Joseph Stiglitz is l professor of economics at Columbia University. He wrote many books, and the one I recently read was The Price of Inequality. Really a tour de force. He has a conscience, is extremely qualified (he was with the World Bank until they fired him, has a Nobel Prize, etc.), and writes in a manner that is easily grasped. Here are some myths he brings up in his powerful and well-researched book on inequality. They are myths of America’s capitalistic system – perhaps a better word is our crony-capitalistic system. If free market capitalism is problematic, crony capitalism downright stinks.
Myth #1: “Inequality fuels growth” (note the myths are in my words, not Stiglitz’s). Wrong. Inequality compromises growth and creates a dysfunctional society. Stiglitz writes: “We are paying a high price for the inequality that is increasingly scarring our economy— lower productivity, lower efficiency, lower growth, more instability— and that the benefits of reducing this inequality, at least from the current high levels, far outweigh any costs that might be imposed.” Further, he notes that “[t]he bottom line, though, that higher inequality is associated with lower growth – controlling for all other relevant factors – has been verified by looking at a range of countries and looking over longer periods of time.”
Noted economist Jared Bernstein says that “[f]inancialization of markets, the underpricing of risk, and the inflation and implosion of massive asset bubbles seems clearly and recently correlated with more inequality and our protracted recession/growth slog.” Here is a chart from his website that illustrates the two variables: growth and income inequality. It seems fairly obvious to me, but there are some mixed data. Stiglitz definitely feels it is one of the myths of America’s capitalistic system.
Here is a fantastic critique of income inequality by the ever-engaging John Oliver on his show Last Week Tonight.
The topic of economic inequality has been inescapable in recent years. It’s become a talking point for everyone from famed economists to President Obama. And with good reason: The gap between the nation’s wealthiest and everyone else has been growing. And in the wake of an economic crisis that left scores of Americans unemployed and vastly devalued their largest assets, the rapid recovery of the wealthy as so many continue to struggle can feel painfully unfair.
Myth #2: “Cut taxes on the wealthy, and the benefits will ‘trickle down’ to the lower social classes through spending and job creation and such.” Wrong. There is no evidence that “trickle-down economics,” as it has sardonically been called since the time of Reagan, works. There is evidence that it does not work. Kansas is an abominable example, as this Washington Post opinion piece indicates. Cenk Uygur kills it in this devastating critique of what is officially known as supply-side economics. Or, as George H. W. Bush lampooned such myths of America’s capitalistic system, “voodoo economics.” Really. Here is a more dispassionate summary of the concept pioneered by the dubious scholar, Arthur Laffer.
Nobel Prize-winner and New York Times columnist Paul Krugman, Ph.D., put it baldly: “Modern conservatives have been lying about taxes pretty much from the beginning of their movement. Made-up sob stories about family farms broken up to pay inheritance taxes, magical claims about self-financing tax cuts, and so on go all the way back to the 1970s. But the selling of tax cuts under Trump has taken things to a whole new level, both in terms of the brazenness of the lies and their sheer number. Both the depth and the breadth of the dishonesty make it hard even for those of us who do this for a living to keep track.”
The fact is that riches given to the top income bracket and to corporations (in the form of tax cuts) comes at the expense of those at the middle and the bottom. Money saved by the rich is really made up by the other classes. The libertarians like to bring up “the pie analogy” to indicate that “it’s not a zero-sum game” and that we can expand the size of the pie, economically speaking, and then even the poor person’s slice grows. I am incredulous about that. I believe it is likelier that there is only so much pie to go around, and when the rich eat the lion’s share, there is less for the rest of us. In other words, the middle class gets socked with a higher burden to provide for society’s needs: military spending, debt repayment, cleaning up Agent Orange-contaminated soil in Vietnam, Secret Service protection for all of Trump’s family members at their various mansions, and the like.
