United States is the country in advanced industrial countries with the highest level of inequality, and it’s getting worse. Consider the Walton family: the six heirs to the Wal-Mart empire command wealth of $69.7 billion, which is equivalent to the wealth of the entire bottom 30 percent of U.S. society. none of this is inevitable. It’s not just market forces.
Few are investors who have reshaped technology, or scientists who have reshaped our understandings of the laws of nature. Think of Alan Turing, whose genius provided the mathematics underlying the modern computer. Or of Einstein. Or of the discoverers of the laser (in which Charles Townes played a central role) or John Bardeen, Walter Brattain, and William Shockley, the inventors of transistors. Or of Watson and Crick, who unraveled the mysteries of DNA, upon which rests so much of modern [medicine]. None of them, who made such large contributions to our well-being, are among those most rewarded by our economic system.
the point is that the theory that was developed in the 19th century to justify the inequality that was emerging with capitalism was marginal productivity theory. It was the notion that those who contributed the most to society will get bigger rewards. It was a sense, you might say, of moral justification, but also an argument for economic efficiency. And what we now realize is the individuals who have made the most important contributions are not those that are at the top. The people—many of the people who are at the top, for instance, are those financiers who brought the world to the brink of ruin. And the moment of Great Recession, I think, was a really telling moment in our rethinking of what was going on. You know, we all sort of understood that there was something wrong. But in that crisis where you saw so many bankers who had brought the world to the brink of ruin, who actually brought their companies to the brink of ruin, walk off with pay in the millions of dollars, it was very clear there was a disconnect between private rewards and social returns, really undermining the theory that was the basis of the justification of inequality in our society.
change was the repeal of Glass-Steagall, where we told the banks, you know, “Don’t focus on what you’re supposed to be doing, which is providing credit to new businesses to expand businesses.” We brought together the commercial banks, which were the basis of the kind of prudent lending, and investment banks, who took rich people’s money and gambled. And we put it together. We created these financial institutions that were too big to fail. And the result of that was they grew larger and larger, and the risk taking, gambling, speculation dominated, rather than the lending, which is the basis of a growing, productive economy.
But in a way, the evolution of our economy, more generally, began about 1980. That’s—if I would say, where’s there a dividing point—where the CEOs began to realize that they could take a larger and larger share of the corporate income. They understood that we have deficient corporate governance laws. And so, we didn’t require a say in pay. We didn’t require—you know, shareholders are supposed to own the firms, but the shareholders had no say in the pay of the companies—of the managers of the companies that they were supposed to own. A very strange situation. I mean, if you have somebody working for you, you would say you ought to have some say in their pay. And the result of that is they took a larger and larger share. And if you look at those at the top—as I say, they’re not the Watson and Cricks, the people who made these big changes—they’re corporate CEOs.
Mark Zuckerberg. We think Gates. We think Jobs
all of these played an important role. You know, we shouldn’t underestimate the importance of that. But all these rest on a foundation, and that foundation was largely publicly provided, publicly funded. You couldn’t have a program if you didn’t have a computer. And you don’t have a computer unless you do the mathematical research that is—provided the foundation. That was the— Alan Turing. You don’t have internet programs unless you have the internet. And that was something that the U.S. government helped to develop, and these other people that helped develop the World Wide Web. So, you know, the irony is that the people who provided the foundation on which our entire modern economy is based are not the people who have done well.
no economy can work well without a well-functioning financial sector. The problem with the United States is that our financial sector hasn’t been doing what it’s supposed to be doing. It’s supposed to provide finance to create jobs, not to destroy jobs. It’s supposed to allocate capital, manage risk.
The concern about Bain Capital are twofold. One is that much of what they were doing was financial restructuring, which meant not creating jobs, taking money out of companies, putting them in a very fragile situation in which, a few years later, they go over the cliff, and jobs get destroyed. So, it is important to restructure firms to make them sustainable, efficient. But that wasn’t what a lot of the enterprises that they were engaged in doing.
The second problem, and I think most people find very disturbing, is that we have a tax law that says that those who are engaged working for this kind of restructuring—an important activity if it’s done well and done in a way that creates more productivity, more jobs—why should those people pay so little taxes? And that—you know, going back to the upper 1 percent, their average tax rate is about 15 percent. We tax speculators at a lower rate than we tax people who work for a living. It makes no sense.
