The Price of Inequality
Joseph E. Stiglitz
Development is about transforming the lives of people,
not just transforming economies
Joseph E. Stiglitz, Making Globalization Work
“Nothing in the world is more dangerous than sincere ignorance
and conscientious stupidity”
Martin Luther King, Jr.
STIGLITZ, Joseph E., The Price of Inequality: How Today’s Divided Society Endangers
Our Future, Reprint with a new Preface, New York-London: Norton, W.W. &
Company, 2013, pp. 560. ISBN 13: 978-0-393-34506-3 (paperback). First edition:
2012, pp. XXXII + 414. ISBN 13: 978-0-393-08869-4 (hardcover).
Presentation (of the editor)
A forceful argument against America’s vicious circle of growing inequality by the Nobel
Prize–winning economist.
The top 1 percent of Americans control 40 percent of the nation’s wealth. And, as
Joseph E. Stiglitz explains, while those at the top enjoy the best health care, education, and
benefits of wealth, they fail to realize that “their fate is bound up with how the other 99
percent live.”
Stiglitz draws on his deep understanding of economics to show that growing
inequality is not inevitable: moneyed interests compound their wealth by stifling true,
dynamic capitalism. They have made America the most unequal advanced industrial country
while crippling growth, trampling on the rule of law, and undermining democracy. The
result: a divided society that cannot tackle its most pressing problems. With characteristic
insight, Stiglitz examines our current state, then teases out its implications for democracy, for
monetary and budgetary policy, and for globalization. He closes with a plan for a more just
and prosperous future.
America currently has the most inequality, and the least equality of opportunity,
among the advanced countries. While market forces play a role in this stark picture, politics
has shaped those market forces. In this best-selling book, Nobel Prize–winning economist
Joseph E. Stiglitz exposes the efforts of well-heeled interests to compound their wealth in
ways that have stifled true, dynamic capitalism. Along the way he examines the effect of
inequality on our economy, our democracy, and our system of justice. Stiglitz explains how
inequality affects and is affected by every aspect of national policy, and with characteristic
insight he offers a vision for a more just and prosperous future, supported by a concrete
program to achieve that vision.
The author
Joseph Eugene Stiglitz, ForMemRS, FBA, is an American economist and a professor at
Columbia University.
He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) for his
analyses of markets with asymmetric information, and the John Bates Clark Medal (1979).
He was a lead author of the 1995 Report of the Intergovernmental Panel on Climate Change,
which shared the 2007 Nobel Peace Prize.
Stiglitz was a member of the Council of Economic Advisers from 1993-95, during the
Clinton administration, and its chairman from 1995-97.He is also the former Senior Vice
President and Chief Economist of the World Bank (1997-2000).
He is known for his critical view of the management of globalization, free-market
economists (whom he calls “free market fundamentalists”) and some international
institutions like the International Monetary Fund and the World Bank.
In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on
international development based at Columbia University. Since 2001, he has been a member
of the Columbia faculty, and has held the rank of University Professor since 2003. In 2008,
he was appointed by French President Nicolas Sarkozy to chair a Commission on the
Measurement of Economic Performance and Economic Progress.
Stiglitz helped create a new branch of economics, “The Economics of Information,”
exploring the consequences of information asymmetries and pioneering concepts including
adverse selection and moral hazard, which have now become standard tools of theorists and
policy analysts. His work has helped explain the circumstances in which markets do not work
well and how selective government intervention can improve their performance.
He also chairs the University of Manchester’s Brooks World Poverty Institute and is a
member of the Pontifical Academy of Social Sciences.
Professor Stiglitz is also an honorary professor at Tsinghua University School of
Public Policy and Management. Stiglitz is one of the most frequently cited economists in the
world.
Stiglitz has over 40 honorary doctorates and at least eight honorary professorships, as
well as an honorary deanship.
In 2009 the President of the United Nations General Assembly Miguel d’Escoto
Brockmann, appointed Stiglitz as the Chairman of the U.N. Commission on Reforms of the
International Monetary and Financial System, where he oversaw suggested proposals, and
Commissioned a report on reforming the international monetary and financial system.
Since 2012 Stiglitz has been the President of the International Economic Association
and is currently presiding over the organization of the IEA triennial world congress that will
be held on the Dead Sea Jordan in June 2014.
