This is my review of The Price of Inequality by Joseph Stiglitz.
High-flying US economist “gone native”, Joseph Stiglitz provides a blistering attack on “the government of the 1% by the 1% for the 1%” in which this privileged minority has gained a massive proportion of national income and wealth, at an increasing rate, using its influence to “frame” the perceptions of the rest of the population who think it “fair” for the top 20% to have 30% of the wealth, without realising that the actual figure is 85%. The American dream of “the land of opportunity” is, he claims, a myth.
British readers are reminded strongly of our own situation as he describes the increase in poverty at the bottom end of the scale with cuts in benefits and income supplements, the hollowing out of middle class employment and polarisation of the workforce between “high” and “low” skills. The young are particularly affected by the burden of debts for university courses of often dubious quality which have led not to well paid jobs but rather ill-paid zero hours contracts.
Perhaps writing this at a time of undue optimism over the uprising of youth in the Arab Spring, he cites the parallel “Occupy” movements in the West which suggested people have had enough of the inequality which inevitably results in a less stable and, ironically, productive society. Matters were brought to a head by the financial crisis of 2007-8, stemming from the failure to regulate banks, and their cynical predatory lending of sub-prime mortgages to those unable to repay, which led in turn to the costly government bail-out of banks “too large to fail” – yet another example of the unfair protection of the wealthy at the expense of the poor. As Stiglitz points out, it would have been cheaper and more equitable to give state assistance directly to the struggling mortgage holders, enabling them to stay in their homes, thus maintaining communities, and to pay the lenders a proportion of the equity when they eventually come to sell. This may of course be an example of the perhaps Utopian approach Stiglitz follows in his ultimate set of proposals for “the way forward” in a better alternative world.
He has some intriguing revelations, such as the fact that despite Ben Bernanke’s stated support for transparency, the Federal Reserve was forced to admit that before the 2008 crisis it had even been lending money to foreign banks. “In the months after Lehman brothers collapsed, large banks like Goldman Sachs were borrowing large amounts from the Fed, whilst simultaneously announcing publicly that they were in excellent health.”
I was interested in his assertion that, rather than use austerity measures against the poor to cut deficits, it makes more sense to reduce some of the causes of the debt, such as the inflated cost of government procurement e.g. of military supplies, or the excessive charges demanded by pharmaceutical firms for the drugs needed by Medicare for the aged.
Stiglitz has a gift for explaining economic principles – excessive deregulation, “rent-seeking” by the rich, the inequity of monopoly, the underestimated costs of “negative externalities” like pollution – in very clear and accessible terms. My only criticism on this score is that the whole tortuous business of derivatives, flash trading and Credit Default Swaps could have been explained a little more clearly for the general reader, together with the way taxation of companies can be manipulated to increase fairness.
His wide-ranging reform agenda at the end is a little rushed and compressed, with some policies such as “maintenance of full employment” (which he argues to be more important than focusing on inflation) or “correcting trade balances” or “legal reform to increase democratic access to justice” being complex topics each deserving a book in its own right. He is effectively advocating a form of democratic socialism which may be more familiar to Europeans yet revolutionary to free market individualistic “stand-on-your-own-feet” Americans. I keep wanting to tell him that all this has been attempted, but is much harder than he makes it sound, to the extent that many well-intentioned politicians have rowed back on their idealism. However, it is refreshing to find an eminent American economist so full of conviction with his heart in the right place – he must really irritate some of his former right-wing colleagues of the 1%.