As presidential candidates spar over economic policies and Congress debates the TPP, one of the nation’s leading economists is calling for a comprehensive overhaul of the U.S. economy.
Joseph Stiglitz talking:
I think we’re in a new moment in America, because I think we’ve had a third of a century of a—you might call, an experiment, a grand experiment, where, beginning with Reagan, we said, “Let’s lower the tax rates on the top. Let’s rip away the regulations. We’re going to free up the American economy. We’re going to incentivize it. The result will be the economy will grow so much—yes, the top will get a larger share, but everybody is going to get a bigger piece, and so everybody is going to be better off.” Well, we’ve had a third of a century of this experiment, and it has failed. It has failed miserably. The fact is, the bottom 90 percent have seen their incomes stagnate. Median income today is as low as it was a quarter-century ago. Talking about the minimum wage, minimum wage is the level, adjusted for inflation, it was 45, 50 years ago. You know, if an economy can’t deliver for most of its citizens, it’s a failed economy. What’s so striking is, we’ve had technological change, we’ve had globalization—all the things that were supposed the economy perform better—and in fact it’s performed worse.
So, what the two candidates are saying is really echoing, I think, the basic message of this book, which is, something is wrong with the rules of the economy. It’s not the American workers. They’re working hard. Productivity has continued to grow. What’s striking is how that pie is being shared, not fairly. And in fact, the distortions in the economy, that Hillary was talking about, have actually impeded, made the economy perform more poorly than it otherwise would. You take those CEOs getting 300 times the amount of the typical worker. When you’re taking the corporate income, giving so much to the top, obviously, you’re going to have less either to give to the people at the bottom or you’re going to have less to invest in the corporation. And actually, both of those are happening. So, weaker investment, more inequality, weaker wages, and then you get a vicious cycle going, so the economy isn’t performing as well as it should be.
I think the point is the American people have figured out that this model hasn’t worked, you know, the model that began a third of a century ago. So, they’re angry, and they want a change.
take one example. Productivity of American workers has continued to grow pretty steadily. Historically, wages moved with productivity. You know, you do those two charts, they just move right together. Suddenly, around 1980, productivity continues to grow, but wages stagnate. This is really an unusual phenomenon. And that was one of the things that motivated writing the book. We said, “What’s going on?” And we said, what’s happened is, particularly in America, that we began to change the rules, rules of—labor rules, rules about the financial sector, rules about corporate governance, tax rules. You know, it wasn’t inevitable that you tax speculation at a lower rate than you tax people who are working for a living. That’s not inherent in a market economy. Actually, what we say is, this is a distortion of capitalism. This is a distortion of a market economy.
the financial sector contributed the most to the inequality. the financial sector was about two-and-a-half percent of GDP. It went to as large as 8 percent of GDP. As it grew, you know, if it had led to the economy growing so much faster, you’d said, “Well, they’re getting their just desserts for helping all of us do better.” But what they really were doing, you can’t see in the data at all—at all—any effect on economic growth. But what we do know is it led to this kind of greater volatility, the Great Recession of 2008, from which we still have not recovered. And what they were doing is figuring out how to seize a larger share of the national income pie in a whole variety of ways.
you go back to the 1930s, we passed the Wagner Act, and the Wagner act said—made it easier for workers to bargain. What has happened in the last 35 years, we’ve made it more and more difficult for workers to bargain. Globalization has made that even more difficult, because you’re sitting there with 2 billion people around the world that have been brought into the labor market, and weakening the protection, strengthening the competition, inevitably has weakened the bargaining position of workers. And so you get results today, for instance, where America is almost unique among the advanced countries in not having family leave, sick leave. You know, we’re at the bottom. And, you know, to put another example, America has more inequality than any other of the advanced countries. Why is that? It’s because of the way we’ve written the rules. It’s a kind of choice that we’ve made. And one key part of that is the fact that unions have been made weaker.
