Tuesday, April 5, 2011

Stiglitz Tells Us the Redistribution Fairy is Dead, but She Still Lives in Economists’ Fantasies

Vanity Fair has published a short article by Joseph Stiglitz on how the top 1% aren’t merely taking way more than their fair share, but how they are increasingly organizing the world to make that into a self-perpetuating system. After debunking the idea that the new economic order is a function of merit, as opposed to socialism for the rich and rent extraction, he turns to its destructive features, including:

….perhaps most important, a modern economy requires “collective action”—it needs government to invest in infrastructure, education, and technology. The United States and the world have benefited greatly from government-sponsored research that led to the Internet, to advances in public health, and so on. But America has long suffered from an under-investment in infrastructure (look at the condition of our highways and bridges, our railroads and airports), in basic research, and in education at all levels. Further cutbacks in these areas lie ahead…..

The more divided a society becomes in terms of wealth, the more reluctant the wealthy become to spend money on common needs. The rich don’t need to rely on government for parks or education or medical care or personal security—they can buy all these things for themselves. In the process, they become more distant from ordinary people, losing whatever empathy they may once have had. They also worry about strong government—one that could use its powers to adjust the balance, take some of their wealth, and invest it for the common good. The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes…

Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent.

Needless to say, the shift in income distribution and wealth looks to be so badly entrenched as to be pretty much impossible to reverse ex a very concerted push by the great unwashed 99% (but sadly, the top 10% to 20% of that cohort incorrectly sees its interests as aligned with those of its betters).

I hate picking on individuals to illustrate broader phenomena, but in light of the reality depicted by Stiglitz, arguments in support of policies that worsen distribution and leave the economy net no better off are simply indefensible. But instead we get rationalizations and calls for the Distribution Fairy to wave her magic wand.

Consider this post by Menzie Chinn at Econbrowser, “Gains and Losses from Trade with China“. He discusses a new paper by David Autor, David Dorn, and Gordon Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States“. It looks at the impact of trade with China on US communities (defined as commuting zones) from 1990 to 2007, parsing out how exposed the various localities were to trade with China. They find that competition with Chinese manufacture had a negative impact on labor markets (quelle surprise!):

Our results suggest that the strong focus of previous literature on wages misses important aspects of labor-market adjustment to trade. We find that increased exposure to low-income- country imports is associated with rising unemployment, decreased labor-force participation, and increased use of disability and other bene…ts, as well as with lower wages. Comparing two CZ’s over the period of 2000 through 2007, one at the 25th percentile and the other at the 75th percentile of exposure to Chinese import growth, the CZ at the 75th percentile would be expected to experience a differential 4.1 percent fall in the number of manufacturing employees, a 0.8 percentage point fall in the employment to population rate, a 0.8 percent fall in mean log weekly earnings, and increases in per capita unemployment, disability, and income assistance transfer benefits on the order of 2 to 3 percent. Hence, federally funded transfer programs, such as Social Security Disability Insurance (SSDI), implicitly insure U.S. workers against trade-related employment shocks. Import exposure also predicts a large but imprecisely measured increase in benefits from Trade Adjustment Assistance (TAA), which is the primary federal program that provides …nancial support to workers who lose their jobs as a result of foreign trade. However, TAA grants are temporary, whereas most workers who take-up disability receive SSDI benefits until retirement or death (Autor and Duggan, 2006). For regions affected by Chinese imports, the estimated dollar increase in per capita SSDI payments is more than forty times as large as the estimated dollar increase in TAA payments.

The paper also finds (and its authors say they were surprised) that these effects netted out in the medium term against gains to consumers.

And what does Chinn say? Rather than question free trade orthodoxy (can’t do that or you will be dismissed as a heretic) since the paper shows that trade produced no net economic gain and adversely affected hapless families and communities, he instead argues:

I think it’s important to remember, when comparing costs and benefits, that this is the welfare levels with China under (relatively) free trade against the welfare levels without China, and not against autarky.

Further, as the authors note, over time some of the costs (transfers and associated dead weight losses) disappear, so the benefits eventually outweigh the gains.

Note the paper did NOT say the benefits outweighed the losses. This is what it said:

Growing import exposure spurs a substantial increase in transfer payments to individuals and households in the form of unemployment insurance bene…ts, disability bene…ts, income support payments, and in-kind medical bene…ts. These transfer payments are two orders of
magnitude larger than the corresponding rise in Trade Adjustment Assistance bene…ts. Nevertheless, transfers fall far short of offsetting the large decline in average household incomes found in local labor markets that are most heavily exposed to China trade. Our estimates imply that the losses in economic efficiency from trade-induced increases in the usage of public bene…ts are, in the medium run, of the same order of magnitude as U.S. consumer gains from trade with China.

The article argues that the short term hits to efficiency of GOVERNMENT PROGRAMS to compensate for the negative impact on workers nets out in the intermediate term against consumer gains. But it also clearly states those programs do not fully compensate for the income losses consumers suffer. Moreover, the analysis cannot capture second order effects of employment and income losses (as we now know, when workers lose good manufacturing jobs, they were not likely to find replacement jobs at comparable levels of income even before the crisis) in term of effects on mental health as well as the more general, society-wide adverse effects of increased income disparity (for instance, even the wealthy suffer from shorter lifespans in less equal societies).

So then we get this:

Even when the benefits outweigh the costs, the tabulation of gains and losses by groups highlights the facts that international trade has distributional consequences. That realization should not induce policymakers to hinder trade via protectionist measures. Rather it reminds us that transfers from gainers to losers is a prerequisite for trade to be Pareto improving.

Earth to base. Those transfers weren’t adequate over the last 15 years. If they were, Stiglitz wouldn’t be writing about the increased concentration of wealth and power in the top 1% (not that trade is the only or main driver but it is part of the equation).

And treating the only policy options besides redisribution as protectionism is a straw man. We live in a world of managed trade, not open trade. Our trading partners are far more astute in agreeing to trade policies that protect or at least don’t worsen the standing of their workers. We, by contrast, have big corporate friendly policies and have promoted the view that anything that results from “market” activity, no matter how many distortions there are in that market, must be virtuous. And the result is that we have economists who really ought to know better taking their scripts from Dr. Pangloss.

Topics: Banana republic, Free markets and their discontents, Globalization, Income disparity, Politics, Taxes, The destruction of the middle class, The dismal science

Email This Post Email This Post Posted by Yves Smith at 4:58 am

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80 Comments:

  • attempter says:
    April 5, 2011 at 5:14 am

    It’s long since been proven beyond any standard of evidence required to convince a criminal jury that globalization and “free” trade are bad for the people economically. (And, I’ll add in passing, democratically.)

    It’s similarly been proven that trickle-down, “redistribution” in any sense other than upward, and all such Rube Goldberg schemes do not work. And in truth, they were never intended by their proponents to work, but only to justify obscene criminal extractions by the most worthless parasites history has ever known.

    That’s the only intention or concern of Chinn and all other such ideologues. They’re nothing more or less than principals in a criminal conspiracy to rob the productive people.

    • Toby says:
      April 5, 2011 at 6:25 am

      Agreed.

      While we have hierarchy we’ve got to have an ‘elite’ at the top, by definition. And though democratic processes have redirected the power-flow somewhat–sporadically and only a little–the gravity of a hierarchical distribution of power and wealth must be ever upwards. This seems to me to be a logical condition of hierarchies generally. The degree to which we can redress this upward momentum via, say, progressive taxes and representative democracy, can only be minimal in my opinion, since the underlying dynamic of the process is not altered therefrom; we just knock off a few crumbs and hand them over to the poorer 80% or so. This isn’t bad, it just isn’t enough. Not any more.

      A further problem is the increasing complexity of the system as it expands outwards, exploiting more of the planet’s ‘idle’ resources in its insatiable hunger for more wealth. Staying ‘in control’ gets harder and harder as the system becomes more cumbersome and perverse. Meanwhile, technologies like the printing press, the scientific method, and the Internet, free up information to those the upper 1% would rather keep in the dark. The deceptions and lies (public relations) used to justify the obscene social divisions become more divorced from reality and harder to defend. Then comes revolution or collapse, both probably.

      Now, for the first time in our history, we have a global system, and it is as insatiable as ever. It seems the best science humans can muster strongly suggests we, directly due to our growth-addiction, are causing a 6th extinction event. This means we have progressively less to exploit, which adds spice to the problem of complexity I touched on above.

