Associated Press, August 9, 2012:
What’s wrong with the U.S. economy?
Growth comes in fits and starts. Unemployment has been over 8 percent for three and a half years. Cutting taxes and interest rates hasn’t worked, at least not enough.
To Joseph Stiglitz, the Nobel Prize-winning economist, the economy’s strange behavior can be traced to the growing gap between wealthy Americans and everyone else.
In his new book, “The Price of Inequality,” he connects surging student loan debt, the real-estate bubble and many of the country’s other problems to greater inequality.
When the rich keep getting richer, he says, the costs pile up. For instance, it’s easier to climb up from poverty in Britain and Canada than in the U.S.
“People at the bottom are less likely to live up to their potential,” he says.
Stiglitz has taught at Yale, Oxford and MIT. He served on President Bill Clinton‘s council of economic advisers, then left the White House for the World Bank, where he was the chief economist. He’s now a professor at Columbia University.
In an interview with The Associated Press, Stiglitz singled out the investment bank Goldman Sachs, warned about worrying over government debt and argued that a wider income gap leads to a weaker economy. Below are excerpts, edited for clarity.
Q: The Occupy Wall Street demonstrations are no longer in the news, but you make the case that income inequality is more important than ever. How so?
A: Because it’s getting worse. Look at the recent Federal Reserve numbers. Median wealth fell 40 percent from 2007 to 2010, bringing it back to where it was in the early ’90s. For two decades, all the increase in the country’s wealth, which was enormous, went to the people at the very top.
It may have been a prosperous two decades. But it wasn’t like we all shared in this prosperity.
The financial crisis really made this easy to understand. Inequality has always been justified on the grounds that those at the top contributed more to the economy — “the job creators.”
Then came 2008 and 2009, and you saw these guys who brought the economy to the brink of ruin walking off with hundreds of millions of dollars. And you couldn’t justify that in terms of contribution to society.
Mitt Romney has called concerns about inequality the “politics of envy.” Well, that’s wrong. Envy would be saying, “He’s doing so much better than me. I’m jealous.” This is: “Why is he getting so much money, and he brought us to the brink of ruin?” And those who worked hard are the ones ruined. It’s a question of fairness.
Q: Markets aren’t meant to be fair. As long as we have markets, there are going to be winners and losers. What’s wrong with that?
A: I’m not arguing for the elimination of inequality. But the extreme that we’ve reached is really bad. Particularly the way it’s created. We could have a more equal society and a more efficient, stable, higher-growing economy. That’s really the “so what.” Even if you don’t have any moral values and you just want to maximize GDP growth, this level of inequality is bad.
It’s not just the unfairness. The point is that we’re paying a high price. The story we were told was that inequality was good for our economy. I’m telling a different story, that this level of inequality is bad for our economy.
Q: Economic growth is slowing again. Unemployment seems to be stuck above 8 percent. Is that the result of high debts or slower spending?
A: The fundamental problem is not government debt. Over the past few years, the budget deficit has been caused by low growth. If we focus on growth, then we get growth, and our deficit will go down. If we just focus on the deficit, we’re not going to get anywhere.
This deficit fetishism is killing our economy. And you know what? This is linked to inequality. If we go into austerity, that will lead to higher unemployment and will increase inequality. Wages go down, aggregate demand goes down, wealth goes down.
Once again, a Nobel economist fails to discuss the term “OWNRSHIP” and the concentration thereof as the real cause of inequality.
Influential economists and business leaders, as well as political leaders, should read Harold Moulton’s The Formation Of Capital, in which he argues that it makes no sense to finance new productive capital out of past savings. Instead, economic growth should be financed out of future earnings (savings), and provide that every citizen become an owner.
The Federal Reserve, which has been largely responsible for the powerlessness of most American citizens, should set an example for all the central banks in the world. Chairman Benjamin Bernanke and other members of the Federal Reserve need to wake-up and implement Section 13 paragraph 2, which directs the Federal Reserve to create credit for local banks to make loans where there isn’t enough savings in the system to finance economic growth. We should not destroy the Federal Reserve or make it a political extension of the Treasury Department, but instead reform it so that the American citizens in each of the 12 Federal Reserve Regions become the owners. The result will be that money power will flow from the bottom up, not from the top down––not for consumer credit, not for credit that doesn’t pay for itself or non-productive uses of credit, but for credit for productive uses to expand the economy’s rate of growth.
The systemic injustices of monopoly capitalism can only be addressed by comprehensive reforms to the tax, monetary and inheritance policies favoring the top 1 percent at the expense of the 99 percent. The current system perpetuates budget deficits and unsustainable government debt, underutilized workers, a lack of financing for financing advanced energy and green technologies, and outsourcing of U.S. industrial jobs to low-wage countries, trade deficits, shrinking consumption incomes among the poor and middle class, and conventional methods for financing productive growth that increase the ownership and power gaps between the top 1 percent and the 90 percent whose combined ownership accumulations are already less than the elite whose money power is widely known as the source of political corruption and the breakdown of political democracy.
The unworkability of the traditional market economy is evidenced by the diverse and growing deficits––federal budget deficit, trade deficit, city, county and state budget deficits––which are making it increasingly impossible for governments at every level to function. The increasing deficit burden is the result of the growing numbers of people who cannot earn, from legitimate participation in production, enough income to support themselves and their families. Thus government is obliged to “redistribute” to starve off economic collapse. The key means of redistribution is taxation––taking from the legitimate producers and giving to the non- or under-producers––to make up the economy’s ever wider income and purchasing power shortfalls.
The fact is that political democracy is impossible without economic democracy. Those who control money control the laws that foster wage slavery, welfare slavery, debt slavery and charity slavery. These laws can and should be changed by the 99 percent and those among the 1 percent who are committed to a just and economically classless market economy, true equality of opportunity, and a level playing field in the future for 100 percent of Americans. By adopting economic policies and programs that acknowledge every citizen’s right to become a capital worker as well as a labor worker, the result will be an end to perpetual labor servitude and the liberation of people from progressive increments of subsistence toil and compulsive poverty as the 99 percent benefits from the rewards of productive capital-sourced income.
The question that requires an answer is now timely before us. It was first posed by binary economist Louis Kelso in the 1950s but has never been thoroughly discussed on the national stage. Nor has there been the proper education of our citizenry that addresses what economic justice is and what ownership is. Therefore, by ignoring such issues of economic justice and ownership, our leaders are ignoring the concentration of power through ownership of productive capital, with the result of denying the 99 percenters equal opportunity to become capital owners. The question, as posed by Kelso is: “how are all individuals to be adequately productive when a tiny minority (capital workers) produce a major share and the vast majority (labor workers), a minor share of total goods and service,” and thus, “how do we get from a world in which the most productive factor—physical capital—is owned by a handful of people, to a world where the same factor is owned by a majority—and ultimately 100 percent—of the consumers, while respecting all the constitutional rights of present capital owners?”
