Joseph Stiglitz: Economics Must Address Wealth and Income Inequality

Yves here. This interview with Joesph Stiglitz is pretty subversive for a talk with a Serious Economist. Stiglitz doesn’t simply talk about the problem of inequality, but the drivers that most mainstream economists choose to ignore, such as the rise of monopoly/oligopoly power, worker exploitation, and how central banks have allowed banks to engage increasingly in speculative rather than productive lending.

By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

Nobel laureate Joseph Stiglitz has been writing about America’s economically divided society since the 1960s. His recent book, The Price of Inequality, argues that this division is holding the country back, a topic he has also explored in research supported by the Institute.  On December 4th, Stigltiz chaired the eighth Institute for New Economic Thinking Seminar Series at Columbia University, in which he presented a paper, “New Theoretical Perspectives on the Distribution of Income and Wealth Among Individuals.” In the interview that follows, Joseph Stiglitz explores the themes of this paper, the work of Thomas Piketty, and the need for the field of economics to come to terms with the growing gulf between haves and have-nots.

Lynn Parramore: You’ve mentioned that economic inequality was the subject of your Ph.D studies. How did you come to be interested in how income and wealth get divided up in society?

Joseph Stiglitz: Firstly, when you grow up as I did in Gary, Indiana, it was sort of prototypical of a divided America. You had lot of people in poverty. We didn’t have the 1 percent, but we had the 5 percent. I had no idea what real inequality was like, but we had a lot of people at the bottom. And secondly, it goes back to the years I went to college and the Civil Rights Movement. You remember Martin Luther King’s march was a march for the end of discrimination and for economic empowerment. So I think a lot of us realized at that time that we weren’t going to fully address the problems of a divided America — of race discrimination — if we didn’t do something about the economic differentials.

LP: What’s new in your recent work on the distribution of income and wealth among individuals?

There are several things. There’s some debate about this, but I think most readers of Piketty’s book (Capital in the Twenty-First Century) get the impression that the accumulation of wealth — savings —is responsible for the rise in inequality and that there is, therefore, in a way, a link between the growth of the economy — the accumulation of capital— on the one hand and inequality and wealth. My paper begins with the observation that in fact, you cannot explain what has happened to the wealth/income ratio by that analysis. A closer look at what has gone on suggests that a large fraction of the increase in wealth is an increase in the value of land, not in the amount of capital goods.

LP: When you say “land,” you’re not talking about land in the Jane Austen sense, that is, agricultural land under the ownership of the lord of the manor.

JS: It’s not agricultural land, it’s the value of urban land, and I would include in that, broadly, rents associated with natural resources. It’s the value of existing assets. As a footnote, some of what has gone on, in addition to an increase in the wealth/income ratio, is a capitalization of the increase in other kinds of rents, like monopoly rents. If monopoly rents get increased, if the market power of firms relative to workers gets increased, as when you have the ability of a few, like the banks, to get government guarantees — the value of that is increased and gets capitalized. And that increases wealth but it doesn’t increase capital. So it’s that distinction between wealth and capital that turns out to be critical. That’s the first idea.

The reason that’s important is that you then begin an inquiry into the sources, the explanations, of why the value of the land or other sources of the value of rents would have gone up. A lot of my book, The Price of Inequality, is about why rent-seeking may have increased, but the other part is more external in terms of the value of land or the value of assets. That, I suggest, is very closely linked with the credit system. So if you get a flow of credit increasing, as we’ve seen in the last few years —that flow of credit didn’t go to more wealth accumulation as we normally use the term in economics, as capital goods. What you got is an increase in bubbles of one kind or another.

What has happened repeatedly in recent years is that we’ve had monetary authorities allowing — through deregulation and lax standards —banks to lend more, but not for creating new business, not for capital goods. The effect of it has been actually to increase the value of land and other fixed resources [buildings, real estate, etc]. Disproportionately it goes to the increase in the value of these fixed assets. And that’s what everybody was worried about. So in that sense, in that discussion that occurred with quantitative easing nobody linked that with inequality or linked it with the overall macro growth. The links with inequality are twofold: one is that at a very, very macro level, if more of the savings of the economy leads to an increase in the value of land rather than the stock of capital goods, then worker productivity won’t go up. Wages won’t go up. So some of what is going on is that we haven’t been doing the kind of investment that we should be doing.

But the other part that’s probably more important, I would say, is that when you deregulate, you allow more lending against collateral. Then those who have the assets that can be used for collateral see those assets go up in price, like land. And so those who hold wealth become wealthier. The workers, who have no wealth, don’t benefit from that expansion. So the link is that credit affects land prices and fixed asset prices, and those go disproportionately to the rich. And that is a major part of the increase in the wealth. That’s one strand of my paper.

The other strand of the paper was an attempt to lay out a general theory of the transmission, you might say, of wealth and other advantages across generations, and trying to identify, very broadly, centrifugal and centripetal forces — forces that would lead to a more unequal distribution and forces that would lead to a more equal distribution. You could almost say it’s a taxonomy — it’s a framework for thinking through things. And when you start to think about it, you see that there are many more forces going on right now for increasing inequality. And that’s also a framework for policy prescriptions. So if we have more economic segregation in a world in which we have local schools, locally-financed schools, we’re going to get inequality in education, and therefore the children of rich parents are going to get more human capital.

This model actually provides a very robust general theory explaining inequality. There are many other wrinkles in the paper, but the final insight is that when you think of policies that are going to address inequality of wealth, you have to be very thoughtful about what economists call “incidence of taxes.”  If most of the savings is being done by capitalists, and you tax the return on capital, then they will have less to invest. That would mean, over the long run, that the rate of interest would go up. That would therefore undo some of the intent to lower the income of capitalists.