Most Americans today are worse off than they were a decade-and-a-half ago. And the people at the bottom have done even worse. If you started looking at, say, male workers, a full-time male worker, people who work for a living, for a male worker today, the average, typical—half above, half below—his income today is lower than it was in 1968, almost a half-century ago. So the American economy has been delivering for the people at the very top, but it’s not been delivering for most Americans. And you can see it in another way in the data. In the periods like the period after World War II, we grew together, inequality was shrinking, and we grew much more rapidly than we have since 1980, where we’ve been growing apart. So the notion that more inequality leads to more growth, to put it quite frankly, is nonsense.
in Europe, these measures of austerity are going to make the countries weaker and weaker. I predicted that when Europe began that back in 2010 in Greece, when the Greek crisis first emerged. What’s happened is, Greece has become successively weaker and weaker, to the point where the youth unemployment now is 50 percent, political turmoil is breaking out. I said the same thing when Spain began that process. And now in Spain the youth unemployment rate is again 50 percent, and the unemployment overall has gone well over 20 percent. And just yesterday, you know, Spain’s conservative government has said, “We can’t deal with it,” even though they had run on a platform of, “Oh, you’ve messed up with the economic policy.”
So, the point is that we’ve done this experiment in austerity over and over again. The first example, you might say, in modern history was Herbert Hoover when he responded to the stock market crash by austerity, under the influence of his Secretary of the Treasury Andrew Mellon, and we had the Great Depression. The IMF forced it in East Asia, in Korea and Thailand, in Indonesia, and we all—and we saw the consequences: the economies went down. Why Europe is repeating this experiment, where we know almost for certain what the outcome is—and it’s turning out to be exactly as I predicted.
If you don’t invest in education, technology, infrastructure the economy gets weaker. Well, the good news is that right now the markets are willing to lend to the U.S. at essentially zero interest rate, long-term interest rates of one-and-a-half percent. You know, if you were a business and you could borrow at one-and-a-half percent or zero for investments with very high returns, you would be foolish not to do it. The right keeps focusing on just one side of the country’s balance sheet or the government’s balance sheet: what they owe. They don’t look at the other side: the assets. And it’s the assets that are really important if we’re going to have long-term economic growth. So, it’s like a company that says, “Let’s cut out our R&D budget. Let’s cut out all our investment.” And you know where that company’s going to go? It’s going to go into the tubes. And that’s his recommendation for America. I think that’s wrong. It’s not the way you’re going to get growth.
the Republicans have been consistently focused on cutbacks. You know, Americans don’t realize that we already have begun austerity. There are about one million fewer public sector employees than there were before the crisis. The standard recommendation of macroeconomics, of economic, is that when the private sector gets weak, government is supposed to step in, fill the breach and stimulate the economy so that the economy is stabilized, because the private sector is very volatile. But we’ve been doing just the opposite. As the private sector has gotten weaker, we’ve cut out a million jobs. What the Republicans would do is make those cutbacks even bigger. And the result—and Wisconsin is an example—you know, more cutbacks, more cutbacks of public employees. And the result of that is our economy is going to go down further into the hole. In the context of Europe very likely going into turmoil, there is going to be a risk of a significant downturn. And those policies then increase the probability of our weak economy tipping over into recession.
what is distinctive about American inequality is that too much goes to the very top—that’s the 1 percent—the middle has been hollowed out, and the bottom is not—is doing very badly. The number in poverty are increasing. Well, when you look at what’s happening at the middle and the bottom, one of the factors that contributes to weaknesses in the middle or the bottom is discrimination. Women get paid on average less than 80 percent of men of the same qualifications doing the same kind of work. You know, that’s discrimination. And that weakens the economic fiber of our country, and it creates more inequality. And this bill was an attempt to circumscribe that kind of discrimination. You know, things are better than they were 30 years ago. We’ve made progress. But what is clear, that in spite of our awareness of this kind of discrimination, we haven’t closed the gap. We have a lot more to do.
one of the aspects of the crisis, we now realize that the banks targeted Afro-American and Latinos for these predatory lending, bad loans, high transaction costs. And one of the consequences of that discrimination—and the banks have paid very large fines and settlements of claims against that kind of discrimination—the consequence is the wealth of those at the bottom who are Afro-American, who are Hispanics, Latinos, have been wiped out. And so, we had a bigger gap in wealth than the big—than the gap in income. You know, I mentioned that the top 1 percent gets 20 percent of all the income. They have about 40 percent of the wealth. You look at the wealth gaps in Latinos and Afro-Americans, it’s so much larger, and really unconscionable.