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Stiglitz is the 4th most influential economist in the world today based on academic
citations, and in 2011 he was named by Time magazine as one of the 100 most influential
people in the world.
Stiglitz’s work focuses on income distribution, asset risk management, corporate
governance, and international trade, and is the author of ten books, with his The Price of
Inequality (2012), hitting The New York Times best seller list. He is the best-selling author of
Making Globalization Work (2006); Globalization and Its Discontents (2002,
translated into 35 languages); and, with Linda BILMES, The Three Trillion Dollar
War (2008).
Joseph E. STIGLITZ Curriculum Vitae (pp. 69): Columbia University (last updated:
May 10, 2014):
https://www0.gsb.columbia.edu/faculty/jstiglitz/download/Stiglitz_CV.pdf
Joseph STIGLITZ’s Books
Creating a Learning Society: A New Approach to Growth, Development, and Social
Progress, with Bruce C. Greenwald, New York: Columbia University Press (2014), The Price
of Inequality: How Today’s Divided Society Endangers Our Future (2012), Freefall: America,
Free Markets, and the Sinking of the World Economy (2010), Mismeasuring Our Lives: Why
GDP Doesn’t Add Up, with J-P. Fitoussi and A. Sen (2010), The Stiglitz Report: Reforming
the International Monetary and Financial Systems in the Wake of the Global Crisis (2010),
Time for a Visible Hand: Lessons from the 2008 World Financial Crisis (2010), The Three
Trillion Dollar War, with L. BILMES (2008), Making Globalization Work (2006), The
Roaring Nineties (2003), Globalization and Its Discontents (2002), The Rebel Within: Joseph
Stiglitz and the World Bank (2002).
“Bibliography of Joseph E. Stiglitz’s Publications”, 1966-2001, The Scandinavian Journal of
Economics: Vol. 104, n.º 2, June 2002, pp. 243-259.
http://onlinelibrary.wiley.com/doi/10.1111/14679442.00284/abstract?systemMessage=Wiley+Online+Library+will+be+disrupted+9th+Aug+f
rom+102+BST+for+essential+maintenance.+Pay+Per+View+will+be+unavailable+from+10-6+BST
More about Joseph E. Stiglitz
Joseph E. Stiglitz Blog:
https://www.goodreads.com/author/show/6426.Joseph_E_Stiglitz/blog
Excerpts from Joseph E. Stiglitz’s book The Price of Inequality:
There are two visions of America a half century from now. One is of a society more
divided between the haves and the have-nots, a country in which the rich live in
gated communities, send their children to expensive schools, and have access to firstrate medical care. Meanwhile, the rest live in a world marked by insecurity, at best
mediocre education, and in effect rationed health care―they hope and pray they
don't get seriously sick. At the bottom are millions of young people alienated and
without hope. I have seen that picture in many developing countries; economists
have given it a name, a dual economy, two societies living side by side, but hardly
knowing each other, hardly imagining what life is like for the other. Whether we will
fall to the depths of some countries, where the gates grow higher and the societies
split farther and farther apart, I do not know. It is, however, the nightmare towards
which we are slowly marching.
The protesters have called into question whether there is a real democracy. Real
democracy is more than the right to vote once every two or four years. The choices
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have to be meaningful. But increasingly, and especially in the US, it seems that the
political system is more akin to "one dollar one vote" than to "one person one vote".
Rather than correcting the market failures, the political system was reinforcing
them.
The same is true for the market economy: the power of markets is enormous, but
they have no inherent moral character. We have to decide how to manage them...
For all these reasons, it is plain that markets must be tamed and tempered to make
sure they work to the benefit of most citizens. And that has to be done repeatedly, to
ensure that they continue to do so.
In some circumstances, a focus on extrinsic rewards (money) can actually diminish
effort. Most (or at least many) teachers enter their profession not because of the
money but because of their love for children and their dedication to teaching. The
best teachers could have earned far higher incomes if they had gone to banking. It is
almost insulting to assume that they are not doing what they can to help their
students learn, and that by paying them an extra $500 or $1,500, they would exert
greater effort. Indeed, incentive pay can be corrosive: it reminds teachers of how
bad their pay is, and those who are led thereby to focus on money may be induced to
find a better paying job, leaving behind only those for whom teaching is the only
alternative. (Of course, if teachers perceive themselves to be badly paid, that will
undermine morale, and that will have adverse incentive effects).