LP: How do you prevent that negative effect of taxes on capitalists?

JS: One way you might think about preventing that from happening would be making sure that the government invested — took up some of money from tax revenue and invested in capital itself. That would prevent the rate of return from rising. Not all of this is all worked out, but it’s trying to say that some of the statements that Piketty made that you should just tax capital may have been overly simplistic. One of the criticisms is that he talked a lot about r>g, and one of the points in my paper — this I showed back in ’69 — it wasn’t r>g that was the critical thing. It has to do with the savings rate and who is doing the saving. The more important point is that r itself is an endogenous variable. It will be affected by what goes on, and by policy. And therefore you can’t just say, if the savings rate were 1, then r would eventually equal g. So it’s hard to write down a model in which r would be greater than g forever.

LP: In your paper, you indicate that the power of the 1 percent to exploit the rest seems to be increasing. Why is this happening? Are there limits to this exploitation?

JS: In a more careful, academic way of putting it I would say that one of the explanations of what is going on is increased exploitation. You see the ratio of wages to productivity going way down, and that certainly is consistent with increased exploitation. And you see that the ratio of CEO pay to worker pay has gone up. So what I would say is that some of the explanations have to do with weakened worker bargaining power, weaker unions, asymmetric state liberalization where capital moves but labor can’t move, corporate governance laws that provide relatively little check on abuses of corporate power by CEOs, and an increase of monopoly power because of network externalities. So there are certainly a number of factors that would lead one to suggest that overall there is an increase in market power. There are some things where there’s more competition — because of the internet, for example, there’s more competition on the price side, but overall, when you look at the ratio of wages to productivity, there’s a marked increase in market power.

Probably there are limits — sometimes the degree of exploitation is expressed as the ratio of wages to marginal productivity of labor, and when that ratio gets down to zero – that’s a limit! What I would say is that things could get much worse if we don’t do something. That’s a relevant issue. What’s important is whether or not we’re on a path that’s looking worse and worse.

LP: You suggest that monopoly power is on the rise. What role does this play in income and wealth inequality?

JS: The holders of monopoly tend to be very concentrated. When you look at the Forbes list, the top 2 are both monopolists. (Bill) Gates got his money through monopoly power, and (Carlos) Slim got his money through monopoly power in Telemex. It’s not a statement that they weren’t efficient or they didn’t do things well. They may or may not have been innovative — there’s a lot of criticism about Microsoft but we don’t have to go there. But what we can say is that a lot of the income they got was through the exercise of monopoly power, and I don’t think anybody would doubt that. So when you look at the top, it’s monopoly power.

LP: Many neoclassical economists have argued that when people contribute to the economy, they get rewarded proportionally. Is this model breaking down?

JS: Yes. I think that the thrust of my book, The Price of Inequality, and a lot of other work has been to question the margin of productivity theory, which is a theory that has been prevalent for 200 years. A lot of people have questioned it, but my work is a renewal of questioning. And I think that some of the very interesting work that Piketty and his associates have done is providing some empirical basis for doing it. Not only the example that I just gave that if you look at the people at the top, monopolists actually constrain output. People who make the most productive contributions, people who make lasers or transistors, or the inventor of the computer, DNA researchers, none of these are the top wealthiest people in the country. So if you look at the people who contributed the most, and the people who are there at the top, they’re not the same. That’s the second piece.

A very interesting study that Piketty and his associates did was on the effect of an increase in taxes on the top 1 percent. If you had the hypothesis that these were people who were working hard and contributing more, you might say, ok, that’s going to significantly slow down the economy. But if you say it’s rent-seeking, then you’re just capturing for the government some of the rents.

LP: How can we prevent inequality from getting worse?

JS: I divide it into two parts, what can we do to reduce inequality of before-tax and transfers income and what can we do to improve the after-tax and transfers income. The first part is things like higher minimum wages, stronger unions, better education, and stronger enforcement of anti-trust laws and corporate governance laws. Those are the kinds of things that are likely to improve the before-tax and transfers income. The second part is addressing things like capital gains taxes, the preferential treatment that mainly benefits people at the very top, and better redistributive policies. Those would help the after-tax and transfers income become more equal.

Print Friendly, PDF & Email


  1. Left in Wisconsin

    Lots of good analysis but the standard liberal policy prescriptions – not objectionable but not at all up to the task. Minimum wage? I guess at some point most of us will be working for it so maybe I’m too quick to criticize. Stronger unions? Even leaving aside what it would take to get stronger unions in this country (massive protest, dislocation, disruption; at least one political party that actually supports worker rights; policy analysis and experimentation well beyond anything evident today; some way to scale local efforts to the national level; etc.), it isn’t at all clear that stronger unions in one country would have any impact on anything.

    1. Athena1

      it isn’t at all clear that stronger unions in one country would have any impact on anything.

      Overall it wouldn’t have a lot of impact, but it would help some short-term (just look at the effectiveness of German’s organized labor in terms of helping German workers.) Then again, when you look at the US, most of the “punch” would be in whatever pre-existing conditions led to the formation of a revitalized labor movement moreso than the unions themselves (like you noted, “…at least one political party that actually supports worker rights; policy analysis and experimentation well beyond anything evident today; some way to scale local efforts to the national level; etc..…) Get that, and the unions and better working conditions will nearly form themselves.

      On an international level, I suspect that the old-school turn of the century unionists/socialists understood some principals that elude most of us today; I don’t think it was simple marketing ambition that led them to name their unions “The INTERNATIONAL Brotherhood”s of this and that. If anyone has a book suggestion detailing what was going on with all of that back then, I’d love to hear it.

