[P2P-F] Fwd: [gang8] Good article by Stiglitz

Wed Jun 1 08:28:30 CEST 2011

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From: Dante-Gabryell Monson <dante.monson at gmail.com>
Date: Tue, May 31, 2011 at 9:35 PM
Subject: Fwd: [gang8] Good article by Stiglitz
To: econowmix at googlegroups.com

Joseph E. Stiglitz, “Of the 1%, by the 1%, for the 1%,” *Vanity Fair*, May
2011
http://m.vanityfair.com/society/features/2011/05/top-one-percent-201105
   Americans have been watching protests against oppressive regimes that
concentrate massive wealth in the hands of an elite few. Yet in our own
democracy, 1 percent of the people take nearly a quarter of the nation’s
income—an inequality even the wealthy will come to regret.
 THE FAT AND THE FURIOUS The top 1 percent may have the best houses,
educations, and lifestyles, says the author, but “their fate is bound up
with how the other 99 percent live.”
             It’s no use pretending that what has obviously happened has not
in fact happened. *The upper 1 percent of Americans are now taking in nearly
a quarter of the nation’s income every year. In terms of wealth rather than
income, the top 1 percent control 40 percent*. Their lot in life has
improved considerably. *Twenty-five years ago, the corresponding figures
were 12 percent and 33 percent*. One response might be to celebrate the
ingenuity and drive that brought good fortune to these people, and to
contend that a rising tide lifts all boats. That response would be
misguided. *While the top 1 percent have seen their incomes rise 18 percent
over the past decade, those in the middle have actually seen their incomes
fall*. For men with only high-school degrees, the decline has been
precipitous—12 percent in the last quarter-century alone.
             All the growth in recent decades—and more—has gone to those at
the top. In terms of income equality, America lags behind any country in the
old, ossified Europe that President George W. Bush used to deride. *Among
our closest counterparts are Russia with its oligarchs and Iran*. *While
many of the old centers of inequality in Latin America, such as Brazil, have
been striving in recent years, rather successfully, to improve the plight of
the poor and reduce gaps in income, America has allowed inequality to grow*.
             Economists long ago tried to justify the vast inequalities that
seemed so troubling in the mid-19th century—inequalities that are but a pale
shadow of what we are seeing in America today. The justification they came
up with was called *“marginal-productivity theory.” In a nutshell, this
theory associated higher incomes with higher productivity and a greater
contribution to society*. It is a theory that has always been cherished by
the rich. Evidence for its validity, however, remains thin. *The corporate
executives who helped bring on the recession of the past three years—whose
contribution to our society, and to their own companies, has been massively
negative—went on to receive large bonuses. In some cases, companies were so
embarrassed about calling such rewards “performance bonuses” that they felt
compelled to change the name to “retention bonuses” (even if the only thing
being retained was bad performance).* Those who have contributed great
positive innovations to our society, from the pioneers of genetic
understanding to the pioneers of the Information Age, have received a
pittance compared with those responsible for the financial innovations that
brought our global economy to the brink of ruin.
             Some people look at income inequality and shrug their
shoulders. So what if this person gains and that person loses? What matters,
they argue, is not how the pie is divided but the size of the pie. That
argument is fundamentally wrong. An economy in which most citizens are doing
worse year after year—an economy like America’s—is not likely to do well
over the long haul. There are several reasons for this.
             *First, growing inequality is the flip side of something else:
shrinking opportunity. Whenever we diminish equality of opportunity, it
means that we are not using some of our most valuable assets—our people—in
the most productive way possible*.
             *Second, many of the distortions that lead to inequality—such
as those associated with monopoly power and preferential tax treatment for
special interests—undermine the efficiency of the economy*. This new
inequality goes on to create new distortions, undermining efficiency even
further. To give just one example, far too many of our most talented young
people, seeing the astronomical rewards, have gone into finance rather than
into fields that would lead to a more productive and healthy economy.
             Third, and 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.
             None of this should come as a surprise—it is simply what
happens when a society’s wealth distribution becomes lopsided. *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*.
             Economists are not sure how to fully explain the growing
inequality in America. The ordinary dynamics of supply and demand have
certainly played a role: labor saving technologies have reduced the demand
for many “good” middle-class, blue-collar jobs. Globalization has created a
worldwide marketplace, pitting expensive unskilled workers in America
against cheap unskilled workers overseas. Social changes have also played a
role—for instance, the decline of unions, which once represented a third of
American workers and now represent about 12 percent.
             But one big part of *the reason we have so much inequality is
