On Stiglitz: Part Ten

In the final chapter of his magnificent work, The Price of Inequality, Joseph Stiglitz details the steps we must take as a nation if we are to fix our economic problems. Before I get to some of those, though, it's very important to note that he sees two possibilities as potential catalysts for change. He defines these avenues after asking the question, "Is There Hope?"

The first possibility is that most Americans come to realize that they are being duped by the wealthy in this country. The biggest recipients of welfare in this country are the wealthy, not "lazy" poor people. Stiglitz has demonstrated this unequivocally throughout his book. Many wealthy and powerful people in this country have essentially brainwashed Americans into thinking that any sort of talk about inequality leads to communism, internment camps, and loss of freedom. Stiglitz hopes (and so do I) that people are going to wake up to this fact and call them on their bullshit. In many ways, they are the ones that are lazy and have become a drag on our society. Addressing inequality leads to a more efficient system of capitalism and, quite frankly, fairness. Americans are realizing this more and more every day that our system simply isn't fair and it needs to change. Sooner or later, they are going to demand it and we will have a sea change in Washington.

The second catalyst, and the one I see more likely in the near term, is that wealthy people themselves will come to realize that they can't enjoy their lifestyles if there is too great a degree of inequality. They also may act out of simple fear of the natives becoming too restless. Indeed, we see people like Nick Hanauer, Warren Buffet, Bill Gates, and Mark Zuckerberg expressing the need for change because it is in the wealthy's best interest. Stigliz sums up why this is so important.

Alex de Tocqueville once described what he saw as a chief elements of the peculiar genius of American society, something he called "self interest properly understood." The last two words were key. Everyone possesses self interest in a narrow sense: I want what's good for me right now! Self-interest "properly understood" is different. It means appreciating that paying attention to everyone else's self interest-in other, to the common welfare-is in fact a precondition for one's ultimate well being (Adam Smith understood as much. See his The Theory of Moral Sentiments (1759). See also Emma Rothschild and Amartya Sen, "Adam Smith's Economics," The Cambridge Companion to Adam Smith pp. 319-65, in particular p.347). 

Tocqueville was not suggesting that there was anything noble or idealistic about this outlook. Rather, he was suggesting the opposite: it was a mark of American pragmatism. Those canny Americans understood a basic fact: looking out for the other guy isn't just good for the soul; it's good for business.

Again, we are talking about economic efficiency here, not just fairness. Past business leaders in our nation truly understood this. Henry Ford, for example, paid his employees more money so they could afford to buy his cars. Our economy works at top speed when the engine that fuels it (the middle class) has more money. This is exactly why we need government policy that helps them to this end.

So what changes need to be made? Here are few of the many action items Stiglitz lists.

Rent seeking needs to end immediately through curbing the financial sector of our economy. The revenue we gain from this will be able to fund many programs that can help the poor and the middle class. We need to make the banks more transparent and much smaller than they are now. No more "too big or too interconnected to fail." No more predatory lending, excessive bonuses that encourage risk taking, and offshore banking centers that essentially promote tax evasion. Speaking of taxes, the entire code needs to be reformed to a more progressive system with few loopholes for corporations. I have no problem lowering the statutory rate if we lose the loopholes and far too many breaks our nation's corporations get.

In tandem with this, we have to help out the rest, as Stiglitz puts it. We have to improve access to education so we can be more competitive in the age of globalization. We should ordinary Americans save money by creating government incentive and matching programs, for example. Continuing our efforts to have health care for all will go a long way to helping people save money. Changes to government programs like Social Security need to also be made in order to strengthen efforts that have already proven to be successful in reducing poverty.

We need a monetary policy that focuses on employment and growth as well as inflation. Our trade imbalances need to be corrected further than they already are. Our goal should be full employment. Labor needs to be thought of in a completely different way than it is today. With the reality of cheap labor markets around the world, our nation's workers need to be re-educated and put on different career paths. Our growth agenda should be centered on public investment which has shown to yield fantastic returns in our nation's history (the GI Bill, research, public works).

As of right now, we are being held back by myths and ideological intransigence fueled by adolescent hubris. Those who choose to champion these lies (and there really is no other way to put it nicely) are essentially rooting for our country to fail just so they won't be proved wrong. The 1% of this nation, and in particular the financial sector, are using these people to maintain their lifestyles. Reading through my previous entries on Stigilitz, the task is very simple.

It is now time to stop them.