      1. Benedict@Large

        You need to do some more research on German labor. Look up “one-Euro job” and “Hartz Reforms”. Germany is strictly into ordoliberalism, which makes neoliberalism look like a Trotsky plot.

        1. skippy

          “ordoliberalism” – Hayek’s milquetoast mea culpa…

          Government is sort of OK as long as it operates under – OUR – ideology.

          Skippy… its like stages of alcoholism… 1] progressive [lubed] 2] conservative [revert to mean] 3] abject paranoia [head on fire about socialism, were all going to starve] and 4] denial [drink despite the known facts about the disease and the obvious adverse consequences due to psychological problems].

        2. buffalo cyclist

          Most German politicians reject Keynesian economics, but Germany is still much better for workers than the US.

          First, Germany’s large trade surplus creates less of a need for deficit spending (as contrasted by the US’s large trade deficits), because Germany’s exporting industries employ a lot of workers. Germany has a large trade surplus because its co-determination corporate governance laws (workers elect 1/2 the directors of corporations) make it very difficult for corporations to outsource jobs to other countries.

          Secondly, Germany’s social benefits are much more generous, with free higher education, universal health care, extensive mass transit and paid time off. Many American workers will struggle with 25 years of student loan payments, with interest rates that are several times the rate of inflation.

          Also, Germany has much stronger unions than in the US, which, leads to less inequality and better working conditions.

          Finally, Germany’s rent control laws keep the cost of living affordable for working and middle class workers and helped prevent a housing bubble from developing in Germany.

          1. OpenThePodBayDoorsHAL

            Starting approximately with Reagan the pendulum between Capital and Labor has swung completely to the Capital side and seems to be stuck there. The very idea that workers, defined as the people who actually do the work, should have some rights of their own is demonized (” if it wasn’t for all those damned unions!”) while the non-working class (top execs and rent-seekers) are lionized. The hippies knew the value of honest labor, the Beats before them did, then we got the Reagan clones, “greed is good”, and it has been downhill ever since. We’re all supposed to be in the complete thrall of CEOs and anyone who gets his hands dirty is a lesser being. Couple that with the worship of “shareholder value” (apparently above all other values like an educated, healthy populace not living in abject fear of going broke) and it’s a recipe for destruction of the quality of life not just of the working class but everyone who’s not in the 1%.

            1. Susan the other

              Reagan wanted to have a strong economy (strong dollar) and no inflation (no wage inflation) and everybody from the 80s on went overboard big time. The final solution to wage inflation became offshoring. Arbeit macht nicht frei if you have to pay wages.

          2. Susan the other

            What Stiglitz surely knows is that his prescriptions would/do work well in socialist economies. Like Germany and all of the EZ if they hadn’t had their currency appropriated by international privateer banksters. Banksters whose sole purpose in life is to keep currencies “strong” and export for surplus no matter how impoverished labor becomes.
            And no matter how insane the competition for efficiency (aka monopolies) becomes. Everything he ticks off is what we should do; what we have done in the past. But we are ruled by a cabal of neoliberals who will never give up the power of a strong currency and will never consent to sovereign banking. They will destroy the entire world first.

        3. bmeisen

          one-euro jobs and hartz reforms are not an appropriate indicator of the state of germany’s 40 million workers, a labor force that thanks to more than a century and a half of organization enjoys conditions that are second to none. free primary secondary and post-secondary education (someday pre-school too i hope) retirement benefits, unemployment insurance, universal health including dental, physio, optician, and cures (a few weeks at a spa in the alps for burn outs), paid leaves, parenting benefits, tradtionally labor-friendly legislation and enforcement, up to 6 weeks paid vacation, continuing education, subsidized retraining. the list goes on and the results are impressive. productivity, innovation, stability, quality.

      2. Michael

        Athena1, I’ve just finished a course in US Labor History and one of our textbooks was the following which I found to be very informative: Priscilla Murolo & A.B. Chitty, From the Folks Who Brought You The Weekend: A short, Illustrated History of Labor In The United States (New York: The New Press, 2001). Another really good book is James Green’s Death In The Haymarket: A Story of Chicago, The First Labor Movement And The Bombing That Divided Gilded Age America (New York: Anchor Books, 2007), I hope this helps.

      3. different clue

        They would have impact within that one country if that country severed all ties to the Free Trade System and re-introduced Belligerent Protectionism. Otherwise the only impact unions would have would be to be seized upon as one more excuse to flee the country with unions for a country without unions.

        Unions and Free Trade go together like a boat and a hole.

    2. Oregoncharles

      at least one political party that actually supports worker rights” –
      The Green Party, Not that it’s done us the slightest good with the unions themselves. They’re still blindly committed to the Democrats (except, locally, when they want help with a picket line). I’m starting to think their problems are their own damn fault. But we all suffer for it.

  2. Worker-Owner

    Interesting that after forty years of wage stagnation and increasing profit-share by employers/corporations, all of a sudden, the Usual Serious People recognize their significance. There must be money it it for somebody’s sponsors.

    It’s a good thing that some of our Public Intellects of Note are beginning ot militate on the issue. It is disappointing that the profession, the handmaiden to power and wealth, continues to try to ignore it.

    1. Athena1

      Stiglitz has been heretical (at this point, the consensus is so strong that “heterodox” is no longer the right word, IMO) for over 16 years.
      I’m only noticing a change in his ability to communicate complex ideas about the Western economies concretely and with concision. Like this:

      If monopoly rents get increased, if the market power of firms relative to workers gets increased, as when you have the ability of a few, like the banks, to get government guarantees — the value of that is increased and gets capitalized. And that increases wealth but it doesn’t increase capital. So it’s that distinction between wealth and capital that turns out to be critical. That’s the first idea.

