Interview with Economist Joseph Stiglitz 'The American Dream Has Become a
Myth'
The finance industry is to blame for the growing divide between the rich and
poor in the United States, says Nobel Prize-winning economics professor
Joseph Stiglitz. In an interview with SPIEGEL, he accuses the industry of
preying on the poor and buying government policies that help them get
richer.
<
http://www.spiegel.de/artikel/a-749184.html> Info10/02/2012
At Columbia University, which is located just blocks from Harlem in
Manhattan's West Side, wealth and poverty are closer together than they are
in many places in New York City. This is where American economist and 2001
Nobel Prize winner Joseph Stiglitz works as a professor. The Gary, Indiana
native has spent years examining social inequality. His first personal
experience with the issue came when, as a young boy, he asked why his nanny
wasn't caring for her own children. Later, as the World Bank's chief
economist, he studied the phenomenon on a global level. In June, he
published a book on the topic entitled "The Price of Inequality: How Today's
Divided Society Endangers Our Future," which has just been released in
German as well. In a SPIEGEL interview, Stiglitz discusses how wealth
disparity is dividing America and how Europe can best overcome the euro
crisis.
_____
SPIEGEL: Professor Stiglitz, how do you expect the next President of the
United States to tackle the problem of unequal distribution of wealth?
Stiglitz: First, he has to recognize that there is a problem at all.
Watching inequality grow is like watching the grass grow. You don't see it
happening day by day, but over a period of time it becomes visible.
SPIEGEL: What is the scale this inequality?
Stiglitz: In the last decades, income and wealth disparity have grown
dramatically in this country. Let me give you an example: In 2011, the six
heirs to the Walmart empire commanded wealth of almost $70 billion, which is
equivalent to the wealth of the entire bottom 30 percent of US society.
SPIEGEL: The US has always thought of itself as a land of opportunity where
people can go from rags to riches. What has become of the American dream?
Stiglitz: This belief is still powerful, but the American dream has become a
myth. The life chances of a young US citizen are more dependent on the
income and education of his parents than in any other advanced industrial
country for which there is data. The belief in the American dream is
reinforced by anecdotes, by dramatic examples of individuals who have made
it from the bottom to the top -- but what matters most are an individual's
life chances. The belief in the American dream is not supported by the data.
SPIEGEL: What do the numbers suggest?
Stiglitz: There has been no improvement in well-being for the typical
American family for 20 years. On the other side, the top one percent of the
population gets 40 percent more in one week than the bottom fifth receive in
a full year. In short, we have become a divided society. America has created
a marvelous economic machine, but most of the benefits have gone to the top.
SPIEGEL: With five more weeks to go in the presidential campaign, inequality
hasn't played a serious role yet, though.
Stiglitz: It has been a topic, but typically only underneath the surface.
One cannot expect a scientific debate on the Gini coefficient, the
statistical measure of inequality. But when the Democrats say that they are
supporting the middle class, they are really talking about inequality. And
they highlight the contrast with the Republican candidate Mitt Romney, who
is emblematic of the top one percent of the population. Romney's denigration
of the 47 percent of Americans who don't pay income taxes had an enormous
reaction, partly because it showed how out of touch those at the top were
with the rest of the country.
SPIEGEL: The Occupy movement's political slogan was "We are the 99 percent."
But who exactly represents the one percent?
Stiglitz: It is the group of people who get 20 to 25 percent of the income.
Their share has doubled in the last 30 years. And they own about 35 percent
of the wealth or more. They have the best houses, the best education and the
best lifestyles.
SPIEGEL: Don't the rich also give something in return? In Germany, the upper
one percent contributes almost a quarter to the tax revenue, and the top ten
percent more than half of the taxes. Isn't that an appropriate share?
Stiglitz: I don't know about the German numbers. What I can say is that the
top one percent in the United States has an average tax rate of less than 30
percent of their reported income, and the large proportion who take much of
their income as capital gains pay far less. And we know that they are not
reporting all of their income.
SPIEGEL: We thought that as a rule Americans don't begrudge the rich their
wealth, though.
Stiglitz: There is nothing wrong if someone who has invented the transistor
or made some other technical breakthrough that is beneficial for all
receives a large income. He deserves the money. But many of those in the
financial sector got rich by economic manipulation, by deceptive and
anti-competitive practices, by predatory lending. They took advantage of the
poor and uninformed, as they made enormous amounts of money by preying upon
these groups with predatory lending. They sold them costly mortgages and
were hiding details of the fees in fine print.
SPIEGEL: Why didn't the government stop this behavior?
Stiglitz: The reason is obvious: The financial elite support the political
campaigns with huge contributions. They buy the rules that allow them to
make the money. Much of the inequality that exists today is a result of
government policies.
SPIEGEL: Can you give us an example?
Stiglitz: In 2008, President George W. Bush claimed that we did not have
enough money for health insurance for poor American children, costing a few
billion dollars a year. But all of a sudden we had $150 billion to bail out
AIG, the insurance company. That shows that something is wrong with our
political system. It is more akin to "one dollar, one vote" than to "one
person, one vote."
SPIEGEL: Ninety-nine percent against 1 percent: That actually sounds like
the perfect setting for a revolution. Why are things still so calm in the
US?
Stiglitz: The United States doesn't have much of a revolutionary spirit. My
real concern is that people get alienated from politics. In the last
election we had a voter turnout among young people of around 20 percent.
These are the people whose future is most at stake, and 80 percent of them
think it's not worth to vote because it is a rigged system and in the end
the banks are going to run the country anyway.
SPIEGEL: The Occupy movement wasn't able to become a powerful factor. Why
did it fail?
