The Price of Inequality: How Today's Divided Society Endangers Our Future

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz "The Price of Inequality" is one of the most compelling economic books about the excessive inequality in the United States. It does a fabulous job of explaining three interlinking themes: that inequality is cause and consequence of the failure of the political system, and contributes to the instability of our economic system, which in turns contributes to inequality. Winner of the 2001 Nobel Memorial Prize for Economics and acclaimed professor and author, Joseph Stiglitz, provides the reader with a quote-fest of a book that addresses not only the reasons for such a financial divide but provides pragmatic economical ways to tackle them. This enlightening and pragmatic 449-page book is composed of the following ten chapters: 1. America's 1 Percent Problem, 2. Rent Seeking and the Making of an Unequal Society, 3. Markets and Inequality, 4. Why It Matters, 5. A Democracy in Peril, 6. 1984 Is Upon Us, 7. Justice for All? How Inequality is Eroding the Rule of Law, 8. The Battle of the Budget, 9. A Macroeconomic Policy and a Critical Bank By and for the 1 Percent and 10. The Way Forward: Another World Is Possible. Positives: 1. A well-written page-turner of a book that is accessible to the masses. A quote fest. 2. It's always a treat to read a book from an expert who knows what he is talking about and how to relay it to the public. 3. Great format. The author starts each of the ten chapters with a quick synopsis and closes out with concluding comments. 4. This book succeeds in getting to the heart of the thesis: why inequality is growing to the extent it is and what the consequences are. Stiglitz is relentless in his pursuit and we are the beneficiaries. 5. Why are economic system is unfair? Answered to satisfaction. Eye-opening information. 6. "While there may be underlying forces at play, politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest". It's a quote fest alright. 7. The 1 percent in perspective. " For an even more striking illustration of the state of inequality in America, 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. The numbers may not be as surprising as they seem, simply because those at the bottom have so little wealth". 8. How government policies shape inequality. "A major theme of this book is that inequality is the result of political forces as much as of economic ones". 9. There is so many mind-blowing facts in this book, " A little-noticed change in legislation, for example, can reap billions of dollars. This was the case when the government extended a much-needed Medicare drug benefit in 2003. A provision in the law that prohibited government from bargaining for prices on drugs was, in effect, a gift of some $50 billion or more per year to the pharmaceutical companies". Oh yeah, it's like that. 10. How societal norms shape inequality. How globalization as it has been managed contributes to inequality. Interesting stuff. 11. The true role of government and how our government failed the 99%. "The United States spent far more on its big bank bailout, which helped the banks to maintain their generous bonuses, than it spent to help those who were unemployed as a result of the recession that the big banks brought about. We created for the banks (and other corporations, like AIG) a much stronger safety net than we created for poor Americans". 12. The effects of inequality on national output and economic stability, and its impact on economic efficiency and on growth. 13. Some very key points that will stick with me, "The 2010 decision in the case of Citizens United v. Federal Election Commission, in which the Supreme Court essentially approved unbridled corporate campaign spending, represented a milestone in the disempowerment of ordinary Americans". A need to reform our political process. 14. How the 1 percent convinces the 99 percent that they have shared interests. It's about shaping perceptions. 15. The battle over laws and regulations that govern our economy and how they are enforced. How the powerful have turned America's legal system into a travesty of justice. 16. A great section on predatory lending. How the banks won at the expense of America. And an infuriating section on student loans. 17. How surpluses under Clinton were turned to deficits under the influence of four major forces. The budget in perspective. 18. Practical recommendations to reduce the deficit. "lowering the taxes on firms that created jobs and invested in America and raising taxes on those that didn't". 19. A section on debunking myths: the supply-side myth, the raising taxes on millionaires will hurt small businesses and therefore cost jobs myth, the government-run programs must be inefficient myth, blame the poor myth, the austerity myth, and the failed stimulus myth. 20. Understanding the real role of policy makers. "A central theme of the book is that some of the policy choices have simultaneously increased inequality, benefitting those at the top-- and hurt the economy". 21. "The Fed gambled, in trusting that banks on their own could manage risk--a gamble that paid off handsomely for the banks, and especially for the bankers, but in which the rest paid the price. The Fed could have curbed the reckless and predatory lending, the abusive credit card practices, but chose not to do so. Again, the banks were the winners; the rest the losers". I just can't word that any better. 22. The obsession with inflation. A good section. 23. Ending on a positive note. " This book is not about the politics of envy: the bottom 99 percent by and large are not jealous of the social contributions that some of those among the 1 percent have made, of their well-deserved incomes. This book is instead about the politics of efficiency and fairness. The central argument is that the model that best describes income determination at the top is not one based on individuals' contributions to society (the "marginal productivity theory" introduced earlier), even though, of course, some at the top have made enormous contributions. Much of the income at the top is instead what we have called rents". 