Here, an op-ed from today's New York Times - from Joseph Stiglitz. Please follow link to original
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http://campaignstops.blogs.nytimes.com/2012/10/26/stiglitz-some-are-more-unequal-than-others/?nl=opinion&emc=edit_ty_20121026
Joseph E. Stiglitz , a winner of the Nobel Prize in Economics and a
former chief economist of the World Bank, is University Professor at
Columbia University. His most recent book is “The Price of Inequality.”
This election has rightly been characterized as one that will deeply
affect the future direction of the country: Americans are being given a
choice with potentially large consequences. One arena in which there are
profound differences that has not been adequately debated is the future
course of inequality.
Mitt Romney has been explicit: inequality should be talked about only in quiet voices
behind closed doors. But with the normally conservative magazine The Economist publishing
a special series
showing the extremes to which American inequality has grown — joining a
growing chorus (of which my book “The Price of Inequality” is an
example) arguing that the extremes of American inequality, its nature
and origins, are adversely affecting our economy — it is an issue that
not even the Republicans can ignore. It is no longer just a moral issue,
a question of social justice.
This perhaps provides part of the
explanation for why inequality and poverty should suddenly appear as
part of the Romney-Ryan makeover, as they attempt to portray themselves
(to use a phrase of some 12 years ago) as compassionate
conservatives. In Cleveland on Wednesday, Paul Ryan gave a speech that
might lead one to conclude that the two Republican candidates were
really concerned about poverty. But more revealing than oratory are
budget numbers — like those actually contained in the Ryan budget. His
budget proposal guts programs that serve those at the bottom, and little
could have done more to enrich those at the top than his original tax
proposals (like the elimination of capital gains taxes, a position from
which he understandably has tried to distance himself). Every other
advanced country has recognized the right of everyone to access to
health care, and extending access was central to President Obama’s
health care reform. Romney and Ryan have criticized that reform, but
have said nothing about how or whether they would ensure universal
access. Most important, the macroeconomic consequences of the
Romney-Ryan economic program would be devastating: growth would slow,
unemployment would increase, and just as Americans would need the social
protection of government more, the safety net would be weakened.
We’d
all do well to pay a bit closer attention. That American inequality is
at historic highs is undisputed. It’s not just that the top 1 percent
takes in about a fifth of the income, and controls more than a third of
the wealth. America also has become the country (among the advanced
industrial countries) with the least equality of opportunity. Meanwhile,
those in the middle are faring badly, in every dimension, in security,
in income, and in wealth — the wealth of the typical household is back
to where it was in the 1990s. While the recession has made all of this
worse, even before the recession they weren’t faring well: in 2007, the
income of the typical family was lower than it was at the end of the
last century. While Obama may not have done as much as he should to
counteract the steep downturn he inherited from George W. Bush upon
taking office — and he underestimated the depth of the problems that had
been passed along to him — he did far more than his predecessor. And he
could have done far more, as the dimensions of the problem became
clearer to everyone, had he not faced such strong opposition in
Congress.
There are many forces giving rise to this high and
rising inequality. But the fact that America’s inequality is greater
than other advanced countries’ says that it’s not just market
forces. After all, other advanced countries are subjected to market
forces much like those confronting us. Markets don’t exist in a
vacuum. Government policies — or their lack — have played a critical
role in creating and maintaining these inequities.
Inequality in
“market incomes” — what individuals receive apart from any transfers
from the government — has increased as a result of ineffective
enforcement of competition laws, inadequate financial regulation,
deficiency in corporate governance laws, and “corporate welfare” — huge
open and hidden subsidies to our corporations that reached new heights
in the Bush administration. When, for instance, competition laws are not
enforced, monopolies grow, and with them the income of
monopolists. Competition, by contrast, drives profits down. What is
disturbing about Romney and Ryan is that they have done so little to
distance themselves from the economic policies of the Bush
administration, which not only led to poor economic performance, but
also to so much inequality. Understandably, perhaps, Romney has not
explained why those, like him, in the hedge fund and equity fund
business should be able to use a loophole in the tax law to pay 15
percent taxes on their earnings, when ordinary workers pay a far higher
rate.