Americans all benefit from the physical and institutional infrastructure that has
developed from the country’s collective efforts over generations.
The U.S. incarceration rate is the world’s highest and some nine to ten times that of
many European countries. Almost 1 in 100 American adults is behind bars.61 Some
U.S. states spend as much on their prisons as they do on their universities.
Joseph E. STIGLITZ on YouTube
https://www.youtube.com/watch?v=olKOPrRqdH4
Table of Contents
Preface
Acknowledgments
Chapter 1 America’s 1 Percent Problem
ix
xxvii
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Chapter 2 Rent Seeking and the Making of an Unequal Society
28
Chapter 3 Markets and Inequality
52
Chapter 4 Why It Matters
83
Chaffer 5 A Democracy in Peril
118
Chapter 6 1984 Is Upon Us
146
Chapter 7 Justice for All? How Inequality is Eroding the Rule of Law
187
Chapter 8 The Battle of the Budget
207
Chapter 9 A Macroeconomic Policy and a Central Bank by And for the 1
Percent
238
Chapter 10 The Way Forward: Another World Is Possible
265
Notes
291
Index
399
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Editorial Reviews
Publishers Weekly
In his concise and clearly argued newest, Stiglitz, a Nobel Prize-winning economist, outlines
the economic, political, and social obstacles currently facing the U.S. and explores
possibilities for how we can overcome them.
Beginning with the financial collapse of 2008 and the ensuing Great Recession,
Stiglitz (Globalization and Its Discontents) makes the now-ubiquitous point that “the rich
were getting richer, while the rest were facing hardships that seem inconsonant with the
American dream.” The author opines that from this growing gap stem many other sobering
social ills, such as “pollution, unemployment, and […] the degradation of values to the point
where everything is acceptable and no one is accountable.”
And while he contends that our current modus operandi is “neither stable nor
sustainable,” Stiglitz insists that inequality is not inherent in the system. He then goes on to
lay out a plan for the long term, recommending practical changes to macroeconomic policies,
taxes, labor laws, and how we navigate a globalizing world and dealing with the deficit.
His visions of America’s two possible futures reveals the extent of the dishearteningly
large socioeconomic rift and its forecasted consequences, but Stiglitz's solutions –upheld by
experience, perceptive analysis, and copious research– could very well bridge that divide, and
reduce it in the process. (June)
New York Times
“An important and smart new book [...]. It’s a searing read.”
Nicholas Kristof
Washington Post
“Stiglitz writes clearly and provocatively. He’s the kind of economist who can talk about
terms such as ‘rent-seeking’ and the ‘euro crisis’ and bring readers along for the ride [...].
Stiglitz isn’t just writing about people being hurt by inequality, he is also writing about the
system itself being in jeopardy and what needs to be done to fix it.”
Dante Chinni
Kirkus Reviews
From one of the world’s leading economists, a political call to action in defense of equality
and human rights.
Nobel laureate Stiglitz (Economics/Columbia Univ.; Freefall: America, Free Markets
and the Sinking of the World Economy, 2010, etc.) insists that increasing inequality in the
United States stems from a breakdown of the country’s political and economic systems.
The failure to hold any banker accountable for actions that contributed to the recent
economic crisis is a prime symptom of the case. The current level of inequality, writes the
author, “increases instability, reduces productivity, and undermines democracy.”
Stiglitz concedes that there is merit in the arguments of those who point to the effects
of technology, greed or the absence of bank regulation as contributing factors, and he agrees
that corrective measures are needed.
He goes further, arguing that inequality is a by-product of the ability to exploit
consumers through monopoly power, and borrowers through shady practices. He shows that
the consequences include a monopolistic redistribution powerful enough to have caused
massive distortions in the U.S. financial system.
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This is still not the deeper problem, however. More fundamentally, people
underestimate the problem of inequality; as a result, they fail to perceive the changes that are
already underway. Stiglitz presents the situation as “the bigger battle over perceptions and
over big ideas,” a battle being fought through persuasion, framing, misrepresentation and
obfuscation. Changing course requires winning this battle for truth.