Glass-Steagall was—again, after the Great Depression, we divided the banks into two groups: the commercial banks, that take your deposits, ordinary people, supposed to give money to small businesses to help grow the economy; and then you had the investment banks, taking money from rich people, investing it in more speculative activities. And we had a big fight during the Clinton administration over whether we should eliminate that division. I strongly opposed it. And when was chairman of the Council of Economic Advisers, it didn’t happen.
Under Clinton. But then, instead—you know, Citibank wanted to bring together these various financial institutions. And the result of that was that we repealed Glass-Steagall. And what I was worried about precisely happened. We wound up with bigger banks that became too big to fail. The culture of risk taking, that’s associated with the investment bank, spread to the whole banking system, and so all the banks became speculators, actually lending to small businesses lower than it was before the crisis. And the kinds of conflicts of interest that were rampant in the years before the Great Depression started to appear all over the place in our financial sector.
I think the fundamental issue here is, we have to tame the financial sector. And in our book, Rewriting the Rules, we describe how that can be done.
there are many things. Glass-Steagall is one approach that I’ve increasingly come to. We actually don’t talk about it in the book. There are some other ways that we do focus on, on things like curbing their excessive risk taking.
One of the important things that people haven’t realized is, every time they use their debit card, merchants pay a significant price for their use. It’s like a tax on every transaction. But it’s a tax that doesn’t go for public purpose; it goes to enrich the coffers of the credit card companies, the debit card companies. We were supposed to curtail the—one part of that in the debit card. It was called the Durbin Amendment to Dodd-Frank. But we delegated it to the Federal Reserve. The Federal Reserve’s staff recommended a fee—that I thought was excessive—and then the Federal Reserve doubled the fee that they had recommended. So, it’s much better than it was before Dodd-Frank, but it’s still a tax on every transaction, a tax that winds up being paid for by everybody who buys any good in our economy. So that’s an example of how you transfer money from ordinary individuals to the financial sector. And it’s one of the reasons why the financial sector is making so much money and the rest of us are paying the price.
One other example that President Obama has emphasized is, you know, people have savings accounts, a variety—IRAs. And the question is, when you put your money in an IRA, does the person who’s supposed to manage that have a fiduciary responsibility? That is to say, can he manage it for his own interest, turning it over and getting a lot of commission, or does he have a responsibility, a fiduciary responsibility, to manage it in your interest? Now, you would say, obviously, he should have that fiduciary responsibility. But the banks are resisting imposing that as a condition. And the result of not having that is that the banks are making billions and billions, tens of billions of dollars every year more than they otherwise would.
TPP. The basic point is that this is a trade agreement that has all kinds of provisions intended to restrict regulations. We carved out one little piece—TPP carved out one little piece that was so, so outrageous that everybody was up in arms, and that was a provision about tobacco. On a provision very similar to this, Uruguay is being sued by Philip Morris, the successor to Philip Morris, because Uruguay passed a regulation, as did Australia, that on the package you have to say that this is bad for your health.
It’s a little bit more graphic, because they had the picture of what it did to your lungs. It worked. People started—you know, stopped smoking. Not everybody, but smoking was reduced. Under the provisions of this, TPP-like provision, Philip Morris can sue Uruguay for the loss of their expected profits as result of the regulation. In other words, the view is, they have the right to kill people, and if you want to take away that right, you have to pay them not to kill.