Our government does less to correct these inequalities than
we did in the past, or than other countries do, and as disparities in
“market” incomes have increased, its efforts have diminished. It’s not
just a matter of redistribution, as some suggest. It’s in part a matter
of ensuring that those at the top pay a fair share of their taxes. And
it’s in part a matter of ensuring that those at the bottom and in the
middle get a fair start in life, through access to education, adequate
nutrition and health, and not being exposed to the environmental hazards
that have come to plague many of our poor neighborhoods.
But
Romney’s campaign likes to play tricks with numbers. When he unleashed a
tirade against the bottom 47 percent of supposedly freeloading
Americans (for which he has since apologized), he failed to note what
should have been obvious and has been pointed out repeatedly since he
made that remark: those Americans
do pay large amounts in taxes. These include (
and I’m hardly the first to point this out)
payroll taxes, sales taxes, property taxes, excise taxes, and even part
of the corporate income taxes that our major corporations manage to
pass on to their customers. He failed to note, too, the many older
Americans barely above poverty who receive social security payments, for
which they contributed through a lifetime of work. Yes, the rich may
pay a high and increasing share of the country’s total tax revenue, but
that’s only because they have a high and increasing share of our
national income— not because their rates have gone up.
Many of
the very rich, like Romney, are avoiding taxes because of numerous
loopholes that favor the rich, and capital gains taxes that are taxed at
less than half the rate of other income. The 14 percent rate Romney
reportedly paid on his income last year is well below that of Americans
of comparable income who worked for their money doing things like
creating a real business. Tax havens like the Cayman Islands (condemned
by the Group20 and all economic experts) facilitate another level of tax
avoidance. That the practice is legal is not an economic justification —
the loopholes that allow it were put in place by the rich and the
bankers, lawyers and lobbyists who serve them so well. We can be sure
that the money is not in the Cayman Islands just because it grows faster
in the bright sunshine there.
Putting all this together isn’t the
politics of envy, as Romney’s camp likes to complain, or even about
shaking a finger at the country’s real freeloaders. It’s about cold,
hard economics. Tax avoidance and low rates on capital gains — and the
inequality they amplify — are weakening our economy. Were the rich
paying their fair share, our deficit would be smaller, and we would be
able to invest more in infrastructure, technology and education —
investments that would create jobs now and enhance growth in the future.
While education is central to restoring America as a land of
opportunity, all three of these are crucial for future growth and
increases in living standards. Tax havens discourage investment in the
United States. Taxing speculators at a lower rate encourages speculation
and instability — and draws our most talented young people out of more
productive endeavors. The result is a distorted, inefficient economy
that grows more slowly than it should.
We can be sure that the money is not in the Cayman Islands just because it grows faster in the bright sunshine there.
The
Romney campaign, however, has defended inequality or brushed it aside.
To do so, it has employed a handful of economic myths. Here are a few of
the most important:
(1)
America is a land of opportunity.
While rags-to-riches stories still grip our imagination, the fact of
the matter is that the life chances of a young American are more
dependent on the income and wealth of his parents than in any of the
other advanced countries for which there is data. There is less upward
mobility — and less downward mobility from the top — even than
in Europe, and we’re not just talking about Scandinavia.
(2)
Trickle-down economics works (a k a “a rising tide lifts all boats”).
This idea suggests that further enriching the wealthy will make us all
better off. America’s recent economic history shows the patent falsehood
of this notion. The top has done very well. But median American incomes
are lower than they were a decade and a half ago. Various groups — men
and those without a college education — have fared even worse. Median
income of a full-time male worker, for instance, is lower than it was
four
decades ago.