24. A list of recommendations in narrative format that shows what needs to be done to create reforms we need in our economics and our politics. 25. A comprehensive notes section. Negatives: 1. The strength of this book is clearly explaining how we got to this level of inequality, the biggest weakness is the level of the cure not necessarily matching the disease. I feel that the recommendations covered in this book are good, it just doesn't live up to the diagnosis. I also disagree with a few of the recommendations. Getting the marginal tax back to 70% seems unfair even to this progressive-minded reviewer. 2. A little repetitive. 3. Some of the material in this book will make your blood boil. 4. Charts and illustrations would have added value. 5. The notes section was very comprehensive but a formal bibliography never hurts. In summary, this is a fantastic book. I really enjoyed it. Stiglitz has a great command of the topic and is able to convey his thoughts in a lucid an accessible manner. His arguments are sound and quite compelling and backed by countless references. If you want to learn how we got to this level of inequality, this is a fantastic book that covers it with expertise. I highly recommend it! Further suggestions: " Red Ink: Inside the High-Stakes Politics of the Federal Budget " by David Wessel, " The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take " by Bruce Bartlett, " It's the Middle Class, Stupid! " by James Carville and Stan Greenberg, " End This Depression Now! " by Paul Krugman, " Beyond Outrage: What has gone wrong with our economy and our democracy, and how to fix them " by Robert B. Reich, " The Republican Brain: The Science of Why They Deny Science- and Reality " by Chris Mooney, " Winner-Take-All Politics: How Washington Made the Rich Richer--and Turned Its Back on the Middle Class " by Jacob S. Hacker, " Screwed: The Undeclared War Against the Middle Class - And What We Can Do about It (BK Currents (Paperback)) " by Thom Hartmann, " The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--and Spawned a Global Crisis " by Michael W. Hudson, "Perfectly Legal..." by David Cay Johnston, and "The Looting of America" by Les Leopold.

Stiglitz has put together an excellent account of aspects of our economic backdrop that create and promote ineqality. He discusses how these outcomes hurt growth and lay the seeds of large problems. He is foundational in his approach and focuses on clear examples of market failures and information asymmetries that have misaligned income with outcome. Given his nobel prize was related to information asymmetries, Stiglitz is extremely well positioned to discuss how market failures interfere with the marginal productivity of labour theory. The book is divided into 10 chapters. Chapter 1- America's 1 pct problem presents the backgdrop of the distribution of wealth in the US how it has changed over the last 30 years, how the middle class is shrinking and how mean and median GDP are diverging. Chapter 2 - Rent Seeking and the Making of an Unequal Society discusses what is happening to the distribution of income through the recession and how the growing inquality has been created and is not the function of natural market forces. Other high income countries have different distributional outcomes than ours and ours is the worst. The author then discusse show wealth creates power and facilitates changes to the rules of the game to extract rents is an age old problem. Chapter 3 - Markets and Inequality discusses how markets can be modified politically to facilitate better outcomes for those with the power to change market structures. Chapter 4 - Why it matters discusses what the repurcussions of income inequality can be. It is not a standard economic subject but it is an extremely important one (one that was Marx put focus on for example). Chapter 5- Democracy in Peril is a discussion of the failing democracy in the US and how money is influencing politics. The Supreme Court decision to allow corporations to fund campaigns is an example. Chapter 6 - 1984 is upon us will probably create much protest. It discusses how humans dont have rational expectations and respond to questions via framing and how money can change social norms through the shaping of debate to promote beliefs that benefit the 1% as natural outcomes of the most fair state. Chapter 7 - Justice for All discusses how the legal system is not egalitarian and how outcomes for the poor are skewed against them given a lack of resources to maneouvre through the justice system. Chapter 8 - The Battle of the Budget is a discussion of the budget, how we got here and how to think about the problem. Chapter 9 - A macroeconomic policy and a central bank by and for the 1 pct is a condemnation of the central bank. It makes the case that the central bank is an instrument of the 1 percent and its policies promoted the interests of the 1%. I find this chapter quite biased and i think if the author was to argue a point he should discuss the need for macroprudential central banking instead of inflation targetting. Monetary policy cannot substitute for much fiscal failings. The way forward- Another world is possible is an overview of the book with short policy directions to consider. All in all this book is excellent. It discusses civic duty and justice, it discusses human nature and sociology and it discusses real economics. It gives accounts about how distribution of profits between labour and capital is a function of the institutional and legal regimes, it is not the natural consequence of economic order. It discusses how much invention is founded on public ideas and dwindling public research has an impact on our productivity. This book is political, economic and philosophical and it is well reasoned on all accounts. This puts together a lot of ideas and it does it very well. It is a must read for a well reasoned account of what is happening in the US. One doesnt have to agree with many points, but to ignore such literature would be ignoring important information necessary for productive discourse.