Now, we carved—that provision was carved out, but all the other areas were left in. So they were talking about climate change regulation. We know we’re going to need regulations to restrict the emissions of carbon. But under these provisions, corporations can sue the government, including the American government, by the way, so it’s all the governments in the TPP can be sued for the loss of profits as a result of the regulations that restrict their ability to emit carbon emissions that lead to global warming. If this provision had been in place when we had discovered that asbestos was bad for your health—you know, under the current provisions, asbestos manufacturers have to pay for the damage that they’re doing. They pay billions and billions of dollars. If the TPP had been in place, we would have to pay the asbestos manufacturers for not killing us. It’s outrageous.
rewriting the rules in a fairly comprehensive way. that has to be done by Congress, and it has to be with a lot of popular support. And in a way, we’re beginning to do that. You know, the Fight for 15 movement, raising the minimum wage, that’s one of the rules. But one of our points is that we need a more comprehensive agenda than just raising the minimum wage, and that if we make—and the two words there, for “growth” and “shared prosperity,” so our view is that the only sustainable prosperity is shared prosperity and that one of the problems is that the way the rules have been rewritten since the beginning of Reagan has been to actually slow the American economy.
And let me give you one example. When you have corporations having a very shortsighted view, paying their CEOs such outrageous monies with less money spent on investment, of course you’re not going to make long-term investments that are going to result in long-term economic growth. And at the same time, there’s going to be less money to pay for ordinary workers. And paying that low wages to ordinary workers, not giving them security, not giving them paid, you know, family leave, all that results in a less productive labor force. So what we’ve done is we’ve actually undermined investments in people, investments in the corporation, all for the sake of increasing the income of the people at the very top. So there’s a really close link here between the growing inequality in our society and the weak economic performance.
campaign finances. is actually absolutely essential. And, you know, the problem is that we’ve gone basically from a political system with “one person, one vote” to “one dollar, one vote.” And, you know, Citizens United made that worse. So, the only way that you can combat the force of money is, you might say, people power, people coming out. And we’ve seen this work. I mean, we’ve seen it work in raising the minimum wage. You know, just—we couldn’t do it in Congress, because the gridlock there, the money there, so we’ve done it in city after city—Seattle, Los Angeles, San Francisco, in New York. So, we’ve actually been able to see that this kind of uprising can work, even in a political system with money making so much difference.
And the irony is that the president came out and said, “This is about who makes the trade rules—China or the United States?” But I think the big issue is, this is about who makes the rules of trade—the American people, our democratic process, or the corporations? And who they’re made for, which is, for the corporations or for all of us?
Business Roundtable. This is the group of the big—America’s biggest corporations. It’s not the mom-and-pop stores. So this is about big business being able to protect themselves. But let me make it clear: It’s not about property rights, as we usually understand it. You know, what the USTR says, they say, “Well, we’re dealing with countries where we can’t trust the way the legal system works, so we have to put these protections in, because these countries just can’t be trusted.” We’re insisting on the same kind of provision in our trade agreements with Europe, with Germany. And the Germans are saying, you know, “We have just as good a legal system as yours, and why are you trying to go beyond our legal system?” I mean, for instance, there, they care about GMO.
And they say, you know, “We want at least the consumers be informed. They can make a choice.” And if this gets passed, if you pass the regulation that says you have to display, and Americans—and people say, “I’m not going to buy a product that’s GMO,” they can be sued. If you put the label on, just informing people that there may be GMOs in this product, you can be sued.
we don’t know—let me make it clear: We don’t know all the provisions. They kept it secret.
their argument again is they have—you know, these are negotiations, very complex, and if everything were open, everybody would be—you know, it would be a mess. But they haven’t really kept it secret, because they’ve talked to the corporations. The corporations have been there at the table saying, “Well, it’s really important for us to have this provision. It’s really important for us to have that provision.” But ordinary citizens have not been at the table. You know, the only way that we know what’s going on is leaked documents. And some of the links come from other countries, where there’s a stronger democratic commitment to more transparency. But our government has been keeping it much more secret.
worker power, labor power, union power all these things are about rewriting the rules. I mean, our basic idea is that over the past 35 years we’ve rewritten the rules in ways that have weakened labor power, increased the financial sector power. There’s been a rebalancing of the power in the wrong way.
