In the two decades from 1950 to 1970, the diminution of inequality was due to some degree to the market, but, as Joseph Stiglitz points out, “… even more to government policies, such as the increased access to higher education provided by the G.I. Bill and the highly progressive tax system and acted during World War II.”

Economist Joseph Stiglitz notes that the ups and downs and booms and busts occurred to many countries – and I would note that it was more of a domino effect starting with the United States than some kind of “whack-a-mole,” to mix metaphors. He assures the reader: “But it is not inevitable. Is not the inevitable workings of the market economy. There are societies that have managed to things far better…. Those societies produce a standard of living higher than that of the United States for most of their citizens, measured not just in terms of income but in terms of health, education, security, and many other aspects that are key to determining the quality of life.” In some of the most inspiring language of his incredible book, Stiglitz writes this: “another world is possible. We can achieve a society more in accord with our fundamental values, with more opportunity, a higher total national income, a stronger democracy, and higher living standards for most individuals. It will be easy. There are some market forces pulling us the other way. Those market forces are shaped by politics….”

Economist Joseph Stiglitz writes that: “Everyone possesses self-interests in a narrow sense: I want what’s good for me right now! Self-interest ‘properly understood’ is different. It means appreciating that 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 well-being.” He notes that Tocqueville referred to this spirit of thought as “a mark of American pragmatism.” He hits it out of the park with this communistic viewpoint: “The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this has been something that the top 1 percent eventually do learn. Often, however, they learn it too late.” He also points out that there are two visions of society, and he believes that “this second vision is the only one that is consistent with our heritage and our values.” The first vision is about “the haves” and “the have-nots,” one of gated communities and working poor. He refers to the alternative with the following: “The other vision of a society where the gap between the haves and the have-nots has been narrowed, where there is a sense of shared destiny, a common commitment to opportunity and fairness, where the words ‘liberty and justice for all’ actually mean what they seem to mean….”

A lot of the people in the economy are living at the edge, and you have an event like this that pushes them over. And we are unique in the advanced world in having people at the edge without a safety net below them.

We built an economy with no shock absorbers; we made a system that looked like it was maximizing profits but had higher risks and lower resiliency.

…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.

At their best, markets have played a central role in the stunning increases in productivity and standards of living in the past two hundred years. …[b]ut government has also played a major role in these advances, a fact that free-market advocates typically fail to acknowledge. On the other hand, markets can also concentrate wealth, pass environmental costs onto society, and abuse workers and consumers.

Markets, by themselves, even when they are stable, often lead to high levels of inequality, outcomes that are widely viewed as unfair.

When the norms of a society change in a way that so many have lost their moral compass, it says something significant about the society. Capitalism seems to have changed the people who were ensnared by it. [He goes on to talk about business schools and how they attract people with a glittering prize, and pull them away from more legitimate professions.]

While there may be underlying economic forces at play, politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest.” [He goes on to call the system] “a vicious nexus between politics and economics.”

It was the realization that the standard model didn’t describe well the world we live in that set me off on a quest for alternative models in which market imperfections, and especially imperfections of information and ‘irrationalities,’ would play such an important role. Ironically, as these ideas developed and gained currency within some parts of the economic profession, the opposite notion— that markets worked well, or would, if only the government out of the way— took hold within much of the public discourse.

One of the darkest sides to the market economy that came to light was the large and growing inequality that has left the American social fabric, and the country’s economic stability, fraying at the edges: the rich are getting richer while the rest were facing hardships that seemed inconsonant with the American dream.

Countries around the world provide frightening examples of what happens to societies when they reach the level of inequality toward which we are moving. Is not a pretty picture: countries where the rich live in gated communities, waited upon by hordes of low income workers; unstable political systems where populists promise the masses a better life, only to disappoint. Perhaps most importantly, there is an absence of hope. In these countries the poor know that their prospects of emerging from poverty – let alone making it to the top – are minuscule. This is not something we should be striving for.

The level of inequality and the absence of opportunity that we see in the United States today is not inevitable, nor is its recent rise simply the product of inexorable market forces.

Market forces— the laws of supply and demand— of course inevitably play some role in determining the extent of economic inequality. But those forces are at play in other advanced industrial countries as well.

Now most workers have defined-contribution schemes, where the individual is left with the responsibility of managing his or her retirement accounts— and bearing the risk of stock market fluctuations and inflation. There’s the obvious danger: if the individual had listened to financial analysts and put his or her money into the stock markets, they took a beating in 2008. The great recession thus represented a triple whammy for many Americans: their jobs, their retirement incomes, and their homes were all at risk.