Stiglitz and Stelter are Wrong - Essay Example

Income inequality has been called “the defining issue of our time” by President Barack Obama as recently as early which reflects a movement within his own Democratic Party toward an emphasis on the economic and moral effects of disparities in wealth between the top 1% in America and the remaining 99%. In light of news that roughly 4 million Americans have been looking for a job but cannot find one for more than six months, Obama hears a political dialogue about turning income inequality as a populist issue to attract voters (Klein and Soltas). Interestingly, however, Obama and Democratic politicians have stopped short of identifying income inequality as the defining problem of our time and have instead elected to classify it as an “issue”, where an “issue” is a subject of concern and a “problem” is something that needs a resolution. As we look at the Occupy Wall Street movement and at arguments promoting income inequality as a problem, we will notice how language affects the debate in significant ways. Throughout, we will see why income inequality is more of a neutral “issue” rather than a critical economic problem by critically evaluating arguments. Joseph Stiglitz, in his “Of the 1%, by the 1%, for the 1%” piece for Vanity Fair in 2011, provides some economic firepower to the latest political push for resolving the issue. Joseph Stiglitz is an American economist and recipient of the Nobel Prize in Economics in 2001 for his work on the theory of asymmetric information. Stiglitz’s book The Price of Inequality, however, has very little to do with asymmetric information in the marketplace, so to treat his essay and his book as an extension of Stiglitz’s Nobel-winning research is a misnomer – particularly because Stiglitz’s work on asymmetric information is positive economics whereas his work on income inequality is normative (i.e. expressing moral judgments) in nature. His advocacy of fairness and dynamicity in society may start with the economics of pay, but it is a thesis that touches sociology, psychology, and politics equally. His four reasons to why inequality is slowing economic growth include: (1) America’s middle class is too meager to support consumer spending needed for a strong bounce-back, (2) the middle class is too meager to put money toward its future, (3) the middle class is too meager to provide a sizeable enough tax basis, and (4) the middle class is too meager to prevent future intense boom and bust cycles (Stiglitz). Stiglitz’s essay “Of the 1%, by the 1%, for the 1%” has been criticized by politicized economists like Paul Krugman, whose columns typically lean to the left side of the political spectrum. Instead of supporting the left-leaning ideas in Stiglitz’s essay, Krugman expresses that he wishes he could support the thesis, but he does not see how it works (Krugman). For example, Krugman writes in response to point (1) made by Stiglitz, although the 1% tend to save more money than the middle class, there is no evidence that a higher concentration of incomes at the top of the income spectrum will lead to higher savings and then a slower economy. Also, if the economy as a whole experiences a bad year, then savings will not be limited to the top 1%. It is also notable that Stiglitz’s arguments against income inequality do not explain the most recent financial crisis that disproportionately impacted people toward the bottom of the income spectrum. In fact, as Krugman notes, personal savings dropped as inequality rose before the financial crisis, running contrary to the idea that savings and inequality as correlated (Krugman). In response to point (3) about the country’s tax basis, Krugman asserts there no basis in fact for it as the tax system is progressive enough (i.e. taxing the rich enough at the expense of the poor) when one takes into account state and local taxes. As a result, even though the system is not weighted perfectly based on income, it is at least viable enough to support government programs to ensure that income inequality does not lead to lack of funding. Also, because governments are able to finance almost anything with debt, the lack of a tax basis should not be concerning at least in the short-term. Stiglitz adds point (2) to his essay in an effort to paint income inequality as a long-term problem when in fact it is not. The overall thesis is that because of rising tuition costs, a marketable education in the future will become more difficult. However, empirical evidence shows that for the middle and lower classes, educational attainment has increased over the past decades—notably, during a time at which income inequality has slowly risen (Brennan). In other words, in order to have lower income inequality, one would have to see educational attainment stagnate—which would clearly put the United States at a competitive disadvantage with other countries. Regardless of income inequality, the United States has a relatively well-educated workforce as well as a trend toward producing well-educated workers, which of course can be improved through the use of more targeted, work-related curricula. Stiglitz’s point (4) is one that Krugman and left-leaning economists tend to support: that income inequality contributes at least partially to weak or unstable economic growth as well as to financial crisis. Stiglitz finds support for the thesis in IMF papers on the subject; however, IMF papers cited by Stiglitz tend to use cross-national analyses of developing countries to show the relationship between higher inequality and unstable economic growth—situations in which other factors (e.g. access to scarce resources, political corruption, etc.) may be contributing to boom and bust cycles. In that sense, the support Stiglitz uses has little to say about a fully-developed economy like that of the United States. Also, the approach of using cross-national studies is irrelevant because the concern is not about income