      I see no healthy way out of this other than the careful and deliberate introduction of egalitarianism, or autarky, or anarchy, along with a globally-aware and coordinated prioritizing of environment above all monies, the latter being the more important element. People and environment first, money a distant second. This would require the total redesign of almost everything we do, from money, to education, to economics, to politics, to nations, energy, ‘profit,’ and so on. A tall order indeed, but the challenges we face are unprecedented. Old ideas cannot yield the solutions.

      • DownSouth says:
        April 5, 2011 at 8:28 am

        Toby,

        I watched the movie you recommended, Zeitgeist Moving Forward, which can be seen on the internet here.

        While I felt that the diagnosis of the disease we’re battling was superb, and am not at all opposed to the suggested goals, I think the producers suffer from the same shortcomings that Stiglitz does. In the case of Zeitgeist Moving Forward, the good fairy is science.

        But historically science hasn’t delivered the goods any better than religion, philosophy or politics. Yves had a wonderful post yesterday that pointed out just how badly the discipline of economics has been co-opted by interest. Now granted, everybody likes to pull out the knives when we’re talking about economics. But other areas of science, and especially those that deal with human behavior, haven’t fared much better.

        The poster child for science-gone-bad is Nazi racial science, which Francois Haas does an outstanding synopsis of in this article. And it should come as no surprise that Nazi racial science has at its heart the same science that modern-day economics does—-social Darwinism—-the only difference being that with Nazi racial science it is social Darwinism operating at the group level, whereas with modern economics it is social Darwinism ostensibly operating at the individual level.

        Of course you and I both know that social Darwinism was not formulated using the scientific method. Instead, it uses the method of rationality, that “other science” that is the age-old enemy of the scientific method. But nevertheless, Herbert Spencer lives. And in fact, in economics, in biology, in anthropology, in sociology, in political science, in psychology, in evolutionary studies—-you name it—-he is perhaps the dominant influence. Why is this so? Well we all know why it’s so. Here’s how Robert H. Nelson explains it in Economics as Relgion:

        The new titans of American industry indeed looked to social Darwinism to bless their victories in the market and resulting accumulations of vast wealth… Prior to the Civil War in the United States, there were few business corporations. By 1900, two-thirds of all U.S. manufacturing activity was being carried on in businesses operating under corporate ownership. Apparently, the survival of the fittest in the new industrial world would often mean the survival of the largest, a lesson that American businesses took newly to heart and for which the ideas of Spencer could offer a seemingly scientific justification…

        Spencer is yet another of the economic determinists of the late nineteenth and early twentieth centuries. No less than for Marx, the underlying working of economic forces in history determine everything important that happens in society. In the advance of the world, old ideals like social justice, fairness, equality, and so forth will do more harm than good; they impede—-even though they can never permanently frustrate—-the evolutionary workings of the iron laws of economic progress. Social planning is an impossibility because it is beyond human capacity to redirect the laws of nature, as they are embodied in the of survival of economic fittest.

        So how do the writers of Zeitgeist Moving Forward propose to slay Herbert Spencer? “With science,” comes the refrain. But other than magical thinking, they don’t get into the nitty gritty as to how the corporatists’ death grip on the academy is to be broken.

        • skippy says:
          April 5, 2011 at 9:07 am

          Please can we dispense with the moniker Social Darwinism. It should be Social Hubertism…cough the elitist mouth piece…one of the well springs of eugenics…cough Nazi / Randian racial rubbish et al.

          Poor Darwin rolling in his grave, no wonder he put off publication, yet to have this non de plume affixed to his works.

          Skippy…other wise I concur wholeheartedly.

          • DownSouth says:
            April 5, 2011 at 9:46 am

            Skippy said: “Poor Darwin rolling in his grave…”

            Yep.

            Perhaps no one has put it more succinctly than David Sloan Wilson writing in Evolution for Everyone:

            Evolutionary theory is a ship that has weathered many storms. Lately it has been buffeted by the winds of creationism and its born-again cousin, intelligent design (ID), but the enemies of evolution are tame compared to its friends. Herbert Spencer, an intellectual giant of Darwin’s day, like evolution because he thought it justified the inequalities of British class society. The first half of Ronald Fisher’s classic “The Genetical Theory of Natural Selection” is still read today, but the second half, on eugenics (the improvement of society by selective breeding), is politely ignored. Hitler like evolution because he thought it justified the ultimate social inequality of genocide. Using evolution to justify social inequality has become known as “social Darwinism.” Darwin himself was passionately against slavery and thought that social policy should be based on compassion, which he regarded as “the noblest part of our nature,” but even he was not a New Age guy by modern standards. If we judged Darwin’s theory by some of the company it has kept…we would give it a wide berth.

            [….]

            Science, religion, and politics all face the dame problem. Some individuals are driven to benefit themselves at the expense of others or their society as a whole. At a larger scale, some groups are driven to collectively benefit themselves at the expense of other groups. In science this problem takes the form of self-serving factual claims. I say that something is true, not because it really is true but because it serves my interests. The most important wrong ideas in science are not just bad guesses; they systematically serve the interest of their proponents.

            [….]

            How should we respond to someone who uses a scientific theory to justify acts that we regard as reprehensible? There are two lines of defense. One is to question the alleged facts. The other is to question whether the facts justify the acts. Even if going to college did cause ovaries to shrivel [the dominant medical theory 100 years ago], we might decide that women have the right to choose for themselves which organ to develop.

          • DownSouth says:
            April 5, 2011 at 10:03 am

            Skippy,

            Along these same lines I think you might very much enjoy Part II of Adam Curtis’ film The Living Dead, which can be seen here.

            Beginning at minute 28:00 and going through about minute 50:00 he talks about how the priorities and direction of psychology and psychiatry in the United States during the 20th century were for the most part determined by the massive funding of the CIA, something that the psychology and psychiatric professions are now in denial about.

        • Toby says:
          April 5, 2011 at 10:00 am

          Hi DownSouth,

          the movement’s roots lie quite deep in Scientific Positivism’s soil, and that often puts me off too. However, a wee quote in the film from Mr Fresco, easily missed, is that science should be applied where it makes sense to do so. He defines science as arriving at or establishing “the next most probable.” He dismisses the science you condone as BS, Bad Science. I would in fact say you are close to his thinking than the film would lead you to believe. The entire project has a surface sheen of ‘Science, the Good Fairy,’ but really, upon closer examination, their position is more subtle. Also, the film’s director, Peter Joseph, is more stridently scientific positivist than Fresco, whose analysis and proposed direction he promotes.

          As to there being no detailed proposal, that’s true, but I find that good. If we are to embrace egalitarianism or resource-based economics etc., we all have to be involved at some well-informed level. Hence, it cannot be about blindly following a fixed plan handed down some Great One. To use a cliche; it’s up to us. Besides, there is in fact a road map of sorts viewable at http://www.thevenusproject.com.

          There’s of course far more to this than a 2:41 hour film can possibly capture, but the film at least gives the viewer an analysis, and quite clear direction, to discuss and criticize. That is at least a starting point we can work with.

          For a richer take on the pitfalls of “Gee whiz–the Future!” see Charles Eisenstein. Here’s the first chapter of his excellent tome:

          http://www.ascentofhumanity.com/chapter1-0.php

          Otherwise, thanks for the feedback. I do appreciate it.

    • agent zero says:
      April 5, 2011 at 8:38 am

      It’s long since been proven beyond any standard of evidence required to convince a criminal jury that globalization and “free” trade are bad for the people economically. (And, I’ll add in passing, democratically.)

      It all depends on your point of view. From the point of view of the vast majority of Chinese people, globalization and free trade have been very good for the people economically.

      I remember in 2004 when Wen Jiabao was on the Charlie Rose show and Wen very proudly pointed out that for the first time in modern history, hunger in China, as a major problem, had largely been solved. A major accomplishment, considering only 40 years before 30 million people in China died from hunger.

      http://en.wikipedia.org/wiki/Great_Chinese_Famine

      • liberal says:
        April 5, 2011 at 9:23 am

        I doubt that’s the result of free trade but rather the result of not doing criminally insane Maoist stuff.

      • doom says:
        April 5, 2011 at 9:27 am

        Besides, the Chinese are urging the US to ratify the CESCR, as China has done, which would mean more transfers to secure housing, food, and other requisites of life, and more investment in education and environmental hygiene, all policed by an international review process demanding progressive improvement. Trade with China on those terms would work out fine. It’s unpossible here only because defense/security, corporate subsidies, and elite looting are untouchable.

      • attempter says:
        April 5, 2011 at 10:52 am

        Just like all other famines, that in China was purely man-made, the direct result of political policy.

