The one percent’s solution

A growing chorus of economists has lately been trumpeting the undeniable truth that, badly expressed, got President Obama into trouble with the right-wing media last week.

What Obama said was that no one builds a successful business alone. There’s a necessary infrastructure of roads and bridges and schools and hospitals, of banking and trade and tax regulations, and much more.

While Obama’s “No, you didn’t” was willfully transferred from building the roads and bridges that he was talking about into a cynically inaccurate claim that the President doesn’t give any credit to individual initiative, at least some of the media spent a little of their time discussing what he’d actually meant.

I’ve dealt in this space with both The Self-Made Myth (reviewed and Robert Reich’s Aftershock.

Nobel Prize-winning economist Joseph Stiglitz appeared recently on The Daily Show, promoting his latest book, The Price of Inequality. Stiglitz outlined the main ideas of the book in “The 1 Percent’s Problem,” published by Vanity Fair in May.

Stiglitz’s article caused quite a stir for arguing that it’s in the selfish interest of the super-rich to make sure that the not-rich get a bigger piece of the pie.

Stiglitz begins with the now-standard statistic that the net worth (wealth minus debt) of the six Walton heirs is as much as the combined net worth of the bottom 30% of Americans. Oft-repeated or not, that’s quite a number. That’s six individuals versus almost 1/3 of the citizens of “the world’s richest country.”

The first thing that Stiglitz does is to dismiss the standard progressive call for equality.

the widening inequality often elicits an appeal for simple justice: why should so few have so much when so many have so little? It’s not hard to see why, in a market-driven age where justice itself is a commodity to be bought and sold, some would dismiss that argument as the stuff of pious sentiment.

He takes this rhetorical tack in order to make the case that the poor need to spread the wealth to keep it.

The rich do not exist in a vacuum. They need a functioning society around them to sustain their position…. there comes a point when inequality spirals into economic dysfunction for the whole society, and when it does, even the rich pay a steep price.

Stiglitz identifies a number of problems caused by severe inequality. One of the most important is “rent-seeking,” which is economics-speak for amassing wealth without making anything. Everyone from tenant farmers (if there are any of those left) to credit card holders (there are tens of millions of those) passes wealth to the rich, but the rich don’t have to return any value to society.

Much of the inequality in our economy has been the result of rent seeking, because, to a significant degree, rent seeking re-distributes money from those at the bottom to those at the top.

[T]he fight to acquire rents is at best a zero-sum activity. Rent seeking makes nothing grow. Efforts are directed toward getting a larger share of the pie rather than increasing the size of the pie.

Stiglitz stresses a key point of economic psychology: workers work best when they’re motivated to work hard, and that motivation comes from a sense of fairness. This is part of the “efficiency-wage theory,” and as the redistribution of wealth from the middle to the very top continues, workers lose that essential sense that the system is fair.

Indeed, and Stiglitz certainly isn’t the only one to point it out, the entire mythos of the “American Dream,” the notion that anyone can rise to the top with enough talent and hard work, is under fundamental assault. Expensive, for-profit universities; the influence of powerful political lobbies; the apparent irrelevance of voting and elections. These and other factors put paid to the idea that anyone can make it. Unless you’re good enough and lucky enough to create the next wave of technological growth, your chances of moving from the bottom to the top are slim and getting slimmer.

Horatio Alger stories remain the mythic ideal, but the statistics paint a very different picture: in America, the chances of someone’s making it to the top, or even to the middle, from a place near the bottom are lower than in the countries of old Europe or in any other advanced industrial country.

Why should this matter to the super-rich? Stiglitz reminds them that their privileged positions depend on a healthy, functioning economy. If you’ve climbed the ladder of success (or, more likely, been born on one of the higher rungs), you’ve got it made — as long as, and only as long as, the ladder stands.

So Stiglitz advises the super-rich to work toward a fairer society for no other reason than selfishness — “Just do it for yourself.”

2 thoughts on “The one percent’s solution

  1. There is an argument that the super rich have built up a hefty protective bubble since the Reagan years that they can continue to fund a defensive political agenda
    with the cooperation of corrupt henchmen.The best hope there is that honest conservative values will take back the political agenda.

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