Minding the Gap of “The Great Divide”
A review of the book by Joseph Stiglitz
In the wake of Occupy Wall Street and the anti-austerity protests in Spain, Greece, and elsewhere around the world, economic inequality has emerged as one of the more hotly debated issues in the public sphere. One of the more prominent voices in the discussion is economist Joseph Stiglitz, whose May 2011 Vanity Fair article “Of the 1%, by the 1%, for the 1%” provided the rallying cry of what became a global social movement. That essay and others that have appeared in Vanity Fair, The New York Times, and other publications over the last few years are collected in Stiglitz’s latest contribution to the debate, The Great Divide: Unequal Societies and What We Can Do about Them. The book follows up on his previous bestseller The Price of Inequality: How Today’s Divided Society Endangers Our Future, in which Stiglitz examines the forces, market and political, that have contributed to America becoming the most unequal of the world’s advanced countries.
Like that earlier book, The Great Divide argues that inequality is not the natural result of market efficiency but instead is due to “rent seeking” on the part of economic elites who have gained control of income-producing resources that have enabled them to become richer and richerer, not by creating any new wealth, but by greatly increasing their share of the wealth that already exists. An example Stiglitz cites several times in the book is Big Pharma, which makes minor adjustments in prescription drug formulas in order to keep them from becoming generic, thereby keeping prices high. Another example are the entertainment industry conglomerates, which for the most part have succeeded in extending copyright monopolies far beyond a work’s original creation in order to reap economic rewards without contributing much new to the marketplace of cultural production. At the same time, marginal tax rates on top incomes have dramatically decreased, from 50 percent in 1980 to 39.6 percent today with rates on capital gains and dividends, the sources where the wealthy derive most of their income, slashed even further to 15 percent. This has allowed the top 1 percent of earners to rake in some 95 percent of the nation’s pretax income growth since the Great Recession of 2008, whereas the incomes of the vast majority of Americans have barely budged. This not only stifles growth and opportunity for the broad swath of people and by extension society overall, but has serious political implications for the democratic system as well, especially evident in the wake of the US Supreme Court decision in Citizens United.
A 2001 winner of the Nobel Prize for Economics, Stiglitz is recognized for his contributions to what is known as information economics, in particular the idea that markets are as a rule inefficient — contrary to the claims of neoclassicists — based on unequal access to information between buyer and seller. (The circulation of “lemons” in the used-car market is a prime example of “information asymmetry” whereby the seller knows more about the commodity being sold than the buyer and therefore has a comparative advantage in negotiating the price.) He is also a recipient of the John Bates Clark medal, which some consider more prestigious than the Nobel. He is a former Chief Economist of the World Bank and ex-Chair of the President’s Council of Economic Advisors. Current Chair of the Board of Governors of the Federal Reserve System Janet Yellen is one of his doctoral students. Hardly a rogue economist, he is also a staunch critic of free-market fundamentalism (the notion that any interference with market processes diminishes their effectiveness), especially as it pertains to policies of neoliberalism, both domestic and international.
As a compendium of articles written over a period of several years, there is a lot of repetition in the individual entries, oftentimes down to the same phrases. That is a bit distracting but it doesn’t necessarily diminish the larger point being made. And to be sure, it cannot be repeated enough that our current travails are due to the malfeasance of certain vested interests (read: the uber-rich and their lackeys) who have handsomely rewarded themselves at the expense of everyone else and have for the most part escaped bearing any responsibility for what they have wrought. As the aforementioned Vanity Fair essay maintains, the 1% have rigged the system for their own benefit and to hell with the rest of us, in no small measure by buying up whatever political influence they have needed along the way. The examples include bailing out the money-center banks and their CEOs who engaged in predatory lending while allowing their unsuspecting borrowers to flounder in underwater mortgages and lose their homes to foreclosure, and making whole hedge fund investors — who, given their supposed financial acumen and sophisticated economic forecasting tools, surely knew the risks they were taking — while allowing pensioners to lose their life savings in imploding 401k valuations.
Stiglitz is essentially a Keynesian, and as such, sees a role for public-sector intervention into the economy during times of weak demand, such as the one many persuasively argue we are currently in. Stiglitz does not call for the end of capitalism as we know it, as Naomi Klein pretty much does in This Changes Everything. Rather, he calls for a mixture of wonkish tweaks — increased taxes on corporations and the wealthy, tighter regulation of financial services, greater public investment in infrastructure, education, and technology, plus campaign finance reform — to mediate the deleterious effects of what he terms “ersatz capitalism” (which is a funny concept in that elsewhere in the book Stiglitz claims that there are no inherent laws of capitalism — so then how does one decide what constitutes the “inauthentic” kind?).
The more radical of Stiglitz’s progeny within the 99% are not likely to be optimistic about the effects of these prescriptions, seeing them at best as whistling past the graveyard. And I must confess to being among the discontented. But I concede that Stiglitz’s remedies have a better chance than Thomas Piketty‘s call for a global wealth tax, if only because enacting something within the confines of a nation-state seems perhaps more feasible (if extremely unlikely), given the current political environment, than transcending international borders into the realm where capital rules unrestrained.
This review was originally published in the Motown Review of Art.