“In 1960, the moguls of America paid a marginal tax of 90 percent on their incomes, which translated into an effective rate – after all deductions and credits – of some 50 percent. They also paid hefty taxes on their capital gains. And when they died, their heirs paid estate taxes. But in 1960, it was also the case that over two-thirds of Americans trusted government to do the right thing all or most of the time, according to survey research. Now, the moguls pay an effective rate of about 15 percent of their incomes,” shows former Clinton administration Secretary of Labor,
It is true that the wealthy pay the largest share of the national bills. But the fact that if they have very low taxes (regressive taxation) the benefits will be shared with the other social classes is one of the persistent myths of America’s capitalistic system. However, to use an analogy, that would be like three men moving a couch up stairs; one is an Arnold Schwarzenegger type, one is built like Harrison Ford, and the other is Oprah Winfrey. Who should be doing the heaviest lifting? Who is most capable of it on this team of three movers? Harrison Ford worked a shift last night to try to make ends meet and weighs 175 pounds. Oprah didn’t sleep at all last night because she has two sick children, walked to work, and is a woman.
Given the decline in the middle class, given the increase in poverty, and given the fact that the wealthy and large corporations have never had it so good, Americans may find it strange that the Republicans in Washington would use this opportunity to make savage cuts to Medicare, Medicaid, education, nutrition assistance, and other lifesaving programs, while pushing for even more tax breaks for the wealthy and large corporations. Unfortunately, it is not strange. It is part of their ideology.
Myth #3: “America is the land of opportunity.” Maybe once it was. Maybe. Now it is just one of the pernicious myths of America’s capitalistic system. Often it is used to derogate those who, because of luck or systemic factors, are not “a success.” Economist Thomas Piketty claims that: “The very high concentration of capital is explained mainly by the importance of inherited wealth and its cumulative effects….” Issues such as inheritance and the stupendous pay CEOs, upper management, celebrities, and industrialists make concentrate money at the top, where it primarily is used to make more money for the well-to-do. They live off “rents.” They often don’t work very hard once they have “made it.” They let their money work for them.
Piketty adds: “In the most inegalitarian [economically unjust] countries, such as the United States in the early 2010s…, the top [10% of the richest Americans] gets 35 percent of the total [available wealth], whereas the bottom [half, about 150,000,000 people] gets only 25 percent.” If you think that your chances of moving up a social class (e.g., becoming rich, or moving up from poverty, or whatever is relative to your current position) are good, think again. Very few people become rich. Education is the great leveler, but there are also barriers to entry. It takes money to make money, as they say. Have you heard of The Golden Rule: he who has the gold makes the rules.
Philosopher Kai Nielson identifies equality of opportunity as a “…condition where necessary burdens of the society are equally shared, where to do so is reasonable, and where each person has an equal voice in deciding what these burdens shall be. …To control his own life.” He further notes that “… equality is a goal. When we are in a position actually to achieve that goal, then that same equality becomes a right. The goal we are seeking is any quality of basic condition for everyone.”
That may be going too far. But note the difference between a free-market system, equality of opportunity and equality of condition. The first says, basically, this is a free society; you can sink or you can swim; up to you. This is obviously riddled with practical and moral problems. The second holds that society will make efforts to ensure that everyone starts this race at the same point; no massive inheritances, no stunning differences in educational quality or the ability to obtain a good and affordable education; Head Start and quality daycare and the like. Your basic welfare state stuff. The good news is that both sides of the aisle should be able to agree on these measures to ensure everyone gets a fair chance at social and economic justice. The third, equality of condition, is what someone like Kai Nielson is lobbying for: a kind of radical egalitarianism whereby society is totally reformed such that to the degree possible, everyone gets minimal needs met before anyone gets the opportunity to enjoy having their wants indulged. Before you get season baseball tickets and three weeks of European vacation, everyone gets food and shelter. Sounds reasonable. Politically, it’s hard to get instituted because of a couple different reasons.
While race certainly has its role, American poverty is most firmly rooted in a class system—a system maintained by an economy that allocates the wealth of society to those who already have the most. One of the ways that wealth is created is to ensure that unskilled workers are not paid a living wage.
