In this formidably outspoken and crystal clear book, J. Stiglitz lays bare the brutal division within the US society between the wealthy and all powerful 1 percent and the rest of the population. He unmasks apparent truths as myths, stigmatizes those responsible for the sorry state of the union, unveils the paths of power and illustrates profusely the really heavy price of inequality.
For J. Stiglitz, the US is in no way the land of (equal) opportunity anymore. Trickle-down economics (giving money to the wealthy few will be beneficial for everybody) is a lie; to the contrary, trickle-up policies should be implemented. Free markets don’t exist, only rigged ones. A ‘free market system’ is in no way self-correcting, but fundamentally unstable. Monetary policies alone cannot steer (inter)national economies.
Paths of power
The wealthy 1 percent amassed their fortunes through ‘rents’, also monopoly, tax and ‘public gift’ rents.
They dominate the political ‘democratic’ system with their campaign contributions (one dollar - one vote). Its permits them to concoct the basic rules of the socio-economic game (laws, (de)regulations, taxations, institutional and judicial procedures) to their own advantage.
They control the information circuits through their media conglomerates.
Failed governments and bad economics
For J. Stiglitz, recent US governments failed to enhance the living standard of the vast majority of the population. They created a nation with a bad educational system, bad banking regulations allowing predatory lending, and, most importantly, high unemployment.
The overall picture is one of lacking fairness and justice, where everything seems acceptable and nobody accountable: those who brought recently the world economy to the brink of ruin were not found guilty.
The US economic system is highly inefficient: huge needs (infrastructure, schools) are not met and vast resources (workers, machinery) are underutilized. Thereby economic growth and productivity are undermined. Governmental spending is highly biased: money for useless jet fighters, not for skilled labor, money for troubled banks not for troubled homeowners.
The first and foremost goal of all economic policies should be full employment.
In order to limit budget deficits wars should be ended and defense spending curtailed.
Taxation should be fair and more progressive.
Corporate welfare and hidden subsidies should be stopped, while drug companies should not be overpaid.
Even after this devastating indictment of heavily biased economic policies, J. Stiglitz still remains hopeful that a political reform agenda can be implemented.
This hard-hitting book is a must read for all men and women of good will.
I grew up in cold war Greece. The first six years of my life the country was run by the kind of dictatorship the "free market" side of the cold war had supported (and often installed) on many of the local battlefronts, including Chile, Argentina, Iran, Turkey, Portugal, Spain etc. Directly before and after that time, Greece was run by democratically-elected crony-capitalist right-wing governments, of the kind that put up massive trade barriers, limited the movement of capital, fostered hopelessly misguided urbanization cum industrialization, managed the devaluation of the currency as best they could (the constraint coming from soaring inflation) and kept a vigilant eye on finances (this latter point an absolutely necessary condition if we were to carry on ordering more weapons without subsequently failing to pay for them).
It's how it was, and while nobody thought it was too much fun, we kind of knew it was better than the alternative, which you could only try to imagine in our neighbouring communist paradises of Albania, Yugoslavia and Bulgaria, to say nothing of the message implicit in the frequent defections of athletes/pilots/ figure skaters from the Soviet Union despite the inevitable consequences for their families. In the context of the cold war, that was the genuine alternative for us, and we had to be thankful we were on the right side of the curtain.
My young aunt Angele-Marie (only a few years older than me, but we are a large family) did not see it like that at all. She was aghast at what she perceived to be the capitalist exploitation of the country, rebelled at her father (a customs worker who was by definition an enforcer of the tariffs which protected our industrial aristocracy from imports) and joined the communist youth.
I'm not sure why, but my poor dad got to be the arbiter between father and daughter. "She won't listen to me, George, why don't you try talking some sense into her."
So my aunt would regularly come around the house for dinner and to talk politics with my father. They would discuss at length the goings on around the world, the validity of the capitalist system versus the communist system, the distribution of the outcomes and the justice of it all.
My dad had NO CHANCE. No matter what he had to say, she had the answer ready. His heart was in the right place, he'd experienced the civil war first hand, he'd lived both in Greece and abroad. He was well educated and had a strong moral compass. But his general sense of right and wrong had a snowball's chance in hell against the indoctrination she was receiving on a daily basis in between sessions of plastering Athens with posters, selling the Communist newspaper, participating in rallies and completing her studies (which thankfully she did, on time and with distinction, unlike many less gifted of her comrades, whose lives were totally blighted)
Which brings me to Joseph Stiglitz and "The Price of Inequality"
If you know economics, don't touch it. You will be GRAVELY disappointed.
