“The Price of Inequality:” A Review

Joseph Stiglitz is a Nobel laureate and a professor of economics at Columbia. His book, “The Price of Inequality,” has been called "the single most comprehensive counter­argument to both Democratic neoliberalism and Republican laissez-faire theories." (NYT) It is not uncontrollable technological and social change that has produced a two-tier society, Stiglitz argues, but the exercise of political power by moneyed interests over legislative and regulatory processes. “While there may be underlying economic forces at play,” he writes, “politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest.” But politics, he insists, is subject to change.

The argument--not limited to Stiglitz--is that inequality not only violates moral values, it also interacts with a money-driven political system to grant excessive power to the most affluent. In short, those with power use it to insulate themselves from competitive forces by winning favorable tax treatment, government-­protected market share and other forms of what economists call “rent seeking.” Power trumps the market.

Stiglitz points to four reasons why inequality is slowing economic growth: America’s middle class is too weak to support the kind of consumer spending required for a robust recovery, the middle class is too weak to invest in its future, the weak middle class means a smaller tax base and income inequality causes more intense boom and bust cycles. 

“Inequality leads to lower growth and less efficiency. Lack of opportunity means that its most valuable asset — its people — is not being fully used. Many at the bottom, or even in the middle, are not living up to their potential, because the rich, needing few public services and worried that a strong government might redistribute income, use their political influence to cut taxes and curtail government spending. This leads to underinvestment in infrastructure, education and technology, impeding the engines of growth. . . . Most importantly, America’s inequality is undermining its values and identity. With inequality reaching such extremes, it is not surprising that its effects are manifest in every public decision, from the conduct of monetary policy to budgetary allocations. America has become a country not ‘with justice for all,’ but rather with favoritism for the rich and justice for those who can afford it — so evident in the foreclosure crisis, in which the big banks believed that they were too big not only to fail, but also to be held accountable.”

This argument, regardless of its merits, might well redefine the question of inequality, but is it important? The kernel of the position, it seems to me, is not the inherent evil of inequality but rather the inherent evil of government (and financial elite) corruption. And the problem with focusing on corruption is that leaders, in thought or politics, always see themselves as the solution when, if corruption in leadership is the problem, they are not, in fact, the logical solution.