A good book overall. His prognosis is spot on, the rich have accumulated massive wealth, not only because of good businesses or inventions but mainly from working the system to their advantage. The spread between the haves and have nots is only getting worse and the policies of the government have made things worse. Where I disagree with him is with the treatment plan and how we got here. Both the tea party and the occupy people agree, the government is not for the people anymore. The bank bailouts are socialist welfare in our time. It shows how capitalism has been corrupted by the rent seeking activities of large corporations and banks. But the movements differ in how to solve the problem. The tea partiers want less government and let the banks fail for making bad bets. The occupy guys want more intervention and regulation. Stiglitz errs when he puts the entire blame on corporations totally. He only barely mentions the policies of the federal reserve. Their cutting of interest rates in the early 2000s was the displacement that caused the housing bubble. He speaks so highly of Keynesian economics and this idea of "lack of demand" and "full employment" and that we could avoid depressions if we just inject excess demand and liquidity in the market. But how about QE 1,2,3? That is exactly what QE was, an attempt to spur consumerism and it didnt work. Greenspan, Bernanke, and Yellen are all Keynesians. Stiglitz seems to think there is no repercussions for endless debt and spending to spur the economy but totally ignores that we have tried ZIRP since 2009 and haven't raised interest rates once and have had 3 rounds of QE. And things are as bad as ever. So what flavor of Keynesianism he is advocating I'm not sure. He says, "To stimulate investment, we must focus on stimulating demand. Getting more money into the pockets of those in the middle and bottom would do that." So what is he saying, just give money to the poor, that is already done through 46 million on food stamps and 73 million on medicaid. Of course we can stimulate demand, but demand means spending money we don't have. It's already been exhausted. I do like his idea of taxing the richest and spending it on infrastructure. Our infrastructure went from 7th in the world in 2009 to 14th in 2014. All the while we were doing QE instead of investing in our country. Now the FED holds 4 trillion in Treasury bonds and for what? ZIRP an QE have just played into the hands of investment banks and speculators. 50% of the country doesn't even invest in stocks and that is the only place you see a rate of return on your money. His ideas on global warming are crazy to me. Taxing carbon and investing in clean energy to me is just another side of the same coin as corporate welfare. Anytime the book is closed on science and the alarm bell ringers are asking for money you should be alarmed. He talks about jobs being the number one thing that will help the middle class and with our country awash in new found oil we could create many jobs. But instead he wants to subsidize very expensive energy sources to "save the planet". The premise he uses to me is very un-American. He takes a populist tone that everyone deserves college education, a good paying job, and security for their children. Why? The country used to stand for each man/woman doing as they pleased and taking the rewards and punishments. If you couldn't afford kids you don't have them. He argues that BECAUSE poor people have kids they need good jobs. A pretty ridiculous argument. This country is spoiled and entitled. I'm in the military, if you want free college sign up for three years then use your GI bill. He just needs to admit not everyone deserves to live in a home, bottom line. Restructuring mortgages for people is the ultimate moral hazard. They didn't deserve to live in a home in the first place. Live within your means. His ideas about estate taxes are ridiculous. He basically says, "Well you were responsible and made good choices and you want to keep the money in your family but we need to tax that heavily to stop the accumulation of power." Before the welfare state we depended on families, friends, neighbors, and communities to get along. But with the advent of the welfare state the worthless scum in our society have been rewarded for breeding like rabbits out of wedlock and then expecting society to pay. We only have ourselves to blame for the corporate state, 50% turn out for federal elections. We are just too busy hash tagging and updating facebook statuses to care. A good book for sure, but I just disagree with his prescription for correcting what is wrong. Another good read that agrees with his premise is The Great Deformation by David Stockman.

