Finished Stiglitz’s “The Price of Inequality”
This is an interesting and important book. Stiglitz is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is a former senior vice president and chief economist of the World Bank, and is a former member, and Chairman of the Council of Economic Advisers. He is known for his critical view of the management of globalization, free-market economists (whom he calls “free market fundamentalists”), and some international institutions like the International Monetary Fund and the World Bank. (Wikipedia)
In this book he is highly critical of current economic theory, particularly of the Chicago School, as it used politically in the US. He shows how it is used to the detriment of the largest part of US and world society. He is showing how Reaganomics has failed to create the basis for a fair and just society.
Among other things he points out that the “rational human” of economic theory does not exist in that we all make most choices influenced by more than just economic matters, such as the mores and social requirements of the groups we exist within, we are influenced by advertising and propaganda, etc. for example we now call depressions, recessions. (my example).
Inequality is cause and consequence of the failure of the political system, and it contributes to the instability of our economic system, which in turn contributes to increased inequality.
The United States and Europe, things seemed more fair, but only superficially so. Those who graduated from the best schools with the best grades had a better chance at the good jobs. But the system was stacked because wealthy parents sent their child to the best kindergartens, grade schools, and high schools and those students had a far better chance of getting into elite universities.
The wealth given to the elites and to the bankers seemed to arise out of their ability and willingness to take advantage of others. What happened in the of the crisis made clear that it was not contribution to society that determined relative pay, but something else: bankers received large rewards, though their contribution to society – and even to their firms-had been negative.
Real democracy is more than the right to vote once every two or four years. The choices have to be meaningful. The politicians have to listen to the voices of the citizens, But increasing, and especially in the United States, it seems the political system is more akin to “one dollar one vote” than to one person one vote.
Another manifestation of growing the inequity that in 1979 the ratio of average income in the top 0.1 percent, including capital gains, was “only” around 50 times greater than that of the bottom 90 percent. By 2010 the ratio was 164 times that of the bottom 90 percent of income earners. Meanwhile, the ratio of the average household income of the top 1 percent to that of the bottom 90 percent has tripled from 14:1 to 42:1.
Markets by themselves often fail to produce efficient and desirable outcomes, and there is a role for government in correcting these market failures, that is, designing policies (taxes and regulations) that bring private incentives and social returns into alignment.
Competitive forces should also limit disproportionate executive compensation, but in modern corporations, the CEO has enormous power – including the power to set his own compensation, subject of course, to his board – but in many corporations, he even has considerable power to appoint the board, and with a stacked board there is little check.
Our hypothesis is that market forces are real, but they are shaped by political processes. Markets are shaped by laws, regulations and institutions.
Salaries and wages accounted for only 8.8 percent of the income of the top 400, capital gains for 57 percent, and interest and dividends for 16 percent –so 73 percent of their income was subject to low rates. Indeed the top 400 taxpayers garner close to 5 percent of the country’s entire dividends.
Individuals say they are working so hard for the family, but as they work so hard there is less and less time for the family, and family life deteriorates. Somehow, the means prove inconsistent with the stated end.
Economists overestimate, too, the selfishness of individuals (though there is considerable evidence that economists are more selfish than others and that economic training does make individuals more selfish over time).
The blinders in economic theories in this area are related to a broader deficiency in the field. The prevailing approach standard economic theory focuses on rational individualism. Each individual assesses everything from a perspective that pays no attention to what others do, how much they get paid, or how they are treated. Human emotions such as envy, jealousy, or a sense of fair play do not exist, or if they do, have no role in economic behavior, and if they do appear, they shouldn’t. Economic analysis should proceed as if they did not exist. To noneconomists, this approach seems nonsensical – and to me, it does too. I have explained, for instance, how individuals may decrease effort if they feel they are being unfairly treated, and how team-spirit can spur them on. But this individual centered bottom-line economics, tailor-made for America’s short term financial markets, is undermining trust and loyalty in our economy.
. the Democrats are not arguing for equality of outcome, only for policies “that leave in place skyrocketing inequality of income, just ever so slightly ameliorated by government.
The markets are short-sited and have a political and economic agenda that seeks the advancement of well-being of financiers rather than that of the country as a whole.
Most individuals don’t themselves examine the evidence. Few have the capabilities of assessing the evidence on global warming even if they had the time.
To stimulate investment, we must focus on how best to stimulate demand. Getting more money into the pockets of those in the middle and the bottom would do that.
I give this book an A+ and recommend it to anyone interested in providing a better world for our kids an grandkids.