The price of inequality

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Joseph E. Stiglitz (2012)

The price of inequality: How the division of society threatens our future is the title of the German translation of the book The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz from 2012.

author

Joseph E. Stiglitz was Professor of Economics at Yale , Oxford , Princeton and Stanford Universities . As chairman of the council of economic advisors , he was a member of the cabinet under US President Bill Clinton before he was chief economist of the World Bank from 1997 to 2000 . In 2001 Stiglitz was awarded the Nobel Prize for Economics for his research . Stiglitz has taught at Columbia University since 2001 and was also chairman of the International Economic Association at the time the book was published .

content

In this book, Stiglitz deals with the causes and consequences of increasing social inequality in the USA. He also discusses whether the ever-increasing level of inequality can be legitimized in his view. Finally, he presents an agenda with economic and political measures that he believes are necessary to counteract growing inequality.

Causes of inequality

According to Stiglitz, the basic prerequisite for a functioning and efficient economic system is that the financial reward from economic activity is a measure of the contribution to the common good. Situations in which this is not the case and instead there is a large discrepancy between private returns and societal benefits would be called market failures . Stiglitz cites as reasons for the occurrence of market failure u. a. external effects , asymmetrical information and market monopolies . Market failure of this kind would offer the opportunity to earn income without performance (called pensions - as opposed to wages as remuneration for work) from property or monopolies and to pass costs that arise from individual action on to the general public. Since this type of income proves to be particularly profitable, according to Stiglitz, and makes up a large part of the income of the richest percent , there would be a great incentive for behaviors that lead to such pension income ( rent-seeking ). Examples include “the ability to circumvent the law or manipulate it for one's own benefit; willingness to take advantage of others, even the poor, and, if necessary, to play unfairly ”.

The occurrence of market failure and the associated development of a rent economy are for Stiglitz a main reason for the increasing inequality . In the financial sector in particular, the pursuit of pension income is widespread and not only leads to injustice, but also to a destabilization of the entire economy. From his point of view, the main responsibility for the high level of inequality lies with politics, which can shape the rules of the game for the markets through their actions and omissions.

He sees the reason for the failure of those politically responsible in distribution issues to be the asymmetrical influence of different interest groups. The top one percent in particular can assert its interests much more strongly than large parts of the population through unlimited party donations , media control and lobbying than large parts of the population ( one dollar, one vote. ). This influence is particularly successful because the strategy consists of shaping public opinions and perceptions in such a way that large sections of the population ultimately even support a policy that is harmful to themselves and only benefits a few others. In this context, he writes verbatim “that the rich have the instruments, the means and the incentives to influence beliefs in a way that is beneficial to their interests. You don't always win - but it's not a match between equals. "

Legitimation of inequality

In the fact that a large part of the inequality results from rent-seeking activities, Stiglitz sees a central problem of justice: Those who earn high salaries are often not those who have made the greatest contributions to the common good. Often these salaries resulted from “devising better strategies to exploit market power and other market imperfections , and often also to ensure that politics serve their interests and not those of the general public”. On the other hand, the merits of individuals who made a major contribution to the common good (e.g. inventors and scientists) would receive comparatively little financial recognition. As examples, he cites John Bardeen , Walter Brattain and William Shockley (invention of the transistor ), Alan Turing (mathematical foundations of the modern computer) and Tim Berners-Lee ( World Wide Web ), whose inventions were the basis for corporate empires from billionaires like Steve Jobs or Mark Zuckerberg .

The extreme degree of inequality can therefore not be justified with performance principles - on the one hand because there is "at best a weak connection between salary and social benefit" and on the other hand because "the contributions of individual individuals cannot basically be differentiated from those of other individuals". Much of the progress is ultimately based on publicly funded basic research and the inherited contributions of many generations. It should also be remembered that no one can be successful on their own. There are "in the developing world many intelligent, hard-working, energetic people who remain poor - not because they lack skills or because they did not try hard enough, but because they work in dysfunctional economies."

Effects of Inequality

Stiglitz names different effects of the high inequality in the USA. On the one hand, there is hardly any upward social mobility , as it is associated with the American Dream . Life chances, on the other hand, are largely determined by the income of the parents, which manifests itself in access to education and the legal system. Another problem arises in combination with a lack of social safety nets: The loss of a job, the home or a serious illness could have existential consequences for the majority of Americans.

Above all, however, an extreme level of inequality is a permanent threat to democracy (especially due to the erosion of the middle class). For a long time, neoliberal policies leading to growing inequality were justified by the fact that in the end everyone benefited from it. According to Stiglitz, however, the reality shows a different picture: While the average income in the USA rose by 75% between 1980 and 2010, the income of most male full-time employees fell over the same period. This fact leads to the fact that fairness and justice principles are questioned more and more.