        And of course it’s false that “the vast majority” of Chinese have benefitted from globalization. The elites have benefitted, and a small middle class has arisen along the coast. The vast majority are impoverished peasants or work in sweatshops.

        So no, there’s no country which has deployed a trade surplus in an egalitarian way. And even if there were, that would simply render the whole country a criminal organization.

        In reality, all we have is the global criminal elite, and the prey populations everywhere. Certainly, broad-based Western populations are still relatively preying on the global South. But all populations are now being liquidated, and are headed for the same thralldom at the same minimal economic level.

    • Nathanael says:
      April 6, 2011 at 7:49 am

      Redistribution *has* worked in the past. I point you to the 92% tax rates under Eisenhower, or the rates under Clement Atlee — or even the 425% rate in Sweden some years back.

      Redistribution, straight up, does work. The trouble is, once the richest get such a concentration of wealth and power that they can take over the government, it becomes hard to *implement* redistribution.

      • Scwarzschild Radius says:
        April 6, 2011 at 9:40 pm

        ”
        once the richest get such a concentration of wealth and power that they can take over the government,
        ”

        You bet your monolithic molecules! They got the drop on us. We didn’t draw in time. They now have the critical mass that sucks in all matter and energy. Our only weapon now is anti-matter, the only poison that will shrink their gravitational force.

  • Foppe says:
    April 5, 2011 at 5:41 am

    Our trading partners are far more astute in agreeing to trade policies that protect or at least don’t worsen the standing of their workers. We, by contrast, have big corporate friendly policies and have promoted the view that anything that results from “market” activity, no matter how many distortions there are in that market, must be virtuous.
    Yves, out of curiosity: have you read Naomi Klein’s The Shock Doctrine? Because it seems to me that IMF/US (and now in Europe the IMF/EU) in the case of the former have been (from Chile to South Africa to the Asian crisis), and in case of the latter are (Ireland/Greece) doing their utmost to ensure that the rest of the world has fewer protections than they have. And while you can argue that defending the ideology is more important to do inside the US (because there is a semblance of a public sphere), so that the debates surrounding abolishing those protections is stronger, I am not sure that corporate policies elsewhere in the world are different; the only difference is that there, they usually can’t even discuss (let alone change) them ever since they were forced to join the WTO.

    (Except, primarily, China and Japan, who could ignore the demands of the IMF/US because they had huge trade surpluses.)

    • Yves Smith says:
      April 5, 2011 at 6:29 am

      India has a lot of trade restrictions. The Irish woes are bank related, not trade related. Greece is suffering mainly from deficits within the EU, if you look at the stat on the trade deficits of the Euro periphery countries, IIRC 60% roughly is with other European countries. So the liberalization of trade within Europe (and as we pointed out in a recent post, the lack of clear national economic strategies) looks to be the bigger culprit than the EU trade agreements with the rest of the world

      • Foppe says:
        April 5, 2011 at 8:20 am

        My issue isn’t so much with the definition of the problem, but with the solutions that they (IMF/EU) are proposing. And there I get the feeling that they want to place Ireland/Greece at an even bigger disadvantage than they already were. As far as I am aware (CIA WFB notes biggest trading partners as US/Belgium/UK), Ireland has no exports worth mentioning, and most of the “sustainable” growth has come from companies moving there because of their tax regime. In either case, the economic stability of the country will probably not improve through forcing the government to sell off its revenue-generating assets, yet this is precisely what they want Greece to do.

  • vlade says:
    April 5, 2011 at 5:58 am

    “the consumer benefits” argument is a really dumb one, as it’s looking at the situation from one side.
    It’s like saying that it’s good for company that a commodity is cheaper – but company’s profit depends on both costs and revenues. Horse cart companies weren’t helped by the price of hay dropping when cars arrived.
    What also strikes me is the inability of the most of top 1% to see that concentration of wealth is counterproductive on a number of levels – not only on the social level, but on the economic as well (which long-term tends to have super-bad social implications).

    • James says:
      April 5, 2011 at 9:03 pm

      vlade,

      Concentration of wealth makes perfect sense from the point of view of the top 1% realizing the ponzi scheme of wealth transfer is almost done. What’d you think? The rich bastards thought it was going to go on forever?

      With key natural resources dwindling across the board and the environment now a sewer, the point is to hold all the remaining political and economic cards, thereby to cash in for whatever “favor” is left to be had. Cash out a few billion of the proletariat from the game, and what-y-a-know? The world all of a sudden doesn’t look like such a hopeless place after all for those who remain to consider such things.

      • Nathanael says:
        April 6, 2011 at 7:54 am

        Veblen describes the short-term, thoughtless behavior of the “predatory class”, and describes their psychology quite well. Yes, they really do think that the looting can go on forever. Yes, they really are that stupid. Yes, once all the wealth is in the hands of 1%, they will start stealing it from each other until it’s in the hands of 0.1% (they’re already doing this), and then they will start stealing from each other and fighting until it is all in the hands of one person.

        Or the French Revolution happens, but they’re conditioned to believe that that’s impossible.

  • Toby says:
    April 5, 2011 at 7:11 am

    Slightly tangential, but I feel relevant enough is this, which I find to be a powerful metaphor/comparison:

    “It is unfortunate that corporations came in before Isaac Asimov’s Three Laws of Robotics. In the 1950s, when robots were mostly figments of imagination of science fiction writers, Asimov wrote the novel, I Robot, where he laid down the three laws, to ensure that intelligent, man-made automata did not take over the world and enslave humankind.

    The First Law was: “A robot may not injure a human being or, through inaction, allow a human being to come to harm.” The Second Law: “A robot must obey orders given it by human beings except where such orders would conflict with the First Law.” The third law is about self-preservation, as long as it did not conflict with the First or Second Laws.

    We would be much better off today if all corporations — which, like robots, are man-made automata — were constrained by these laws. But when we granted legal personhood to corporations, turning them into a de facto man-made species of business automata, we built into them not the three laws for automata but the single urge to seek profits. Corporations have since confirmed the science fictionists’ worst fears about runaway automata.

    They have become super-aggressive players in our political, economic, and social worlds. Beating us in our own game, they have taken over governments, economies, and media. Having become masters in domesticating Homo sapiens, they now house, feed, train and employ tamed humans to serve as their workhorses, pack mules, milking cows, watchdogs, stool pigeons and smart asses.

    Thus, corporations are now the dominant species on Earth. They routinely ignore human orders, injure human beings and foul up ecosystems in violation of laws for automata. These man-made mammoths now occupy the top of the food chain. They have become the greatest threat to our well-being and the survival of many species on this planet, now in the throes of a great wave of extinctions.”

    From this article:

    http://www.realitysandwich.com/contesting_abundance

    • Parvaneh Ferhadi says:
      April 5, 2011 at 8:23 am

      Very interesting thoughts, in my view. Sometimes it seems to me that those human-built automata called corporations were intentionally built for those behind it to be able to circumvent the first and the second law and to do so with impunity.

    • James says:
      April 5, 2011 at 9:28 pm

      Thus, corporations are now the dominant species on Earth. They routinely ignore human orders, injure human beings and foul up ecosystems in violation of laws for automata. These man-made mammoths now occupy the top of the food chain. They have become the greatest threat to our well-being and the survival of many species on this planet, now in the throes of a great wave of extinctions.”

      Toby,

      Close, but no cigar. I’ll admit, it’s quite tempting to cede the “corporations as humans,” nay, “Super-humans” meme over to reality (which The Supreme’s evidently beat you to), but the sad fact is, corporations are ruled by just plain-old corrupt fat bastards like you and me, albeit having been genetically selected for lack of scruples and love of self.

      Let’s not give the sorry assed c**k-suckers any more leeway or respect than they deserve now, OK?

      All this corporate flim-flammery could be done away with tomorrow if the twin spells of “American Exceptionalism” and “Capitalism/Free Markets as Religion” could be lifted from the remaining eyes to spell-bound to see it. That day’s rapidly approaching either way; question is, will there be anyone on the losing side left remaining to witness it?

      • Toby says:
        April 6, 2011 at 12:27 am

        I find the ‘they’re just run by humans’ argument a bit weak. The leverage they have by virtue of their organizational skills and access to monetary wealth is sufficient to wreak great damage, and has done. Power struggle is not merely one human against another, society would be impossible were that the case. Corporations are societies in their organizational capacity, but legal persons too. We shouldn’t underestimate what this combo/entity can do.

        However, they’re not impervious to change, and the broad societal change that is emerging, the change in paradigm you allude to, is a process that will, I hope, have a lasting and positive effect on them. Far be it for me to say, though, what shape they will have 100 years for now.