President Reagan, but he was part of a zeitgeist, because you see it in Europe going on at the same time. And let me just say, TPP is another example of rewriting the rules in the wrong way. It’s a continuation of that trend that began back in around 1980 that has increased the imbalance and made things more difficult. So what we need to do now is to rewrite the rules once again, but this time, you know, we’re in the 21st century: It’s not going back exactly to where we were before 1980; it has to be modernized. But realize that we rewrote the rules in ways that destroyed the kind of balance of power that we had.
one thing that we haven’t talked about is—one of the most controversial aspects is access to generic medicines. You know, ordinary people need to be able to get medicines at a low price. We struck a balance in the United States in the Hatch-Waxman Act, where we said, “OK, Big Pharma has to be able to get some returns for their investments and research.” But—mostly research really goes on in the universities, let’s be clear, and at NIH government-sponsored research labs. But the generic medicines, which are now more than 80 percent of all drugs, bring the prices down. That’s the competition that makes the market work. Well, we struck that balance, but in this trade agreement they’re trying to restrike the balance in favor of Big Pharma. You know, this is—we were talking about President Obama’s legacy. One of his big legacy is Obamacare, and that’s supposed to bring access to medicine. But when you—TPP will go in exactly the wrong way, because it will restrict access to medicine for many countries around the world. So, that’s one thing.
But take the investment agreement. I would do two things. First, it seems to me that the conditions under which you can sue are wrong. If a country passes a regulation, whether it’s for health, safety, the environment or managing the economy, you shouldn’t be able to sue. These are called regulatory takings. And repeatedly our courts have said it’s the basic right of a country to design rules to protect their citizens, protect their economy, protect their environment. So the conditions under which you can sue are wrong. Who can bring a suit is wrong. It should be government to government, not corporations suing a government.
And thirdly, the judicial process by which it’s done, it shouldn’t be in private courts. The most important—one of the most important public functions is dispute resolution. When we created the WTO, we created an international panel for dispute resolution. We could do the same thing for investment agreements. But instead, they’ve decided to go to very expensive private arbitration, rife with conflicts of interests, you know, so expensive that—I referred earlier to the Uruguay, where Philip Morris is suing.
Altria, you know, the successor to Philip Morris. It’s so expensive that Uruguay can’t pay for its own defense. And Mayor Bloomberg, who is so concerned about smoking, is paying—is contributing to the support of Uruguay to defend itself against Altria, which is just passing regulations to try to protect people’s health.
the Republicans were being very recalcitrant, and this is sort of a face-saving—or I view it as a face-saving deal for both sides. The fact is that we see in Europe austerity, in what it’s doing, essentially—some countries in depression, some countries in recession. What Americans don’t realize is that we’ve had a mild form of austerity, but it is one of the reasons that our economy is so weak, that wages are basically stagnant. So, we have about 500,000 fewer public sector employees than we had before the crisis, 2008. If we had a normal expansion, we would have had about 2 million more public sector employees. So there’s a shortfall of two-and-a-half million. And that’s one of the things that’s dragging our economy down.
So, one of the ironies in this agreement is that there is one positive provision, but the positive provision itself shows the weakness, because the wages were so low, the economy is so weak, that the Social Security recipients are not getting the kind of increase that they would get usually with the normal increase in inflation and wages. But healthcare costs are continuing to rise—not a great deal. And that means the healthcare costs, the premium on Part B of Medicare, would go up. So, the one positive aspect of this is, if we didn’t fix it, all our older people would see a smaller check that they would be receiving from Social Security. So, affix that.
But in terms of that $80 billion restimulating the economy, just not enough. And monetary policy has reached the limits of what it can do. So I think what we’re going to see is a continuation of this very mediocre economy—even the IMF describes what is going on as a very mediocre economy—and a wage stagnation and a continuation of this kind of world in which ordinary Americans are finding it increasingly difficult to attain the basic necessities of middle-class life.