      The reason that’s important is that you then begin an inquiry into the sources, the explanations, of why the value of the land or other sources of the value of rents would have gone up. A lot of my book, The Price of Inequality, is about why rent-seeking may have increased, but the other part is more external in terms of the value of land or the value of assets. That, I suggest, is very closely linked with the credit system. So if you get a flow of credit increasing, as we’ve seen in the last few years —that flow of credit didn’t go to more wealth accumulation as we normally use the term in economics, as capital goods. What you got is an increase in bubbles of one kind or another.

      That is a whole lot of reality summarized more neatly, clearly, and correctly than I’ve ever seen it summarized before.

      1. juliania

        To answer why Serious People are now addressing this issue, I’ll post again the following:

        “. . .Rising inequality is estimated to have knocked more than 10 percentage points off growth in Mexico and New Zealand, nearly 9 points in the United Kingdom, Finland and Norway, and between 6 and 7 points in the United States, Italy and Sweden. On the other hand, greater equality prior to the crisis helped increase GDP per capita in Spain, France and Ireland. . .”

        And furthermore,

        a): “. . .What matters most for growth is families with lower incomes [bottom 40 percent] slipping behind.”

        b): “. . .Redistribution efforts should focus on families with children and youth.”

        It’s the economy — (Fill in the blank.)

    2. washunate

      What do you mean by all of a sudden? Stiglitz has been talking about these kinds of issues for a long time. Information asymmetry – the lack of perfect information – is a fundamental indictment of the efficient-markets crowd.

      And he has written very concrete works as well as more abstract theory. For example, The Three Trillion Dollar War is a great read from a few years ago that isn’t exactly friendly to the established warrior mentality of both parties and their intellectual enablers.

  3. financial matters

    First of all who reads Jane Austen? Just kidding :) (I saw the movie).

    I think Stiglitz is on the right track. I liked these excerpts from his earlier “Freefall” (2010)

    “Economics is a social science. I soon realized that my colleagues were irrationally committed to the assumption of rationality. Robert Putnam has emphasized the importance of our connectedness with others.””

    “”It has become a cliche to observe that the Chinese characters for crisis reflect “danger” and “opportunity”. We have seen the danger. The question is, Will we seize the opportunity to restore our sense of balance between the market and the state, between individualism and the community, between man and nature, between means and ends? We now have the opportunity to create a new financial system that will do what human beings need a financial system to do; to create a new economic system that will create meaningful jobs, decent work for all who want it, one in which the divide between the haves and have-nots is narrowing, rather than widening, and, most importantly of all, to create a new society in which each individual is able to fulfill his aspirations and live up to his potential, in which we have created citizens who live up to shared ideals and values, in which we have created a community that treats our planet with the respect that in the long run it will surely demand. These are the opportunities. The real danger now is that we will not seize them.””

  4. Bene

    Didn’t Lynn leave the Roosevelt Institute blog over the dust-up there about them not liking how it was moving toward MMT? So what is she doing at INET? They’re at least as bad as the Roosevelt Institute on MMT.

  5. James

    I think economics, and economists in particular, address wealth and income inequality just fine. In the presence of great wealth or income they address its deserving owners on bended knee as Sir, Ma’am, or Madam. Since no one of any lesser status is worth addressing at all and shouldn’t be standing around chewing the fat anyway, they simply say nothing. What’s the problem?

    1. Whine Country

      Some time ago it became apparent to me that virtually all of our so-called “Professional Class” have become nothing more than jukeboxes. Whoever puts in the quarters, calls the tune that the rest of us dance to. Why should economists be any different? We have government and governing bodies at unprecedented levels but, on the other hand, we have decided that having them do virtually no governing is the way to go. My father used to say, “It doesn’t surprise me that everyone has a price. It only surprises me that how low it is”. What is missing unfortunately is something spiritual, or cultural, and our system just cannot deal with that inconvenient truth!

  6. Working Class Nero

    I see it as a political problem – not an economic one. The lower 60% must band together and elect leaders that will place first and foremost the interests of their common citizens. And the enemy of the common citizens is global capital. Capitalists must be caged-in as much as possible by a nation’s borders. They can off-shore all they want but the products produced overseas will be blocked at the border through tariffs. For the most part the cost of accessing a nation’s consumers will be to employ them producing their products of consumption.

    It’s kind of embarrassing for elite thinkers to have to admit, which is why they expend all their intellectual firepower trying to avoid it: but lowly decadent bourgeois Nationalism is actually the only antidote to economic ravages of Neoliberal Globalization.

    1. Banger

      It is definitely political–no economy survives or functions without political institutions. All economies have some political entity leaning on the scales–there is no such thing and cannot be such a thing as a “free-market” unless it exists in a computer simulation unconnected with the real world.

      It is also cultural–there has been, for many decades now, a glamorization of the lifestyles of the rich and famous–there is almost a religious awe associated with it sort of like how the denizens of Medieval times might have felt walking into a great Cathedral. The very rich should be vilified not venerated. Even now the nostalgia for the great houses of Britain and the old families, most of which got their fortunes in the 18th century from looting India and God knows what else. My problem is with the idea that life can be lived more fully with great wealth and, as someone who has been around great wealth, I can assure that is bullshit but it is what most Americans believe–and until that changes it is hard to see any egalitarian policies ever being instituted as we steadily drift into our new feudal dispensation.