  • LAS says:
    April 5, 2011 at 7:53 am

    Stiglitz is particularly good at stating things clearly. His book on the economics of the public sector is excellent. As might be imagined though, his work is attacked for not adequately explaining the benefits of privatization. Ha! Beyond the level of Outis P it would seem.

    People who take pride in their brains are often controlled by powerful interests, including doctors by massive hospitals, scholars by benefactors/sources of income, researchers by who has the money to pay for research (quite different from he who most needs the research), etc.

    We have relatively little control of our lives except for within our social structures. The question becomes “who shall have the power of social engineering us?” Ultimately, that’s not an economic question. It is a power question, a civil rights question.

    Economists are often in the position of Samuel Taylor Colerige who struggled with philosophy to overcome an opium habit he could not surmount. He said something along the line that in the moment of actual need all his metaphysical tools lay at the side unused “as toys by the bed of a child deadly sick.”

    People are going to march or nothing will change. Wisconsin is either ground zero or the last gasp of defeat. We shall see.

    • DownSouth says:
      April 5, 2011 at 8:50 am

      LAS said:

      • The question becomes “who shall have the power of social engineering us?” Ultimately, that’s not an economic question. It is a power question, a civil rights question.

      • People are going to march or nothing will change.

      Exactly!

    • Nathanael says:
      April 6, 2011 at 7:56 am

      “As might be imagined though, his work is attacked for not adequately explaining the benefits of privatization. Ha!”

      Ha! That is funny. Since there are no benefits to privatization of public services, of course. We can see the self-interested acting here.

  • Max424 says:
    April 5, 2011 at 8:30 am

    In 1973, the average SINGLE family household had 19,000 dollars in disposable income.

    In 2008, the average DUAL family household had 18,0000 dollars in disposable income.

    In 1973, total US household debt stood at $300 billion

    Today, total US household debt stands at $13.4 trillion.

    In the 15 years between 1993 and 2008, the United States lost (destroyed) 6 million manufacturing jobs, and allowed (forced) 45,000 factories to shutter.

    And what did our country get in return? Cheapy cheapy cheap-cheap goods. Cheapy cheap! CHEEEEAAPPPP!!!!!!!!

    All the fancy theories and elegant modeling of the economics profession to explain one simple concept; the ready availability of crappy plastic junk — at low, low prices! — in the modern era is a small price to pay for the complete destruction our the middle class, and all the classes below that.

    As far I’m concerned, we’d be a thousand times better off if the entire economics profession was forced to work as bathroom greeters at Wall Mart (“Can I wipe your ass for you sir?). In fact, the more I think about; implementing such a plan is humanity’s last hope.

    • James says:
      April 5, 2011 at 9:40 pm

      Max424,

      I’m waiting for a “real” university to endow a Joe Bageant scholar of economics or sociology. Won’t that be the day?

      I’m with you.

    • Roland says:
      April 9, 2011 at 1:21 am

      Looking at how things have happened in my time, I being to understand a few things about history in a more personal way.

      For instance, I begin to understand bitter, bloody, interminable, ruinous civil wars. Once the spite factor rises high enough, the fact of the enemy’s suffering actually becomes more valuable than one’s own welfare. We’re not there yet, but it’s already possible for me to consider that I might trade a great percentage of my entire future lifetime real earnings, simply to see a few thousand s.o.b.’s lined up against a wall and shot, on live streaming webcast.

      I also begin to understand the phenomenon seen in certain places and times, of “re-education camps.” Send the elites to shovel pig feces for a few years, maybe that would adjust their attitude a bit.

      Principle: the loss of overall efficiency caused by the liquidation of elites can be compensated by the hedonic effect of watching those elites suffer.

  • Wyndtunnel says:
    April 5, 2011 at 9:15 am

    How come so little is written about the nature of Corporate governance vs the nature of National governance. I find it intriguing that so many bits are committed to the virtues of democracy and representation in general yet the uber-corporations that are rail-roading the planet are, for the most part, run as command and control tyrannies. I don’t have the wherewithal to find the numbers and do the math but I’d be interested to know how much of the free world’s GDP is actually under the thumb of corporate tyranny vs. government control.

    • Peripheral Visionary says:
      April 5, 2011 at 9:54 am

      Government is about 40% of the total economy, at least in the U.S.; it is higher in Europe.

      But the problem is not that corporations are “tyrannies”; it is nearly the opposite. The ultimate owners of corporations are in many cases a wide distribution of people, many of them middle class or even working class, who own the corporation indirectly, through mutual funds or pension plans.

      But that ownership structure has demonstrated very weak control over the corporations, which has allowed corporate management to run the company as they see fit. It is “managerial capitalism”, where the companies are not run for neither the benefit of society nor for the benefit of the corporate owners, but only for the benefit of the corporate managers.

      It has often been observed that companies with large, actively involved shareholders tend to be run better from a variety of perspectives; that is the case, for instance, with family-owned businesses. The more the owners are involved, the more the company will take a longer view, which includes fostering better relationships with customers, employees, and regulators.

      The ideal form of company ownership is probably the mutual, where employees own their own company; the partnership is a more narrow variation on that. But partnerships in particular have been phasing out due to the IPO madness on Wall Street, which let any number of large partnerships cash out their interests at a premium. It is hard to blame the partners for wanting to monetize their interest, but the results have been a disaster for both the companies and for society; with Goldman Sachs being possibly the most egregious example of a once responsible company transforming into something else after having gone from a private partnership to publicly traded.

      • DownSouth says:
        April 5, 2011 at 10:19 am

        Peripheral Visionary said:

        But the problem is not that corporations are “tyrannies”; it is nearly the opposite. The ultimate owners of corporations are in many cases a wide distribution of people, many of them middle class or even working class, who own the corporation indirectly, through mutual funds or pension plans.

        Absolutely FALSE! An outright lie.

        As this report shows, in 2007

        ► The top 1% owned 42.7% of financial wealth

        ► The next 19% owned 50.3% of financial wealth

        ► The bottom 80% owned only 7.0% of financial wealth

        • DownSouth says:
          April 5, 2011 at 10:28 am

          Adn in 2007 the top 10% owned 81.2% of all stocks and mutual funds and 98.5% of all financial securities.

          • Peripheral Visionary says:
            April 5, 2011 at 12:17 pm

            No, the numbers you are citing are incorrect. Those figures come from the Federal Reserve’s household survey, which exclude pension plans, endowments, and a number of other indirect ownership structures. Check the notes in the Fed’s own reports.

          • DownSouth says:
            April 5, 2011 at 12:38 pm

            Peripheral Visionary said: “Those figures come from the Federal Reserve’s household survey, which exclude pension plans…”

            No, the category of “Pension accounts” is there, right along with other categories such as “Business equity,” “Financial securities,” “Trusts,” “Stocks and mutual funds,” “Non-home real estate,” “Deposits,” “Life insurance,” “Principal residence” and “Other assets.”

            If you are going to claim that the figures that I cited are “incorrect,” and you have some preferred source, where is it?

            I suspect your phantom source is like Erewhon: It is nowhere.

        • Nathanael says:
          April 6, 2011 at 8:09 am

          DownSouth is correct of course, but Peripheral has a point as well: even among the supposed 10% who “own” most of these financial assets, well less than 1% actually CONTROL any of them. More like 0.1%.

      • Nathanael says:
        April 6, 2011 at 8:05 am

        “But that ownership structure has demonstrated very weak control over the corporations, which has allowed corporate management to run the company as they see fit.”

        Bzzzt. The ownership is theoretical. In practice, except with closely held companies, the CEO class has actively taken control of the government — particularly the SEC — for purposes of PREVENTING, yes PREVENTING the shareholders from exercising control. They have been supremely effective at this.

        Among the scams used are: mutual funds, where the mutual fund manager votes all the shares (the CEO class, given that it pays the salaries of many of these managers and has the ability to cut others out of privileged access to information, suppresses those who vote against corporate management routinely); pension funds, where the pension fund manager votes all the shares (the CEO class has actively demonized ‘activist’ pension funds like Calpers), broker voting (even worse than mutual fund voting), counting non-votes as in favor of management, running Soviet-style uncontested elections, issuing management free shares to help fight off any attempt by the original shareholders to actually control the company, and last but not least, going to the SEC to make sure that anything the shareholders order the board to do isn’t enforceable!