Occupy Wall Street was a reflection of a lot of Americans’ perspective that our economic system is unfair. You know, the protest movement that began in Tunisia was partly about lack of jobs, but it was partly—I went to Tunisia—it was unfairness in our system. There was a hope, after the crisis, that government would fix things. It didn’t, or it didn’t do enough. And that combination of economic unfairness and a political system that doesn’t seem capable of correcting these injustices, I think, is what motivated a lot of the Occupy Wall Street.
the fundamentals of a democracy are that you want people to express their views. They had hoped that the politicians would hear their voice. They had hoped that the politicians would address the inequalities in our society, the lack of—the deficiencies in our—the deficiencies in our financial system. And what became increasingly clear was that money was driving politics, which is an important point that I raise in the book. Money shapes markets. Markets don’t exist in a vacuum. The way markets work is based on rules and regulation that come out of Congress. And when politics shapes those rules and regulations to help the 1 percent rather than to help the rest of our society, something is wrong. And what—the protest movement was out of frustration, a sense that the democratic politics didn’t reflect the view of the majority of Americans—you might say, of the 99 percent.
I think it’s very important that somehow we get a politics that reflects the interest of the majority of Americans. When we have a bankruptcy law, for instance, that says that first priority goes to derivatives, that encourages speculation in the financial markets. And when we have a bankruptcy law that says students cannot discharge their debt, no matter—even in bankruptcy, no matter how bad an education the for-profit schools give them, there’s something wrong.
what are the sources of inequality and what are the ways in which inequality is actually undermining, weakening our economy. So we’re paying a high price for this inequality. One of the real concerns I had was inequality of opportunity. And the major factor affecting equality of opportunity is public education. We have to support more public education. If you look at even our elite schools, which are the entry into the best jobs in the country, only 8 percent of the students in these elite colleges come from the bottom 50 percent of our country.
I explain how the laws and regulations that govern markets shape markets in a way that help the top and hurt the rest. So we need more—stronger competition laws. We need reformed bankruptcy law. We need to make sure our financial system works for most Americans. There are a whole set of—we need to reform corporate governance laws. So there’s a whole—every one of the economic laws has to be reformed.
One of the—I talk about how there’s—there is an economic reform agenda that could really make a difference. But the real problem is, can we get that through the politics? And there’s developed in the United States this vicious circle, because more inequality gives more political power to the top. They then pass laws that give more—lead to more economic inequality. So, we are going to have to have political reform to make democracy really work.
And you were talking earlier in the program about Citizens United. It’s gone exactly in the wrong way. We’ve moved from a democracy, which is supposed to be based on one person, one vote, to something much more akin to one dollar, one vote. When you have that kind of democracy, it’s not going to address the real needs of the 99 percent.
What happens when democracy doesn’t work, there’s disillusionment. You can see one aspect of the disillusionment in the voter turnout in the United States, say in the election of 2010, when only 20 percent of the young people went out to vote. That was a statement that they were saying that it didn’t make any difference which party was going to win, money was going to win, whether it’s the Republican or Democratic Party. When people become disillusioned, they turn to extremes. And in Europe, they turn to the extremes of the neofascist parties. In the United States, they’re turning to something somewhat less extreme, which is the Tea Party movement. But that could easily evolve into a movement that is itself extreme, a movement with less compassion, a movement that blames others for the country’s woes.
What I think about—what was very positive about the Occupy movement was that it said, “Look at, most of us are in the same boat.” You know, it’s not the rich versus the poor, it’s the 99 percent, which was saying, everybody. What they were really saying, we’re all in the same boat and that we therefore all have to look for policies that benefit the vast, overwhelming majority of Americans. That message, that we’re not about class divide, we’re about the country as a whole, that’s really what you say when you’re saying “the 99 percent.” I think if they keep up the message and say—you know, and this is what the book, The Price of Inequality —that divide that’s dividing our society is really weakening our society.
If there’s a single message of my book, it’s this: traditional economics said we could only get more equality if we pay a price. We have to, you know, weaken our economy in one way or another. But my book shows that that’s wrong, that we can have more equality, stronger economy, more growth, greater efficiency. There’s not a conflict; the two actually go together. And to me, that’s an important message that Occupy Wall Street ought to be conveying.
Joseph Stiglitz, Nobel Prize-winning economist and a professor at Columbia University. He is the author of numerous books. His most recent book is The Price of Inequality: How Today’s Divided Society Endangers Our Future.
– source democracynow.org