The main ideas: Markets are neither efficient nor stable (as they are supposed to be); our political and economic systems are fundamentally un-fair. We created the system of "one dollar – one vote" instead of "one person – one vote". We created the system in which "…"justice for all" is being replaced by …"justice for those who can afford it"" "America is no longer the land of oppor-tunity". All this is the price we are paying for inequality which was growing steadily in the last twenty years. The author gives a lot of examples and data on inequality in America. E.g.: - one out of six who would like to have a full-time job still couldn't find one (p.1); - 8 million families had been told to leave their homes (ibid); - By 2007 … the top 0,1 percent of America's households had an in-come that was 220 times larger than the average of the bottom 90 percent (p.2) - the ratio of CEO annual compen-sation to that of the typical worker by 2010 was … 243 to 1 (p.3); - in 1980 out Gini coefficient was just touching 0,4, today it's 0,47 (p.23); - AIG got more than $150 billion – more than was spent on welfare to the poor from 1990 to 2006 (180); etc. What is the cause of this inequality? Stiglitz's answer: this is the theory which is called "marginal productivity theory": "those with higher productivities earned higher incomes that reflected their greater contributions to society. Competitive markets, through the laws of supply and demand, determine the value of each indi-vidual's contributions" (p.30). The major theme of the author is that nowadays this theory is a Utopia. "…inequality depends on the distributions of "endowments," of financial and social capital" (p.31). And this distributions depends highly on the government policy which creates the rules of the game. "There are two ways to be-come wealthy: to create wealth or to take wealth away from others. The former adds to society. The latter typically subtracts from it" (p.32). All next chapters are de-voted to detailed explanations of how this process is going in America and what are the arguments of those who defend the existing rules of the game. And "America has a government of the 1 percent, by the 1 percent, and for the 1 percent". Some important notes. Stiglitz labels the numerous ways by which current political system helps the rich at the expense of the rest as rent seek-ing. "Countries rich in natural resources are infamous for rent seeking activities". "…one can't really separate out any indi-vidual's contributions from those of oth-ers" (p.78). Many in business sector are craving for profits "they might garner now". They think of their narrow short-term self-interest (p.90). CEO's do not earn the money they get - they redistribute them in their own favor. GDP is a bad metric because when it arises the country's wealth may diminish and the wealth of the 99 percent may worsen. "The level of real per capita GDP … and the rate at which it is growing, is not a good measure of success" (p.183). "Individuals can often be better motivated by intrinsic rewards – by the satisfaction of doing the job well – than by extrinsic rewards (money). To take one example, the scientists whose research and ideas have transformed out lives in the past two hundred years have, for the most part, not been motivated by the pursuit of wealth" (p.112). "…the kinds of incentive pay schemes employed by many corporations, while they create more inequality, are actually counterproductive" (p.114). Inequality lowers trust, and only those economies flourished where there was a higher level of trust. People must feel con-fident that they will be treated well, with dignity, fairly. Then they recipro-cate…(p.122). "… the financial markets' interests frequently do not coincide with those of the country. The markets are shortsighted and have a political and eco-nomic agenda that seeks the advancement of the well-being of financiers rather than that of the country as a whole" (p.139). etc. So what Stiglitz suggests?! - Reducing the rent seeking and lev-eling the playing field (first of all by curbing the financial sector and by tax reform); - Helping the rest (through changes in the system of education, sav-ings, health care, social protection, control of employment). "Is there hope?" - asks the author in his last chapter? And answers: "Four years ago there was a moment where most Americans had the audacity to hope. Trends more than a quarter of the century in the making might have been reversed. Instead, they have worsened. Today that hope is flickering" (p.290).

