In the face of rising inequality in America, Joseph E. Stiglitz charts a path toward real recovery and a more equal society.
A singular voice of reason in an era defined by bitter politics and economic uncertainty, Joseph E. Stiglitz has time and again diagnosed America’s greatest economic challenges, from the Great Recession and its feeble recovery to the yawning gap between the rich and the poor. The Great Divide gathers his most provocative reflections to date on the subject of inequality. As Stiglitz ably argues, a healthy economy and a fairer democracy are within our grasp if we can put aside misguided interests and ideologies and abandon failed policies. Opening with the essay that gave the Occupy Movement its slogan, “We are the 99%,” later essays in The Great Divide reveal equality of opportunity as a national myth, show that today’s outsized inequality is a matter of choice, and explain reforms that would spur higher growth, more opportunity, and greater equality.
|Publisher:||Norton, W. W. & Company, Inc.|
|Product dimensions:||5.60(w) x 8.30(h) x 1.20(d)|
About the Author
Joseph E. Stiglitz is a Nobel Prize–winning economist and the best-selling author of The Great Divide, Rewriting the Rules of the American Economy, The Price of Inequality, Freefall: America, Free Markets, and the Sinking of the World Economy, and Globalization and Its Discontents. He is a columnist for the New York Times and Project Syndicate and has written for Vanity Fair, Politico, The Atlantic, and Harper’s. He teaches at Columbia University and lives in New York City.
Table of Contents
Showing Cracks 1
The Economic Consequences of Mr. Bush 27
Capitalist Fools 40
The Anatomy of a Murder: Who Killed America's Economy? 49
How to Get Out of the Financial Crisis 61
Part I Big Think 69
Of the 1 Percent, by the 1 Percent, for the 1 Percent 88
The 1 Percent's Problem 95
Slow Growth and Inequality Are Political Choices. We Can Choose Otherwise. 105
Inequality Goes Global 114
Inequality Is a Choice 118
Democracy in the 21st Century 123
Phony Capitalism 126
Part II Personal Reflections 133
How Dr. King Shaped My Work in Economics 138
The Myth of America's Golden Age 143
Part III Dimensions of Inequality 151
Equal Opportunity Our National Myth 159
Student Debt and the Crushing of the American Dream 164
Justice for Some 170
The One Housing Solution Left: Mass Mortgage Refinancing 174
Inequality and the American Child 178
Ebola and Inequality 182
Part IV Causes of America's Growing Inequality 185
America's Socialism for the Rich 192
A Tax System Stacked against the 99 Percent 196
Globalization Isn't Just about Profits. Its about Taxes Too. 203
Fallacies of Romney's Logic 207
Part V Consequences of Inequality 211
The Wrong Lesson from Detroit's Bankruptcy 216
In No One We Trust 223
Part VI Policy 231
How Policy Has Contributed to the Great Economic Divide 246
Why Janet Yellen, Not Larry Summers, Should Lead the Fed 250
The Insanity of Our Food Policy 256
On the Wrong Side of Globalization 263
The Free-Trade Charade 269
How Intellectual Property Reinforces Inequality 273
India's Patently Wise Decision 280
Eliminating Extreme Inequality: A Sustainable Development Goal, 2015-2030 284
The Postcrisis Crises 297
Inequality Is Not Inevitable 300
Part VII Regional Perspectives 307
The Mauritius Miracle 319
Singapore's Lessons for an Unequal America 323
Japan Should Be Alert 330
Japan Is a Model, Not a Cautionary Talc 334
China's Roadmap 342
Reforming China's State-Market Balance 346
Medellin: A Light unto Cities 350
American Delusions Down Under 354
Scottish Independence 357
Spain's Depression 360
Part VIII Putting America Back to Work 373
How to Put America Back to Work 381
Inequality Is Holding Back the Recovery 387
The Book of Jobs 393
Scarcity in an Age of Plenty 404
Turn Left for Growth 407
The Innovation Enigma 411
Afterword: Q&A: Joseph Stiglitz on the Fallacy That the Top 1 Percent Drives Innovation, and Why the Reagan 415
Administration Was America's Inequality Turning Point 417
Across the Great Divide: Barnes & Noble Review Interview with Joseph Stiglitz
In May 2011, Vanity Fair published an article by Nobel Prize–winning economist Joseph Stiglitz, called "Of the 1%, by the 1%, for the 1%." It's a magisterial critique of the economic imbalances plaguing American society in the wake of the 2008 crash. The piece was widely praised, as much for its lucid analysis of our economy's prime beneficiaries as for drawing explicit links between our lopsided wealth distribution and those of countries in the throes of the Arab Spring uprising. Four months later, Occupy Wall Street was born, its rallying cry "We are the 99%" an explicit reference to ideas laid out in the article. As a committed participant in a number of Occupy Wall Street's working groups throughout 2011 and 2012, I can attest to the impact that Stiglitz's article had for many of the movement's supporters and allies. That piece was only one, however, in a long career of public advocacy that Stiglitz has produced in efforts to promote his vision of a fairer (and thus more stable) economy.
