The Nobel laureate assesses the current state of the U.S. economy, inequality and poverty in the country, as detailed in his text, The Price of Inequality.
Economist Joseph Stiglitz
Tavis: Joseph Stiglitz is a Nobel Prize-winning economist and best-selling author who previously joined us on this program for his text, “Freefall.”
His latest is a frank and timely assessment of the state of the American economy. It’s called “The Price of Inequality: How Today’s Divided Society Endangers Our Future.”
He joins us tonight from Boston. Professor Stiglitz, good to have you back on this program, sir.
Joseph Stiglitz: Nice to be here again.
Tavis: Let me start, if I can, with the news of the day, the elections in Greece. Your sense of what happened there and how what happened there impacts us here?
Stiglitz: Well, it looks like they pulled back from the brink for the moment, but it doesn’t solve anything within Europe. The fundamental problem is the euro is a construct that doesn’t work and the remedy to the current problems that Europe, Germany is pushing on Spain, Greece and other country’s austerity is bringing unemployment.
25 percent unemployment, 50 percent youth unemployment, making the problems only worse. Unfortunately, there’s no light at the end of this particular tunnel.
Tavis: What’s the impact gonna be on us?
Stiglitz: Well, a European slowdown inevitably will hurt us. The problem in America today is lack of demand. One of the reasons for that lack of demand is our high level of inequality, one of the ways in which we’re paying a high price for this inequality.
President Obama talked about the possibility of exports filling in the gap, but if our export partners are going into recession – and Europe is already in recession – it’s going to be impossible for us to export our way out of this recession, out of this downturn. That means we’ll have to turn to what we can do at home.
Tavis: Exporting is one thing. The president, though, has been talking certainly earlier this year about insourcing. What do you make of that and are we having any success with that notion?
Stiglitz: Well, it is true that there is some possibility of expanding manufacturing. Manufacture has been in a strong decline and there are some indications that it can be slightly arrested.
But let’s be frank about it. The total number of jobs in the world in manufacturing is going down. We saw it in the success we’re having, success in increasing productivity faster than the rate of growth in demand for manufacturing goods. So global employment in manufacturing is going to go down.
Our share of that global employment is going to go down and therefore that can’t be the basis of the restoration and strength in the American economy. We’re going to have to restructure our economy. There’s no two ways about it.
Tavis: Restructure in what way?
Stiglitz: Well, in the beginning of the 20th century, we went from agriculture to manufacturing. Now we’re going from manufacturing into a service sector economy, into increasing importance, education, health.
We’ll have to go into design, cultural activities, a whole set of things that will, I think, raise our living standards. But it will be different from the economy of the mid-20th century.
Tavis: I’ve asked this question before, Professor, but not of a Nobel economist. Let me ask you. What’s the best reason you can give me for why American companies making more money at home and shipping more jobs abroad are motivated to put Americans back to work?
If you know that you can do more with less, if you know that what matters most to the shareholder is the bottom line, even a CEO who may be well-intentioned wants to do his part or his company’s part to put Americans back to work.
I can’t think of a good reason for doing that. If the bottom line is what you’re gonna squeeze out for the shareholder and you’ve laid all these people off, why ever bring them back?
Stiglitz: Well, you’re raising a broader issue. A lot of the economic activity in the United States is not designed to increasing the size of the American economic pie. A lot of it is going to efforts that I call ring-seeking, getting a larger share of our economic pie.
That’s one of the reasons that we have so much inequality today. It’s one of the reasons why our economy is not performing so well today. So that brings us to the issue of how do we change the rules of the game to make a level playing field, to make our economy more efficient and less equal?
Tavis: How does this talk about deficit reduction get in the way of doing what you suggest ought to be done in this book, “The Price of Inequality?”
Stiglitz: Well, one of the reasons that inequality is so bad is that it breaks down the social consensus, the willingness of the country to work together, including working together to make investments in our common good, investments in infrastructure, in technology and education.
One of the things that most Americans don’t realize has happened is that we are no longer the country with the most opportunity. In fact, it’s quite the opposite. We’ve become the country with the least equality of opportunity of any of the advanced industrial countries.
The life prospects of an American are more dependent on the income and education of his parents than in any of the other advanced industrial countries for which there is data.
That is a result, in part at least, of under-investment in education. So by investing more in our country, investing in a whole variety of areas, we’ll make our economy stronger and we’ll create more equality.
But, unfortunately, the austerity program is going to reduce the amount that’s available. When you have the very top one percent have their own schools, their own parks, their own private transportation, they don’t depend on this kind of collective investment that the rest of our society requires so much.