Well, how do I persuade EVERYONE on the planet to read this book? Stiglitz wrote a wonderful little piece in Vanity Fair back in 2011, entitled "of the 1%, by the 1% and for the 1%". About . . . the 1%. He succinctly summarized there what he wonderfully explains here. See if you can find the article: http://www.vanityfair.com/news/2011/05/toponepercent201105. This book is an expansion of that. The wonderful thing about Stiglitz, besides his Nobel Prize in economics, is that he writes very well, he cites a ton of examples, and he refers to studies and facts in abundance, but with a simple clarity. He is also very much aware of something called "behavioral economics". If you don't know what that is - look it up. Another Nobel prize winner, Daniel Kahnneman, in a book called Thinking, Fast and Slow, clearly explained that when it comes to economic decisions, we are definitely NOT rational animals. Any theoretical approach to how economics SHOULD work is doomed. We don't actually operate that way. Stiglitz takes the most recent history, casts the economic thought back to the founders - Adam Smith and others - and explains clearly the path of perdition that we are upon. You may think an unequal society is not a good idea, not fair, not whatever. What you need to grasp that it is a very dangerous way to run a society - VERY dangerous. We are destroying our own efficiency and productivity by this mindless path of downsizing government, reducing taxes, and failing to invest in ourselves - in our children, our infrastructure, our health, etc. Economics is not that complicated. If you take wealth OUT - rent seeking - we all lose. We only all gain if you invest in us, ourselves, our infrastructure. Taking wealth out is a lose / lose. It is a as clear as a bell to me - but HOW on earth can we get the balance of our citizenry and our elected wonks to understand this? They are not rational about elections either. So READ THIS, please. And see if you can't get a few others to do the same. We owe it to the kids and grandkids. This way evil lurks.

Economics Nobel laureate, Fulbright scholar, MIT Ph. D, former chief economist of the World Bank and Council of Economic Advisor Joseph Stiglitz isn't a lone voice. I'm tempted to label Stiglitz as being on the political `left', but Stiglitz does not reflexively sneer at conservative ideas. Stiglitz's writing is reasonable and he's generally apolitical. Compared to other commentators and authors, Stiglitz is more somber and not so politically strident. Stiglitz starts out asserting the Arab Spring and the Occupy Wall Street movements share the view that political systems are failing to meet the needs of most of society and are increasingly unfair to the overwhelming portion of society. Markets are shaped by politics, and they are not working the way they need to to promote stable markets. Inequalities in society are the main problem. This beginning led me to think this book would be addressing global macroeconomic issues, but Stiglitz proceeds to use most of his words in addressing U.S. economic policies. His main topic in this book is that economic inequality is an emergent aspect of U.S. political policy. The richest segment of U.S. society is gaining wealth at the expense of the middle and bottom segments of society. The rich know how to use lawyers and politicians to gain private returns for themselves, at the expense of social benefits and job security for most of the rest of us in the U.S. This transfer of benefits from the bottom and middle of society to the top income brackets is not obvious. The effects are increased inequalities, and destabilization and devaluation of our economic, judicial, and political systems. The U.S. will continue to decline rapidly due to the failures of U.S. political system to address inequalities in our society. Stiglitz is unsparing in his critiques of the Obama administration. He believes the President should have urged prosecution of the bankers and financiers who nearly ruined the economy in 2007-8. He is critical of U.S. laws which do not protect the interests of citizens in recovering from bankruptcy. He is critical that government policy is not stimulating innovation. He accuses an unnamed Obama administration person of being "schizophrenic" in claiming the government bailout of the banks (a policy Stiglitz excoriates) had a contractual responsibility to honor banker bonuses, but at the same time, union autoworkers had to accept a contractual revision which substantially lowered their wages and benefits. On pg. 200 Stiglitz writes, "the Obama administration actually fought against attempts by states to hold the banks accountable." There are many more specific criticisms of the Obama administration in this book. To my surprise, he is critical of the Simpson-Bowles recommendations. Stiglitz raises many thought provoking ideas, e.g. (pg. 61) "imagine, for a moment, what the world would be like if there was free mobility of labor, but no mobility of capital." He asserts the GDP is not a good measure of economic health, because the it disproportionally reflects the gains made by the most wealthy. Stiglitz states that standard economics theories don't take into account the sense of fair play, and the changes in behavior when people feel they are unfairly treated. He criticizes the Federal Reserve and describes it as a political entity operated by unelected officials who are wrongly focused on keeping inflation low for the benefit of bankers and finance, when they should and could be concerned with lowering the rate of unemployment. I would have liked more analysis about where Stiglitz thinks the current trends towards increasing inequality will lead society. I think he could have mentioned ideas and suggestions for fixing the burgeoning costs in Medicare and Social Security. He could have offered more specifics - but then his emphasis would shift from warning to policy. This book challenged my thinking and broadened my understanding of the relationships between political and macroeconomic policies. The Price of Inequality is tinged with pessimism, though in the last chapter, "The Way Forward", Stiglitz offers general ideas that could improve socio-economic conditions in the future. Despite this last chapter, I don't sense he is optimistic about the future vitality of U.S socioeconomic conditions.

