Solving the Inequality Problem

By: Alton C. Thompson

Noted economist Joseph E. Stiglitz (winner of the Nobel Prize in Economics in 2001) has recently summarized his ideas on the “myth of opportunity” and the “price of inequality.” (He has developed his ideas more fully in his just-published The Price of Inequality: How Today’s Divided Society Endangers Our Future, 2012.)

Stiglitz notes that there is “less equality of opportunity in the United States today than there is in Europe—or, indeed, in any advanced industrial country for which there is data.” And because of that lack of equality of opportunity, the United States now “has the highest level of inequality of any of the top advanced countries—and its gap with the rest has been widening.” That the United States is a “land of opportunity” has always, of course, been a myth; but this myth has become even more of a myth in recent years, Stiglitz notes.

This growing inequality has both causes and consequences, and Stiglitz touches on both in his article. As to causes, Stiglitz mentions the following:

  • Some have obtained their exceptional wealth by exercising monopoly power.
  • Some CEOs have “taken advantage of deficiencies in corporate governance to extract for themselves an excessive share of corporate earnings.”
  • Some have used political connections “to benefit from government munificence—either excessively high prices for what the government buys (drugs), or excessively low prices for what the government sells (mineral rights).”

In terms of this country’s mythology, one is rewarded, financially, in proportion to one’s merit—i.e., one’s contribution to the economy’s “health”: The more important one’s contribution, the more one will—and should—be rewarded. Thus, if one has a low income, this is because one’s contribution is minimal. (That one might receive a low income because one is unemployed for no fault of one’s own, is one of the factors ignored by our mythology!)

In terms of the realities of how compensation is apportioned, however, one’s income has little bearing on one’s contribution. In fact, in recent years some of the wealthiest of our citizens have, through their reckless (but legal) behavior, done great damage to the economy—resulting in great financial hardship for the “99%.” As Stiglitz puts it, “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.”

The inequality that arises from the decline in equality of opportunity has various consequences, and Stiglitz lists several. Unsurprisingly, the consequences that he lists are basically of an economic nature:

  • A lower rate of economic growth.
  • Less efficiency in production.
  • The country’s “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 curtain government spending.”
  • As a consequence of this curtailing of government spending, there is “underinvestment in infrastructure, education, and technology, [thereby] impeding the engines of growth.”
  • International organizations (e.g., the International Monetary Fund) have concluded that “inequality leads to economic instability.”
  • “But, most importantly, America’s inequality is undermining its values and identity.

Is our situation hopeless, then? Stiglitz makes two comments relative to this:

  • Growing “inequality is not inevitable. There are market economies that are doing better, both in terms of GDP growth and rising living standards for most citizens. Some are even reducing inequalities.”
  • “America can no longer regard itself as the land of opportunity that it once was. But it does not have to be this way: it is not too late for the American dream to be restored.

For a more comprehensive discussion of why societal inequality is objectionable, one will need to go to, e.g., The Spirit Level: Why Greater Equality Makes Societies Stronger (2009), by Richard Wilkinson and Kate Pickett. My starting point here is the assumption that it is more desirable to have a society that is relatively egalitarian than one that is relatively inegalitarian; and the question that I wish to address here is: How does one make our society more egalitarian?

Stiglitz notes that some “market economies” are doing better than ours in “rising living standards for most citizens,” with some of them “even reducing inequalities.” He thereby implies that because progress in the direction of greater equality has been achieved in other societies (ones with “market economies”), it is also possible in ours. After all (he tacitly assumes), all societies with “market economies” have much in common besides their economies, so that what’s possible in one society with a “market economy” is also possible in another society with such an economy.

What this (tacit) assumption ignores, of course, is, first, that “market economy” is not a homogeneous category: Societies with “market economies” can vary considerably in the particulars of their economies. 

Second, the economy of a society is just one part of the society. The fact that societies are systems implies, of course, that the other parts of a society will reflect, and be supportive of, the society’s economy. However, societies vary in their histories, the nature of their cultures, etc.; and the relevance of those facts is that what’s possible in one society may not be possible (or as easily accomplished) in another society. The “moral” here is that just because Norway and Sweden, e.g., (the former in particular) have gained a measure of control over the “1%” in their countries, one cannot conclude that such control would be easily accomplished in the United States.

Stiglitz claims that “it is not too late for the American dream to be restored.” But, first, how can it be restored? Stiglitz offers us no guidance (in this article, at least) as to how it might be restored.

What I would suggest is that such restoration is possible (or at least conceivable), but only if we adopt a time frame different from that implicit in Stiglitz’s discussion. For Stiglitz the “future” is seemingly “the next few years.” Surely Stiglitz, as an economist, is aware of the statement by John Maynard Keynes [1883 – 1946]: “In the long run we are all dead”—a statement that takes on a new meaning in this age of “global warming.” Evidently Stiglitz is not, though, aware of the argument, put forth by British scientist Kevin Anderson, that it is entirely conceivable that within the next 50 years “global warming” will claim the lives of perhaps 90% of the world’s population.

It would seem that there is nothing that we humans can do to prevent a severe culling of the world’s population; it does not follow from that possibility, however, that there is nothing that we can do. It’s not likely that we will be able to reduce the percent loss to much less than 90%, but surely we have an obligation to our descendants (if we are to have any!) to do what we can to lower that percent value. As I have commented on this matter in a number of previous essays on this site, I will summarize my thinking briefly on the matter here by saying:

  • It would be foolish to look to our political leaders for “salvation.”
  • Given this, we must, acting as individuals (acting either as individuals or jointly with a few others) begin—and ASAP!—to engage in adaptive activities. As Anderson put it (in the article cited above), “a few people with the right sort of resources may put themselves in the right parts of the world and survive.” I have recommended in various of my essays on this site that people do so by creating small, cooperative eco-communities with like-minded others; but if one believes that one has a better idea, one should by all means pursue it instead.

Although one must have as one’s primary consideration doing what is necessary (seemingly) to survive (and it’s always possible that the choices that one makes will not allow that), one should keep in mind that one has an opportunity—unique opportunity, in fact—to create the rudiments of an egalitarian society while seeking to survive. Given that one has that opportunity, one should take advantage of it! (There are, of course, many goals in addition to equality that one should consider, as I note in my eBook, but equality is certainly one of the primary ones.)

About the author: Al Thompson works (data management) for an Engineering (Avionics) firm in Milwaukee. Click here to mail him.