Wednesday, April 6, 2011

Josepth Stiglitz: Of the 1%, By the 1%, For the 1%

A pretty interesting commentary by economist Joseph Stiglitz in Vanity Fair on the concentration of wealth and inequality in the United States.  For those not familiar with Stiglitz he would definitely be considered "left" ala Paul Krugman.  That said, some fair points in this piece as the U.S. continues to take on more characteristics of a lot of other countries (that we don't want to be like).   Certainly 'equality of all' is not the goal in terms of economics - no one wants to be the old USSR - and economic incentives are very important for productivity, but the gaping (and expanding) chasm between top and bottom has many potential societal issues. [Sep 7, 2009: Citigroup 2006 - America, a Modern Day Plutonomy]

Aside from concentration of wealth one big worry is that what was once America's strength was economic mobility.  It was relatively easy to advance from the economic 'class' you were born, to a significantly higher one.  While still possible today, from a few surveys I've read the past year the U.S. now has less economic mobility than many of the "socialist" countries we deride in Europe.  I think that would come to a shock to many since we still have the "Facebook effect" - i.e. the 1 in 10 million chance you can go from nothing to billionaire.  Anyhow, with the political class captured I expect nothing to change and indeed this path we've been on the past few decades to continue.  Bread and circuses for the rest.

It is a lengthy piece so follow the link below for the entire thing.

Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret.

Via Vanity Fair:

  • It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent
  • One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. 
  • All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran.  
  • Economists long ago tried to justify the vast inequalities that seemed so troubling in the mid-19th century—inequalities that are but a pale shadow of what we are seeing in America today. The justification they came up with was called “marginal-productivity theory.” In a nutshell, this theory associated higher incomes with higher productivity and a greater contribution to society. It is a theory that has always been cherished by the rich. Evidence for its validity, however, remains thin. 
  • The corporate executives who helped bring on the recession of the past three years—whose contribution to our society, and to their own companies, has been massively negative—went on to receive large bonuses. In some cases, companies were so embarrassed about calling such rewards “performance bonuses” that they felt compelled to change the name to “retention bonuses” (even if the only thing being retained was bad performance). Those who have contributed great positive innovations to our society, from the pioneers of genetic understanding to the pioneers of the Information Age, have received a pittance compared with those responsible for the financial innovations that brought our global economy to the brink of ruin. 
  • Economists are not sure how to fully explain the growing inequality in America. The ordinary dynamics of supply and demand have certainly played a role: laborsaving technologies have reduced the demand for many “good” middle-class, blue-collar jobs. Globalization has created a worldwide marketplace, pitting expensive unskilled workers in America against cheap unskilled workers overseas. Social changes have also played a role—for instance, the decline of unions, which once represented a third of American workers and now represent about 12 percent.
  • ....many of the distortions that lead to inequality—such as those associated with monopoly power and preferential tax treatment for special interests—undermine the efficiency of the economy. This new inequality goes on to create new distortions, undermining efficiency even further. To give just one example, far too many of our most talented young people, seeing the astronomical rewards, have gone into finance rather than into fields that would lead to a more productive and healthy economy. 
  • The personal and the political are today in perfect alignment. Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. 
  • In recent weeks we have watched people taking to the streets by the millions to protest political, economic, and social conditions in the oppressive societies they inhabit. Governments have been toppled in Egypt and Tunisia. Protests have erupted in Libya, Yemen, and Bahrain. The ruling families elsewhere in the region look on nervously from their air-conditioned penthouses—will they be next? These are societies where a minuscule fraction of the population—less than 1 percent—controls the lion’s share of the wealth; where wealth is a main determinant of power; where entrenched corruption of one sort or another is a way of life; and where the wealthiest often stand actively in the way of policies that would improve life for people in general
  • As we gaze out at the popular fervor in the streets, one question to ask ourselves is this: When will it come to America? In important ways, our own country has become like one of these distant, troubled places.

    [Jan 16, 2011: The Atlantic - The Rise of the New Global Elite]
    [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?]

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