Of the 1%, by the 1%, for the 1%
Americans have been watching protests against oppressive regimes
that concentrate massive wealth in the hands of an elite few. Yet in
our own democracy, 1 percent of the people take nearly a quarter of
the nations incomean inequality even the wealthy will come to regret.
*By *Joseph E. Stiglitz </contributors/joseph-e-stiglitz>
**
May 2011
*THE FAT AND THE FURIOUS* The top 1 percent may have the best houses,
educations, and lifestyles, says the author, but their fate is bound up
with how the other 99 percent live.
Its no use pretending that what has obviously happened has not in fact
happened. The upper 1 percent of Americans are now taking in nearly a
quarter of the nations income every year. In terms of wealth rather
than income, the top 1 percent control 40 percent. Their lot in life has
improved considerably. Twenty-five years ago, the corresponding figures
were 12 percent and 33 percent. One response might be to celebrate the
ingenuity and drive that brought good fortune to these people, and to
contend that a rising tide lifts all boats. That response would be
misguided. While the top 1 percent have seen their incomes rise 18
percent over the past decade, those in the middle have actually seen
their incomes fall. For men with only high-school degrees, the decline
has been precipitous12 percent in the last quarter-century alone. All
the growth in recent decadesand morehas gone to those at the top. In
terms of income equality, America lags behind any country in the old,
ossified Europe that President George W. Bush used to deride. Among our
closest counterparts are Russia with its oligarchs and Iran. While many
of the old centers of inequality in Latin America, such as Brazil, have
been striving in recent years, rather successfully, to improve the
plight of the poor and reduce gaps in income, America has allowed
inequality to grow.
Economists long ago tried to justify the vast inequalities that seemed
so troubling in the mid-19th centuryinequalities that are but a pale
shadow of what we are seeing in America today. The justification they
came up with was called marginal-productivity theory. In a nutshell,
this theory associated higher incomes with higher productivity and a
greater contribution to society. It is a theory that has always been
cherished by the rich. Evidence for its validity, however, remains thin.
The corporate executives who helped bring on the recession of the past
three yearswhose contribution to our society, and to their own
companies, has been massively negativewent on to receive large bonuses.
In some cases, companies were so embarrassed about calling such rewards
performance bonuses that they felt compelled to change the name to
retention bonuses (even if the only thing being retained was bad
performance). Those who have contributed great positive innovations to
our society, from the pioneers of genetic understanding to the pioneers
of the Information Age, have received a pittance compared with those
responsible for the financial innovations that brought our global
economy to the brink of ruin.
Some people look at income inequality and shrug their shoulders. So what
if this person gains and that person loses? What matters, they argue, is
not how the pie is divided but the size of the pie. That argument is
fundamentally wrong. An economy in which /most/ citizens are doing worse
year after yearan economy like Americasis not likely to do well over
the long haul. There are several reasons for this.
First, growing inequality is the flip side of something else: shrinking
opportunity. Whenever we diminish equality of opportunity, it means that
we are not using some of our most valuable assetsour peoplein the most
productive way possible. Second, many of the distortions that lead to
inequalitysuch as those associated with monopoly power and preferential
tax treatment for special interestsundermine the efficiency of the
economy. This new inequality goes on to create new distortions,
undermining efficiency even further. To give just one example, far too
many of our most talented young people, seeing the astronomical rewards,
have gone into finance rather than into fields that would lead to a more
productive and healthy economy.
Third, and perhaps most important, a modern economy requires collective
actionit needs government to invest in infrastructure, education, and
technology. The United States and the world have benefited greatly from
government-sponsored research that led to the Internet, to advances in
public health, and so on. But America has long suffered from an
under-investment in infrastructure (look at the condition of our
highways and bridges, our railroads and airports), in basic research,
and in education at all levels. Further cutbacks in these areas lie ahead.
None of this should come as a surpriseit is simply what happens when a
societys wealth distribution becomes lopsided. The more divided a
society becomes in terms of wealth, the more reluctant the wealthy
become to spend money on common needs. The rich dont need to rely on
government for parks or education or medical care or personal
securitythey can buy all these things for themselves. In the process,
they become more distant from ordinary people, losing whatever empathy
they may once have had. They also worry about strong governmentone that
could use its powers to adjust the balance, take some of their wealth,
and invest it for the common good. The top 1 percent may complain about
the kind of government we have in America, but in truth they like it
just fine: too gridlocked to re-distribute, too divided to do anything
but lower taxes.
Economists are not sure how to fully explain the growing inequality in
America. The ordinary dynamics of supply and demand have certainly
played a role: laborsaving technologies have reduced the demand for many
good middle-class, blue-collar jobs. Globalization has created a
worldwide marketplace, pitting expensive unskilled workers in America
against cheap unskilled workers overseas. Social changes have also
played a rolefor instance, the decline of unions, which once
represented a third of American workers and now represent about 12 percent.
But one big part of the reason we have so much inequality is that the
top 1 percent want it that way. The most obvious example involves tax
policy. Lowering tax rates on capital gains, which is how the rich
receive a large portion of their income, has given the wealthiest
Americans close to a free ride. Monopolies and near monopolies have
always been a source of economic powerfrom John D. Rockefeller at the
beginning of the last century to Bill Gates at the end. Lax enforcement
of anti-trust laws, especially during Republican administrations, has
been a godsend to the top 1 percent. Much of todays inequality is due
to manipulation of the financial system, enabled by changes in the rules
that have been bought and paid for by the financial industry itselfone
of its best investments ever. The government lent money to financial
institutions at close to 0 percent interest and provided generous
bailouts on favorable terms when all else failed. Regulators turned a
blind eye to a lack of transparency and to conflicts of interest.