The point here is that America isn’t really the land of equal opportunity – let alone equal conditions. Did you know that, as Stiglitz points out, a child who is poor and does well in school has a worse chance of succeeding (economically, occupationally, etc.) than a rich kid who is less capable and less motivated?? Financial resources decide the success of many in this society. That is very questionable from an economic justice point of view, is it not?
Critic of capitalism Thomas Piketty, no slouch when it comes to credentials to speak on this topic, points out that: “…the available data suggest that social mobility has been and remains lower in the United States than in Europe. One possible explanation for this is the fact that access to the most elite US universities requires the payment of extremely high tuition fees. Furthermore, these fees rose sharply in the period 1990–2010, following fairly closely the increase in top US incomes, which suggests that the reduced social mobility observed in the United States in the past will decline even more in the future.”
[A more demanding, civic conception of freedom reminiscent of Thomas Jefferson or the New Deal], at the very least, can remind us of questions we have forgotten to ask: How can powerful economic forces be brought to democratic account? Is self-government possible under conditions of a global economy? In a pluralist age marked by multiple identities and complex selves, what forms of commonality can democratic societies hope to inspire?
What does it matter that social mobility is lower here than on the continent that gave us the Hapsburgs, The Palace of Versailles, and Downton Abbey? Well, morally it is a slam-dunk to lambaste it. However, a lot of the turmoil that goes on in society is unnecessary. Much of it is a by-product of income inequality, wealth inequality, and these myths of America’s capitalistic system. Piketty writes: “Political democracies that do not democratize their economic systems are inherently unstable.” He is saying that our country will be unstable to the degree that it doesn’t make the economic system a lot fairer. Think of suicides, raucous Town Hall meetings, unemployment, protests, and bankruptcies.
A tad complicated, this paragraph by Piketty in his book Capital in the 21st Century is chock-full of depth and significance: “Our democratic societies rest on a meritocratic worldview, or at any rate a meritocratic hope, by which I mean a belief in a society in which inequality is based more on merit and effort than on kinship and rents. This belief and this hope play a very crucial role in modern society, for a simple reason: in a democracy, the professed equality of rights of all citizens contrasts sharply with the very real inequality of living conditions, and in order to overcome this contradiction it is vital to make sure that social inequalities derive from rational and universal principles rather than arbitrary contingencies. Inequalities must therefore be just….”
Myth #4: “The rich contribute to society and create jobs and deserve their largesse.” Typically, the wealthiest group of Americans just looks out for #1. They take their vacations privately, live in homogenous, insular communities, and send their kids to fantastic schools. Their “rent-seeking” activities occupy much of their focus: these are gaining income by owning assets which produces wealth – sometimes literally rent, sometimes capital gains, dividends, etc. These investments which grow and “throw off cash” contribute nothing directly to society, except through taxation, and even then it isn’t a large share (capital gains taxes are 20% for the highest tax bracket – and probably going down under GOP governance). Many wealthy people have gotten busted for storing profits off-shore as of late, as the disclosed “Paradise Papers” reveal.
CEOs are not particularly giving when it comes to charity. Nor do they tend to lobby for higher wages on the principle of the matter (they are sucking up quite a bit of the company’s resources with their own pay, in many astonishing examples). They also don’t “create jobs” with their take-home pay. Why would they? They have Harvard to pay for, vacations to take, and bonds to buy. Nick Hanauer makes that clear. Here is a TED talk in which he warns fellow multimillionaires that “the pitchforks are coming” and that they ought to wise up. Ah, how it must feel to serve lunch to the country club set while making $12 an hour. “The most important characteristic which is woefully lacking in today’s elites has nothing to do with the class they came from. It is a sense of stewardship and responsibility afforded because of accumulated family wealth. Where are those who have the wealth to contribute and talent to lead, and desire to do so for a mission, not the accumulation of more wealth?”
The only cure is a redistribution of the wealth in this country. First to our own impoverished and then to every starving soul on the planet. We could feed everybody that was making some attempt at living lives of value.
