Friday, April 01, 2011

Must read

Today's must-read: Joseph Stiglitz in Vanity Fair: Of the 1%, by the 1%, for the 1%. As you'd expect from the title, the article is about American inequality:

But one big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy. Lowering tax rates on capital gains, which is how the rich receive a large portion of their income, has given the wealthiest Americans close to a free ride. Monopolies and near monopolies have always been a source of economic power—from John D. Rockefeller at the beginning of the last century to Bill Gates at the end. Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1 percent. Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to 0 percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest.

When you look at the sheer volume of wealth controlled by the top 1 percent in this country, it’s tempting to see our growing inequality as a quintessentially American achievement—we started way behind the pack, but now we’re doing inequality on a world-class level. And it looks as if we’ll be building on this achievement for years to come, because what made it possible is self-reinforcing. Wealth begets power, which begets more wealth... Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.

But its not just about corruption; America's inequality also undermines the American dream, leads to a spiral of debt as people struggle to keep up, and results in rotting infrastructure (because the rich don't need it, so they stack things so they don't have to pay for it). And it has consequences for foreign policy: the rich don't fight or pay any real cost for war, and so you get military adventurism - a point also made by Crooked Timber's John Quiggin, when he points out that "realism" in international relations - a peculiarly American theory - is an ideology for autocracies who do not need to care about their citizens.

Stiglitz's real concern though is that this level of inequality is unsustainable. As we're seeing in the Middle East, poverty and food insecurity tend to lead to revolution, which tends to be very, very bad for the top 1%. In the US, they've been able to fool everyone for a while, but as inequality rises, they're not going to be able to keep it up forever. The consequences of the top 1%'s greed could be torch-wielding mobs.