If you have ever considered voting Republican, even for a fleeting moment, don't touch it. You will find it too left-wing to get past the second paragraph and you will have wasted your money. If you are a persistent Republican, you will make it to page xxi of the introduction, where you will encounter the words "West" and "Cornell," not necessarily in that order.
If you are a well-educated right-winger and would like to read what the other side has to say about things, don't touch it. You are not the target audience. This book is meant to offend you rather than educate you.
If, like me, you were fooled by the title of the book (to say nothing of the fawning reviews) and you want to find what a top-notch economist has to say about the Price of Inequality, ask yourself "do I have the patience to plod through 410 pages of reading for the few paragraphs that are dedicated to the alleged topic on the cover of the book?" Perhaps read my summary below and make up your mind. My recommendation, however, is "skip."
On the other hand, if all four of the following conditions are met:
1. Your heart's in the right place regarding today's economy
2. You somehow suspect our democracy itself is going to hell in a handbasket but you can't express why
3. You know ZERO economics and you don't know where to start
4. You've had enough from your friend / husband / neighbour / son and his "libertarian" website-based read of world affairs
well, then this book is for you.
Back in 1976 my daddy was facing a young communist, but today he'd probably be facing a young libertarian. This book would be his first port of call.
The thesis of the book is stated on page 193 (which is really p.243 because of a lengthy introduction): "The high level of inequality in the United States today increases instability, reduces productivity and undermines democracy, and much of it arises in ways that are unrelated to social contributions, it comes, rather, from the ability to exercise market power - the ability to exploit consumers through monopoly power or to exploit poor and uneducated borrowers through practices that, if not illegal, ought to be."
The thesis is then augmented on page 194: "We haven't achieved the minimalist state that libertarians advocate. What we've achieved is a state too constrained to provide the public goods -investments in infrastructure, technology and education- that would make for a vibrant economy and too weak to engage in the redistribution that is needed to create a fair society. But we have a state that is still large enough and distorted enough that it can provide a bounty of gifts to the wealthy"
The book won't teach you how to answer libertarian arguments (like my aunt's communist arguments those are very much based on a mix of principle, doctrine and general confusion) as much as it will teach you a thousand things to throw a young libertarian's way. And you can talk at each other until it's time to go to bed.
Because the book is aimed at the economically uneducated, its main weapon is RELENTLESS, MERCILESS, SICKENING REPETITION of its core ideas. This makes it a ghastly read if you already know economics, but an essential training tool for the economically uneducated who want to enter the debate from the left side of the spectrum.
Rent seeking (btw. Economic Rent, never properly defined in the book, is the difference between what you get away with charging for something in a messed up economy and what you'd have to sell it for in an unfettered economy of perfect competition) is discussed extensively at least three times. Globalization (on which Stiglitz has written a whole book) is covered three times, monopolies are covered three times as well. All totally self-contained and from a slightly different angle. By the time you're done reading the book, and provided you are talking to somebody who does not know much, you'll be able to rail against rents, globalization and monopolies as if you were a specialist.
The evil character of banks and finance and those who practice it (whether they reside in the administration that's been deregulating, the Fed that's been supporting the interests of the rich asset-holders, or within lending institutions who have been targeting the poor) is another mantra. Again, the coverage is left-of-center, but the main thing here is repetition. The student loan / private education complex is discussed at least twice, the preference of the saved banking sector for bonuses over loans perhaps four times, while Goldman Sachs get panned so regularly that Stiglitz exercises some self-restraint and redacts their name as the derivatives counterparty when it comes to discussing my home country's financial shenanigans around the time of its accession to the Euro. That's right, he gives the vampire squid a break.
And so on. Bottom line, if you know nothing about economics and finance and are looking for a one-stop-shop to counter somebody who equally knows nothing but is on a steady diet of Ron Paul and Ludwig von Mises, your search is over. Order "The Price of Inequality," read it, and 410 pages later you will be able to parrot some rather orthodox left-of-center stuff with the best of them.
The true pity is that there is a solid 75-page book in here on the actual topic of "The Price of Inequality." Between the various rants against the 1 percent, Stiglitz makes a bunch of valid points:
1. The rich don't live in a vacuum: Inequality, as we see it in Latin America, for example, leads to civil conflict, criminality and social instability, to which the rich are far from immune (apologies included about the fact that we would ever consider the position of the rich or the economy as a whole; see p. xxi in the introduction).