In this way, he argues, equality, the rule of law and accountability can be
reestablished.
An impassioned argument backed by rigorous economic analysis.
https://www.kirkusreviews.com/book-reviews/joseph-e-stiglitz/price-inequality/
The New York Times Book Review
The single most comprehensive counterargument to both Democratic neoliberalism and
Republican laissez-faire theories. While credible economists running the gamut from center
right to center left describe our bleak present as the result of seemingly unstoppable
developments –globalization and automation, a self-replicating establishment built on
“meritocratic” competition, the debt-driven collapse of 2008– Stiglitz stands apart in his
defiant rejection of such notions of inevitability. He seeks to shift the terms of the debate.
It is not uncontrollable technological and social change that has produced a two-tier
society, Stiglitz argues, but the exercise of political power by moneyed interests over
legislative and regulatory processes. “While there may be underlying economic forces at
play,” he writes, “politics have shaped the market, and shaped it in ways that advantage
the top at the expense of the rest.” But politics, he insists, is subject to change.
[…].
Circumstances in the summer of 2012 justify Stiglitz’s more apprehensive conclusion.
Prospects for programs boosting public investment are virtually nil. Republicans stand a
good chance of taking control of both branches of Congress after the next election. Their
presumptive presidential nominee, Mitt Romney, may capture the White House. If so, his tax
and regulatory proposals will most likely embody all that Stiglitz finds repugnant. Even if
Romney loses, the American political system does not appear ready to respond to Stiglitz’s
call to arms.
Stiglitz may prove most prescient when he warns of a society governed by “rules of the
game that weaken the bargaining strength of workers vis-à-vis capital.” At present, he says,
“the dearth of jobs and the asymmetries in globalization have created competition for jobs in
which workers have lost and the owners of capital have won.” We are becoming a country “in
which the rich live in gated communities, send their children to expensive schools and have
access to first-rate medical care. Meanwhile, the rest live in a world marked by insecurity, at
best mediocre education and in effect rationed health care.” Except for a brief period in
2008-9, when the stock market decline hit the wealthy the hardest, the trends would seem to
be moving toward Stiglitz’s pessimistic vision of the future, with little prospect of change no
matter who wins office on Nov. 6.
Thomas B. Edsall
Thomas B. Edsall, the Joseph Pulitzer II and Edith Pulitzer Moore professor at the
Columbia School of Journalism, writes a weekly online column for The Times.
Cf.: http://www.nytimes.com/2012/08/05/books/review/the-price-of-inequality-by-josephe-stiglitz.html?pagewanted=all&module=Search&mabReward=relbias%3Ar&_r=0
“Everyone should read this!!! It’s time for American’s to educate themselves about what’s
going on in our country”.
Anonymous, posted July 7, 2012
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“This is a very realistic and thought provoking book on what is happening in the US
Economy. It is clear the inequality gap has been widening for 30 years or so and there has
been one band aid after another put on it. The “Great Recession” ripped that off and now we
all can see what has happened and what is continuing to happen.
In this book Joseph Stiglitz not only describes what has happened with clear evidence
but he also proposes solutions to the problem. This is what I like most about this book is he
gives clear and concise recommendations. Whether you agree or not you should take them
seriously as Stiglitz is a serious economist and has no political stake in his conclusions.
We know how it ends up if we allow this inequality to continue: Just go to any country
where the inequality is high –the rich build bigger and bigger gates and walls to wall
themselves off from the community, they become self-contained and the poor scramble for
what remains. Then, in a blink of an eye, things like the Arab Spring occur. So, we know this
ends badly and Stiglitz describes this in detail”.
Anonymous, posted September 9, 2012
http://www.barnesandnoble.com/w/the-price-of-inequality-joseph-estiglitz/1110779544?ean=9780393088694
Stiglitz has a lot to say in this very important book. The basic thesis of this book is
that income inequality in the United States is higher than it has ever been in history. The
standard of living of the top 1% continuously rises, while that of the lower 99% continues to
fall. The opportunities for upward mobility are fewer in the United States than in many other
countries. The reason is that the upper 1% have designed the economic, political, tax, and
education systems to benefit themselves, to the detriment of everyone else. They do not
realize that in the long term, their well-being is inextricably coupled to the well-being of
society as a whole.
