40 of 49 people found the following review helpful
Excellent Insights from A Respected Economist!,
This review is from: The Price of Inequality: How Today's Divided Society Endangers Our Future (Hardcover)
Our economic system isn't functioning well, nor is our political system working to correct it. Besides the obvious high unemployment problem, we also have a problem with economic inequality. Economic inequality is not just a moral issue - it has severe economic consequences as well. The top .1% of earners now take three times the share of income they did in 1980, with the top 1% now raking in 20% of income (double that of 1980) and holding 40% of wealth. We have more inequality than any other advanced nation. In the 'recovery' of 2009-10, 93% of income growth has gone to the top 1%. The six Walton heirs control more wealth than the bottom 30% of society. Stiglitz tells us that the marginal propensity to consume declines at higher incomes, thus creating an incentive for government to create bubbles for the rest of us. Most Americans are now worse off than they were 15 years ago.
Contending that a rising tide lifts all boats does not excuse these changes - the number in the middle class has declined and those remaining have seen their incomes fall, 16% of Americans lack insurance, one in seven are on food stamps, and nearly 1/3 of mortgages are under water. (Houses have gone from being 'piggy-banks' funding vacations, educations, and retirements, to being a burden.) Our closest counterparts in inequality are Russia and Iran. Neither can these inequalities be justified by higher productivity by CEOs and greater contributions to society and their companies - those who helped bring on the Great Recession with predatory lending and other practices went on to receive large bonuses and pay far exceeding their peers in other nations - taking advantage of deficiencies in corporate governance.
Growing inequality is the flip side of shrinking opportunity. There is less equality of opportunity in the U.S. now than in any advanced industrial country. It has also attracted far too many of our most talented young people into finance and speculation rather than areas leading to a more productive and healthy economy. A third problem is that growing inequality has brought under-investment in infrastructure and basic research.
Those in the 1% rarely serve in our military. Globalization and automation has contributed to inequality. Internships disproportionately are awarded to children of the well-off - both because of their connections and their greater ability to survive without income for a prolonged period. Our judicial system is another factor - the powerful are better able to tolerate its delays.
Monopoly power further contributes to inequality - two examples are Microsoft (Bill Gates) and telecommunications (Carlos Slim). Microsoft has provided little innovation, taking advantage of its strength in operating systems to crowd out others in word processing, spreadsheets, browsers, search engines, and media players. We give priority in bankruptcy to those holding derivatives, but educational loans cannot be discharged through bankruptcy - creating a form of indentured service.
Other factors contributing to growing inequality include laborsaving technologies that reduce the demand for many middle-class, blue-collar jobs, globalization, the decline of unions (from representing a third of American workers to about 12%), and tax policy. Lowering tax rates on capital gains (eg. restructuring companies, speculation), the means through which the rich receive a large portion of their income, has made after-tax inequality even worse. Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1%. Manipulation of the financial system, enabled by changes in the rules, government lending to financial institutions at close to 0%, providing generous bailouts, the non-negotiable Medicare drug benefit (a $500 billion 'gift' over ten years) have also contributed.
The near-term outlook is for even more inequality. Wealth begets power, which begets more wealth. Just recently the supreme Court has enshrined the right of corporations to buy government by removing limitations on campaign spending. One result - pharmaceutical companies received a trillion-dollar give through legislation prohibiting the government's Medicare program from bargaining over price. Economic globalization encourages competition among countries for business, driving down taxes on corporations, weakens health and environmental protections, and undermines 'core' labor rights.
The 'trickle down' effect has brought American youth unemployment to around 20%, one in six Americans wanting full-time employment are unable to get one. What we really have is 'trickle up.' Stiglitz wonders when the popular protests in Libya, Egypt, Greece, Spain (50% youth unemployment), etc. will come to America.
Economic inequality acerbates political inequality, increased importance of money. Only 20% of America's young people voted in the last election, increasing the importance of money in boosting voter turnout. Australia mandates voting.
The 'good news' is that this is not inevitable. The number one first step towards rectifying this inequality, per Stiglitz, is to make the 1% pay their taxes. The Bush tax cuts increased inequalities and encouraged speculation. We also need to curb the rich taking advantage of government - free bank monies, below-market natural resource leases on federal lands. Reducing the power/amount of lobbying would help accomplish this. Providing improved access to education is also needed - Stiglitz likes the Australian approach where student loans are paid back according to income.