As former chief economist of the World Bank and economic advisor to President Clinton, Stiglitz's experiences at the highest levels of policymaking support his ongoing critique. A longtime critic of Reagan-and-Thatcher era "supply-side" theories, Stiglitz shows us how the trajectory of America's income distribution compares with other advanced and developing economies, pointing to where we may end up if we don't reverse trends that began thirty years ago.
A new anthology called The Great Divide: Unequal Societies and What We Can Do About Them gathers fifty-two of his articles from the last ten years. I spoke with Stiglitz by phone about the new book, his latest opinions on the issues he raises in its pages, and how those insights pertain to ongoing issues such as police brutality, crises in the Eurozone, and what it will takes to achieve a balanced society. Charles Reinhardt
The Barnes & Noble Review: In the introduction to this book, you mention that China has moved 500 million people out of poverty during the same time period in which stagnation has seized America's middle class. You mention that if America doesn't enact policies that sustain its middle class, no one will want to follow its example. Are China's situation and America's situation the results of different policies, or are they in fact linked phenomena?
Joseph Stiglitz: It was clear that China had policies that were very strongly aimed at moving people out of poverty, whereas we didn't have policies that were aimed at maintaining our middle-class lifestyle. That was really the thrust of that comparison. Now I think the question that you're raising is, "Did the success of China come at the expense of America not doing very well?" And I think the answer to that is no. Or let me say, it didn't have to be.
The argument that was always put forward was that globalization and comparative advantage leads both countries to be better off. The nature of that argument was that the country as a whole might benefit. But that doesn't mean that particular groups might not be worse off. In particular, the standard theory is that unskilled labor would be worse off. And that's true, but if we had put into place policies that helped up-skill them, so that they wouldn't be unskilled people competing with unskilled workers in China, we could have avoided some of those adverse outcomes.
BNR: In your essay "The Economic Consequences of Mr. Bush," from December 2007, you talk about the necessity of reducing taxes on people's incomes and savings and raising them on things like pollution caused by corporations. Do you think we've made any progress on that front, seven and a half years later?
JS: No, we haven't, and it's very sad. I think those kinds of taxes would've helped us move toward a more environmentally sound economy, and we also desperately need the revenues for investments that would have reduced the inequality in our society. So we've lost on both accounts.
BNR: Some of your criticisms of Mr. Bush's economic stewardship of the country, such as the trade deficit and the growth of the national debt are criticisms Obama has received from his Republican critics. How do you think Obama managed the economic hand he was dealt, particularly those ongoing, chronic problems?
JS: He inherited a very different economic situation. In terms of the national debt, I don't think he had any choice. In fact, I would argue that we should've borrowed more to stimulate the economy after 2008. The trade deficit is the same. The fact that our interest rates were kept so low by the Federal Reserve actually gave us a competitive advantage, but our trading partners were in such shambles that our exports didn't do as well as they would have normally.
There's one area where I would fault him for not being ambitious enough, though I don't think he could've gotten through the Republican Congress. Ten years ago, a lot of people thought that developing solar energy was one of the areas where we could gain enormous advantage. We have a skilled labor force and scientists and engineers that could've contributed to our green commitment and created jobs. And we didn't do very much about it. China did and managed to bring the costs down enormously; they fell to a fraction of what they were before. That's an example where our underinvestment in technology has hurt us a lot in terms of our competitiveness and the global economy today.
BNR: In a very short article you wrote two years ago in Project Syndicate, called "Inequality Goes Global," you discuss "job-killing automated processes" that make it harder for developed countries to create good jobs.