that the top 1 percent want it that way. The most obvious example involves
tax policy. Lowering tax rates on capital gains, which is how the rich
receive a large portion of their income, has given the wealthiest Americans
close to a free ride. Monopolies and near monopolies* have always been a
source of economic power—from John D. Rockefeller at the beginning of the
last century to Bill Gates at the end. *Lax enforcement of anti-trust laws,
especially during Republican administrations, has been a godsend to the top
1 percent*. Much of today’s inequality is due to manipulation of the
financial system, enabled by changes in the rules that have been bought and
paid for by the financial industry itself—one of its best investments ever.
The government lent money to financial institutions at close to 0 percent
interest and provided generous bailouts on favorable terms when all else
failed. Regulators turned a blind eye to a lack of transparency and to
conflicts of interest.
             When you look at the sheer volume of wealth controlled by the
top 1 percent in this country, it’s tempting to see our growing inequality
as a quintessentially American achievement—we started way behind the pack,
but now we’re doing inequality on a world-class level. And it looks as if
we’ll be building on this achievement for years to come, because what made
it possible is self-reinforcing. Wealth begets power, which begets more
wealth. *During the savings-and-loan scandal of the 1980s—a scandal whose
dimensions, by today’s standards, seem almost quaint—the banker Charles
Keating was asked by a congressional committee whether the $1.5 million he
had spread among a few key elected officials could actually buy influence.
“I certainly hope so,” he replied*. *The Supreme Court, in its recent
Citizens United case, has enshrined the right of corporations to buy
government, by removing limitations on campaign spending*. The personal and
the political are today in perfect alignment. *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. When pharmaceutical companies receive a trillion-dollar
gift—through legislation prohibiting the government, the largest buyer of
drugs, from bargaining over price—it should not come as cause for wonder. It
should not make jaws drop that a tax bill cannot emerge from Congress unless
big tax cuts are put in place for the wealthy. Given the power of the top 1
percent, this is the way you would expect the system to work.
             America’s inequality distorts our society in every conceivable
way. There is, for one thing, a well-documented lifestyle effect—*people
outside the top 1 percent increasingly live beyond their means. Trickle-down
economics may be a chimera, but trickle-down behaviorism is very real*.
Inequality massively distorts our foreign policy. The top 1 percent rarely
serve in the military—the reality is that the “all-volunteer” army does not
pay enough to attract their sons and daughters, and patriotism goes only so
far. Plus, the wealthiest class feels no pinch from higher taxes when the
nation goes to war: borrowed money will pay for all that. Foreign policy, by
definition, is about the balancing of national interests and national
resources. With the top 1 percent in charge, and paying no price, the notion
of balance and restraint goes out the window. There is no limit to the
adventures we can undertake; corporations and contractors stand only to
gain. The rules of economic globalization are likewise designed to benefit
the rich: they encourage competition among countries for business, which
drives down taxes on corporations, weakens health and environmental
protections, and undermines what used to be viewed as the “core” labor
rights, which include the right to collective bargaining. Imagine what the
world might look like if the rules were designed instead to encourage
competition among countries for workers. Governments would compete in
providing economic security, low taxes on ordinary wage earners, good
education, and a clean environment—things workers care about. But the top 1
percent don’t need to care.
             Or, more accurately, they think they don’t. Of all the costs
imposed on our society by the top 1 percent, perhaps the greatest is this:
the erosion of our sense of identity, in which fair play, equality of
opportunity, and a sense of community are so important. America has long
prided itself on being a fair society, where everyone has an equal chance of
getting ahead, but the statistics suggest otherwise: the chances of a poor
citizen, or even a middle-class citizen, making it to the top in America are
smaller than in many countries of Europe. The cards are stacked against
them. It is this sense of an unjust system without opportunity that has
given rise to the conflagrations in the Middle East: rising food prices and
growing and persistent youth unemployment simply served as kindling. With
youth unemployment in America at around 20 percent (and in some locations,
and among some socio-demographic groups, at twice that); with one out of six
Americans desiring a full-time job not able to get one; with one out of
seven Americans on food stamps (and about the same number suffering from
“food insecurity”)—given all this, there is ample evidence that something
has blocked the vaunted “trickling down” from the top 1 percent to everyone
else. All of this is having the predictable effect of creating
alienation—voter turnout among those in their 20s in the last election stood
at 21 percent, comparable to the unemployment rate.
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