  7. Joe

    He’s nuts. We need to deal with aggregate poverty, not his desire to indulge the moral vanity of comfortable bed-wetters who think they are well meaning.

    You can just as well narrow the gap in income inequality by “eating the rich” while doing just as mich to reduce the standard of living of everyone else at the same time.

    1. Athena1

      We need to deal with aggregate poverty, not his desire to indulge the moral vanity of comfortable bed-wetters who think they are well meaning.

      What in the world does this even mean?
      I’ve read that sentence five times now, and for the life of me cannot figure it out.

      1. NOTaREALmerican

        Re: We need to deal with aggregate poverty, not his desire to indulge the moral vanity of comfortable bed-wetters who think they are well meaning.

        Well, here’s my translation:

        We need to deal with aggregate poverty
        >> We need to deal with poverty holistically…

        not his desire to indulge the moral vanity of comfortable bed-wetters who think they are well meaning.

        >> not just the fantasies of the guilt-ridden limousine-liberals who think they are well meaning, but who actually benefit from the existing scams being run on society and – as such – don’t want the existing scams eliminated (as that would be Austerity and all well meaning limousine-liberals know that only the Koch Brothers want Austerity, so anything the Koch Brothers wants is evil).

        How about that?

      2. James

        You can just as well narrow the gap in income inequality by “eating the rich” while doing just as mich to reduce the standard of living of everyone else at the same time.

        This part threw me. Eating the rich? I’m with ya man there man. They’re damn sure not going to part with any of their stolen loot without a little “friendly encouragement.” But if you’re saying that that’s going to reduce the standard of living of everyone else in the process, I’d have to beg to differ. I don’t see too much trickling down out of the economic down pipe these days. Personally, I think Putin had it exactly right. Let’s round us up some oligarchs and give ’em a choice. They ain’t taking it with them anyway, so it’s their choice as to whether they want to stick around or not. All the economic pseudo- academic hooey above is just so much obfuscation and rationalization. We’re dealing with HARDENED CRIMINALS here, and they’re not about to part with any of it absent some good old fashioned physical persuasion.

    2. buffalo cyclist

      Inequality does have an impact, because when the rich get significantly richer, they raise the cost of living for everyone else. Take Manhattan, where the presence of many zillionaires has raised rents significantly and the construction of high rise luxury apartment towers by Central Park cast a large shadow on the Park, thereby preventing others from enjoying the Park. Or look at many of our affluent suburbs, which despite having many low wage service jobs, create a car centered environment (with no mass transit, bike lanes and few sidewalks) and snobbish zoning laws (no multi unit or small homes allowed) that prevent the low wage workers from actually living in the community where they work (many rich suburbanites certainly don’t want “those kind of people” living in their neighborhood).

  8. economicminor

    I am retired and one of the things that will erode my standard of living is serious inflation. In my opinion inflation is partly to blame for the increasing inequality as Stigletz points out. So for two good reasons I am against anything that will increase costs to me.

    To my thinking Unions promote inflation and a different form of inequity. Minimum wages also promote inflation and harm both small businesses and especially first time workers. The problem in the US is that there really aren’t enough jobs outside the low end service industry.

    What would really help stop the wealth inequity would be to break up monopolies, stop the offshore movement of jobs, put the money that has been going to support asset inflation into infrastructure improvements that benefit all of society like high speed rail, an efficient electric grid and high speed Internet for all.

    Oh, and to make the public trust government again we need to jail all those who committed fraud or who broke their fiduciary duties to the citizens of this country.

    1. cwaltz

      So I guess that what matters the most isn’t that workers have things like decent work hours, wages or that THEY be able to retire……what really matters is that prices get to stay rock bottom. That’s a nice and selfish way of looking at an economy.

      With all due respect, you’re part of the reason that our economy is in a shambles. The market doesn’t just consist of consumers and its needs. There has to be some sort of balance. Things like wages for the present working force matter.

      Oh and for the record, minimum wage does not directly affect price. It effects profitability. As long as businesses are making a decent profit(and they have been) they can raise wages with a very limited impact on price. They don’t want to. Why? It means that owners get to pocket less and they risk that any increases in price might mean a reduction in market share. Additionally, your argument that increases in wages decrease the amount of jobs available is antiquated and no longer conventional wisdom. Even conservative economists during the 90s acknowledged that increasing wages led to increased demand which actually led to job growth, not reduction. The reality is businesses don’t hire labor out of the kindness of their hearts, they hire them to keep up with demand to net profit. They don’t keep spare people around so essentially their options are to forgo potential profit, retain those in their employ barring technological advances that actually are more cost effective than said labor(and cheap robots are not nearly as plentiful as the business sector is suggesting in their bid to keep wages low.) As far as hurting small businesses, I guess that depends on your definition of small businesses and hurt. Personally, I think that responsible business owners agree that if you are successful enough to NEED labor then you have a responsibility to pay your workers enough that Uncle Sam doesn’t need to subsidize their housing, food and everything else. If and when you expand you don’t just take the profits to plow into increasing market share but actually SHARE those profits with those that helped you earn them. Unfortunately that has not been what has been happening at all. Instead you have businesses whining that it’s unfair that they’ll have to pay workers at their 5 franchises enough to live on. Whose fault was it again that you expanded recklessly without considering cost increases?

      As far as unions go I’d argue that 40 hour work weeks, pensions, and the plethora of benefits that have been eroded over the years go far beyond the extra buck or two you might need to pay at the store(and hello you’re paying it anyway unless you are planning on telling other regions of the world that THEY can’t increase costs that businesses will pass on to you- so let me know when you intend on telling cattlemen or energy industries to freeze THEIR costs) But hey you keep thinking that bringing jobs that pay $2 an hour
      in China to here(because yayyyy, no minimum wage) is the answer to inequality. The ownership class is laughing their backside off at you for buying their argument that collective bargaining and wage lifts are the enemy.