Stiglitz quotes Paul Ryan, who said that "a central difference between the parties is
whether we are a nation that still believes in equality of opportunity, or whether we are
moving away from that, and towards an insistence on equality of outcome." Stiglitz goes to
great length (including over 100 pages of footnotes) to show how Ryan does not allow the
facts to "... get in the way of a pleasant fantasy." Stiglitz shows how "the 1 percent, in
attempting to claim for themselves an unjust proportion of the benefits of this system, may
be willing to destroy the system itself to hold on to what they have.”
Stiglitz shows how the high pay of corporate CEO’s in the financial sector is total
sham. They used to call it incentive pay, but when CEO’s perform poorly, they changed its
name to retention pay.
Stiglitz writes about the policies that the IMF imposed in developing countries. He
shows that the policies have been proven wrong and often fail. Rather than being designed to
aid the developing countries, IMF policies were in fact designed to enrich the international
financial sector and corporate interests.
The book shows how inequality has eroded the rule of law in the United States. Illegal
activities during the great recession of 2008 escape without prosecution. Banks that commit
huge foreclosure frauds can escape with minimal penalties, often just a slap on the wrist.
Crime pays.
Stiglitz cogently argues that recessions are not caused by lack of austerity--they are
caused by lack of demand. Cutting back on government spending causes unemployment to
increase, thereby worsening recessions. The Fed over-emphasizes its role in curtailing
inflation, while minimizing the importance of lowering unemployment. They just don't get
the fact that if you don't have a job, inflation doesn’t matter much.
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This book is a no-holds-barred slam at the government’s policies. But it is not simply
a condemnation. The last chapter is a well thought-out description of how economic policies
could be reformed, for the betterment of all citizens.
This book is extremely important. I wish that all politicians, economists and
executives would read this book.
David
December 23, 2013
Cf.: https://www.goodreads.com/book/show/16685439-the-price-ofinequality?from_search=true
The Observer
Friday 13 July 2012
The Price of Inequality by Joseph Stiglitz
(review)
The Nobel economist savages the neoliberal ideology that has made
society intolerably unfair
ROBERTS, Ivonne
Yvonne Roberts / The Observer
An Occupy London protester outside the Bank of England. Photograph: Andy Rain/EPA
The ancient Greeks had a word for it –pleonexia– which means an overreaching desire for
more than one's share. As Melissa Lane explained in last year’s Eco-Republic: Ancient
Thinking for a Green Age, this vice was often paired with hubris, a form of arrogance
directed especially against the gods and therefore doomed to fail. The Greeks saw tyrants as
fundamentally pleonetic in their motivation. As Lane writes: “Power served greed and so to
tame power, one must tame greed.”
In The Price of Inequality, Joseph E. Stiglitz passionately describes how unrestrained
power and rampant greed are writing an epitaph for the American dream. The promise of the
US as the land of opportunity has been shattered by the modern pleonetic tyrants, who make
up the 1%, while sections of the 99% across the globe are beginning to vent their rage. That
often inchoate anger, seen in Occupy Wall Street and Spain’s los indignados, is given shape,
fluency, substance and authority by Stiglitz. He does so not in the name of revolution –
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although he tells the 1% that their bloody time may yet come– but in order that capitalism be
snatched back from free market fundamentalism and put to the service of the many, not the
few.
In the 1970s and 80s, “the Chicago boys”, from the Chicago school of economics, led
by Milton Friedman, developed their anti-regulation, small state, pro-privatisation thesis –
and were handed whole countries, aided by the International Monetary Fund (IMF), on
which to experiment, among them Thatcher’s Britain, Reagan’s America, Mexico and Chile.
David Harvey’s A Brief History of Neoliberalism describes how the democratically elected
Salvador Allende was overthrown in Chile and the Chicago boys brought in. Under their
influence, nationalisation was reversed, public assets privatised, natural resources opened up
to unregulated exploitation (anyone like to buy one of our forests?), the unions and social
organisations were torn apart and foreign direct investment and “freer” trade were
facilitated. Rather than wealth trickling down, it rapidly found its way to the pinnacle of the
pyramid. As Stiglitz explains, these policies were –and are– protected by myths, not least that
the highest paid “deserve” their excess of riches.