Here is a book that is a very full meal and not pleasant to savor. It is filled not only with important facts about the USA economy but detailed analysis of how the economy is working to our generally to a national disadvantage. A very limited few (1%) of the population are profiting from every aspect of our economy, politics, and laws. This condition is largely due to greed and absence of cohesive or equitable representation of those in the lower 99% of USA society. Our nation is suffering along with the European Union where the same division between high and low in society prevails. It is a contest for equity between greed of the upper 1% and need of the lower 99%. So far the 1% have a very large lead, but will they continue to win? Stiglitz takes us on a tour of the options and forces we face, and their consequences for our national future This review is of the paperback endition. It is apparently different from the hard cover copy in having a 35 page preface. The preface can pretty much stand by itself in making the case for the vast disparity between richer and poorer in the USA and Europe. Here one will discover the upper 1% earn the equivalent of $97,000 per hour in a ‘working year’ versus an agonizing debate at the national level about whether to make $15 per hour for the remainder of employed a legal requirement. What an amazingly trivial waste of legislative time by our national congress! It should be patently clear to everyone as result of this book Of course the facts have been before us for many years with Stiglitz clearly summarizing them for our consideration and action. It is difficult to comprehend why there hasn’ unanimity of desire for action between all segments of our national society. There is, unfortunately, a wide range of opinions to consider justifying extensive debate. The facts are clear as a servere imbalance of power between a few and the rest of us. Stiglitz evaluates every aspect of the economy to inform a reader how derivatives, interest rate manipulation for little benefit, lobbying by industries to the tune of $3.2 billion per year, and vast contributions to elections by the very wealthy to acquire more leverage for their selfish interests, how Fed manipulation of the interest rate is also not of general benefit (or maybe even a reasonable tool to manage economic performance), how LIBOR is a figment of financial, i.e. wealthy, self interest, how deregulation is only another means of benefiting the wealthy and short changing everyone else, and how the $300 trillion world overhang of derivatives are more realistically nothing more than a ticket to a horse race of wealth than a useful financial tool for general benefit. Stiglitz lets the blame fall where it will without a imbalanced political prejudice (at least obvious in the reading) one way or another. The problem is more generic than political persuasion even though conservatives come off second best in their ideology, and legislative programs and actions. In substantiating his case for debilitating inequality the author, certainly with his own point of view, bolsters objectivity of his case with more than 150 pages of references and notes. I have found his research to be most frightening for a couple of reasons. He makes a case for the fact the wealthy continue to benefit because they focus on ‘rent seeking’ as a most effective economic ‘tool’ to wield in their favor. Bad though this tool is for society generally it is made worse by a Supreme Court decision that allows spending unlimited amounts of campaign funds to elected favorite candidates. And who has that kind of money? Rent seeking and court decisions manage to make impenetrable a financial wall surrounding the wealthy while enhancing their power to control society. Power of wealthy of this country is challenging enough. Exacerbating this, in my opinion, are changes coming from rapid technological advances. Stiglitz has many pages on the subject. And of course, who are the leading technologist but a growing proportion of an expanding wealthy class? This particular group are conspicuous not only for wealth they create for a limited group but additional impact their ‘products’ are and will continue having on employment and wages. Meanwhile they contend, Diamandis and Kurzweil among them, that there will be nothing but good news for workers from tech advances. An endless supply of jobs will be created by techonology, no question about it! Another economist of note, Robert Gorden, is not sanguine about this tech optimism. Matter of fact he contends our job creating technology is a thing of the past concluding we face a future of very slow or negative growth. Nor is Oxford University optimistic. Their study of 702 USA job classifications suggest tech has potential to adversely affect 47% of the job categories which read as a large potential increase in unemployment. That paragraph is a diversion from Stiglitz’s basic message. It is mentioned because if manipulation of the USA economy by the wealthy to their advantage is not enough to worry about tech changes potentially make everything that much worse.