      1. baldski

        Kudos to you cwaltz!

        You make beautiful sense, especially about minimum wage. It is one of my pet peeves that the price of beef has increased by 50% and you have not heard a peep out of McD’s, Burger King, etc. but mention minimum wage and there they go screaming around the block with their hair on fire!

        When I was a child in the ’50’s growing up hardly any of the mothers worked in my circle of neighborhood friends. They did not need to because their husbands had a good union job at GE, Allis-Chalmers, Kearney & Trecker, etc. and made enough to live comfortably without their wife having to work. So, what have we given up exporting all these jobs to 3rd world countries for low prices at Walmart? These low prices are too dear for me!

    2. flora

      “To my thinking Unions promote inflation and a different form of inequity.”

      In the late 1970’s stagflation destroyed purchasing power of retirees on fixed incomes. Unions were blamed for rising prices and that blame was used to generate support for attacking unions. In reality the rise of OPEC and oil prices quadrupled between 1971 and 1974, in part due to the end of the Bretton Woods accord, was a large part of inflation.
      Also, the huge post-WWII generation cohort came of age and were marrying, buying houses, buying cars, and starting families. They were encouraged to borrow what had traditionally been considered “too much” on the theory that their financial lives would mirror their parents’ and that over borrowing wouldn’t be a problem since their incomes would always go up and inflation would continue at ever higher rates and they could easily repay the loans in devalued dollars. In reality, both these events – oil quadrupling in 3 years and at the same time a huge age cohort borrowing too much for houses, cars, etc – were essentially a one off. And yet Wall St. keeps trying to re-create that bubble environment.
      Current rising inflation for the retiree segment is heavily concentrated in medical care. That has almost nothing to do with unions.

      1. flora

        Also, if you’re retired, you know Social Security payments, which are supposed to be indexed to the Consumer Price Index (CPI) haven’t kept up. That’s in large part because govt keeps fiddling with the CPI in order to make inflation look lower and thus reduce Social Security, Disability, and Armed Services retirement benefits.
        Again, that has nothing to do with unions or minimum wage.

  9. Oregoncharles

    “the rise of monopoly/oligopoly power” – The role of monopoly power is absolutely fundamental economics, part of demand and supply theory. If mainstream economists are ignoring it (and I think that’s right), they’re being flagrantly dishonest.
    There’s a parallel in the debate over “free trade:” the economic arguments are based on Pareto’s argument for “comparative advantage,” but that depends entirely on the assumption that capital and labor don’t move much internationally (reasonable, in Pareto’s day). Yet it’s used to justify the free movement of capital. Openly dishonest.
    All of this serves to show that economics is mainly political ideology, not science, though in principle it’s an application of feedback theory. Apparently Stiglitz is one of the few honest ones, which is why he’s appearing here.

  10. NOTaREALmerican

    We need a new committee to redistribute the wealth downward after the existing committees continue functioning to redistribute the wealth upwards. If we’ve learn anything over the last 30 years it’s that: only very wise (and often bearded) people acting together in a small group have any chance to manage an economy this large.

    Now, what should this new committee be called and – more importantly – was is the acronym?

    1. psychohistorian

      Yes, we need to CrowdSource ourselves a replacement government.

      Stiglitz is professional cover for the folks that run the world that Forbes does not publish a list of….say, The Fortune 500 Global Trust Funds…..and their owners. I agree that Gates has some new money but he hasn’t owned the 12 Fed Regional Member banks for the past 100 years, has he? Which of those two represents the true “animal spirits” of our mythical world of finance, Gates or the inherited family wealth of centuries?

      Stiglitz says nothing about changing the rules of inheritance, as I am sure he is paid quite highly to refrain from.

      1. Athena1

        Stiglitz says nothing about changing the rules of inheritance, as I am sure he is paid quite highly to refrain from.

        Google is your friend:

        Professor Stiglitz backed an inheritance tax, measures to curb rent-seeking and stronger laws against tax avoidance as ways Australia can reduce inequality. He said multi-national corporations such as Apple and Google should be taxed in Australia based on the proportion of their sales and production that takes place here.

        It has increasingly been noted that America is becoming a plutocracy – not the land of opportunity that it perhaps once was, and that it likes to think of itself as still being. (Earlier, we described the high level to which inequality has grown in the U.S. and how America has one of the lowest levels of equality of opportunity among the advanced countries.) Tax policy, in particular inheritance and estate taxes, can be used to help prevent (or reduce the extent of) the perpetuation of inequality.
        Today is a particularly opportune time to impose such taxes. Not only do inheritance and estate taxes reduce inequality and its perpetuation, they may actually induce more consumption and stimulate the economy. Rich individuals who would have saved to pass on their wealth to future generations – helping to create a new American plutocracy – may be induced to consume at least some of this wealth.

        1. psychohistorian

          My oversight of all his work.

          I continue to posit in comments on NC that global inheritance needs to be neutered so the the Koch’s and their ilk can’t buy government employees like they have. When I read Mr. Stiglitz connecting the dots of global inheritance rules, the private component of international finance/money, and the internationally linked trust fund “families” that continue to force this poor excuse for a social structure down the throats of the 99.9%, then I might consider him trying to be credible.

          Economics is the myth cover for how the elite have rebalanced their assets over the centuries to maintain and extend control. The invisible hand of economics is the micro decision making of this process by the inherited elite.

