Wednesday, July 02, 2014

Inequality Is Not Inevitable


Milton Friedman and his disciples worked very hard to transform economics from a social science into a natural science -- which, they claimed, obeys certain ironclad rules. One economist who refused to buy that piffle is Joseph Stiglitz. In last Friday's New York Times he wrote:

If it is not the inexorable laws of economics that have led to America’s great divide, what is it? The straightforward answer: our policies and our politics. People get tired of hearing about Scandinavian success stories, but the fact of the matter is that Sweden, Finland and Norway have all succeeded in having about as much or faster growth in per capita incomes than the United States and with far greater equality.

Ideology and interests combined nefariously. Some drew the wrong lesson from the collapse of the Soviet system. The pendulum swung from much too much government there to much too little here. Corporate interests argued for getting rid of regulations, even when those regulations had done so much to protect and improve our environment, our safety, our health and the economy itself.

But this ideology was hypocritical. The bankers, among the strongest advocates of laissez-faire economics, were only too willing to accept hundreds of billions of dollars from the government in the bailouts that have been a recurring feature of the global economy since the beginning of the Thatcher-Reagan era of “free” markets and deregulation.

Like Pharisees from time immemorial, the movers and shakers lived by the principle, "Don't do as I do, do as I say." And, as their money flooded into the political system, they got the nation's elected representatives to do as they said:

The American political system is overrun by money. Economic inequality translates into political inequality, and political inequality yields increasing economic inequality. In fact, as he recognizes, Mr. Piketty’s argument rests on the ability of wealth-holders to keep their after-tax rate of return high relative to economic growth. How do they do this? By designing the rules of the game to ensure this outcome; that is, through politics.

So corporate welfare increases as we curtail welfare for the poor. Congress maintains subsidies for rich farmers as we cut back on nutritional support for the needy. Drug companies have been given hundreds of billions of dollars as we limit Medicaid benefits. The banks that brought on the global financial crisis got billions while a pittance went to the homeowners and victims of the same banks’ predatory lending practices. This last decision was particularly foolish. There were alternatives to throwing money at the banks and hoping it would circulate through increased lending. We could have helped underwater homeowners and the victims of predatory behavior directly. This would not only have helped the economy, it would have put us on the path to robust recovery.

Canada -- particularly in the last decade -- has followed the same prescription.  Our current prime minister tells us that economics is grounded in certain iron lad rules. One of the basic rules is that inequality is inevitable -- which is, of course, balderdash.


bcwaterboy said...

It speaks to the utter failure of the whole non-existent trickle-down economic theory. The record highs at the Dow and TSX are no accident and really just another indicator of the economy of the rich that has taken over. There is no real economic recovery and all our politicians can seem to do is to continually cut public services which is also entirely intentional in an effort to divert money to the political donors who put these thugs in office. Will this systemic problem disappear if we can manage to get enough people off their couches next fall?

Owen Gray said...

We can hope it will, waterboy -- provided we don't replace one set of toadies with a new set of the same.

The Mound of Sound said...

Stockman, Reagan's budget director who launched the "trickle down" theory has now admitted it was a ruse.

For the overwhelming attention Piketty's "Capital" has received I am astonished at how little Stiglitz' earlier work, "The Price of Inequality" garnered.

Stiglitz explores the minutiae of how inequality is predominantly legislated, not the result of merit or market forces.

I see all those empty lamp posts and I wonder "when?"

Owen Gray said...

Stiglitz is not new to this issue, Mound. Piketty is just the new kid on the block.

Sometimes it's just a matter of timing -- or pure dumb luck.

Anonymous said...

The Scandinavian countries are, the most honest countries in the world. Those countries understand, corruption kills.

Canada is a cesspool of corruption. Harper is not about what is good, for the country, provinces nor the people. Harper is about his own power, glory, what benefits him and to hell with the people.

Harper has a rabid vision of being a big shot, on the Global Governance scene. Harper gave a speech on, Global Governance for Canada.

Therefore Harper works for the corporations. When corporations squeal for more money? Harper hands them another $60 billion in tax reductions.

Owen Gray said...

And, as Stiglitz says, Anon, there is no iron clad rule that says things have to be this way.