Joseph Stiglitz is one of the greatest economists of our time, a Nobel Prize winner, former head of the World Bank and Chairman of the President’s Council of Economic Advisors. He is also seriously concerned about poverty and inequality in America. I remember well hearing him on NPR radio being interviewed on the day he was informed that he was awarded the 2001 Nobel Prize in Economics: he spoke passionately and almost exclusively about the need for eradicating poverty in America and around the world. The economic argument for policies that favor the poor over the rich are very simple, being based on the universally accepted principle of the declining marginal utility of income. What that means is that one dollar is worth a lot more to a person who makes $20,000 a year than it is to a person who makes $200,000 a year. Thus a policy that gives $1 to the poorer and reduces the income of the richer by the same amount will increase general social welfare. Some people have argued that this is a value judgment rather than a fact, but that is just wrong. It is a fact, pure and simple. The bottom half of the income distribution in America earns only 12% of total income. Why don’t they just vote to take money from the top 1% of earners, who capture about 20% of total income? If voters took away half of the earnings of the top 1% and gave it to the bottom 50%, each recipient household would receive about $14,000, a not insignificant sum. I do not know why voters do not expropriate the rich (both supporters and opponents in the Eighteenth and Nineteenth centuries certainly expected that to happen upon the advent of democracy with universal suffrage), but there is one strong arguments against expropriating the rich: to the extent that high incomes motivate the talented to acquire and exercise skills and to take risks, excessive taxation will lead to economic stagnation. In fact, my observation of American politics leads me to a very simple understanding of voter sentiments: people care about injustice but not about inequality. The current wave of anger at the top 1% is not fueled by resentment against inequality, but rather against the injustice of the people at the top gaining while others are losing jobs and houses due to the economic elite’s anti-social and greedy machinations. There are of course societies where people care about inequality per se. But those are invariably relatively poor, clannish societies. For instance, in hunter-gatherer societies without forms of material wealth, when one family is very successful, others who are less successful will demand sharing the bounty. This of course eliminates the incentive to be successful and entails enduring social poverty of the group. In rich societies such as our own, people are used to congratulating the successful, whether sports stars, movie stars, real estate wheeler-dealers, and other celebrities. People object only when they feel success was based on some form of injustice, or the well-off are behaving uncharitably. Inequality per se is simply not something people think is wrong (except, of course, for a fringe of super-liberals, who are politically irrelevant). Stiglitz draws precisely on this sentiment in this spirited call to action for income redistribution towards the less well off. Recounting the well-established fact that the very rich have done extremely well in the past few decades while the fortunes of those below the top 10% have stagnated, Stiglitz argues that the good fortune of the winners is indeed unjust, being a reward for their inveterate rent-seeking rather that their contributions to society. Stiglitz writes: “This book is not about the politics of envy: the bottom 99 percent by and large are not jealous of the social contributions that some of those among the 1 percent have made, of their well-deserved incomes. This book is instead about the politics of efficiency and fairness. The central argument is that the model that best describes income determination at the top is not one based on individuals’ contributions to society… Much of the income at the top is instead what we have called rents. These rents have moved dollars from the bottom and middle to the top…In the United States the “Occupy Wall Street” movement echoed the same refrain. The unfairness of a situation in which so many lost their homes and their jobs while the bankers enjoyed large bonuses was grating.” Stiglitz recognizes that because the increase in inequality is due to rent-seeking rather than inexorable “market forces,” it can be reversed by ending the rent-seeking---in effect by changing tax laws. He writes “while we may be able to do only a little to change the direction of market forces, we can circumscribe rent seeking. Or at least we could, if we managed to get our politics right.” Much of the book consists of suggestions to this end. These include curbing the financial sector, stronger pro-competition and anti-trust laws, limiting the power of CEOs, eliminate “corporate welfare” in the form of subsidies to privileged sectors of the economy, improve access to education, institute comprehensive and universal health care, follow a vigorous full-employment fiscal policy, expand affirmative action for minorities, and restore the power of workers’ unions. Perhaps Stiglitz’ most ambitious suggestion is his proposal for curbing the