          1. Athena1

            I dunno. If I were him, even if I did think something like that was true (hey, btw…can YOU absolutely prove it?) I’d probably let someone else make that case.

            Stuff like this:

            Economics is the myth cover for how the elite have rebalanced their assets over the centuries to maintain and extend control.

            …qualifies as an extraordinary claim, and those require extraordinary evidence. Is there solid evidence to back that claim up?

            1. psychohistorian

              I would say that the fact that there is no solid evidence for my claim is reason enough to believe it has merit…..why don’t economist’s read the entrails of the global elite like they used to do owl’s?

              Are we sure we are sure we are sure we are sure that the inherited rich deserve to rule the world? Where is your solid evidence? Left it in Fukushima you say. What a shame.

              Give us more agnotology instead of straight answers.

              1. Athena1

                I would say that the fact that there is no solid evidence for my claim is reason enough to believe it has merit

                What else does this logic work for? Aliens? Reptillians? Leprechauns?

                I’m willing to believe in the possibility of many things that have not or cannot be proven, but when one starts seeing a lack of proof as the proof of the conspiracy, something has gone terribly wrong logic-wise.

  11. not_me

    But the other part that’s probably more important, I would say, is that when you deregulate, you allow more lending against collateral. Then those who have the assets that can be used for collateral see those assets go up in price, like land. And so those who hold wealth become wealthier. The workers, who have no wealth, don’t benefit from that expansion. So the link is that credit affects land prices and fixed asset prices, and those go disproportionately to the rich. Joe S

    100% private banks with 100% voluntary depositors would have to be very careful how many and what new liabilities they create since bank runs would be, as they should be, an ever present danger to their existence.

  12. buffalo cyclist

    Stiglitz is really good at diagnosing the problem, but not so good in coming up with solutions. Dean Baker is better with solutions, except none of the TPTB will listen to Baker (not that most of them listen to Stiglitz either).

  13. Chauncey Gardiner

    Over the last two decades 90 percent of Americans have lost wealth while the richest 1 percent of our society captured 70 percent of the nation’s income growth. This is NOT an accident. It isn’t because of one bad policy or one bad recession. For them to achieve this, every major policy – taxes, investment, monetary, trade, finance, regulation – was “fixed” to favor the few. And this is continuing under the protection being afforded the few by the legacy political parties through the campaign finance laws, the concentrated ownership of big media, corporate board networks and ownership structures, court rulings such as in the Citizens United case, and other mechanisms.
    And yes, as psychohistorian noted above, a significant part of this wealth concentration was made possible by changes to the inheritance tax and income tax laws, some of the poster children beneficiaries being well known as a result of their political funding.

  14. Patrick Donnelly

    Wealth is housed, healthy families working a few hours a day and consuming…. less than at the peak.

    Elites know that they can make money from these people…. But idiots, currently owning rentier economist propaganda, are afraid of wealth redistribution…

    History shows this happens gradually or swiftly ……. !

  15. economicminor

    The answers are to break the monopolies. Change the tax code so that there is no more benefit by declaring income as capital gains. Tax all income the same. I don’t mind some progressiveness to the tax code or some breaks to the truly needy.. Revert to the earlier form of inheritance tax as those with the benefits of great wealth hardly need more than their education and connections to live a very high quality lifestyle in the US. Change the campaign finance laws so that the wealthiest can’t own and control our government with money. Connections and family ties are enough. Keep the big banks from gambling with client money without the client’s permission and set some reasonable regulations on derivatives. Also fix the system so that the Police and government are not above the law using it to persecute the citizenry. I could go on but I see no real movement towards the direction of meaningful change. In fact, the resent budget bill’s riders seem to take us further down the road to Oligarchy and Plutocracy…

    1. psychohistorian

      I posit that the banks you talk about in your comment are currently owned by the Oligarchs and Plutocrats you say we are on the road to have controlling things.

      Its like the term fascism. When people start using the term in polite conversation, you know that it is a reality, but not admitted to by the same polite public.

      We have had Oligarchs and Plutocrats for centuries but it is not in their best interest to draw attention to the cancerous head of our social organization so there is no story here, move along now….

  16. Rosario

    So I like his analysis, and he seems on track based on what I have observed, but what is new here? I apologize for harping on it again but Marx said this a long time ago as have many other intellectuals following him including those not in the field of economics. The progression of Capitalism as we have observed it was fairly predictable a long time ago. The issue lies more in the critique of culture itself rather than the critique of economics (a part of the culture) since economic dialogue inevitably falls in the trap of conventional jargon and pragmatic wisdom within said culture.

    There are many productive ways to approach the modification of our perception of economic culture (particularly as it pertains to politics). For instance, we can discuss how the influence of fossil fuels has completely changed our culture and language surrounding economic exchange and future “potential” or growth (i.e. “the sky is the limit”). Or we can analyze how hegemonic global culture (Neoliberalism/Globalization) has normalized a singular culture for the first time in human history (often an oversight in economic analysis). These kinds of discussions acknowledge the “catastrophes” of human social/political/economic evolution in an approachable and historic way.

    Also, there is much talk of inequality, but what of its boring timelessness? How do we connect the feudal lords of Europe with the globally connected, philanthropic, but completely ethically bankrupt billionaires of the 21st century? Do we truly think they represent ethical progress? If so how? Regarding billionaires, the 1%, and so on. How are these people any different than those in the near and distant past who represented so much social wealth in so little social space?

