Why the Rich Are So Much Richer
James Surowiecki is a staff writer for the New Yorker, where he writes regularly about financial matters. In the NY Review of Books, he reviews three books by Joseph Stiglitz, a Nobel-prize-winning economist:
The Great Divide: Unequal Societies and What We Can Do About Them
by Joseph E. Stiglitz
Norton, 428 pp., $28.95
Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity
by Joseph E. Stiglitz
The Roosevelt Institute, 114 pp., available at www.rewritetherules.org
Creating a Learning Society: A New Approach to Growth, Development, and Social Progress
by Joseph E. Stiglitz and Bruce C. Greenwald
Columbia University Press, 660 pp., $34.95; $24.95 (paper)
The fundamental truth about American economic growth today is that while the work is done by many, the real rewards largely go to the few. The numbers are, at this point, woefully familiar: the top one percent of earners take home more than 20 percent of the income, and their share has more than doubled in the last thirty-five years. The gains for people in the top 0.1 percent, meanwhile, have been even greater. Yet over that same period, average wages and household incomes in the US have risen only slightly, and a number of demographic groups (like men with only a high school education) have actually seen their average wages decline.
Income inequality has become such an undeniable problem, in fact, that even Republican politicians have taken to decrying its effects. It’s not surprising that a Democrat like Barack Obama would call dealing with inequality “the defining challenge of our time.” But when Jeb Bush’s first big policy speech of 2015 spoke of the frustration that Americans feel at seeing “only a small portion of the population riding the economy’s up escalator,” it was a sign that inequality had simply become too obvious, and too harmful, to be ignored.
Something similar has happened in economics. Historically, inequality was not something that academic economists, at least in the dominant neoclassical tradition, worried much about. Economics was about production and allocation, and the efficient use of scarce resources. It was about increasing the size of the pie, not figuring out how it should be divided. Indeed, for many economists, discussions of equity were seen as perilous, because there was assumed to be a necessary “tradeoff” between efficiency and equity: tinkering with the way the market divided the pie would end up making the pie smaller. As the University of Chicago economist Robert Lucas put it, in an oft-cited quote: “Of the tendencies that are harmful to sound economics, the most seductive, and…the most poisonous, is to focus on questions of distribution.”
Today, the landscape of economic debate has changed. Inequality was at the heart of the most popular economics book in recent memory, the economist Thomas Piketty’sCapital. The work of Piketty and his colleague Emmanuel Saez has been instrumental in documenting the rise of income inequality, not just in the US but around the world. Major economic institutions, like the IMF and the OECD, have published studies arguing that inequality, far from enhancing economic growth, actually damages it. And it’s now easy to find discussions of the subject in academic journals.
All of which makes this an ideal moment for the Columbia economist Joseph Stiglitz. In the years since the financial crisis, Stiglitz has been among the loudest and most influential public intellectuals decrying the costs of inequality, and making the case for how we can use government policy to deal with it. In his 2012 book, The Price of Inequality, and in a series of articles and Op-Eds for Project Syndicate, Vanity Fair, andThe New York Times, which have now been collected in The Great Divide, Stiglitz has made the case that the rise in inequality in the US, far from being the natural outcome of market forces, has been profoundly shaped by “our policies and our politics,” with disastrous effects on society and the economy as a whole. In a recent report for the Roosevelt Institute called Rewriting the Rules, Stiglitz has laid out a detailed list of reforms that he argues will make it possible to create “an economy that works for everyone.”
Stiglitz’s emergence as a prominent critic of the current economic order was no surprise. His original Ph.D. thesis was on inequality. And his entire career in academia has been devoted to showing how markets cannot always be counted on to produce ideal results. In a series of enormously important papers, for which he would eventually win the Nobel Prize, Stiglitz showed how imperfections and asymmetries of information regularly lead markets to results that do not maximize welfare. He also argued that this meant, at least in theory, that well-placed government interventions could help correct these market failures. Stiglitz’s work in this field has continued: he has just written (with Bruce Greenwald) Creating a Learning Society, a dense academic work on how government policy can help drive innovation in the age of the knowledge economy.
Stiglitz served as chairman of the Council of Economic Advisers in the Clinton administration, and then was the chief economist at the World Bank during the Asian financial crisis of the late 1990s. His experience there convinced him of the folly of much of the advice that Western economists had given developing countries, and in books like Globalization and Its Discontents (2002) he offered up a stinging critique of the way the US has tried to manage globalization, a critique that made him a cult hero in much of the developing world. In a similar vein, Stiglitz has been one of the fiercest critics of the way the Eurozone has handled the Greek debt crisis, arguing that the so-called troika’s ideological commitment to austerity and its opposition to serious debt relief have deepened Greece’s economic woes and raised the prospect that that country could face “depression without end.” For Stiglitz, the fight over Greece’s future isn’t just about the right policy. It’s also about “ideology and power.” That perspective has also been crucial to his work on inequality.
The Great Divide presents that work in Stiglitz’s most popular—and most populist—voice. . .