  • drfrank says:
    April 5, 2011 at 9:16 am

    There are a few odd thoughts I’d like to add to the discussion of this topic. The negative employment impacts of Chinese manufactured imports could only have happened thanks to massive capital investment in China, in new factories among other things, by the wealthiest and their money managers, ostensibly seeking growth in “emerging markets.” Then the place that has the newest factories has an ongoing, advantage not only in cheap labor. Efficient manufacturing requires a certain amount of “know-how” developed on the factory floor and this “know-how” is a source of innovation, indeed the kind of innovation that American politicians tend to laud as if it were an element of the national character. One thing we are seeing in the unemployment statistics now is that once a worker has been out of work for an extended period, the loss of “know-how” worsens the prospects for getting a job. Thus a problem with growing income disparity, driven in part by growing un- and under- employment, is that society at large gets dumber, and opportunities for demagoguery and social violence grow. At some point, the ability of the wealthy to buy “benets” without reliance on the state hits a limit and impinges on personal freedom. It becomes dangerous to exceed the rather narrow ambit that money can buy. Otherwise stated, we are all in some sense dependent on the education and socialization and cultural contributions of other peoples’ children. “Interfluidity” had a recent blog post a while ago in which he suggested that government transfers had to increase to replace the money transfer functions previously performed, from an economics standpoint, by salaried factory work. Lamentably, top 1% appear to be an unenlightened lot, interested only in hoarding more and more and dumb to the responsibilities that come with concentrated wealth. Any old king from the great days of monarchies could have explained it easily.

  • Peripheral Visionary says:
    April 5, 2011 at 9:47 am

    @Yves: “Needless to say, the shift in income distribution and wealth looks to be so badly entrenched as to be pretty much impossible to reverse ex a very concerted push by the great unwashed 99% (but sadly, the top 10% to 20% of that cohort incorrectly sees its interests as aligned with those of its betters).”

    I would not say “sees its interests as aligned”, I would say its interests are aligned.

    The top 1% would not be able to do it without the “top 10% to 20%”, that is to say, the upper middle class. Rents are rich at the top only because there is a large rent-seeking class that has by and large profited from the current situation, at the expense of the productive class.

    The problem is these analyses have focused too narrowly on “the rich”, usually assumed to imply large stockholders and corporate executives, when the system requires the ongoing support of a much broader base of people – not just the financial industry, but the legal industry, the political class, and government bureaucrats (all very closely tied together), and to a more limited extent, academia, the media, and even nominally independent political activists.

    The clearest example of that is the current administration (although the previous administration also reflected the same reality). In our current administration, we see all of the comfortable upper-middle class segments of society working harmoniously together – politicians alongside financiers, lawyers, economists, and political activists. And what have the results been?

    Where are the workers? The small business owners? The farmers? The miners? The manufacturers? The health care workers? The scientists? The inventors?

    [Stiglitz] “Rather it reminds us that transfers from gainers to losers is a prerequisite for trade to be Pareto improving.”

    I agree with Yves’ point that redistribution is something of a straw man, in that it is certainly not the only option. But any time it appears I worry, because, given which segment of society dominates government at present, who exactly do you think is going to run that redistribution process, and for whose benefit?

    • Hugh says:
      April 5, 2011 at 11:32 am

      I agree political and economic change must happen together. Indeed there will be no redistribution until all the Democrats and all the Republicans currently in office or waiting in the wings are gone.

      I would steer clear of terminology like winners and losers. That gives a patina of legitimacy where there is actually none. It would be more accurate to talk about fleecers and fleecees, looters and lootees, and criminals and their victims.

      Redistribution, or what some have called restitution, must happen. What we currently have is not sustainable. The fault lines and cracks are appearing everywhere in our economy, government, and society. Society’s resources must be realigned. The last collapse was insufficient to create the political momentum for change. The next collapse which is not that far off may provide it. We must wrest back the resources that our criminal elites now own and control. The real tragedy in this is that a fairer, stronger, fully functioning society is not impossible. It’s not even that hard. It says a lot about the efficacy of decades of elite propaganda and indoctrination that we think it is.

      • Κασσάνδρα τριάντα says:
        April 5, 2011 at 3:52 pm

        ”
        Redistribution, or what some have called restitution
        ”

        Reimbursement? Our choice of words is important to prevent a creeping shade of meaning that could *set it all into a more pleasant light*. And I will tell you when we will obtain our reimbursement. It will come to us not at a moment of systemic melt-down. The melt was designed for its opposite effect. We will get a small slice of reimbursement just before the state begins its war. When you see the substantive reimbursement begin to flow, beware!

    • DownSouth says:
      April 5, 2011 at 11:34 am

      • Peripheral Visionary said: “The top 1% would not be able to do it without the ‘top 10% to 20%’, that is to say, the upper middle class.”

      Sadly, the most obvious lesson to be learnt from comparing the sixteen’s heinous crimes is that they all show us just how very little we have learnt from our mistakes. The ability of people to ‘see no evil, hear no evil’ was just as prevalent during Idi Amin’s reign of terror as it had been in Hitler’s and even further back to Nero. All three were giving a large section of the population exactly what they wanted and, in exchange for this, the people chose to ignore the cruelties perpetuated on their fellow citizens.

      Power draws people towards the centre from which it emanates. None of the people in this book has committed acts of atrocity by themselves—-all have had very willing and able accomplices. Elizabeth Bathory may only have had a few like-minded sadists to help her along the way, but whole sections of Cambodian, German, Russian and Ugandan society mobilized behind Pol Pot, Hitler, Stalin and Amin in conducting mass killings. When Ivan the Terrible created his army of henchmen, the Oprichniki, he had no shortage of volunteers. Attila’s bloodthirsty army drew people from throughout the civilized world and, for many Ugandans, Amin’s promise of wealth and unlimited power over life and death led hundreds to join his State Research Bureau. Men and women followed these evil leaders because they knew that complicity was the path to influence, money and power. Despite having to deal with the unpredictability of their leaders, people followed their baser instincts.
      ▬Miranda Twiss, The Most Evil Men and Women in History

      • Peripheral Visionary said: “But any time it appears I worry, because, given which segment of society dominates government at present, who exactly do you think is going to run that redistribution process, and for whose benefit?”

      You assume that evil, in this case rationality or self-interest, always wins. This is the sort of highly simplistic, reductionist type of thinking that capitalism encourages. But evil doesn’t always triumph so resoundingly, as was the case, for instance, in 1930s America, as opposed to 1930s Germany.

      David Sloan Wilson in Evolution for Everyone renders a devastating critique of this simplistic way of thinking:

      Abandoning supernatural explanations [such as “the invisible hand”] is only the first step in our multistep road to recovery… The secular belief that we stand apart from the rest of nature takes a variety of forms, but most emphasize open-ended abilities such as learning, language, culture, and rational thought… Above all, we can choose our own destiny because our behavior is not genetically determined, unlike all other species. Add the appropriate mood music, and humanity becomes like Captain Kirk and the starship Enterprise, confidently going where no one has gone before.

      Hubris, all hubris! In the first place, it places too much emphasis on our uniquely human attributes. In the second place, it fails to appreciate how much evolution is required to understand our uniquely human attributes.

      [….]

      I have already provided one example of an adaptation that we share with older mammalian species: the assessment of resources during the fetal stage of development that determines the metabolic strategy for the rest of the organism’s lifetime. This single adaptation has a combination of features that boggles the conventional mind. We usually don’t think of a fetus making an informed decision. We associate decision making with conscious thought or at least with brains, whereas this decision is presumably unconscious and involves a physical system that qualifies as a “calculator” but is not necessarily restricted to the brain. We associate environmental effects with learning, whereas this one is more like a phone call that triggers an elaborately coordinated and previously prepared “war plan.” If this is how we are constructed as a species, along with monkeys, pigs, and rats, we need to know about it for the sake of our children, not just esoteric scientific understanding.

      Now multiply this example by dozens or hundreds of similar examples, influencing all aspects of our bodies, minds, and societies, and you will begin to appreciate the need to think of ourselves as a product of evolution, just like any other species. A good book on this topic is “Strangers to Ourselves: Discovering the Adaptive Unconscious,” by social psychologist Timothy Wilson, who shows how many of our decisions are driven by unconscious algorithms similar to fetuses “deciding” their metabolic strategy.

      Of course all this flies in the face of homo economicus, the supernatural figure who incarnates the triumph of man’s baser instincts over his higher instincts of empathy and benevolence.

      • LAS says:
        April 5, 2011 at 2:35 pm

        You cite some very broad literature and it somewhat cracks me up – the sheer range of it.

        Yet you seem to be saying something I totally agree with. It is like a two part thesis:

        (1) Individuals can be incredibly greedy and evil, by aligning themselves with the utmost evil for the most petty gains. Like those who betrayed former neighbors and co-workers to Nazis in WWII for so little as a half-pint of vodka. Or those who think of themselves as self-made men and they don’t owe any debts to anyone.