inequality’s immediate effect, but rather the effect of it over the long-term and as it trends upward. And although income inequality was apparent leading up to the 1929 and 2008 bubbles, better explanations for those bubbles exist aside from looking at economic inequalities (Brennan). Policymakers would be best off looking at the more fundamental causes of financial crises with the hopes of preventing the next one. Like the normatively-charged language used by Stiglitz in his essay, one can see similar language used to motivate protests against not only the 1% but also the economic system that they believe is promoting income inequalities. In 2011, Occupy Wall Street (OWS) camps set up shop in New York City to protest the centralization of wealth in the hands of the 1% that Stiglitz mentions, and the slogan “We are the 99 percent” has been implanted into the cultural and political lexicon ever sense (Stelter). The slogan has become a way to spark outrage over income disparities, either by polarizing individuals in support of OWS or against it. While those who were against OWS generally saw protestors as whiny or socialist, there is something to be said about giant banking firms using the middle and lower classes in America (through tax revenues) to profit from economic disaster. However, the language within “We are the 99 percent” contains too many vague and heterogeneous messages that it makes OWS confused and directionless because it is a statement of economic fact and it leaves empty the next part of the statement about what we, as a society, plan to do about it. One might be so radical as to propose that we move down the road toward socialism whereas one might be more moderate, like Stiglitz, and propose that we make the tax system more progressive or try to reduce tuition expenses. A list of demands on OccupyWallStreet.org included everything from a “living-wage” guarantee, “ecological restoration”, election reform, universal debt forgiveness, open borders, bans on credit reporting agencies, and so on. The diversity of this platform shows that it is not limited simply to income inequalities, and it extends into other radicalized sorts of political concepts that most members of the 99% would find objectionable. Also, to phrase this political and economic platform as “demands” indicates that the group was not open to civic and democratic debate – as a “demand” is something that a kidnapper issues in exchange for returning the kidnapped victim. From that perspective, one could see that the corruption and brutality that the group thought it opposed were part of the same essential political and economic ideology they supported: making “demands” of their government and using government as a tool to take money from the 1% in order to forgive loans, restore the environment, and raise incomes for all. Perhaps the biggest problem with the OWS, however, is the fact that the engine of prosperity is the market economy that allows income disparities to exist, and prosperity supports a democratic government allowing people to live freely and to voice their opinions without harassment – all things that were central to the OWS; accordingly, the movement was founded on a contradiction (Gregory). Nevertheless, “We are the 99%” is a lasting tool for pointing out the proposed problem of income inequalities in the United States, and it has served to galvanize many different forces in opposition to the 1%. Despite disagreement about whether the slogan has enough power to push people back into active involvement with politics, the catchphrase is useful in the sense that it provides continuity to people who were part of the OWS movement. Protestors have told each other that “You can’t evict an idea”, even as their physical protest sites were destroyed (Stelter). The choice to focus OWS on radical causes may have been its downfall, as the movement against corporatism and bailouts could have been stronger and wider, bringing out some of those who do not like Wall Street and those who do not like the government’s association with it (Gregory) Although the underlying arguments behind the movement and its ideological supporters were fundamentally flawed, this is all still a powerful undercurrent in American politics, as we saw in 2014 with Obama’s pronouncement that income inequality (as opposed to other issues like climate change, political conflicts, education, etc.) is the defining “issue” of our time (but that it is not a defining “problem” that needs a solution). As income disparities in the United States continue to grow and as the 99% continue to begrudgingly support the 1% by economic means, political movements like OWS will rise and fall until at least some of their “demands” are met. Works Cited Brennan, Patrick. "Stiglitz vs. Krugman and Friedman." 20 January 2013. National Review Online. http://www.nationalreview.com/corner/338178/stiglitz-vs-krugman-and-friedman-patrick-brennan. 5 May 2014. Gregory, Anthony. "Occupy Wall Street: A Story without Heroes." 4 October 2011. Ludwig von Mises Institute. http://mises.org/daily/5746/Occupy-Wall-Street-A-Story-without-Heroes. 5 May 2014. Klein, Ezra and Evan Soltas. "Wonkbook: Obama wants to make inequality the defining issue of 2014." 6 January 2014. The Washington Post. http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/06/wonkbook-obama-wants-to-make-inequality-the-defining-issue-of-2014/. 5 May 2014. Krugman, Paul. "Inequality and Recovery." 20 January 2013. The New York Times. http://krugman.blogs.nytimes.com/2013/01/20/inequality-and-recovery/. 5 May 2014. Stelter, Brian. "Camps Are Cleared, but ‘99 Percent’ Still Occupies the Lexicon." 30 November 2011. The New York Times. http://www.nytimes.com/2011/12/01/us/we-are-the-99-percent-joins-the-cultural-and-political-lexicon.html. 5 May 2014. Stiglitz, Joseph E. "Of the 1%, by the 1%, for the 1%." May 2011. Vanity Fair. http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105. 5 May 2014. Read More