As a populist war cry, “We are the 99 percent”, is hard to beat. What the movement has lacked, though, is a coherent message and agenda. Until now.
Joseph Stiglitz, a Nobel Prize-winning economist who grew up amid the steel-mill grit and grind of Gary, Indiana, has spent decades studying the subject of his provocative new book, The Price of Inequality.
His conclusion: Economic growth, democracy and even the upper class itself suffer when the top 1 percent of Americans earns a fifth of the country’s income and controls more than a third of its wealth, as they do today.
“The rich do not exist in a vacuum,” he says in a blunt message to the inhabitants of what journalist Robert Frank calls Richistan. “They need a functioning society around them to sustain their position and produce income from their assets.”
Yet the US government, far from reducing inequality, has spent 30 years doing the opposite, he argues: warping the market to shift money from the bottom and middle of society to the top.
The government, in this view, is the billionaire’s secret weapon.
Stiglitz, who teaches at Columbia University in New York, has been exploring how inequality shapes economic behaviour ever since his doctoral dissertation at the Massachusetts Institute of Technology in the 1960s. His findings, presented here with precision and passion, are grounded in behavioural economics, game theory, information asymmetries and more.
A former World Bank chief economist and Clinton White House adviser, Stiglitz has zero patience with what he calls the “religious belief” that markets are always efficient and the corollary, that governments are ever inefficient.
Urging a greater balance between the two, he seeks to broaden the debate with a philosophical question: Has American society become so unfair that “the land of opportunity” is now a myth?
Inequality has been growing for three decades, concentrating the nation’s winnings in the hands of the 1 percent even as the poor get poorer and the middle class hollows out, Stiglitz says.
The last time wealth grew so condensed was just before the Great Depression. This curbs consumption and perpetuates recessions, he says.
The 1 percent club, after all, saves 15 percent to 25 percent of its income, which reduces demand and increases unemployment, he says.
Since the days of John Maynard Keynes, governments have sought to counter shortfalls in demand with increases in either public or private spending. With the 1 percent bent on restraining government expenditure, the burden for stimulating the economy fell on tax cuts and low Federal Reserve interest rates, Stiglitz says.
The devastating result was the housing bubble, which Alan Greenspan couldn’t (or wouldn’t) see because he believed markets were fully efficient. Half a decade after the bubble burst, the slump grinds on.
Stiglitz shows a grim panorama of the economic landscape: One out of six Americans couldn’t find full-time jobs. Millions of families lost their homes. Middle-aged people faced premature retirement. And too many college graduates couldn’t find work yet were saddled with tens of thousands of dollars in student loans.
Among advanced industrial nations, the US now has the highest level of inequality, he says, and the immiseration didn’t happen by chance.
Though market forces played a role, government policies shaped those forces. This should be obvious to anyone who reflects on why Wall Street banks were allowed to gamble with federally insured deposits – and got bailouts when their wagers blew up.
Stiglitz isn’t fomenting the politics of envy. He is, rather, seeking to show how fairness and efficiency can work hand-in-hand, making markets more competitive.
The Price of Inequality: How Today’s Divided Society Endangers Our Future is published by Norton in the US and will be available from Allen Lane in the UK later this month.
James Pressley writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.