        (2) Humans have only to pause and marvel at how they came to have the capacity they do to become, at least momentarily, better individuals. What’s best about us (our capacity and capabilities), we didn’t ourselves create. We are all beneficiaries. We got lucky. If only our gratitude lasted a few more seconds, we could actually do good in this world.

        • DownSouth says:
          April 5, 2011 at 3:09 pm

          Personally I prefer Wilson’s science over Reinhold Niebuhr’s theology, but Niebuhr beat Wilson to the punch by almost 60 years. Niebuhr said something very similar to Wilson way back in 1952:

          [T]he liberal society never achieved the perfect harmony of which it dreamed because it overestimated the reciprocity of the free market and also equated economic competition with all encounters in society. It overestimated the reciprocity of the market because it was oblivious both to the elements of power in society, and to the disproportions of power in economic life. Power, in the thought of the typically bourgeois man, is political. He believes that it must be reduced to a minimum. The earlier bourgeois man wanted to eliminate political power because it represented the special advantages which the old aristocracy had over him. The present bourgeois man wants to reduce it to a minimum because it represents the effort of a democratic society to bring disproportions of economic power under control. In the shift of motive from earlier to later bourgeois man lies the inevitable degradation of the liberal dogma…

          The reciprocity of the market was too simply equated with the social harmony of the community because self-interest was restricted to the economic motive. The false abstraction of “economic man” remains a permanent defect in all bourgeois-liberal ideology. It seems to know nothing of what Thomas Hobbes termed “the continual competition for honor and dignity” in human affairs. It understands neither the traditional ethnic and cultural loyalties which qualify a consistent economic rationalism; nor the deep and complex motives in the human psyche which express themselves in the desire for “power and glory.” All the conflicts in human society involving passions and ambitions, hatreds and loves, envies and ideals not recorded in the market place, are beyond the comprehension of the typical bourgeois ethos.

          Inevitably this meant that social realities would develop which were not anticipated in the creed.
          ▬Reinhold Niebuhr, The Irony of American History

          • Steve says:
            April 5, 2011 at 4:16 pm

            Great stuff from you again.

            But as a miserable “petit bourgeois”, I would like to be free from the Hobbesian struggles for honor and glory and the Hegelian thymotic conflicts of other men. I just want to run my little business and enjoy my family in peace.

            But Niebuhr is saying I have to give up my economic freedom to protect myself from some Ubermensch.

            Nothing these philosophers have to say discredits the ancient, classically liberal notion of free men entering freely into commercial and political discourse with each other. Just because Adam Smith doesn’t take into account the world-dominating urges of Supermen doesn’t mean his theories are useless.

            Sure – there’s a lot more to people than economic life. But freedom, property rights and the rule of law protect economic life and political life. It’s not a complete theory, but Niebuhr attacks a straw man here.

          • DownSouth says:
            April 5, 2011 at 6:59 pm

            Steve said: “Nothing these philosophers have to say discredits the ancient, classically liberal notion of free men entering freely into commercial and political discourse with each other.”

            I have no idea what “ancient, classically liberal notion” you’re talking about. I think you may be the victim of a disinformation campaign.

            The coining of the word “liberal” to refer to the then novel idea of “free men entering freely into commercial…discourse with each other” is something cooked up in the late-18th century and wasn’t fully coerced upon the people until the 19th century. Robert L. Heilbroner explains in Behind the Veil of Economics:

            In contrast to the responses of individuals under systems of tradition or command, those of market society are viewed as activities governed by freely undertaken rational calculations aimed at maximizing the well-being of the marketers.

            [….]

            To be viable, market systems require conventionalized responses to the signals of price arrays and movements, and when those responses fail to evince their required “well-behaved” character—-as in the case of “panics,” or “destabilizing” expectations—-market systems break down. Thus the gain in individual freedom must be set against a necessity for routinization of behavior in the very sphere of activity that officiates over the provisioning process. The motives of economic “rationality” that replace those of tradition and command are imperatives (emphasis Heilbroner’s), precisely as are the motives they displace. The thrust for individuation in the individual’s social behavior—-the expansion of his or her life chances—-is accommodated at the cost of newly added constraints on his or her interactive behavior, taken in its entirely.

            In this same spirit it is useful to recall that for all its historical association with freedom, market society—-i.e., capitalism—-does not appear as the spontaneous upwelling of a drive for individuation, but is at first imposed over earlier forms of social orchestration. The extension and generalization of exchange relationships does not come until the eighteenth and even nineteenth centuries, with the enforced commodification of labor and land, first vividly described by Marx. No one, reading of the manner in which dispossessed agricultural labor was forced into the early English mills, would describe this as a manifestation of freedom working its way in history.

          • dictateursanguinaire says:
            April 6, 2011 at 11:55 pm

            @Steve

            Your dismissal of philosophy out-of-hand and ignorance of history (with the implicit declaration that “This is the way things always have been, this is Right, this is Natural”) proves Keynes’ quote exactly right: “I don’t know what makes a man more conservative; to know nothing but the past or nothing but the present.”

            Or to quote MLK, “The arc of the moral universe is long but it is bent towards justice.”

            Your “timeless ideology” is a recent phenomenon; as to your suggestion that it’s classical in nature, recall that classical societies built their political systems on the economic foundation of slavery, and feudalism was the order of the day afterwards until relatively recently in human history. Liberalism in the Adam Smith sense did not last long as public policy; gov’t involvement in liberal democracies with (at least the stated) aim of increasing the welfare of the average person has seen a consistent increase since the 19th century. One of the best things we get from the public sector is the public library; why don’t you try checking it out some time?

    • Nathanael says:
      April 6, 2011 at 8:13 am

      “The top 1% would not be able to do it without the “top 10% to 20%”, that is to say, the upper middle class”

      However, *this is not how the Koch Brothers think*.

      Sure, Warren Buffett knows this. But your average Forbes 400 person does *not*. The bank CEOs who are stealing the houses of the top 10% – 20% — they don’t recognize that they are dependent on the top 10%-20%. They imagine themselves to be Galtian superheroes doing God’s work.

      This is what makes them so appallingly dangerous. Like the French nobility at Versailles, they are completely incapable of recognizing that their own wealth depends on middle and lower classes. They are therefore happy to kill the goose which laid the golden eggs for them.

  • Hugh says:
    April 5, 2011 at 10:45 am

    Wealth concentration is what kleptocracy is all about. It is nice that Stiglitz has gotten around to noticing that wealth has become so concentrated that it is damaging the core functions of society. But it is important to recognize that this wealth concentration didn’t just happen. It’s been going on for 35 years now. As I wrote elsewhere recently, if you began to work in the 1970s or later, the kleptocrats have been stealing from you your whole working life. That has meant opportunities you have not had, and a harder, more unstable, unhealthier life.

    This was subtle, individual damage that compounded much like interest making the lives of most Americans worse than they needed to be. It is damage that preceded the more obvious damage we have begun to see in our decaying health, education, infrastructure, housing, and pensions.

    As I have also often said, kleptocracy is a system. It uses the media, academics, and “experts” like Chinn to keep us from connecting the dots or even recognizing that there are dots. They are there to make sure we don’t understand the issues, and more importantly assign responsibility and hold those responsible, the rich, to account.

    And in this regard not even Stiglitz is exempt. He’s writing about this like it is some vast historical process, instead of what it is, a vast criminal enterprise. In this, Stiglitz shares the same failing of all liberal economists. He refuses to acknowledge that there isn’t just criminality in the system but that the system itself is criminal. His formulation “Of the 1%, by the 1%, for the 1%” is just a riff on one I have long used “A country of the rich, by the rich, for the rich.” But this does not capture the central point. What we have is actually a country of the criminals, by the criminals, for the criminals. Until Stiglitz and other liberal economists begin to incorporate the fundamentally criminal nature of our economy into their thinking, they will continue to blow smoke and be part of the distraction which keeps the kleptocracy going.

    • LAS says:
      April 5, 2011 at 2:50 pm

      ” It’s been going on for 35 years now. ”

      I believe these issues are thousands of years old. We just weren’t there to see and appreciate the earlier acts of the play. Victimized though we might feel, we’re not a unique generation or nation. Not suggesting we capitulate, but have greater perspective on it. This is not a single act kind of struggle.