(3)
The rich are the “job creators,” so giving them more money leads to more and better jobs. This
is really a subset of Myth 2. But Romney’s own private sector history
gives it the lie. As we all know from the discussion of Bain Capital and
other equity firms, many made their money not by creating jobs in
America but by “restructuring,” “downsizing” and moving jobs abroad,
often using debt to bleed the companies of money needed for investment,
and using the money to enrich themselves. But more generally, the rich
are not the source of transformative innovations. Many, if not most of
the crucial innovations in recent decades, from medicine to the
Internet, have been based in large measure on government-financed
research and development. The rich take their money where the returns
are highest, and right now many see those high returns in emerging
markets. It’s not a surprise that Romney’s trust fund invested in China,
but it’s hard to see how giving the rich more money — through more
latitude to escape taxation, either through low taxes in the United
States or Cayman Islands hide-aways — leads to a stronger American
economy.
(4)
The cost of reducing inequality is so great that,
as much as idealists would like to do so, we would be killing the goose
that lays the golden egg. In fact, the engine of our economic
growth is the middle class. Inequality weakens aggregate demand, because
those at the middle and bottom have to spend all or almost all of what
that they get, while those at the top don’t. The concentration of wealth
in recent decades led to bubbles and instability, as the Fed tried to
offset the effects of weak demand arising from our inequality by low
interest rates and lax regulation. The irony is that the tax cuts for
capital gains and dividends that were supposed to spur investment by the
wealthy alleged job creators didn’t do so, even with record low
interest rates: private sector job creation under Bush was
dismal. Mainstream economic institutions like the International Monetary
Fund now recognize the connection between inequality and a weak
economy. To argue the contrary is a self-serving idea being promoted by
the very wealthy.
(5)
Markets are self-regulating and efficient, and any governmental interference with markets is a mistake. The
2008 crisis should have cured everyone of this fallacy, but anyone with
a sense of history would realize that capitalism has been plagued with
booms and busts since its origin. The only period in our history in
which financial markets did not suffer from excesses was the period
after the Great Depression, in which we put in place strong regulations
that worked. It’s worth noting that we grew much faster, and more
stably, in the decades after World War II than in the period after 1980,
when we started stripping away the regulations. And in the former
period we grew together, in contrast to the latter, when we grew apart.
As
I have explained in detail elsewhere
, the
cost of these myths goes far beyond the damage to our economy, now and
in the future. The fabric of our society and democracy is suffering. The
worry is that those at the top are investing their money not in real
investments, in real innovations, but in political investments. Their
big contributions to the presidential and Congressional campaigns are,
too often, not charitable contributions. They expect, and have received,
high returns from these political investments. These political
investments, exemplified by those the financial institutions made,
yielded far higher returns than anything else they did. The investments
bought deregulation and a huge bailout — though they also brought the
economy to the brink of ruin and are a source of much of our
inequality.
Such political investments undermine and corrupt our
democracy. But there are other manifestations: America is fast becoming a
country marked not by justice for all, but by justice for those who can
afford it. (Just one of many examples is that no banker has been
prosecuted, let alone convicted, for banks’ systematic lying to the
court regarding the fraudulent practices that played so large a role in
the 2008 crisis.) And with the increasing influence of money, especially
notable in this election, the outcomes of our political process are
becoming more like one dollar, one vote than one person, one vote. It’s
even worse, because political inequality leads to economic inequality,
which leads in turn to more political inequality, in a vicious spiral
undermining our economy and our democracy.
Recognizing all this is
not class warfare. It is simply acknowledging the realities of life in
the United States, which Romney has not done. That should be cause for
concern: if you don’t recognize that there is a problem, and if you
don’t understand the sources and consequences, you will never work to
solve it.
Obama has at least touched on key elements: his
education policies, from “the race to the top” to the reforms of student
loan programs, will enhance opportunity. His tax proposals will do a
little bit about the extremes at the top. His jobs and investment
programs will expand growth now, and in the future, and these will be of
enormous benefit to those in the middle. Romney and Ryan have tried a
hard tack to the center in their rhetoric in recent weeks. But let no
one be deceived: their tax policies will lead to even more inequality at
the top, the continued hollowing out of the middle, and more poverty at
the bottom. Worst of all, they will lead to a more divided society that
endangers our future — our economy, our democracy and our sense of
identity as a nation.