2. Inequality can lead to nasty surprises for everybody through the ballot box. I think Stiglitz has people like Chavez in mind, and every day that goes buy I'm thinking more and more Obama, if I'm being honest, much as I voted for the guy.
3. Upward redistribution of income destroys demand, simply because the poor spend a bigger percentage of their earnings than the rich do. This last recession has removed half a trillion of spending from the equation, precisely because it has cut salaries by that amount.
4. "Our democracy's response to inequality," i.e. the authorities' attempts to address the poor's inability to spend did not have to backfire, but it did. It led to ill-advised macroeconomic policy that induced financial bubbles, including the Internet bubble and the housing bubble. These bubbles initially masked inequality but ultimately they turbocharged it, and of course they were very harmful for the economy.
5. With one out of seven kids in America facing food insecurity, we know that scarcity is a major issue for Americans. Living under scarcity forces people to make choices that are far too conservative for the growth of the economy, because they concentrate on putting food on the table, rather than on building their personal capital or taking a business risk they cannot afford.
6. Inequality erodes civil virtue and the social capital that glues us together. We bother to vote not because we reckon our one vote will make a difference, but because it is our civic duty to do so. Inequality undermines democracy by causing disillusionment (polls are showing the majority finds the system favors the wealthy), distrust (toward the media that is controlled by the wealthy), disenfranchisement (one in four Americans is not registered to vote) and disempowerment, as we move from one-man-one-vote to one-dollar-one-vote.
7. Inequality means different groups interact increasingly less. Less interaction leads to the development of different perceptions of reality and this includes the very debate about the legitimacy and even the magnitude of inequality, which of course can create a powerful feedback loop.
The pity is that these very powerful arguments are totally buried in the book. As is an excellent summary of how we ended up here. Look out for it on page 68. In short, while skills were keeping up with technology (e.g. as a result of the GI Bill) even the unskilled were profiting, because on the margin their supply was not increasing as fast as the demand an expanding economy was creating for their skills. When educational achievement stopped improving, this coincided with the "second machine age" that was heralded by the advent of the computer. Middle class jobs (for example in manufacturing) have been eliminated en masse, leaving those without a college education at the same place where the 25% of Americans found themselves in the 1920's who used to work in agriculture: unemployable at their skill level. The jobs that are replacing the middle class jobs are not middle class jobs.
The book ends with a series of very good proposals about what to do with the economy, but I will complain here that Stiglitz really shows his colors when he does not find the courage to admit that a bunch of middle class privileges can no longer be taboo. So he rails against the tax deductibility of mortgage interest payments for being distortionary and inequitable (bravo!) but then he says "don't do it now, because the middle class currently needs this money." He defends the indefensible when he supports the continued corporate-tax deductibility of medical coverage (I mean, EVERYBODY knows that the unaccountability which emanates from this misguided "legacy policy" lies at the crux of the country's biggest problem, healthcare) and he in all seriousness suggests that we lower the tax on firms that create jobs, but increase it on firms that don't. News flash, professor Stiglitz: the sundry Googles pay no tax. Rather pathetic.
And that's how it goes, overall. Stiglitz knows everything there is to know, but he simply chose to write a piece of propaganda.
How do I know? Here's where my Greek background provides some irrefutable evidence. Page 37, Stiglitz claims that "In antiquity, natural philosophy in general saw no wrong in treating other humans as means for the end of others. As the ancient Greek historian Thucydides famously said `right, as the world goes, is only in question between equals in power, while the strong do what they can and the weak suffer what they must'"
If there's ever been a more twisted interpretation of Thucydides' famous Melian dialogue, I'd like somebody to tell me. The background here is that democratic Athens, in conflict with communist Sparta, demanded tribute from the neutral Melians, allegedly to protect them from the Persians, but in practice to make the point about who's boss. It was the ancient times' equivalent of George W Bush's "you're either with us or against us." When Thucydides recounts the threats made by the Athenians toward the Melians he's not condoning them. Au contraire, he is very much condemning them.
So either Stiglitz is happy to insert a passage from Thucydides without the slightest idea of what he's talking about or, much more likely, he's so used to seeing absolutely everything from one angle that he's gotten totally comfortable with presenting black as white.
With all that said, "The Price of Inequality" is still the best antidote currently in print to all the libertarian dross that's out there. And that's the context in which you must judge it. So as far as I'm concerned it scrapes with three stars.