      • Hugh says:
        April 5, 2011 at 4:12 pm

        I remember being in a room where a psychiatrist was discussing various personality disorders. The audience was actually uncomfortable because they saw so much of what the psychiatrist was talking about in themselves and people they knew. Someone eventually asked about this, and the psychiatrist replied you have to distinguish between the trait and the disease. Lots of us have the trait. Few of us have the disease. The disease is where the trait compromises the individual to the point they cannot function normally or at all in society.

        So yes, we have always had kleptocratic traits in our societies. But now we have the disease.

    • Ulrich says:
      April 5, 2011 at 3:26 pm

      Remember, it’s all perfectly legal if you have congress rewrite the laws in your favor so that you aren’t breaking them.

  • Rabid Cranky Troll says:
    April 5, 2011 at 10:53 am

    (but sadly, the top 10% to 20% of that cohort incorrectly sees its interests as aligned with those of its betters).

    Oh I think it’s much worse than this. The remaining 80-90% of that cohort (the poorer 99% of the country) are composed of 50% people who just don’t pay any attention and haven’t figured out that what goes on in Washington, or their State capital, or their city hall actually has a huge impact in their lives. And the rest of them are people who think you can trust what comes outta politicians’ mouths. See. e.g. Liberals repeatedly and consistently voting for candidates like Obama, based on what he says, or “lesser of two evil”-ism, without thinking through what the implications of the fact that he got so much money from Wall Street are.

    So we are well and truly f*cked.

    Oh and that 10-20% of that cohort who conflate their interests with those of their betters? I suspect that’s an instinct that is innate to humans, as with all primates that are programmed to organize themselves into hierarchical packs. Those same instincts are probably what makes Liberals and Democrats apologize for politicians like Obama behaving like Republicans.

  • Siggy says:
    April 5, 2011 at 11:08 am

    I like this piece. Stiglitz presents a very correct picture of the economic reality before us.

    There is a theme that runs thru the commentaries here that is very interesting. At the core of each positive or negative circumstance there lies the effect of human actions. Ultimately it is people who produce the social/economic order that exists.

    The people who control this construct may be many or they may be few. When social order becomes dependent upon financial strength, the control of social order will gravitate to those people who have both riches and are wealthy. Ultimately the control will vest with those who are wealthy with wealth being the ownership, directly or indirectly, of the means of production.

    In order to maintain equity and stability within the society there must be either a static social structure; or preferably, a fluid structure wherein there are removals from those who are wealthy with replacement by those who have recently become wealthy.

    That fact of class mobility was once the keystone of the American Dream, class mobility. What has distorted, if not destroyed, that dream has been the social permission granted to the financial services industry to extract unconscionable rents.

    If we haven’t already lost the Republic, we are very close to it being a fact. What has transpired is that the while we may have a polity that is educated and informed, it is demonstrably not engaged. In the absence of informed engagement we have seen a parade of unprosecuted fraud that has led us to the point of our current distress.

    The dialogue found here is often very informative, but the contributors here are a narrow group with a limited audience. Dr. Stiglitz can bang the drum loudly until he goes into that good night. Will we then pick up the drum and continue to bang it loudly; or will we bang it slowly?

    • KnotRP says:
      April 6, 2011 at 1:01 am

      > it is demonstrably not engaged.

      …for what used to take one adult to earn, now takes two
      (and since all two income households eventually arrived at the
      same competitive purchasing power they had when only
      one worked, it produced a temporary gain for some but a
      long term net loss of free time), which is leaving the raising of the next generation to those who are “less able to contribute elsewhere” and precious little time left after family to work at maintaining society.

      And we were always told productivity increases would produce leisure time….but no one ever said it would
      always take the form of unpaid leisure time in the prime
      of our lives.

  • Uncle Billy Cunctator says:
    April 5, 2011 at 12:28 pm

    How do the conversations go when Stiglitz sits down with the Cardinals?

    “Joseph, with regards to popular disillusionment, we need more cowbell. This is the Vati-can, not the Vati-can’t.”

    “Your Eminence, I will turn it up to 11 just as soon as Sachs gets back with the Kung Pow.”

  • Doug Terpstra says:
    April 5, 2011 at 1:11 pm

    I like Stiglitz for his straight talk without the brain damage. Robert Reich also stated the obvious yesterday, albeit with his maddening can’t-we-all-just get-along naiveté:

    http://robertreich.org/post/4344201496

    “…All the President has to do is connect the dots – the explosion of income and wealth among America’s super-rich, the dramatic drop in their tax rates, the consequential devastating budget squeezes in Washington and in state capitals, and the slashing of vital public services for the middle class and the poor.”

    “This shouldn’t be difficult. Most Americans are on the receiving end. By now they know trickle-down economics is a lie. And they sense the dice are loaded in favor of the multi-millionaires and billionaires, and their corporations, now paying a relative pittance in taxes.”

    “The President has the bully pulpit. But will he use it?”

    We breathlessly await the answer. Will the president connect the dots?

    • Steve says:
      April 5, 2011 at 1:49 pm

      Doug, you seem like a nice, caring guy.

      But instead of intelligently analyzing why we are in this mess, you resort to the same tired liberal cant.

      I suppose that Redistribution and Central Planning will turn our Lumpenproletariat into a thoughtful, productive polity in a gleaming new Republic. After all, socialism has worked so well before.

      And the new Oligarchs will be all-knowing, overseeing the vast Government apparatus with Solomonic wisdom. What bullshit! Solzhenitsyn and Kundera wasted a lot of ink for nothing.

      If GE and Warren Buffet just paid their taxes, all of our problems would be solved. It’s way beyond that point.

      We have 44 million people on food stamps. Despite all the money we spend on education, our lower-income kids aren’t learning. It’s a disaster and it isn’t about the lack of government resources. I’m more worried about training them and educating them to be productive, self-reliant citizens than divining the correct marginal tax rate for hedge-fund managers.

      I don’t like the Kleptocracy we have now any more than you do, but you must wake up and realize that the welfare state in the US is an unsustainable failure. Try something new. Instead, you call for “more cowbell”.

      • Anonymous Jones says:
        April 5, 2011 at 2:07 pm

        What are you talking about? Do you have any facts? Any comparative studies?

        How is the education system working in Finland and Japan?

        How are health care systems working in other countries that don’t have our obsessive need to decry any sensible collective action as “socialism?”

        Other countries do better at these things. It’s established. It’s not subject to reasonable debate. I challenge you to find any non-hysterical ball-hiding study that doesn’t clearly show that certain other countries do better than we do, even with what we would consider “socialist” policies.

        Why can’t we try to learn from them?

        [Rhetorical. Answer is obviously: Because we're too f'ing stupid and the elite want to keep it that way.]

        • Steve says:
          April 5, 2011 at 2:46 pm

          Mr. Jones:

          We spend more money (per capita) on education than Japan or Finland (OECD/UN Statistics) and almost all developed countries. We are getting worse outcomes. What’s your point? My point: Spending does not equal success.

          Finland and Portugal spend the same % of GDP on government spending. Where would you rather live? Which country is more successful? The skill of the people, the quality of management know-how and indeed the quality of government matter a lot to the success of a country. That was my point.

          How precisely is the “cram school” Japanese and Korean kids attend AFTER regular school an example of a “collective action”? Instead, it’s an example of individual PARENTING, something we used to have in this country. Instead, we now have reality TV and video games.

          I said nothing about health care. But since you brought it up, we spend too much and we have shitty outcomes (World Health Organization). You’re completely right: we should study what other countries are doing and try to learn from them. What we’re doing isn’t working.

          • Doug Terpstra says:
            April 5, 2011 at 3:29 pm

            Steve,

            A link would be helpful to better understand statistical source and methods and to differentiate between “damned lies and statistics”. PBS has a good analysis (including links) of the problems with US Public education funding, noting that the vast disparities between states and districts lie at the heart of the problem, illustrating this post’s point very well.

            http://www.pbs.org/newshour/backgrounders/school_funding.html

            See Also: What’s Finland got to do with it?
            http://www.arktimes.com/arkansas/whats-finland-got-to-do-with-it/Content?oid=1520983

            And another: http://super-economy.blogspot.com/2011/01/relationship-between-education-spending.html

            I’m not sure if your beef was with me or Reich, of whom I am also critical for assuming those at war with us are “nice and caring” people. They aren’t; they’re thieves and killers.

            But oddly, you do the very thing that you criticize, offering Neocon cants — in effect: “you can’t throw money at it” and “a mind is a terrible thing to waste [tax dollars on]” —notably lacking “intelligent analysis” or “cowbells”(?).

