Joseph Stiglitz–a Nobel Prize-winning economist–recently testified before the Senate Budget Committee about America’s growing inequality.
As disturbing as the data on the growing inequality in income are, those that describe the other dimensions of America’s inequality are even worse: inequalities in wealth are even greater than income, and there are marked inequalities in health, reflected in differences, for instance, in life expectancy. But perhaps the most invidious aspect of US inequality is the inequality of opportunity. America has become the advanced country not only with the highest level of inequality, but is among those with the least equality of opportunity—the statistics show that the American dream is a myth; that the life prospects of a young American are more dependent on the income and education of his parents than in other developed countries. We have betrayed one of our most fundamental values. And the result is that we are wasting our most valuable resource, our human resources: millions of those at the bottom are not able to live up to their potential.
Stiglitz made several important observations about the situation in which we find ourselves: first–and perhaps most importantly–he pointed out that our current levels of inequality are the result of policy choices we have made, either deliberately or inadvertently. Stiglitz identifies our education system and the manner in which it is financed, our health system, our tax laws, bankruptcy and anti-trust laws, the functioning of our financial system, corporate governance…. and he says that existing policies in each of these areas help enrich the top at the expense of the rest.
Stiglitz also pointed out that the folks currently enjoying their status as members of the 1% are “not those who have made the major innovations that have transformed our economy and society.” They are disproportionately the manipulators and rent-seekers, the speculators and financiers–not the entitled producers or “makers” they evidently believe themselves to be.
Stiglitz noted that “trickle-down”–the belief that gains at the top will eventually raise the prospects of those on the bottom–has been thoroughly discredited. He explained that the recent Great Recession has exacerbated–but not caused–our growing inequality. He underlined what should be obvious to all of us by now: jobs are not created when wealthy individuals get to keep more of their money–they are created by demand, and when middle-class folks don’t have discretionary income, demand remains weak.
In a recent column, Paul Krugman–also a Nobel prize winning economist–explained why improving demand is so critical:
Economists who took their own textbooks seriously quickly diagnosed the nature of our economic malaise: We were suffering from inadequate demand. The financial crisis and the housing bust created an environment in which everyone was trying to spend less, but my spending is your income and your spending is my income, so when everyone tries to cut spending at the same time the result is an overall decline in incomes and a depressed economy. And we know (or should know) that depressed economies behave quite differently from economies that are at or near full employment.
Stiglitz also talked bluntly about the likely consequences for the country–both democratic and economic– if we don’t change the policies that are feeding, rather than curing, the problem.