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The wisdom of Stiglitz: Widening inequality is not inevitable

Date Published: 07/11/2014

Author: Dane Smith


Joseph E. Stiglitz was a rising star in the field of economics and the author of a textbook, “Economics of the Public Sector,” for a graduate course that I was privileged to audit as part of a journalism fellowship at Stanford University in the early 1990s.

That well-worn textbook is still in easy reach on my shelf, in part because since then, Stiglitz has grown enormously in stature. He won the Nobel Prize in economics 2001, served as a chief economic adviser to President Bill Clinton, then became chief economist for the World Bank, and since 2012 has been president of the International Economic Association. Ranked among the most influential economists in the world, Stiglitz belongs to the practical “New Keynesian” school that sees fundamental value in government investment and intervention, while giving all due respect to open markets, competition, and a robust private sector.

So it’s fitting that Stiglitz was given the honor of having the last word in a remarkable 18-month New York Times project on inequality, “The Great Divide,” in a commentary headlined “Inequality is Not Inevitable” and reprinted in the Star Tribune.

Stiglitz’s  main point in that piece is that growing inequality and the decline of our once-great middle class is a clear and present danger to long-term economic health in the United States. His urgent message is that we can and must reduce inequality, through the basic methods that have worked in our past to do just that: more focused public investment in education and infrastructure and health care, restoration of more progressive tax rates, and political reforms that reduce the influence of Big Money on public policy.

Sometimes free-market zealots talk about the dynamics of global capitalism and business as if its workings, and the results, are ordained by natural law. Corporate behavior is therefore not to be interfered with, or at least minimally “distorted” through taxation and regulation, or other tinkering by the mere mortals who are trying to improve their society or run their democracies.

The fact that the top 1 percent now owns 40 percent of our nation’s wealth — and that middle-class households are losing ground while stock prices and profits and CEO pay are soaring — is waved off by these zealots as a minor irrelevancy on the road to a competitive Darwinian  meritocracy of cheap labor, low taxes and rising profits.

These fundamentalists are reminiscent of their Marxist counterparts, who were arguing 50 years ago that their proletarian dictatorships and abolition of private property were theoretically perfect, and that people ought to just be patient, or to ignore the bread lines and the concentration camps.

Don’t look now, but poverty rates and food shelf usage remain high, even as our economy recovers and Wall Street stock prices roar to record highs. And the United States also has the highest incarceration rate and some of the worst racial inequalities among Western democracies.

Stiglitz denies the inevitability of this, and points to many examples in the Great Divide series “that undermine the notion that there are any truly fundamental laws of capitalism. The dynamics of the imperial capitalism of the 19th century needn’t apply in the democracies of the 21st. We don’t need to have this much inequality in America.”

He asks: “If it is not the inexorable laws of economics that have led to America’s great divide, what is it? The straightforward answer: our policies and politics. People get tired of hearing about Scandinavian success stories, but the fact of the matter is that Sweden, Finland and Norway have all succeeded in having about as much or faster growth in per capita incomes than the United States and with far greater equality.”

What we actually have right now, Stiglitz observes, is a phony capitalism that provides subsidies for rich farmers as we reduce food stamps for the needy, grants hundreds of billions to pharmaceutical companies as we reduce Medicaid benefits, and provided bailouts for banks while only a pittance went to homeowners who were victims of the same banks’ predatory lending practices.

The true test of an economy, Stiglitz argues, is “not how much wealth its princes can accumulate in tax havens, but how well off the typical citizen is — even more so in America, where our self-image is rooted in our claim to be the great middle-class society.”

Solutions to inequality do not have to be “newfangled” and are more a problem of practical politics than technical economics, Stiglitz says. Ensuring that those at the top pay a fairer share of taxes, and investing more in education, health and infrastructure would strengthen our economy. “Just because you’ve heard it before doesn’t mean we shouldn’t try it again,” he concludes.

There is however, one key ingredient for inequality reduction that might be described as newfangled and that actually enjoys broad ideological and bipartisan support: more investment in high-quality early childhood education and a variety of policies that strengthen families and help children succeed, from birth to career.

In an April article in the Great Divide series, Judith Warner, a senior fellow at the Center for American Progress, wrote: “If we want to strike at the roots of inequality in America, we’ve got to start at its source … at the very beginning of children’s lives.”

“Unlike progressive taxation, this sort of focus on the family really ought to have bipartisan support,” Warner continued. “And the good news is that there are decades’ worth of shovel-ready legislative and policy proposals that we can draw on… regarding family leave, paid sick days, early childhood education, [and] child care and workplace flexibility.”

The even better news is that Minnesota is off and running in this direction, with landmark legislation in the last two years that expands high-quality early childhood education, and a Women’s Economic Security Act that expands protections and benefits for working families.

But perhaps most important is embracing a “We Can Do It” mentality, exemplified by the biceps-flexing woman in that iconic World War II poster. We are the owners of our democracy and our economy, and we simply do not have to resign ourselves to having a winner-take-all kind of inequality in our state or our nation.


A version of this column originally appeared in the "St. Paul Legal Ledger Capitol Report" on Thursday, July 10, 2014. 

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