            Perhaps you agree with the Republican platform to abolish public education entirely: “The Federal government has no constitutional authority to be involved in school curricula or to control jobs in the market place. This is why we will abolish the Department of Education, end federal meddling in our schools, and promote family choice at all levels of learning.” http://en.wikipedia.org/wiki/United_States_Department_of_Education

            Here’s Reich again with more specific answers on education that Neocons are sure to hate, in effect telling us to follow the money — trillions for wars and Wall Street bailouts, peanuts for education:

            “All over America right now, public education is in crisis. Teachers are being fired as next year’s school budgets shrink. Next fall’s classrooms will be far more crowded. Some districts are going to four-day weeks. And the nation’s public universities are in deep trouble.”

            “The answer is for the federal government to bail out public education until state and local revenues return as the economy strengthens.”

            “After all, the government bailed out Wall Street. What our kids learn — America’s human capital — is more important to our economy than Wall Street’s financial capital.”

            http://robertreich.org/post/567560484

    • JTFaraday says:
      April 5, 2011 at 3:43 pm

      “”All the President has to do is connect the dots –”…

      We breathlessly await the answer. Will the president connect the dots?”

      Yeah, and he’s been saying that since 2007.

  • sharonsj says:
    April 5, 2011 at 1:38 pm

    To me, arguing about terminology is moot. All I know is that everyone I know is going broke. Obviously none of my friends are hedge fund managers and bank CEOs. They are lower to middle class, soon to be homeless. They can’t earn enough to pay their bills (one is an accountant, the other a lawyer!). My poorer friends shiver in houses with thermostats set at 55 and buy their food at Dollar General.

    At this point, I firmly believe only a real revolution, with bodies in the street, will give us “hope and change.” It certainly isn’t going to come from loony Republicans and spineless Democrats.

  • csissoko says:
    April 5, 2011 at 2:32 pm

    This is a common BS economic argument justifying grossly unfair policy decisions: because there is a force that may offset the unfair force, some economists feel justified simply assuming that it is sufficient to offset the unfair force.

    The example that has made smoke come out of my ears for years is the justification of US and European agriculture subsidies that have the effect of driving down prices and destroying the livelihoods of developing world farmers by claiming that the costs of lower prices are offset by the benefits to consumers. Effectively these economists are deliberately ignoring the intertemporal aspects of these policies by arguing that it’s okay to destroy someone’s means of making a living as long as you give them some cheap food in exchange — as if the presumption should not be that the destruction of the means of making a living is more costly than the benefits of cheap food for the short term.

  • Jim says:
    April 5, 2011 at 3:47 pm

    Questions for political/economic theorists on the Naked Capitalism blog:

    Does the search for foundational premises in any region of human experience only make us more aware of the partiality and incompleteness of our starting points?

    Does Raionalism in politics(the turning of our experience into a formula) inevitably lead to gnosticism, ideologies(of left or right) and a false sense of certainty?

    Is it true that the verbal currency of human life is approximations and that we never get to “the real thing”?

    Is all modern politics highly gnostic in character?

    In order to circumvent such rationalism in politics (a search for order where there is none)–is it necesseary to give one’s allegiance to a political society in which the public sphere is subordinate to the private sphere with the state functioning best as a type of generalized agnosticism?

    Should we be primarily concerned with preempting the state from articulating the human good?

    Should we try to develop a political state which is largely neutral not because neutrality is true but because the state does not not where the truth resides?

    Is it the case that the political theorist in the end is on a par with those he theorizes about–all being citizens united by an equality of ignorance in achieving certainty?

    • James says:
      April 5, 2011 at 10:17 pm

      Should we be primarily concerned with preempting the state from articulating the human good?

      Should we try to develop a political state which is largely neutral not because neutrality is true but because the state does not not where the truth resides?

      Is it the case that the political theorist in the end is on a par with those he theorizes about–all being citizens united by an equality of ignorance in achieving certainty?

      Jim,

      Absent you immediately launching into some sort of a conservative diatribe, YES, that’s how it should work.

      Now then, let’s take that same theory and apply it to Wall St and the Pentagon. Uh oh, there’s the rub!

      Hey “Jim,” who’s your daddy? Come on “Jim,” who’s Uncle Sugar?

    • Hugh says:
      April 5, 2011 at 10:28 pm

      I think it is a lot simpler than all that. Arrest the crooks and their accomplices and take the money back.

      We aren’t talking ideology here but crime.

      • James says:
        April 5, 2011 at 11:17 pm

        Hugh,

        Actually, we ARE, since without ideology we cannot even CONCEIVE of crime. That said, these morons have apparently forgotten BOTH. Conveniently so, I might add.

    • Nathanael says:
      April 6, 2011 at 8:28 am

      Response to this bizarre off-topic set of questions:

      Does the search for foundational premises in any region of human experience only make us more aware of the partiality and incompleteness of our starting points?

      No, that’s postmodernism. It does make us more aware of the partiality and incompleteness of our starting points, but it does not ONLY make us more aware. If done correctly, like any empirical research, it also gives us what are known as “scientific results”.

      Does Raionalism in politics(the turning of our experience into a formula) inevitably lead to gnosticism, ideologies(of left or right) and a false sense of certainty?

      No. It often does, though. If it is decoupled from empiricism and repeated skepticism, why then it does.

      Is it true that the verbal currency of human life is approximations and that we never get to “the real thing”?

      Yes.

      Is all modern politics highly gnostic in character?

      No. Most of it is.

      In order to circumvent such rationalism in politics (a search for order where there is none)–is it necesseary to give one’s allegiance to a political society in which the public sphere is subordinate to the private sphere with the state functioning best as a type of generalized agnosticism?

      Absolutely not. That’s a form of anti-public-sphere gnosticism, and a rationalism without empiricism, to use your terms. FAIL. This is where you run off the rails. The correct form of political society to give one’s allegiance to is one which empirically has been shown to make more people happier — at the moment, that’s Scandanavian.

      Should we be primarily concerned with preempting the state from articulating the human good?

      Of course not. Where do you get such nonsense?

      Should we try to develop a political state which is largely neutral not because neutrality is true but because the state does not not where the truth resides?

      No. That’s bullshit.

      Is it the case that the political theorist in the end is on a par with those he theorizes about–all being citizens united by an equality of ignorance in achieving certainty?

      No. That’s postmodernism again. Sorry, empirical reality actually does exist. A political theorist who never studied reality would be much worse than an average citizen (and boy, there are plenty of those). One who did study reality would be better than an average citizen as a political theorist.

  • Jim says:
    April 6, 2011 at 12:07 am

    James:

    What is the basis of you being so quick to classify me politically?

    One of my continual complaints about the right in the U.S. is that they have no critique of Big Capital and one of my continual compaints about the left in the U.S. is that they have no critical theory of the State.

    What is your theory of the state?

  • James says:
    April 6, 2011 at 12:51 am

    Jim,

    If you’re serious, I’ll get back at you later (thanks for asking). Too late for now.

    James

  • yoganmahew says:
    April 6, 2011 at 5:24 am

    Excellent post, thank you.

    It shows, to me, that the danger of ‘standard’ economics is in taking aggregates to be ultimates. We saw the same thing with aggregate risk, aggregate derivatives, aggregate debt levels, aggregate house prices etc. Unfocused emphasis on aggregates results in missing the detail. People are detail…

  • Nathanael says:
    April 6, 2011 at 7:47 am

    One thing though: at the moment the top 0.1% are busily screwing over the next 0.9%. At some point everyone notices. I think the shredding of the rule of law, as has been done in the fraudclosure scandals, is part of that breaking point.

    Once the size of the elite who are running things gets too small, and once they screw *everyone* else *too* much, the society collapses in violence and the heads of the elite roll. I don’t really want to be around for that. It seems inevitable, however: it happens everywhere where wealth gets overconcentrated.

  • nemi says:
    April 6, 2011 at 4:29 pm

    Wow!

    Printing the paper. If it delivers those results with any kind of certainty, it surly is an amazing paper.

  • Xavier Onassis says:
    April 7, 2011 at 12:28 pm

    Yves? I know you’re busy, and I’m an average nobody from nowhere, but may I please ask you to take a moment to answer something(s)? Did you used to read comments by a “Mother of God” at Roubini’s place, back when his site allowed in the rabble for free for awhile? If so, did you once say out loud that what she was saying about overpay-underpay unlimited personal fortunes capitalism, as versus fairpay justice capitalism – was starting to make good sense to you?

  • Ali68 says:
    April 11, 2011 at 4:54 pm

    What do you think of Matthew Bishop interviewing Joseph E. Stiglitz at the 92nd Street Y (video) – http://f4a.tv/fVagPo


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