The Price of Inequality

© Jesi

Divided society endanger our future

Inequality is intolerable

America is no longer the land of opportunity. ‘‘Justice for all’’ is being replaced by ‘‘justice for those who can afford it’’ and the number of people who can afford it is rapidly diminishing. Increasing inequality has already reached its “intolerable” level. Society is divided and polarized. Polarisation of labour force has meant that more money goes to top and more of the people go to bottom. The darkest sides of the market economy that came to the light were the large and growing inequality that has left the American society.

Another World is Possible

Joseph Stiglitz is seriously worried about increasing inequality that has been reflected in his astonishing famous book The Price of Inequality. Inequality is an enemy which destruct the nation that is more harmful and expensive than a terrorist attack. The title of the book itself is enough to understand his concern. In the book Stiglitz has figured out the avoidable causes and invisible huge costs of inequality. Basically this is an example of American society. He says – the promise of the US as the land of opportunity has been shattered by the modern notorious tyrants, who make up the 1%, while sections of the 99% across the globe are beginning to vent their rage.

According to Stiglitz one of the darkest sides of the market economy that came to the light was the large and growing inequality that has left the American society (P2). America has the highest level of inequality of any of the advanced countries – and its gap with the rest has been widening. In the “recovery” of 2009-2010, the top 1% of US income earners captured 93% of the income growth (p3). Top CEOs were remarkably successful in maintaining their high pay. The ratio between earnings of a CEO and a worker is 243 to 1 as of 2010.

Stiglitz is one of a growing band of academics and economists, among them Paul Krugman, Michael J Sandel and Raghuram Rajan, who are trying to inject morality back into capitalism. Job market is running without ‘safety net’. There is huge economic insecurity, living standard is declining and poverty is increasing. The composition of students in America’s highly selective colleges is only around 9 percent come from the bottom half of the population while 74 percent come from the top quarters. (p19) Lack of opportunity in the United States the country’s most valuable asset – its people – is not being fully used.

Gini coefficient is used to measure of income inequality.  It was developed by the Italian statistician and sociologist Corrodo Gini in 1912. More equal societies have Gini coefficients of .3 or below and most unequal societies have Gini coefficient of .5 or above. America had Gini coefficient of .47 as of the date when this book was written in 2012.

In Stiglitz’s words inequality is being mounted during the era of ‘‘Reagan revolution’’ (p5)- ‘‘Although the United States has always been a capitalist country, our inequality—or at least its current high level—is new. Some thirty years ago, the top 1 percent of income earners received only 12 percent of the nation’s income. That level of inequality should itself have been unacceptable; but since then the disparity has grown dramatically, so that by 2007 the average after-tax income of the top 1 percent had reached $1.3 million, but that of the bottom 20 percent amounted to only $17,800. The top 1 percent get in one week 40 percent more than the bottom fifth receive in a year; the top 0.1 percent received in a day and a half about what the bottom 90 percent received in a year; and the richest 20 percent of income earners earn in total after tax more than the bottom 80 percent combined’’ (p4)

The book has been divided into ten chapters. Every chapter is able to describe what it really needs to address. A major theme of writing this book, according to the author, is that the inequality is the result of political forces as much as of economic ones (p30). According to him American inequality didn’t just happen, it was created by ‘rent seekers’. Much of the inequality that exists today is a result of government policy, both what the government does and what it doesn’t do (28).  He argues that enjoying a Chinese cheap TV doesn’t really mean that they aren’t facing stark poverty (p26)

More interestingly Stiglitz says that to become wealthy one can create wealth or takes from others (p32). A monopolist takes money from others by overcharging, destroying value or reducing quality and restricting the competitive product. For example Microsoft, Google, Facebook or any restricted chemical and ammunition products even Coca-Cola, Pepsi are being marketed under a monopoly market. They all are the rent seekers as defined by the author. Bankers are rent seekers because they don’t create money, they just get it from customers without or nominal interest neither give concrete ‘solution’ for the ‘financial crisis’ that have been faced by the world since 2008 says Stiglitz.

In the name of globalization a firm simply can tell workers if they don’t accept lower wages and worse conditions, the company move elsewhere.  By creating fear of losing job and pittance ‘asymmetric globalization’ has lowered the bargaining power of the workers. Because of hidden vested interest from business sectors and government (for foreign intervention) markets often don’t work so nicely as expected (p62). In the financial crises workers and small business bear the brunt of the cost (p61). Managements are given enormous discretion to run corporation for their own benefit in the name of employment creation and investment opportunities (p 67). What lesson is learnt here is firms pride themselves on their ruthlessness-cutting out so many jobs. So according to the author we have to say that – now, there is no place for ‘welfare state’ in globalization. Profit is the sole motto of private investment.

Regarding discrimination in the USA  Stigliz finds out the figure that ‘‘in 2009 life expectancy of black was 74.3 compared with 78.6 for whites and the typical black household had a net worth of only $5,677, a twentieth of that a typical white household’’ (p70).  He says state itself involved to create inequality. For example ‘The top marginal tax rate was lowered from 70 percent under Carter to 28 percent under Reagan; it went up to 39.6 percent under Clinton and down finally to 35 percent under George W Bush. ‘’ (p71)

Another world is possible

In the last chapter Columbian professor Joseph Stiglitz has claimed that ‘‘the USA is no longer the land of opportunity’’ (p 265). Instead of starting a new life, fresh with enthusiasm and hope many of them comfort a world of anxiety and fear, burden with student loan, unable to get a good job in a dismal market extreme case of inequality.

So ‘’another world is possible’’ (P265). We can achieve a society more in accord with our fundamental values, with more opportunity, higher total income, a stronger democracy and higher living standard. There are some markets forces pulling us another way can be brought them -rent seeker- in right track by political decisions.

No Credit at all

Author has not rewarded to America and its policies for the development achieved during the globalization era. For the achievement enjoyed by current generation supposed to be rewarded.

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29/01/2014

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Related Post

https://income5.wordpress.com/review/globalization-and-its-discontents/

http://www.project-syndicate.org/commentary/the-price-of-inequality

http://www.vanityfair.com/politics/2012/05/joseph-stiglitz-the-price-on-inequality

http://classonline.org.uk/docs/Inequality_-_The_Price_of_Austerity.pdf