Donald Trump on Bernie Sanders. the great irony of that is he’s talking about Bernie Sanders and Hillary’s putting in programs that don’t add up, and he’s called for a tax cut, aimed at the rich, that is $1 trillion short. And the irony is that the hedge fund guys are taxed at a lower rate than people who are actually working for a living. It’s one of the real, you might say, anomalies of our tax system, one that is actually very costly to our economy not just in terms of lost revenue, but induces our best students—my best students—to go into finance, into speculation, and we’re wasting our most valuable resource, I think—our human resources. instead Go into research, go into creating productive firms, you know, strengthening the productive capacity of our economy. You know, the fact that such a large fraction of our most talented young people go into finance is a worry. It should be a worry to—you know, we’ve really lost a balance.
Now, to come back to Bernie and Hillary, you know, what they’re both saying is, really, points that we raise in Rewriting the Rules. They’re saying it’s not—these are not giveaways. We’re saying something is wrong with the way our economy is working. The fact that at the bottom, minimum wage is as low as it was 45 years ago, a half-century ago, says something. An economy that—you know, we’re supposed to—we’ve had technological change, globalization, all these things which are supposed to make our economy better and stronger, and yet, at the bottom, they haven’t had a pay raise in a half-century. It’s not a living wage. So, that’s all he’s calling for. You know, he’s calling for a living wage for ordinary Americans. And they’re both going for—we’re a wealthy-enough economy that we should be able to provide the basic requisites of a middle-class lifestyle for all Americans.
it’s a fact we are not Denmark. But the question is whether the United States is rich enough to be able to make sure that everyone has a basic right to healthcare, family leave, parental, you know, sick leave—we are exceptional—whether we are a society that can tolerate—that should tolerate the levels of inequality that we have. I think Bernie Sanders is right about that. And I think that we—Hillary is right that one of the strengths of America should be that we can give opportunity for small businesses. Actually, Denmark and Norway do that, as well. So, what I would say is that Bernie is absolutely right that providing the basic necessities of a middle-class society should be the right of everybody in our country. And that’s not—you know, what name you call it is not important to me. What country does that is not important to me. What is important to me is that this is what in the 21st century we should be able to have.
democratic socialism is—you know, you have two parts of the word. “Democratic,” and that says people participate, not only actually in voting every four years, but it’s actually a stronger participation in our political life, including, I would say, also democratic participation in the workplace. That’s why unions are important. So, the “democracy” part is important. And all that I would say “democratic socialism” mean—and I don’t put a lot of weight on those words—is those basic social necessities that he was talking about. You know, these are not radical in the 21st century. It isn’t the old socialism, let me make it clear. It’s not the old socialism that said ownership of the means of production. That was something back in the 19th century. We’re in the 21st century. And so, what they’re talking about now is guaranteeing or ensuring that you have the opportunity—opportunity, let me—to live a decent life if you’re working hard. So, the fact—you know, Americans work full-time, they can’t even get a livable wage. Our mortgage system isn’t working. Our retirement security system isn’t working. Bernie Sanders pointed out we are the only advanced country that doesn’t recognize the right of access to healthcare as a basic human right. So, all this is saying is things that I think most Americans agree about. And so, we are rich enough that we can afford this. And the other point that I think Hillary emphasized is that if we do these things, we will actually have a more productive economy. So these are the two sides of the coin, that we can have more sharing and more prosperity.
major problem in the United States that we are making access to higher education increasingly difficult. That’s the ladder up. We talk about opportunity, American dream. It’s no longer true. And that’s part of rewriting the rules to make sure that there is opportunity. All of these issues have been going on on both sides of the Atlantic. You know, when we talk about rewriting the rules back in the 1980s in ways that created more inequality, Margaret Thatcher was doing the same thing on the other side. They had a great bond with each other. And unfortunately, you know, there’s a lot of parallel. While in the U.K. they had a Labour government, Blair, he continued some of the same rewriting the rules that led to greater inequality in the U.K. So, that’s why, you know, I was enthusiastic about the opportunity to try to get, on both sides of the Atlantic, a new agenda, a new progressive agenda, both rewriting the rules this time to make our economies more efficient and more shared prosperity.