inegalitarian effects of globalization. He writes, “Globalization and technology both contribute to the polarization of our labor market, but they are not abstract market forces that just arrive from on high; rather, they are shaped by our policies. We have explained how globalization— especially our asymmetric globalization—is tilted toward putting labor in a disadvantageous bargaining position vis-à-vis capital. While globalization may benefit society as a whole, it has left many behind— not a surprise given that, to a large extent, globalization has been managed by corporate and other special interests for their benefit. Too often, the response to the threat of globalization is to make workers even worse off, not just by cutting their wages but also by lowering social protections. The growth of the antiglobalization movement is, under these circumstances, totally understandable. There are myriad ways in which globalization could be brought back into a better balance.” It strikes me that Stiglitz’ analysis and his policy recommendations are closely tailored to what progressive Democrats in America are thinking, and to what seasoned politicians believe it is possible to attain politically. However, and while I fully agree with many of his policy recommendations, I disagree with some crucial recommendations, and there are important policy options that he does not discuss. Most important, I think it is likely that the increase in before-tax inequality that we have experienced in the past few decades is in fact market-driven rather than rent-seeking-driven. This is because there are similar trends in all the advanced market economies, the increases in income accrue to members of high-skilled professions, such as law, medicine, and management, and the most income-skewed sector, finance, as grown exponentially through increased public demand for financial services. I should note that Stiglitz himself admits that his rent-seeking thesis is more or less untenable, and he accepts it for reasons of personal taste. He writes: “It is essentially impossible to single out any one factor’s relative contribution, given how intertwined the various forces shaping inequality are; there can be honest differences of opinion. But… markets don’t exist in a vacuum. They are shaped by our politics, often in ways that benefit those at the top. Moreover, while we may be able to do only a little to change the direction of market forces, we can circumscribe rent seeking. Or at least we could, if we managed to get our politics right.” This admonition reminds me of the old saw about the economist looking for his lost keys one evening under a lamppost despite the fact that he dropped them in the bushes, explaining that there is more light under the lamppost. More to the point: if the problem isn’t rent-seeking, then you can’t reverse it by curbing rent-seeking! It would be more plausible to say that before-tax income inequality has been caused by market forces, but could be corrected by higher taxes on the rich (think of avoiding taxation as a form of rent-seeking). The problem is that the well-off already pay most of the taxes. The top 5% of the income distribution, who receive 45% of national income, pay 71% of all federal income taxes, while the bottom 50%, who receive 12% of national income, pay only 2% of all federal income taxes. There is not likely much leeway for increasing tax rates on the rich much more without generating very strong tendencies for tax avoidance and reduced economic participation of the economic elite. Another indication of Stiglitz’ adherence to the agenda of the Democratic Party is his pandering to unions. Public sector unions are especially great contributors to the Democratic Party coffers, but it is not clear that they are in any way a force for the mitigation of inequality. Take for instance the teachers’ unions, which are inveterately hostile to competition in education, and which must be pulled kicking and dragging even to allow the firing of incompetent teachers. Stiglitz repeats several times in the book that teachers are underpaid, but never mentions the fact that incentive pay is virtually impossible without serious educational reform. He does not include charter schools or education voucher plan in his recommendation for progressive policy reform. I have an alternative vision for progressive reform in America. It is not predicated on redistribution through tax laws, strong unions, or crippling the power of business and banking leaders. It is through what Samuel Bowles and I have called “productivity enhancing redistributions” (PEDs) These are policies that both improve the productivity of the economy and at the same time materially benefit the less-well-off. To the extent that a more competitive educational system contributes to the work skills and attitudes of poor youth, it is a productivity enhancing redistribution. The Earned Income Tax Credit (EITC) is a productivity enhancing redistribution, as are on-the-job apprenticeship programs, support for some forms of job retraining, and support for community health programs. Probably most such policy endeavors can be implemented without increasing tax rates. Perhaps the political types are correct in believing that productivity enhancing redistribution are not politically feasible, but I cannot imagine why not.