Tavis: I’m not pointing the finger, obviously, at you personally or directly, but the argument has been made a thousand times in part by me and others that a lot of what we are dealing with now vis-à-vis inequality and the price that we’re paying for it can be mapped back – charted back, that is – to the Clinton years.
You were offering advice to the Clinton years. Again, I don’t want the finger at you personally. You know exactly who I’m talking about. You know exactly those policies that found their way onto the books during the Clinton years.
So how much culpability to do we want to lay at the feet of a Democrat or a Democratic administration for the mess we find ourselves in today?
Stiglitz: Well, yeah, let’s be frank. There’s shared responsibility. Let me just mention two things that started in the Clinton administration or at least continued from Bush onto Clinton. Actually, back to Reagan, Bush, Clinton and then continued and the second Bush administration got much worse.
Let me mention two of them. One of them is the reduction of capital gains taxes. That meant the people at the top were paying much less than people who work for a living. Even worse, we tax speculators at a much lower rate than we tax people who work for a living.
The top one percent today pays an average tax rate of 15 percent, again much lower than those whose income is much lower. And it’s not as if they are as a result contributing more to society. In fact, this is leading to the distortion of our society.
The other thing that occurred in the Clinton administration was the weakening of financial regulation. It continued under the Bush administration.
Again, it’s a kind of activity that was more directed at moving money from the bottom to the top, then creating more wealth. Predator lending, abusive credit card practices, but meanwhile, the banks weren’t lending to create the new jobs that would make a stronger economy.
So again, by deregulation, we didn’t make a stronger economy. We made a bubble economy that eventually broke and left us in the situation we are in today.
Tavis: There are those who feel, Professor, that what you’re calling for – that is to say, more equality and growth are oxymoronic.
Stiglitz: The right has tried for a very long time to sell a bill of goods. They tried to say we could only get more equality if we give up on economic growth. They say you shouldn’t complain anyway because trickle-down economics where it’s you throw money at the top and everybody’s gonna benefit. Nothing could be farther from the truth.
I wish trickle-down economics worked because we’ve thrown so much money at the top that, if it did work, all of us would be much better off. But, in fact, it hasn’t worked.
In fact, people in the middle today are worse off than they were 15 years ago. Wealth today in the middle – data just came out last week – is today at the level that it was 20 years ago. No progress has been made for the average American.
So the fact is, the main argument in my book is that we can have a better economy, a faster economic growth and a more fairer society with less inequality by getting at some of these distortions in our economy, monopoly power, distorting financial sector, CEOs who grab a larger and larger share of the corporate pie. By doing that, we’ll get a better economy.
Tavis: But you also argue that the government might have to get involved in redistributing wealth if the markets are too disparate. To someone else’s ears, that sounds like class warfare.
Stiglitz: You know, Warren Buffett said in response to this charge of class warfare, we’ve had class warfare for a long time and our class has been winning. In my mind, this is not really about class warfare.
What we’re talking about here is, if the top uses its political influence to get laws and regulations that benefit them at the rest of our society, that’s a fact and that’s a distortion to our economy from which we all suffer.
When you have a bankruptcy law that says derivatives get first claim, first priority, get paid before anybody else, what you’re doing is encouraging derivatives. That means the economy gets distorted towards these speculative activities that led to the AIG bail-out of $150 billion dollars.
On the other hand, if you have a bankruptcy law that says student loans can’t be discharged even in bankruptcy, even if the school doesn’t give the education that was promised, then we’re making life so much more difficult for those at the bottom, those who are striving to make their way in our rough society.
So to me, what we need to do is to take an objective look at our laws and regulations and the way that they are not only advantaging the top, disadvantaging the bottom, but actually weakening our economy.
Tavis: Finally here, I’ve argued that poverty – an issue that you talk about in this text, “The Price of Inequality” – I’ve argued that poverty threatens our very democracy long-term. Is that too strong a claim?
Stiglitz: Oh, I think you’re absolutely right. I mean, if our society is gonna work, we’re gonna have to work together and that means you cannot have the extremes, the extremes either at the top or the extremes at the bottom. Of course, poverty is what we call the extremes at the bottom. Poverty has been growing in the United States.
Now I was in India not long ago and across their front page was the story about how one out of seven Americans are on food stamps, one out of seven Americans are facing insecurity, going to bed at least once a month hungry not because they’re on a diet, but because they can’t afford food.
They were so interested and the reason they put it on the front page was they couldn’t believe that here this rich society couldn’t provide food security, couldn’t provide food for all Americans. Our failure there is undermining, I believe, our future.
Tavis: The latest book from Joseph Stiglitz, winner of the Nobel Prize in economics, is called “The Price of Inequality: How Today’s Divided Society Endangers Our Future.” Professor Stiglitz, as always, good to have you on the program and thanks for the book.
Stiglitz: Nice to be here.
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