Joseph Stiglitz – “American Inequality Didn’t Just Happen…It Was Created.”

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Yesterday, I came across an excerpt from a book written by economist Joseph Stiglitz, which touched upon many crucial points regarding the U.S. economy. I think it’s an important read since it helps explain the roots of the current rebellion taking place within the political system.

Americans aren’t angry because other Americans are fabulously wealthy. Americans are angry because the economy is intentionally rigged to benefit a small group of individuals known as “insiders.” They’re angry because rather than add value to society, these insiders parasitically take from society. Rent-seeking is what economists call their destructive behavior, and the public is fed up with it.

No one would be outraged if genuinely innovative entrepreneurs and creators were the ones cleaning up in the modern economy. Unfortunately, this is not the way things work. Indeed, it’s an unfortunate fact that a disturbingly large number of America’s so-called “economic winners” in 2016 are little more than corrupt, scheming hacks and political types unconscionably profiting from the ongoing destruction of the Republic. “The people” have finally started to wake up.

Now here are a few excerpts from Evonomics:

American inequality didn’t just happen. It was created. Market forces played a role, but it was not market forces alone. In a sense, that should be obvious: economic laws are universal, but our growing inequality— especially the amounts seized by the upper 1 percent—is a distinctly American “achievement.” That outsize inequality is not predestined offers reason for hope, but in reality it is likely to get worse. The forces that have been at play in creating these outcomes are self-reinforcing.

Addressing inequality is of necessity multifaceted—we have to rein in the excesses at the top, strengthen the middle, and help those at the bottom. Each goal requires a program of its own. But to construct such programs, we have to have a better understanding of what has given rise to each facet of this unusual inequality.

Inequality is the result of political forces as much as of economic ones. In a modern economy government sets and enforces the rules of the game—what is fair competition, and what actions are deemed anticompetitive and illegal, who gets what in the event of bankruptcy, when a debtor can’t pay all that he owes, what are fraudulent practices and forbidden. Government also gives away resources (both openly and less transparently) and, through taxes and social expenditures, modifies the distribution of income that emerges from the market, shaped as it is by technology and politics.

Indeed, a huge part of the problem centers around a two-tiered justice system in which the rich and powerful can get away with anything and everything without ever facing serious consequences. Not only does this incentivize elite theft, it destroys the very fabric of society itself.

For more on this angle, see: Elizabeth Warren Releases Blistering Report on Corporate Criminality – Singles Out SEC Uselessness.

Our political system has increasingly been working in ways that increase the inequality of outcomes and reduce equality of opportunity. This should not come as a surprise: we have a political system that gives inordinate power to those at the top, and they have used that power not only to limit the extent of redistribution but also to shape the rules of the game in their favor, and to extract from the public what can only be called large “gifts.” Economists have a name for these activities: they call them rent seeking, getting income not as a reward to creating wealth but by grabbing a larger share of the wealth that would otherwise have been produced without their effort. Those at the top have learned how to suck out money from the rest in ways that the rest are hardly aware of—that is their true innovation.

Indeed, some of the most important innovations in business in the last three decades have centered not on making the economy more efficient but on how better to ensure monopoly power or how better to circumvent government regulations intended to align social returns and private rewards.

Rent-seeking behavior is not just endemic in the resource rich countries of the Middle East, Africa, and Latin America. It has also become endemic in modern economies, including our own. In those economies, it takes many forms, some of which are closely akin to those in the oil-rich countries: getting state assets (such as oil or minerals) at below fair-market prices.

Another form of rent seeking is the flip side: selling to government products at above market prices (noncompetitive procurement). The drug companies and military contractors excel in this form of rent seeking. Open government subsidies (as in agriculture) or hidden subsidies (trade restrictions that reduce competition or subsidies hidden in the tax system) are other ways of getting rents from the public.

By looking at those at the top of the wealth distribution, we can get a feel for the nature of this aspect of America’s inequality. Few are inventors who have reshaped technology, or scientists who have reshaped our understandings of the laws of nature. Think of Alan Turing, whose genius provided the mathematics underlying the modern computer. Or of Einstein. Or of the discoverers of the laser (in which Charles Townes played a central role) or John Bardeen, Walter Brattain, and William Shockley, the inventors of transistors. Or of Watson and Crick, who unraveled the mysteries of DNA, upon which rests so much of modern medicine. None of them, who made such large contributions to our well-being, are among those most rewarded by our economic system.

In Liberty,
Michael Krieger
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4 Comments

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  1. The majority of people in the United States are lovers of wealth and pleasure. They are selfish, slothful, and indolent. They can be inspired to rise above their brutish existence only by fear of impending death or catastrophe.

    Stiglitz’s assessments are nonsense.

    “People as uninformed and as gullible as Americans have no future. Americans are a dead people that history is about to run over.”
    Dr. Paul Craig Roberts – Assistant Secretary of the Treasury for Economic Policy during the Reagan administration

  2. I think there is a large percentage of the population that is genetically predisposed to wreck and destroy other human beings if they perceive any injustice. These people will cut off their own nose to spite their face because it’s in their genes. This why humanity is always trying to promote truth and justice for all. It’s the most pragmatic form of culture.

  3. Sanders timing is impeccable.

    The Neo-Liberal class war is destroying the global economy.

    “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Warren Buffett

    The 1% went to war on the 99% (aka the global consumer), very silly really.

    The class war has mortally wounded the global consumer and global demand is fading rapidly.

    2016– “Richest 62 people as wealthy as half of world’s population”

    So much money to invest and so few places to invest it.

    Wealth concentration has gone much too far.

    Check out global stock markets since January, the rich have been so greedy they are destroying the system.

    “The Marxian capitalist has infinite shrewdness and cunning on everything except matters pertaining to his own ultimate survival. On these, he is not subject to education. He continues wilfully and reliably down the path to his own destruction”

    After nearly four decades of supply side economics, the world is drowning in over-supply with a chronic lack of demand.

    Time to get the Keynesian, demand side, economics going again.

    Tax those that can consume no more.

    Strong progressive taxation, reduced at the bottom and increased at the top, to get the money where it’s needed.

    As the wealthy hide their money so well, it will also need taxation on things they can’t hide land, assets and property.

    Discourage excessive Capital accumulation with an inheritance cap, you can earn it but you must spend it.

    Free public services to increase spending power into the economy.

    Raising demand is today’s problem; there is a glut of investment capital and chronic over-supply.

    Re-distribution is the key to the problem, getting money into the hands of global consumers.

    Bernie it’s your time.

  4. Old solutions for old problems.

    Rinse and repeat …….

    1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), globalisation phase

    1929/2008 – Wall Street crash

    1930s/2010s – Global recession, currency wars, rising nationalism and extremism

    It’s Keynes time.

    The Neo-Liberal rinse didn’t make a blind bit of difference.

    Neo-Liberal = Emporer’s New Clothes

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