    What we need to realize is how “weird” our world/we is/are today and continue realizing it indefinitely (we cannot take our system/order for granted or as a given/effective). In effect, we are within a world, without knowing it, where no one is crazy because everyone is crazy. Maybe the “divine moment” of realization can only come with complete social revolution. Though I fear we cannot afford more of these without paying with some of our prized treasures of civilized life.

  17. Jim in SC

    Reagan tried taxing all income the same. It didn’t last very long before Congress started tinkering with it.

    Stiglitz correctly mentions the increase in the value of land around cities as an important cause of inequality, but he doesn’t say why the value of land around cities has increased in value. It’s because cities are increasingly where the high dollar jobs are. Not that there are that many of those sorts of jobs to go around, but where they are found is the major cities. Many are called, but few are chosen. But even those called and not chosen have to have a place to live.

  18. mejimenez

    Stiglitz echoes what Michael Hudson has been saying for years. How come Hudson so rarely gets credit?

    It would be great if someone knowledgeable (Yves?) did a compare and contrast of Stiglitz’s and Hudson’s arguments.

    1. nothing but the truth

      this problem was addressed more than a hundred years ago by Henry George in his classic “Progress and Poverty” which was channeled by Gessell who was then channeled by Keynes.

      And Stiglitz is no clearer than George. George as straight to the point and hit the nail on the head. If George is unknown it is because no academic economics department will hire you if you utter his name.

      Not many can handle the truth.

  19. Susan the other

    I see a fly in the ointment. If Stiglitz is asking for all money which is now rent-based income to be capitalized in order to solve the inequality problem then we are going to have an uncontainable explosion in hopeful capitalists, all seeking their good profits and paying their taxes and promoting well-being through progress. But they themselves will be uncontained. Bad. Bad as a bubble in some ways. Because capitalism is by its very nature speculative and hopeful rather than guaranteed. So growing our way out of it all is a problem. If we have come to the point that we can look at the mess we have made of the planet and then design good remedies which the economy can “capitalize” then fine. But if it’s just another orgy for the rich and overindulged then that would be the worst of all possible worlds. We need the right innovations, not just innovation for the sole purpose of making profits that cannot be reinvested because there is no good investment plan to receive them.

  20. grs92

    Great. Another rich economist telling people why they’re poor. See through this kind of controlled opposition.

  21. Kunst

    1. Capitalist economics is a game, one that some people play better than others. Note the point that the great inventors aren’t the very rich — That’s the wrong game. The problem is that much of the game is very artificial, akin to a system where income and wealth depends on how well you play chess or basketball.

    2. A huge elephant no one seems to talk about is human population. No wonder worker pay lags productivity when there are three times as many people on this planet as a short lifetime ago. Compound that with technology displacing labor directly (software, robots) and indirectly (transportation and communications advances unlocking worldwide labor arbitrage through globalization), and it’s no wonder that workers are at a disadvantage. Supply and demand, compounded by a system that magnifies the advantages of those who know how to play the games that matter. Included in those would be a substantial does of corruption in the form of rigging the system further in favor of those already on top.

  22. CK

    am I missing something or is it not a highly appropriate governmental function to create transparency within markets? it keeps coming up again and again that our “problems” are a result of deals happening behind closed doors, assets priced and traded in an opaque fashion, access to information being unequal. as we (meaning the 99 or 99.9%) all know we are getting screwed by “the system” but are unsure how it is happening, exactly, wouldn’t efforts to increase the availability of raw data about our so called markets and the goings-on of
    government even the playing field at least somewhat but potentially a lot?

    would this not be a cause to rally behind and get some smart people, such as those commenting on this thread, to start writing draft legislation about and then giving us all something to work on? maybe it’s not enough, but if government must deploy its power, how about excercising it in ways that makes our reality more clearly visible? then it would seem the truth will then, and only then, perhaps set us all free – or at least help us be freeer.

    just a thought…

  23. CK

    May have lost my earlier comment.

    I wonder, if perhaps we who read Ives postings and all, in our own fashion, want the same things: to live in a safe and predictable environment and to be left alone to pursue our livelihoods and happiness when we do so without infringing on others opportunity to do likewise. Thomas Jefferson said more elegantly, but I really think that ultimately, this is what we all are looking for.

    sadly, the 99 or 99.1% are clearly feeling this isn’t the case. predictability and safety are down. we are NOT left alone and there are those that harm others that appear to do so unimpeded. I submit that the lack of transparency in our society and economy and government leads directly to inequality. The privilege of data and information is an economic tool that keeps us down.

    I would argue that one thing demonstrated to make (or allow) an economy to work and grow is a “free” market, but free also means unencumbered and open – for sure – not controlled or highly regulated, but also available to many, not the few, but also is freely transparent – with data and information concerning its function and transactions easily visible. Government has long been the method by which this transparency occurs. real estate and the recording of deeds and transparency of selling prices and to whom and from whom and transactional details being public record reduce privacy, but create predictability and security. technology and the internet and big data are not being put to maximum effect to create transparency within our economic system. Our banking system is fraught with obfuscation and lack of readily available public data. same for the derivatives markets. same for the money trails of funding of political influence. Sure, there is some transparency and there is some visibility into the true nature of what is going on, but why shouldn’t there be more. I would submit that the role of government in this area has not kept up with the rise of technology. The amount of money spent to know our secrets dwarfs what is spent to create visibility into things which should NOT be secret, or perhaps should not.

    What would our world look like with more visibility for the public good and how can we build on what has been done to ensure the availability of information to create clarity into that which affects us all?

    you smart readers and commenters on Yves posts – what draft legislation could be presented to make and enforce transparent markets and transparent government?

    or am I wrong that this sort of transparency will lead to reduced privacy and more inequality?

Comments are closed.