Stiglitz: It became an anti-establishment movement, and one aspect of being
anti-establishment is anti-organization. You can't have a movement that is
not organized. Anyway, the frustration is still there. I'll tell you a
story: I recently went to see Bertolt Brecht's "Threepenny Opera." When it
came to the line, "What is the crime of robbing a bank compared with the
crime of founding one?", the whole audience started clapping.
SPIEGEL: Four years ago, we quoted that line on a SPIEGEL cover about the
banking crisis.
Stiglitz: Really? It was not a rabblerousing crowd that night in the
theatre, but to me it was saying something about the extent to which this
has reached the psyche of Americans.
SPIEGEL: What is on their mind?
Stiglitz: The people fear losing their job. Even if they have a job they are
not certain of keeping it. What they are certain of is that if they lose a
job it is hard to get another one. Everybody knows someone who can't get a
job...
SPIEGEL: ...or who lost their home.
Stiglitz: This is another source of anxiety. More than a quarter of all
homeowners owe more money than the value of their houses. We need a growth
strategy to stimulate the economy. We haven't invested enough for 30 years
-- in infrastructure, technology, education.
SPIEGEL: With a debt burden of $16 trillion there is not much room for
maneuvering.
Stiglitz: The United States can borrow at close to a zero percent interest
rate, we would be stupid not to invest more money and create jobs. And we
could also make efforts to ensure that the super-wealthy pay their fair
share. We could raise more money in a variety of ways. Look at the mining
companies: The government grants them the right to extract resources for far
less than it should, but auctions could make sure that they pay
appropriately.
SPIEGEL: So your answer to the inequality problem is to transfer money from
the top to the bottom?
Stiglitz: First, transferring money from the top to the bottom is only one
suggestion. Even more important is helping the economy grow in ways that
benefit those at the bottom and top, and ending the "rent seeking" that
moves so much money from ordinary citizens to those at the top.
SPIEGEL: Is redistribution also the strategy when it comes to Europe and the
euro crisis -- moving money from the north to the south?
Stiglitz: The main problem in Europe right now are the austerity packages,
they depress demand and weaken economic growth. The reversal of this policy
is absolutely essential to develop growth and more equality. Spain, for
example, gets weaker and weaker, money flows out of the country, and it is a
vicious downward spiral.
SPIEGEL: Isn't the real problem the lack of competitiveness? Spain and the
other countries in crisis have lived beyond their means, that's why they are
in trouble.
Stiglitz: No, Europe's crisis is not caused by excessive long-term debts and
deficits. It is caused by cutbacks in government expenditures. The recession
caused the deficits, not the other way around. Before the crisis Spain and
Ireland ran budget surpluses. They cannot be accused of fiscal profligacy.
More fiscal discipline will only worsen the downturn. No economy ever
recovered from a downturn through austerity.
SPIEGEL: Really? What about Estonia or Latvia? With severe pay cuts the
Baltic states boosted productivity and recovered.
Stiglitz: They are small economies. They can make up for the loss of
government spending by more exports. But that doesn't work with a fixed
exchange rate and when your trading partners are not doing well. The crisis
countries don't suffer from excessive spending. The problem is not supply
but demand. It is the responsibility of monetary and fiscal policy to
maintain the economy at full employment.
SPIEGEL: No matter what the costs? No private household can live beyond its
means permanently. Why should governments be exempted from that rule?
Stiglitz: Because countries are different from households. If a citizen cuts
back his spending, it is without any consequences for the country.
Unemployment does not increase. But if the government cuts back its
spending, it has a major effect. An expansion of spending can increase
production by creating jobs that will be filled by people who would
otherwise be unemployed.
SPIEGEL: You assume that a government knows best where to create jobs. Don't
you overestimate that ability?
Stiglitz: We need roads, bridges and airports. That's obvious. The returns
from public investments in technology on average have been very high --
think about the Internet, the Human Genome Project and the telegraph.
SPIEGEL: There are also many examples of public money that was wasted. The
US space program cost a fortune, and the results were questionable.
Stiglitz: But even those expenditures are still less than the money wasted
by America's private financial sector, and the billions spent to bail out
companies from the financial sector. One corporation alone, AIG, got more
than $150 billion -- more than was spent on welfare for needy families from
1990 to 2006.
SPIEGEL: The government also became owner of these companies and even
managed to sell parts of them with a profit, though. Aren't you afraid that
this strategy of ever bigger stimulus packages might lead to inflation?
Stiglitz: Not necessarily. The central bank has the ability to take out
liquidity from the system.
SPIEGEL: But it is much harder getting the liquidity out than getting it in.
Stiglitz: A well-managed central bank has lots of tools. It can raise
interest rates or reserve requirements for private banks. So I think there
is actually relatively little danger. The weakness in the European economy
poses much more of a risk than any risk of moderate inflation. Better some
job where the pay has declined in real terms by a few percent than no job at
all.
SPIEGEL: What do you think Europe's future prospects are?
Stiglitz: Europe is facing a critical point. The alternatives are "more
Europe" or "no Europe." The halfway configuration is unstable.
SPIEGEL: Which option would be better for Germany?
Stiglitz: Both strategies will cost Germany money, but the "more Europe"
option will cost less. Europe needs a common banking system and a common
financial framework. If Europe borrows as a whole it could have even better
access to credit than the United States. So "more Europe" is not only better
for Spain or Italy, but also for Germany.
SPIEGEL: Professor Stiglitz, we thank you for this interview.
Interview conducted by Alexander Jung and Thomas Schulz
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Received on Tue Oct 02 2012 - 19:09:12 EDT