Now, he talked about the role of multinationals, the big corporations. And he’s absolutely right that we’ve left them untamed. And we’ve left these untamed in ways that have enriched them, enriched their CEOs, enriched their shareholders, but not—we’ve forgotten means—we’ve mixed up means with ends. And so, the purpose of these corporations originally was to increase the well-being of everybody in our society. And if we tame the corporations, again, by changing corporate governance, changing the legal frameworks, I think we can do it again.
the book I wrote with Linda Bilmes was called The Three Trillion Dollar War. Actually, we estimated the cost would be well in excess of $3 trillion. Just imagine what we could have done with those—with that amount of money to address the real problems in our society. But we knew that we were being conservative when we said $3 trillion. We, for instance, when we talked about disabilities, we were looking at the evidence from the previous wars, and we knew that this war the disabilities would be much, much higher. Unfortunately, we were right. And about 50 percent of those coming back from Afghanistan and Iraq are disabled. And by now, our estimate of the cost of the disabilities alone, and healthcare and disability benefits for that group of people, is over $1 trillion.
I said before we were $3 to $5 [trillion]. We’re talking $4 to $6, $5 to $7 trillion. You know, we haven’t recalculated the full cost of the war, but what we do know is that that one part of it is is much larger than we thought when—at $3 trillion.
rewriting the rules has to be done by Congress, and it has to be with a lot of popular support. And in a way, we’re beginning to do that. You know, the Fight for 15 movement, raising the minimum wage, that’s one of the rules. But one of our points is that we need a more comprehensive agenda than just raising the minimum wage, and that if we make—and the two words there, for “growth” and “shared prosperity,” so our view is that the only sustainable prosperity is shared prosperity and that one of the problems is that the way the rules have been rewritten since the beginning of Reagan has been to actually slow the American economy.
And let me give you one example. When you have corporations having a very shortsighted view, paying their CEOs such outrageous monies with less money spent on investment, of course you’re not going to make long-term investments that are going to result in long-term economic growth. And at the same time, there’s going to be less money to pay for ordinary workers. And paying that low wages to ordinary workers, not giving them security, not giving them paid, you know, family leave, all that results in a less productive labor force. So what we’ve done is we’ve actually undermined investments in people, investments in the corporation, all for the sake of increasing the income of the people at the very top. So there’s a really close link here between the growing inequality in our society and the weak economic performance.
the problem is that we’ve gone basically from a political system with “one person, one vote” to “one dollar, one vote.” And, you know, Citizens United made that worse. So, the only way that you can combat the force of money is, you might say, people power, people coming out. And we’ve seen this work. I mean, we’ve seen it work in raising the minimum wage. You know, just—we couldn’t do it in Congress, because the gridlock there, the money there, so we’ve done it in city after city—Seattle, Los Angeles, San Francisco, in New York. So, we’ve actually been able to see that this kind of uprising can work, even in a political system with money making so much difference.
in a sense, what you see both in the Republican and Democratic Party is a sense that something is wrong. You know, America was the first middle-class society. We’re about to become the first society that ceases to be a middle-class society. The basic requirements of being a member of the middle class—the ability to send your kids to school, a secure retirement—all those things are being put in jeopardy. And one of the things we talk about in Rewriting the Rules is how we can get those back. But what you’re seeing on both sides is a sense of anger. Now, I think that both of the Democratic candidates have put forward credible ways of dealing with it. And there’s going to be a long discussion. The problem is that on the Republican side there’s anger, but it’s basically inchoate. You know, it’s basically tax reforms that actually rewrite the rules in the wrong way, making things even more unequal than we have and the numbers not adding up.
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Joseph Stiglitz
Nobel Prize-winning economist, Columbia University professor and chief economist for the Roosevelt Institute. His new book is called Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity.
— source democracynow.org