Reform agenda

Stiglitz notes that there is a strong ideological debate about the role of the state in economic issues regarding the level of market regulation . Both camps (a lot / little state regulation ) put forward examples of the failure of the system propagated by the other side to justify their own position in this debate. For the most part, Stiglitz advocates state intervention, but advocates carefully weighing the costs and benefits in individual cases and, if in doubt, accepting negative consequences if the positive ones predominate. He suggests various measures with which the distribution problems named by him can be addressed in a meaningful way from his point of view:

Economic measures

Many inequality problems are currently being created or exacerbated in the financial sector, according to Stiglitz. To prevent this in the future, he proposes measures to rein in the financial markets:

  • Limiting the systemic importance and reducing the willingness of banks to take risks (e.g. through restrictions on borrowing and liquidity ) to stabilize the financial markets.
  • Greater transparency, especially in over-the-counter derivatives trading, and greater separation of financial market speculation and government guarantees, so that in future taxpayers will no longer have to be liable for risky financial market activities.
  • Aggravation of "exploitative lending" by taking advantage of the ignorance of the contracting parties, e.g. B. through a more debtor-friendly bankruptcy law . This would give banks an incentive to check the creditworthiness of customers more closely.

However, Stiglitz also points out that the practical implementation of such measures is anything but easy, as the banking sector has shown itself to be particularly creative in circumventing regulations in the past. In addition to financial market regulation, he wants to improve the functioning of markets in general by aligning private and social returns and limiting the scope for market failure . Appropriate measures "would tackle inequality and at the same time increase efficiency". Specifically, this could e.g. B. can be done by dismantling monopolies by strengthening competition and reducing market entry barriers .

In addition, Stiglitz advocates stronger progressive taxation , the closure of tax loopholes and an improvement in corporate governance , e.g. B. in the form of a law that gives shareholders a say in issues of executive compensation and party funding . He also wants to strengthen equal opportunities through better access to the education system and health care.

Political measures

In order to be able to implement such economic measures at all, political reforms are first of all necessary in order to change the institutional framework for decision-making: "We cannot afford a monetary and currency system that is controlled by people who have rubbed off on the bankers' way of thinking, and which is de facto solely committed to the interests of the top one percent. "

On the one hand, a reform of party funding is required , on the other hand, fluid changes between active politics and Wall Street must be made more difficult. The introduction of compulsory voting, as it exists in other countries, could also help Stiglitz to better represent the interests of the entire population in politics.

outlook

According to Stiglitz, at least one of the following two requirements must be met for such a reform agenda to be feasible:

  1. The lower 99% recognize that the interests of the upper one percent are not in their favor and that a different economic and social order is possible.
  2. The upper one percent recognizes that the development of the past decades not only contradicts the historical American self- image, but even harms the one percent in the long term.

Finally, he draws two possible future scenarios. One is characterized by a dual economy , in which the social divide is greater than ever: the rich live in isolated residential complexes and their children have access to expensive private schools and excellent education, while the rest of the population finds itself with great insecurity, second-rate education and one Must arrange rationed health care. In the second scenario, society strives for equal opportunities and fairness, real “freedom and justice for all” and thus a consistent implementation of American ideals in accordance with the Declaration of Human Rights .

reception

The New York Times writes in a book review that Stiglitz's contributions to the public debate could hardly be overestimated. In particular, society is not sufficiently aware of how closely economic and political power are related:

"The importance of Stiglitz's contribution (and that of other dissidents) to the public debate cannot be overestimated. The news media and the Congress are ill-equipped to address the role of economic power in shaping policy. Both institutions are, in fact, unaware of the extent to which they themselves are subject to the influence of money. "

A Guardians book review said The Price of Inequality is a powerful plea for what Alexis de Tocqueville described as well- meaning self-interest : individual well-being is inseparable from the well-being of the society in which one lives. To this day, however, this insight has not reached those who let themselves be driven by greed and arrogance:

" The Price of Inequality  is a powerful plea for the implementation of what Alexis de Tocqueville termed 'self-interest properly understood'. Stiglitz writes: '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 wellbeing… it isn't just good for the soul; it's good for business. ' Unfortunately, that's what those with hubris and pleonexia have never understood - and we are all paying the price. "

Individual evidence

  1. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, ISBN 978-3-8275-0019-9 .
  2. ↑ The Price of Inequality. Retrieved September 9, 2017 .
  3. ↑ a b Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 66-68 .
  4. ↑ a b c Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 73-78 .
  5. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 71 .
  6. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 61 .
  7. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 169 f .
  8. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 250 .
  9. ↑ a b Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 119 .
  10. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 166 .
  11. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 354 f .
  12. ↑ a b Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 36-59 .
  13. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 251-273 .
  14. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 187 .
  15. ↑ a b Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 191 f .
  16. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 55 .
  17. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 249 f .
  18. ↑ a b c d Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 346-356 .
  19. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 155, f .
  20. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 341 .
  21. ↑ Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 189 f., 366-368 .
  22. ↑ a b Joseph E. Stiglitz: The price of inequality . Siedler Verlag, Munich 2012, p. 368-371 .
  23. ^ Thomas B. Edsall: Separate and Unequal - 'The Price of Inequality' by Joseph E. Stiglitz. August 5, 2012, accessed September 9, 2017 .
  24. ^ Yvonne Roberts: The Price of Inequality by Joseph Stiglitz - review. July 13, 2012, accessed September 9, 2017 .