Myth #5: Quality of life is good here.” Not for millions it isn’t. Fact: the U.S. ranks 23 in indices of health, education, and income equality. Behind all the industrialized, Western-style European countries, the Scandinavian countries, and Australia and New Zealand. Hell, Cuba has a lower infant mortality rate than we do. Let that sink in for a minute.
SEDA – the Sustainable Economic Development Assessment – shows details. This is a diagnostic tool that gives countries insight into their overall social and economic conditions. They base their assessment on three major areas:
1. ECONOMICS: This element gauges how a country is performing in terms of generating balanced growth. This provides a basis for the country to invest in the other two elements. Economics are measured according to:
- Income. Wealth or GDP per capita
- Economic Stability. Inflation and the volatility of GDP growth
- Employment. Employment and unemployment levels
2. INVESTMENTS: The following areas—major items in any government budget—encompass short- and long-term investments that help drive improvements in both economic growth and well-being over time.
- Health. Access to health care, and mortality and morbidity rates
- Education. Educational quality and access
- Infrastructure. Water, transportation, sanitation, and communications
3. SUSTAINABILITY: Sustainability is defined broadly to encompass social inclusion and the environment. It studies:
- Income Equality. Income disparities across the population
- Governance. The effectiveness and quality of government institutions, along with accountability, stability, and civic freedoms
- Environment. The quality of the environment and policies aimed at improvement and preservation
- Civil Society. The strength of the bonds among individuals, including the degree of intergroup cohesion, civic activism, and gender equality
HERE are the results. You will see that Norway kills it and the U.S. is not great, considering how much actual income the average American makes. In other words, the $55,000 or whatever the average income per family is doesn’t go very far here. How could it, when many have to pay directly for health insurance (or see less pay if their company offers it as a perq), the pharmaceutical companies and insurance companies are 800-lb. gorillas, and the average (unsubsidized) cost of health insurance for a family is $12,250 per year?
Many countries have higher scores, and include Austria, Iceland, Finland, Sweden, Denmark, Holland, Germany, Switzerland, and Belgium. France, the U.K., and Canada are about tied. Considering the low government corruption and excellent environmental conditions in New Zealand, that isn’t bad either. The images displaying the quality of life in Norway and the U.S. (bottom) are below (focus on the green bars and how high they come up the scale):
I will end with some quotes about the myths of America’s capitalistic systemfrom some of my favorite critics:
Louis Brandeis’s primary concern was with the civic consequences of economic arrangements. He opposed monopolies and trusts not because their market power led to higher consumer prices but because their political power undermined democratic government.
The idea that people could be free is extremely frightening to anybody with power.
It did not escape my attention, as a temporarily low-income person, that the housing subsidy I normally receive in my real life—over $20,000 a year in the form of a mortgage-interest deduction—would have allowed a truly low-income family to live in relative splendor.
The moral crisis of our day has nothing to do with gay marriage or abortion. It is insider trading, obscene CEO pay, wage theft from ordinary workers, Wall Street’s gambling addiction, corporate payoffs to friendly politicians, and the billionaire takeover of our democracy.
“Bankruptcy reform” is a classic euphemism in a Congress addicted to misnomers. In reality, the legislation guts the Bankruptcy Code and, in effect, turns the bankruptcy courts into collection agencies for the biggest financial corporations, credit-card companies, car dealers, entertainment companies, and gambling casinos.
For Reagan, the curse of bigness attached to government alone. Even as he evoked the ideal of community, he had little to say about the corrosive effects of capital flight or the disempowering consequences of economic power organized on a vast scale.
The idea that real people and giant corporations have equal rights under our Constitution makes a mockery out of the principle of ‘equal justice under the law.’
If you want to understand the way any society works – ours or any other – the first place to look is who is in a position to make the decisions that determine the way the society functions.
I hope you enjoyed my take on these myths of America’s capitalistic system. Here is a podcast that no doubt will touch on some of the myths of America’s capitalistic system, entitled A Progressive Perspective on the American Economic System.