In 2001, Stiglitz, a former chief economist at the World Bank, and arch critic of the
IMF, won the Nobel prize for economics for his theory of “asymmetric information”. When
some individuals have access to privileged knowledge that others don’t, free markets yield
bad outcomes for wider society. Stiglitz conducted his work in the 1970s and 80s but
asymmetric information perfectly describes the Libor scandal, rigging the interest rate at a
cost to the ordinary man and woman in the street. Stiglitz details the profound consequences
not just of the current financial meltdown but of the previous decades of neoliberal
interventions on the incomes, health and prospects of the 99% and the damage done to the
values of fairness, trust and civic responsibility.
In the process, Stiglitz methodically and lyrically (almost joyously) exposes the myths
that provide justification for “deficit fetishism” and the rule of austerity. If George Osborne is
depressed at the ineffectiveness of Plan A, he should turn to Stiglitz’s succinct explanation on
page 230 to feel truly miserable. Cutting spending, reducing taxes, shrinking government and
increasing deregulation destroys both demand and jobs –and doesn’t even benefit the 1%.
For roughly 30 years after the second world war, the 1% had a steady share of the US
cake. In the five years to 2007, however, the top 1% seized more than 65% of the gain in US
national income. In 2010, their share was 93%. This did not create greater prosperity for all
(myth number one). On the contrary, much of this gain was “rent seeking”, not creating new
wealth but taking it from others; a modern wild west. In the last three decades, the bottom
90% in the US (figures that resonate in the UK) have seen their wages grow by 15%. The 1%
have seen their wages increase by 150%. Another myth is that bloated salaries are necessary
to retain high achievers. Except, as Stiglitz points out, the rewards are more often for failure.
The inequality gap is becoming a chasm. Stiglitz demonstrates how, in the US, those born
poor will stay poor yet nearly seven in 10 Americans still believe the ladder of opportunity
exists.
Stiglitz is one of a growing band of academics and economists, among them Paul
Krugman, Michael J Sandel and Raghuram Rajan, who are trying to inject morality back into
capitalism. He argues that we are reaching a level of inequality that is “intolerable”. Rentseekers include top-flight lawyers, monopolists (Stiglitz refers to the illusion of competition:
the US has hundreds of banks but the big four share half of the whole sector), financiers and
many of those supposed to be regulating the system, but who have been seduced and
neutered by lobbyists and their own avarice.
In the “battlefield of ideas”, while governments turn citizen against citizen by
demonising, for instance, benefit scroungers, what Stiglitz calls corporate welfare goes
unchecked. In 2008, insurance company AIG was given $150bn by US taxpayers –more, says
Stiglitz, than the total spent on welfare to the poor in the 16 years to 2006. Stiglitz is a
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powerful advocate for a strong public sector. He argues for full employment, greater
investment in roads, technology, education; far more stringent regulation and clear
accountability. Culpable bankers, he says, should go straight to jail.
Gross domestic product is an unsatisfactory measure of progress, he believes. Stiglitz
wants to see metrics that include the cost of inappropriate use of resources. He illustrates the
price of immiseration and unfairness. Management of Firestone tyres demanded much
longer hours and a 30% wage cut. The demand created conditions that led to the production
of many defective tyres. Defective tyres were related to more than 1,000 deaths and injuries
and the recall of Firestone tyres in 2000. Unfairness affects lives, productivity and,
ultimately, Stiglitz warns, the security of the 1%.
The Price of Inequality is a powerful plea for the implementation of what Alexis de
Tocqueville termed “self-interest properly understood”. Stiglitz writes: “Paying attention to
everyone else’s self-interest –in other words to the common welfare– is in fact a precondition
for one’s own ultimate wellbeing […] it isn’t just good for the soul; it’s good for business.”
Unfortunately, that’s what those with hubris and pleonexia have never understood –and we
are all paying the price.
Yvonne Roberts is an Observer leader writer and a fellow of the Young Foundation
Cf.: http://www.theguardian.com/books/2012/jul/13/price-inequality-joseph-stiglitz-review
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