by Valentina Milanese
The buzzword of the 2016 U.S. Election campaign will be income inequality. Politicians on both sides seem to be finally ready to talk about what some define as “the greatest challenge for the country today.” And while for many worried Americans this might seem like just another slogan, to many economists, “it’s about time!”
In his 2012 book The Price of Inequality, Nobel laureate Joseph Stiglitz explored the roots of inequality and its special features in the U.S. Income inequality in the States had reached “intolerable levels,” he wrote, hampering economic growth and creating increasing instability, to a degree beyond what could be ascribed to market forces alone. At such levels, inequality had to have been deliberately created. In other words, the colossal wealth gap was not, and still isn’t, either inevitable or necessary.
On the eve of the 2016 election, Stiglitz’s book should be on everyone’s nightstand. The picture he paints is bleak, so fair warning to those easily affected by tales of injustice, exploitation and the institutionalization of discrimination and privilege. It would certainly be more comforting to disregard these findings as sensationalist exaggeration. Yet as former Vice President and Chief Economist of the World Bank, former Chairman of the U.S. President’s Council of Economic Advisers in the Clinton Administration, Joseph Stiglitz can be considered one of the most influential economists in the world today, and his ideas are difficult to dismiss.
His premise is that high levels of inequality are not inevitable, not the outcome of well-functioning market forces, but have to be created through the purposeful manipulation of the rules of the game. If economy works according to the same market forces worldwide then something else must explain perversely high level of inequality in the U.S. Stiglitz’s answer is that the current situation disproportionately favors those already wealthy and powerful.”It’s one thing to win in a fair game,” he writes. “It’s quite another to be able to write the rules of the game – and write them in way that enhances one’s prospects of winning.” Those at the top of the economic pyramid are not creating new wealth, they are stealing already existing wealth from those that produced it, making money by literally taking it from the bottom and moving it upward and into their pockets.
The examples are legion: gaining monopolistic advantages, imposing regulations on competitors, regulatory capture, and more. These behaviors involve tampering with the regulatory system, through governmental polices that systematically eliminate the obstacles to the rich’s quest for ever-increasing profits while shifting the costs of maintaining the economy onto the bottom quartile. So it is politics, not economics that is at the root of the gap. “Much of the inequality that exists today is the result of government policy,” Stiglitz writes, “both what the government does and what it doesn’t. Government has the power to move money from the top to the bottom and the middle, or vice versa.”
More than the government’s allowing, if not actively contributing to, the development of an extremely unequal system, what is truly striking is the level of acquiescence with which these behaviors are met. What has made people tolerate the situation for so long is a feature unique to the American society: an unshakable optimism in everyone’s equal chances for success. The U.S.A. has always been the land of opportunity, what Republican Senator and presidential candidate Marc Rubio calls “a country of people who have made it and people who will make it”. This is the conviction that with ambition, determination and hard work, everybody can “make it,” a belief that is still alive and well, despite every sign pointing to the opposite. Says the U.S. TV host and a comedian John Oliver, “it is like people are saying: ‘I can clearly see this game is rigged, which is what is going to make it so sweet when I win this thing!’”
Unfortunately the reality is much less appealing: Among the advanced industrial countries, Stiglitz says, the United States has the least equality of opportunity.
With full equality of opportunity, 20 percent of those in the bottom fifth would see their children in the bottom fifth. […] That means they have a 70 percent chance of moving up. The chances of moving up in America, though, are markedly smaller (only 58 percent of children born to the bottom group make it out), and when they do move up, they tend to move up only a little. Almost two-thirds of those in the bottom 20 percent have children who are in the bottom 40 percent – 50 percent more than would be the case with full equality of opportunity.
In the book Stiglitz shows how upward mobility is becoming increasingly improbable for the majority of Americans: The American dream is rapidly becoming an American Myth.
While a crisis for the working class and the poor, this is a problem that Stiglitz sees as detrimental for everyone, so he writes in a language that is accessible and jargon free. Through the use of skillfully-placed examples, he helps his audience connect with the issue. In the first chapter he poignantly shows how the average family in the US lives: without economic security, and under the constant threat of something going wrong.
Consider for a moment a household with a single earner and two children. Assume that the earner is in good health and manages to work a full 40 hours a week at a wage somewhat above the minimum: say, around $8.50 per hour, so that after paying his Social Security tax, he gets $8 per hour, and thus receives $16,640 for his 2,080 hours. Assume he pays no income tax, but his employer charges him $200 a month for health insurance for his entire family This brings his take-home pay to $14,240 a year. If he is lucky, he might be able to find a two-bedroom apartment (with utilities included) for $700 a month. […] Like most Americans, he may consider a car a basic necessity; insurance, gas, maintenance, and depreciation on the vehicle could easily take up some $3,000. The family’s remaining funds are $2,840—under $3 a day per person— to cover basic expenses like food and clothing, not to mention things that make life worth living, like entertainment. If something goes wrong, there is simply no buffer.
At the same time CEOs are paid more than 200 times what an employee earn. “The top 1 percent get in one week 40 percent more than the bottom fifth receive in a year; the top 0.1 percent received in a day and a half about what the bottom 90 percent received in a year.” Stiglitz uses data and statistical figures to help the reader grasp the magnitude and the effects of the problem. It is sometimes hard to realize how much inequality has grown because it happens slowly. The numbers help to concretely underpin Stiglitz argument: 15 percent is how much the wages of the bottom 90 percent have grown over the last three decades; 150 percent is the increase the top 1 percent has seen; 300 percent is the increase for 0.1 percent; 15 percent is the percentage of the American population that lives in poverty; 37 percent of these live under the official poverty line making the U.S. one of the worst-ranking countries in the Organization for Economic Cooperation and Development (the more developed countries).
Stiglitz’s book is impactful. He writes to shock the American population out of the illusion that the system is working toward the realization of better conditions for everyone; people need to realize they are silently witnessing their own exploitation. Inequality is not inevitable – if those at the bottom would raise their voices they too can change the rules of the games. Hopefully enough people would have read “The Price of Inequality” come November 2016.