When I met Joseph Stiglitz I remember being struck by how he was not as other economists. The ones I know tend to be benign creatures, rather jolly, able to laugh at the world and its, and their, mistakes.
The Price of Inequality
by Joseph Stiglitz
Allen Lane, 448pp, £25
Not so Stiglitz. The American Nobel Prize-winner had about him a raw fury. He was livid with the state of the global economy and equally, he appeared just as angry that his view was not widely shared. Partly, it was the surroundings. We were in a coffee bar on Millbank, and the place was teeming with politicians and their assistants; in other words, the very people he deems share responsibility for creating one almighty mess and who in his eyes were now doing precious little to clear it up. As well, though, there was the smouldering volcano that is Stiglitz’s nature.
From childhood days in Gary, Indiana, he’s been consumed by unfairness and cruelty, of the sort that consigns workers in his native, predominantly steel, town to unemployment. When he eventually studied economics at Amherst and MIT, he determined that none of the conclusions of neoclassical theory seemed to make sense. Firmly in his sights were the free marketeers, the Chicago school propounders of laissez-faire, minimal state intervention and privatisation.
In 2001, he was awarded the Nobel Prize for co-authoring a study showing that, far from being pure, the supposedly free markets are open to abuse, resulting in harm and provoking government action. Then came Making Globalization Work, his bestselling book in which he accused wealthy nations of letting the markets work to their benefit and widening the gap between the rich and poor countries.
That was followed by Freefall, an attack on bankers and a system that rewards them with incentive bonuses for, in effect, behaving badly. The balance of the economy tilted in the bankers’ favour: they were able to recruit the most talented people because they paid the most, so other industries suffered. Even taxes were pro-banker: speculative profits were taxed at lower rates than the earnings of people on a wage.
Now in The Price of Inequality he develops his argument still further. The yawning divergence between rich and poor, he maintains, is damaging those things we hold dear: society, the economy, institutions and politics. In particular he wants to explode the notion of the American dream. “We’re brought up to believe in the land of opportunity. Instead, the US is the country of least equality of opportunity of any of the advanced industrial nations,” he argues.
By putting our faith in the markets we have allowed a small section of the population, 1 per cent, to steal a march on everybody else. The figures are stark: that 1 per cent has just got richer and richer, increasing their wages by 150 per cent in the past 30 years, versus growth of 15 per cent for the rest. One of the great American tenets, justice for all, should be rewritten as justice for those who can afford it. As for opportunity, it simply rarely exists: be born poor in the US and the chances are that you will remain poor.
Stiglitz accuses us, too, of complacency. We’ve been content to let the 1 per cent add to their wealth but what they’ve not been doing is adding to the overall size of the economy. In other words, they’ve taken a larger share at the expense of the rest of us. Economists have a term for this socially useless activity: rent-seeking.
Finally, we’re showing signs of having had enough: the Occupy movement had a popularity far beyond the makeshift campsites in London and New York. It’s time for the markets to be used to benefit the many, not the few.
That golden 1 per cent may have other ideas but if they’re not prepared to make concessions, then the 99 per cent will have their say. For anyone seeking capitalism with an injection of morality, Stiglitz provides accessible, clearly dissected ammunition. For unenlightened bankers and their super-rich friends, however, Stiglitz is far from comfortable reading.
• Joseph Stiglitz is at the Edinburgh International book festival on 23 August.
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