygoran]

which in terms of my own character and interests are not unlike those you had and have enjoyed for your retirement.

Hope you can have a great one when the time arrives--when I was thinking of retirement at the age of 54 people said--what will you do--you'll regret retiring early--they were wrong--I took to it like a duck to water! Or these Canadian Geese we spotted a few days ago in Lake Tupper. Regards, Len

[lennygoran]

We will probably muddle by for a time, one way or another, but if things develop in the direction indicated, people aren't going to put up with everything forever.

While I was away the flap over Romney's taxes took a turn for the better from my point of view--THANK YOU HARRY REID!

Let's take the best case scenario as I root against Romney --Romney is in fact hiding his tax returns because he didn't pay taxes. If this doesn't show the American people the inequality of the present system nothing will!

"One week after Senate Majority Leader Harry Reid charged that Mitt Romney did not pay taxes for 10 years, the flap over the remark doesn't appear to be dying down at all.

The charge popped up as a major point of conversation on the Sunday show circuit, with high-ranking Republicans like RNC Chair Reince Priebus firing back at Reid and calling him a "dirty liar."

Reid's charade doesn't look like it's going to fizzle out any time soon. He's going to keep insisting that the "Bain Capital investor" who told him about Romney's tax returns is legitimate. Why? Because he's playing a game with virtually no chance of losing.

Let's break it down:

Romney has backed himself into a corner that will be tough to get out of. If he relents to Reid's demands, then Reid wins. If he doesn't, then Reid and other Democrats will keep making it an issue.
Reid has pretty successfully made this issue a loaded question. The only way to completely disprove Reid is to release the tax returns. And if he doesn't, it will add to the perception that there's something veiled behind his "put up or shut up" words. Because...
Keep in mind that a majority of voters — and, crucially, Independent voters — want Romney to release his tax returns, according to Gallup. In the clearest sign that Romney has bungled this issue, most people think that a presidential candidate's tax returns are irrelevant, except in Romney's case.
Reid doesn't have to worry about re-election — if, at 76 years of age, he will seek re-election — until 2016.

Several Republicans and the Romney campaign have accused Reid of Joseph McCarthy-style witch hunt or compared Reid's charges to the "birtherism" movement from conservatives that still has some legs. It's not. Accusing Romney of not paying taxes is a far less serious charge than accusing the President of treason. And it's not really a "witch hunt," either. It's just a more serious — albeit baseless — charge than any Democrat has been willing to throw out on the record.

As long as Romney continues to be rattled by this, this is an issue that will continue to knock Romney off message.

Further evidence that this story has legs came Monday, when House Minority Leader Nancy Pelosi backed up Reid today in an interview with The Huffington Post.

"Harry Reid is a person who is, as we know, A, is a fighter, B, he wouldn't say this unless it was true that somebody told him that," Pelosi said.

http://www.businessinsider.com/harry-re ... bus-2012-8

Regards, Len

[jbuck919]

If this doesn't show the American people the inequality of the present system nothing will!

Love that thought. As John F has implied in posts more than once, at this point it is still mainly up to the voters in the swing states, and however much they eventually have to swallow if they think they want a Republican government (I mean, whether or not the package includes further revelations about Romney), we can only hope that the "nothing will" part of your statement does not prevail.

[lennygoran]

[quote="jbuck919" up to the voters in the swing states, [/quote]

Well the news on that looks good now but there's so much time to go and Romney has so much campaign money to spend.

Swing state poll: Romney still struggling to convince voters he cares

In the key swing states of Ohio, Pennsylvania and Florida, voters were asked the question, “Would you say that Mitt Romney cares about the needs and problems of people like you or not?”
In all three, more people answered “not.”
A new poll by CBS News, the New York Times, and Quinnipiac University found that 54 percent of likely voters in Pennsylvania, 55 percent in Ohio, and 49 percent in Florida said Romney did not care about their problems.

http://www.washingtonpost.com/politics/ ... story.html

Here's a hypothetical--let's say Reid is right--Romney did nothing illegal but paid no taxes for those years and Romney was forced to admit that--what could he say--how could he get out of it?

Regards, Len