Bottom-Line: Economic inequality is killing the American dream by failing to deliver on the promise of improving the standards of living for most citizens. Economic inequality is also creating unequal opportunity, and our most valuable asset, our people, are not being fully used. Children of those at the top doing poorly at school have greater opportunity than children at the bottom who do well. Further, it will lead to more political instability, lower economic growth and less productivity. We've been misinformed into believing that efforts to reduce inequality would harm the economy - per Stiglitz doing so would help.
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Showing 1-5 of 5 posts in this discussion
Initial post: Jun 8, 2012 11:26:55 PM PDT
Last edited by the author on Jun 8, 2012 11:43:58 PM PDT
Hans G. Despain says:
Dear Loyd E. Eskildson,
Your review seems far more a review of Stiglitz 2011 article in Vanity Fair "For the 1%, by the 1%, for the 1%."
You claim: "Stiglitz tells us that the marginal propensity to consume declines at higher incomes", could you provide a page number (either in the book or 2011 article from which you wrote your review), because this would be a remarkable challenge to the universally accepted position that MPC is stable over time and aggregate income levels.
You continue "thus creating an incentive for government to create bubbles for the rest of us." Again can you provide a page number (once again from either the book or 2011 article) where Stiglitz claims government have incentives to create bubbles, and how exactly governments create bubbles.
Bubbles are created in financial markets, government are precluded from partication. So I am not sure what this means, but I am sure this is not Stiglitz's position.
Otherwise, you have a strong review of Stiglitz 2011 vantity fair article.
Posted on Jun 9, 2012 11:00:22 AM PDT
Last edited by the author on Jun 9, 2012 11:06:11 AM PDT
Just one modest comment on a portion of your review: "Those in the 1% rarely serve in our military." In this age of the all volunteer military, less than... "Those in the 1% rarely serve...". With the demise of the conscription (draft) military the phrase that less than 1% serve also is applicable to the 99%. This writer served in the US Army 1956 to 1963 as a member of the conscription (draft) military. I elected to use the opportunity to volunteer rather than to waiting to be drafted, thereby gaining a degree of certainty. In today's military it equally can be said that far less than 1% of the 99% serve in the military. Hence using the phrase ..."Those in the 1% rarely serve..." seems to have precious little validity in the present discussion. Thanks, Bob
In reply to an earlier post on Jun 10, 2012 4:34:16 AM PDT
Douglas Heaton says:
It is my understanding that the military doesn't generally want soldiers that are too wealthy. It's bad for morale when a soldier is so wealthy that he doesn't really need to worry about a dishonorable discharge being on his record, or when a soldier's father is so well connected that a phone call can get that soldier reassigned. Such people can skirt this by attending college and becoming officers, but even then it merely changes the issue from inappropriate to simply weird.
And let's be honest. Millionaires can do far more to win a war with a checkbook than with a rifle. The wartime purpose of the wealthy is to run factories, build things, and buy bonds.
In reply to an earlier post on Jun 12, 2012 9:34:31 AM PDT
Doug, I agree, especially with your last sentence "The wartime purpose of the wealthy is to run factories, build things, and buy bonds". During the US Civil war, in both the SOuth and NOrth, there were policies that recognized this. In the North anyone who could pay $300 or hire a substitute was exempted from the draft. In the South anyone who owned 30 or more negro slaves was also exempted. Liberals just do not recognize the fact that someone has to run the economy and create the wealth to run a war. That is why they engage in class warfare like this.
In reply to an earlier post on Jun 13, 2012 9:26:25 PM PDT
Last edited by the author on Jun 13, 2012 9:30:56 PM PDT
Alan F. Sewell says:
Yoda, those exemptions in the North and South during the Civil War were also extremely unpopular and may have induced many men of lesser means to desert after hearing the "rich man's war, poor man's fight" propaganda.
It seems that the war effort is most effective when younger men of all income levels serve. During WWII the oldest Kennedy brother Joseph was killed while performing an extremely high risk mission (he volunteered to crash-dive a plane filled with explosives into a German submarine pen, hoping to bail out just before impact). His younger brother John F. Kennedy volunteered for the very hazardous PT Boat duty that nearly cost him his life. George H.W. Bush was shot down as the youngest naval aviator in the Pacific Theater.
The sons of British nobility were also famous for volunteering for the most hazardous duty.
When the the sons of the most privileged families volunteer for the most hazardous duty, it discourages men of lesser means from avoiding service.
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