JS: In the United States, worker productivity has gone up significantly. But the big puzzle is why wages haven't gone up in tandem. Technology may lead some kinds of labor to become scarcer relative to others, so it might change the relative returns to someone with a particular skill such as programming, things like that. But there's a general expectation that the average wage should go up. And that hasn't happened. And the implication of that is, to me, that there's evidence of a market distortion. The market distortion is weaker unions, more monopoly power, failures in corporate governance, in other words, all the noncompetitive structures that are shaping inequality in the United States and many other countries.
BNR: Another essay in this book is called "In No One We Trust," where you argue that inequality and perceived unfairness in policy erodes social bonds and the trust that's required for capitalism to function efficiently. Do you think that thesis can be extrapolated to the broader erosion of trust that motivates popular protests and actions in cities like Ferguson or Baltimore. Do they also reflect a lack of trust in the structures of authority that undergird our economic system?
JS: Yes, our economic, social, and political system, very much so. Any society has to delegate the responsibility to maintain a certain kind of order. Enforcing regulations, making sure people stop at stoplights. We can't function as a society without rules and regulations, and the enforcement mechanism of those rules and regulations. It sounds abstract, but it's central to how any advanced society or economy operates. But you can't have someone monitoring every action of every person; the system would break down. So we have a system of trust, and the trust is that I will behave well on the condition that the laws are enforced fairly and that I'm treated with dignity and respect.
And what's happened now, particularly with respect to African Americans but even more broadly, I think, is that every American has seen that the police forces in our country are not fair. Their power is being abused. The only discrepancy is between those who think we're seeing the tip of the iceberg and those who think these are isolated examples. But everyone is seeing these abuses in a way that no one could deny now. Ten years ago people could dispute the facts. But when you see the videos, you can't dispute the facts anymore. The bottom line of all of this is that it has the potential to undermine the way our whole society functions, not just our economy.
BNR: I found your foreword to the Spanish version of your book The Price of Inequality analyzing Spain's economic depression very interesting because, as you mention, Spain was one of the poster children of southern Europe in mainstream commentary right up until its crisis hit. Has any progress been made in addressing Spain's economic woes since you wrote that piece?
JS: Actually, it's really depressing. Some people are championing the fact that Spain is growing a little bit, and has the most robust growth in Europe, but that is a very poor benchmark because everyone else is basically stagnating. They talk about the unemployment rate coming down, but it fell from over 25 percent to 23.2 percent. And youth unemployment remains close to 50 percent. So to me, that's a depression. And seven years after the crash of 2008, they're saying that they're beginning to see the light at the end of the tunnel. But at this current rate of recovery, it will be another seven to ten years before they recover. I think there's a failed policy, and I think it's inevitable that you will get these political repercussions. We've seen that in Greece, where the centrist parties that supported austerity and the troika [the European Central Bank, the European Commission, and the International Monetary Fund] got thrown out. Greece has now moved to the brink.
The politics in Spain are equally worrisome. The two parties of center-right and center-left are getting trounced and the largest party is [the left-wing populist party] Podemos, which is like Syriza in Greece. And the other biggest parties are the regional ones that want to break Spain apart. So this is a real example where bad economics is having a polarizing effect on their society, leading to a political divide that will be very hard to bridge.
BNR: Since you touched on Greece, what do you think of the current state of brinksmanship in negotiations between the far-left ruling party Syriza and the European technocrats formerly known as the troika?
JS: I think it's worse than that. I spent some time in the last few weeks with both the finance minister of Greece and the finance minister of Germany. The finance minister of Greece, Yanis Varoufakis, actually knows his economics, and I think Greece has actually put up a reasonable reform plan. But they haven't changed what the troika have imposed on them. Now, no serious economist thought the troika's proposal would work. Part of the original proposal was a 4.5 percent primary budget surplus that would've killed any country.
So the Greeks said, "We'll do one and a half percent, but we're not going to sign on with a program that's suicide." And Germany's saying, "You have to sign on to this suicide program, then we'll negotiate." But Greece just had an election where the people said, "We won't agree to a policy has proven itself to be a failure." So it's impossible for Syriza to go along. And that should've been transparent and obvious, and I think that it is only going to be [German chancellor] Angela Merkel, if anybody, who pulls Europe back from the brink.
