The Price of Inequality

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Joseph E. Stiglitz how America has turned into a country that would be unrecognizable to any of the founding fathers. In The Price of InequalityStiglitz visits this problem and searches for the source of the economic inequality that the United States is faced with today. Stiglitz came to the conclusion that America is declining and turning into a society like the one …show more content….

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That top portion manipulates the facts because they want the rest of America to believe that there is little inequality in the society. This causes a massive misunderstanding by the majority of the population where they underestimate the adverse economic effects of inequality and overestimate of the cost of taking action. This idea that hope is necessary for a society to be controlled is consistent throughout a lot of governments and even literary works as well.

This is true in society today, it is easier to rule and control people who think that things will get better. Show More. Read More. Dream Or Reality?

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By Joseph E. The evidence from history and from around the modern world is unequivocal: 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. When one interest group holds too much power, it succeeds in getting policies that help itself in the short term rather than help society as a whole over the long term. This is what has happened in America when it comes to tax policy, regulatory policy, and public investment. The consequence of channeling gains in income and wealth in one direction only is easy to see when it comes to ordinary household spending, which is one of the engines of the American economy.

It is no accident that the periods in which the broadest cross sections of Americans have reported higher net incomes—when inequality has been reduced, partly as a result of progressive taxation—have been the periods in which the U. It is likewise no accident that the current recession, like the Great Depression, was preceded by large increases in inequality. When too much money is concentrated at the top of society, spending by the average American is necessarily reduced—or at least it will be in the absence of some artificial prop.

Moving money from the bottom to the top lowers consumption because higher-income individuals consume, as a fraction of their income, less than lower-income individuals do. Just look at the color photographs in the back pages of the weekend Wall Street Journal of houses for sale. But the phenomenon makes sense when you do the math. Even if Romney chose to live a much more indulgent lifestyle, he would spend only a fraction of that sum in a typical year to support himself and his wife in their several homes.

The relationship is straightforward and ironclad: as more money becomes concentrated at the top, aggregate demand goes into a decline. Unless something else happens by way of intervention, total demand in the economy will be less than what the economy is capable of supplying—and that means that there will be growing unemployment, which will dampen demand even further. Today, the only recourse, amid deep recession, is government spending—which is exactly what those at the top are now hoping to curb.

Here I need to resort to a bit of economic jargon. In time, the meaning was expanded still further to include the returns on other kinds of ownership claims.

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So does preferential tax treatment for special interests. Individuals and corporations that excel at rent seeking are handsomely rewarded. The financial industry, which now largely functions as a market in speculation rather than a tool for promoting true economic productivity, is the rent-seeking sector par excellence. Rent seeking goes beyond speculation. The financial sector also gets rents out of its domination of the means of payment—the exorbitant credit- and debit-card fees and also the less well-known fees charged to merchants and passed on, eventually, to consumers.

The money it siphons from poor and middle-class Americans through predatory lending practices can be thought of as rents. In recent years, the financial sector has accounted for some 40 percent of all corporate profits. This does not mean that its social contribution sneaks into the plus column, or comes even close. The crisis showed how it could wreak havoc on the economy.

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

In a rent-seeking economy such as ours has become, private returns and social returns are badly out of whack. In their simplest form, rents are nothing more than re-distributions from one part of society to the rent seekers. 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.

But there is a broader economic consequence: the 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. It is a centripetal force: the rewards of rent seeking become so outsize that more and more energy is directed toward it, at the expense of everything else. Countries rich in natural resources are infamous for rent-seeking activities. But the rent-seeking dynamic is the same. People are not machines. He was educated at Oxford.

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Read the full review… […]. Even though economists such as Paul Krugman and Joseph Stiglitz have continually stressed the pernicious effects of economic inequality, inequality has not […]. Click here to cancel reply.


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