When you look at the sheer volume of wealth controlled by the top 1
percent in this country, its tempting to see our growing inequality as
a quintessentially American achievementwe started way behind the pack,
but now were doing inequality on a world-class level. And it looks as
if well be building on this achievement for years to come, because what
made it possible is self-reinforcing. Wealth begets power, which begets
more wealth. During the savings-and-loan scandal of the 1980sa scandal
whose dimensions, by todays standards, seem almost quaintthe banker
Charles Keating was asked by a congressional committee whether the $1.5
million he had spread among a few key elected officials could actually
buy influence. I certainly hope so, he replied. The Supreme Court, in
its recent /Citizens United/ case, has enshrined the right of
corporations to buy government, by removing limitations on campaign
spending. The personal and the political are today in perfect alignment.
Virtually all U.S. senators, and most of the representatives in the
House, are members of the top 1 percent when they arrive, are kept in
office by money from the top 1 percent, and know that if they serve the
top 1 percent well they will be rewarded by the top 1 percent when they
leave office. By and large, the key executive-branch policymakers on
trade and economic policy also come from the top 1 percent. When
pharmaceutical companies receive a trillion-dollar giftthrough
legislation prohibiting the government, the largest buyer of drugs, from
bargaining over priceit should not come as cause for wonder. It should
not make jaws drop that a tax bill cannot emerge from Congress unless
big tax cuts are put in place for the wealthy. Given the power of the
top 1 percent, this is the way you would /expect/ the system to work.
Americas inequality distorts our society in every conceivable way.
There is, for one thing, a well-documented lifestyle effectpeople
outside the top 1 percent increasingly live beyond their means.
Trickle-down economics may be a chimera, but trickle-down behaviorism is
very real. Inequality massively distorts our foreign policy. The top 1
percent rarely serve in the militarythe reality is that the
all-volunteer army does not pay enough to attract their sons and
daughters, and patriotism goes only so far. Plus, the wealthiest class
feels no pinch from higher taxes when the nation goes to war: borrowed
money will pay for all that. Foreign policy, by definition, is about the
balancing of national interests and national resources. With the top 1
percent in charge, and paying no price, the notion of balance and
restraint goes out the window. There is no limit to the adventures we
can undertake; corporations and contractors stand only to gain. The
rules of economic globalization are likewise designed to benefit the
rich: they encourage competition among countries for /business,/ which
drives down taxes on corporations, weakens health and environmental
protections, and undermines what used to be viewed as the core labor
rights, which include the right to collective bargaining. Imagine what
the world might look like if the rules were designed instead to
encourage competition among countries for /workers./ Governments would
compete in providing economic security, low taxes on ordinary wage
earners, good education, and a clean environmentthings workers care
about. But the top 1 percent dont need to care.
Or, more accurately, they think they dont. Of all the costs imposed on
our society by the top 1 percent, perhaps the greatest is this: the
erosion of our sense of identity, in which fair play, equality of
opportunity, and a sense of community are so important. America has long
prided itself on being a fair society, where everyone has an equal
chance of getting ahead, but the statistics suggest otherwise: the
chances of a poor citizen, or even a middle-class citizen, making it to
the top in America are smaller than in many countries of Europe. The
cards are stacked against them. It is this sense of an unjust system
without opportunity that has given rise to the conflagrations in the
Middle East: rising food prices and growing and persistent youth
unemployment simply served as kindling. With youth unemployment in
America at around 20 percent (and in some locations, and among some
socio-demographic groups, at twice that); with one out of six Americans
desiring a full-time job not able to get one; with one out of seven
Americans on food stamps (and about the same number suffering from food
insecurity)given all this, there is ample evidence that something has
blocked the vaunted trickling down from the top 1 percent to everyone
else. All of this is having the predictable effect of creating
alienationvoter turnout among those in their 20s in the last election
stood at 21 percent, comparable to the unemployment rate.
In recent weeks we have watched people taking to the streets by the
millions to protest political, economic, and social conditions in the
oppressive societies they inhabit. Governments have been toppled in
Egypt and Tunisia. Protests have erupted in Libya, Yemen, and Bahrain.
The ruling families elsewhere in the region look on nervously from their
air-conditioned penthouseswill they be next? They are right to worry.
These are societies where a minuscule fraction of the populationless
than 1 percentcontrols the lions share of the wealth; where wealth is
a main determinant of power; where entrenched corruption of one sort or
another is a way of life; and where the wealthiest often stand actively
in the way of policies that would improve life for people in general.
As we gaze out at the popular fervor in the streets, one question to ask
ourselves is this: When will it come to America? In important ways, our
own country has become like one of these distant, troubled places.
Alexis de Tocqueville once described what he saw as a chief part of the
peculiar genius of American societysomething he called self-interest
properly understood. The last two words were the key. Everyone
possesses self-interest in a narrow sense: I want whats good for me
right now! Self-interest properly understood is different. It means
appreciating that paying attention to everyone elses self-interestin
other words, the common welfareis in fact a precondition for ones own
ultimate well-being. Tocqueville was not suggesting that there was
anything noble or idealistic about this outlookin fact, he was
suggesting the opposite. It was a mark of American pragmatism. Those
canny Americans understood a basic fact: looking out for the other guy
isnt just good for the soulits good for business.
The top 1 percent have the best houses, the best educations, the best
doctors, and the best lifestyles, but there is one thing that money
doesnt seem to have bought: an understanding that their fate is bound
up with how the other 99 percent live. Throughout history, this is
something that the top 1 percent eventually do learn. Too late.
"Those who stand for nothing fall for anything"
Alexander Hamilton
[Non-text portions of this message have been removed]
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