There's a brewing sense, both in the U.S. administration and among economists, that Germany and many other countries in Europe have not fully taken seriously the risks of a Greek exit from the Eurozone. Articles on the subject haven't highlighted two things that I think are very important: One of them is that even if we get through the short-run period, the next time a country like Spain has a serious problem, people will say, "Well, the euro is just a marriage of convenience; when it becomes inconvenient, they'll push the country out." It will lead to more volatility in exchange rates, interest rates and more economic instability.
The second thing is that there is uncertainty about how well Greece will do. Some people think it will do very well, with the default on the debt and the lower exchange rate. Argentina did very, very well after its initial point of turmoil. Others point to the initial period of turmoil in Argentina and say, "That's really going to eat up the country." If it turns out to be a success, given what's happening in Spain I don't think the Spanish people will wait for a decade for things to get back to normal. So if Greece turns out to be a success, I think Europe will start falling apart. And if Greece does not turn out to be a success, I think the political consequences of having what may be a failed state on the southern border of Europe near the volatile Middle East is the last thing that anybody in Europe should even be contemplating. In other words, I'm very worried.
BNR: You mentioned in this book how much the experience of writing regularly for Project Syndicate changed your writing style and your way of looking at different economic issues. Given that this book is composed of a number of shorter essays and articles, could you comment on that?
JS: There's a special kind of discipline in trying to turn your thoughts into 750–1,000 words. It makes you think succinctly, and makes you edit yourself. It makes you think about the frame of reference of readers, how you reach them. I have to get them into the subject and engaged in a very short time. And you hope that when you write something, you'll leave them with something in their memory that has affected their perception of issues. It's a very different style of writing than the academic style, which is much more discursive, and doesn't think about engaging readers; it's about presenting your theorem.
BNR: Why do you think your collection of articles about inequality, along with books like Capital in the Twenty-First Century by Thomas Piketty, are so central to the public conversation right now? Why is there so much demand for insights about inequality?
JS: The main reason is that inequality has gotten so large, you don't need o look it up in statistical tables to feel it. Everyone in our country is feeling it. You turn on TV and you see what's happening in Baltimore, you feel it. Our economy went through the Great Recession and the president declared the recession over. But 91 percent of the gains go to the top 1 percent. You start to think the cards are stacked and something's wrong in our society. Americans are finally grasping what's been going on for a long time. Incomes in the middle have stagnated for a quarter of a century and at the bottom for almost a half century. You might have had the sense that things were going to turn the corner, but half a century is a long time for people at the bottom to wait for a pay raise. They know it, and everyone looking at their living standards knows it.
So the answer is that everyone sort of senses it, they know it without knowing exact numbers, and they now want to understand why. Piketty suggests it's almost the inevitable consequence of capitalism. I think it's not the inevitable consequence of capitalism, but really the way we've shaped capitalism with our policies.
BNR: On the topic of how capitalism is going to be shaped in the future, I noticed at the end of this book, in your Q&A with Cullen Murphy, there's a discussion of members of the 1 percent who make your same arguments about why inequality matters, who believe that the wealthy have a stake in the welfare of everyone. And you name a few people (George Soros, Warren Buffett, Patriotic Millionaires), saying that you "suspect they believe in certain values and they worry that in an increasingly divided America, those values will become an increasing rarity." Meanwhile, in the beginning of this book, you talk about the fact that "those who were supposed to make sure the economy was kept on an even keel were too closely connected to those who were throwing the party and having all the fun and making all the money."
JS: The view that I have is that actually, there are many people in the 1 percent who understand that there's a problem and want to change it. But there are probably even more in the 1 percent who actually are shortsighted and don't understand their own interests. They see the government taking money away from them as the worst possible thing, and don't realize some things. Like the Internet giants who take for granted that there's always been an Internet, without realizing that it was the government that made the investments that created it. They see the government's taxation as taking away their ability to innovate, without realizing that those innovations couldn't exist without someone else paying for the development of technology to the point where they could take the next step.
In the beginning of the book, I was referring to people in the financial sector particularly, who were throwing a big party and influenced the regulators a lot. Who influenced our Treasury secretaries, or were themselves secretary of the Treasury, and kept the flawed system going.
BNR: What are people trying to glean from your book?
JS: Once you pose the question in the way that I do, focusing on the rules and regulations and how we structure the economy, I think most people are convinced that it's not going to be a magic bullet. It's not going to be "Policy A, 1, 2, and 3."It's going to be a broad agenda that will have to talk about corporate governance, CEO pay, labor unions, trying to redraft globalization. A small tweak will not solve this problem.
May 20, 2015