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‘The Price of Inequality’ and ‘The Betrayal of the American Dream’

By Dante Chinni,August 24, 2012

Every four years, the nation seems to find itself wrapped in a debate about economic fairness and the struggles of the middle class. A presidential campaign has a wonderful way of focusing Washington’s mind on the country’s largest economic voting bloc, and 2012 is no exception.

But the concerns seem more real and more threatening this time. There is increasing evidence that the nation is splitting into a land of haves and have-nots. I’ve seen the disparities first-hand in small communities and big cities around the country. And recent figures from the Federal Reserve show that the median family has assets (including their house but subtracting their mortgage) of roughly $77,300. The top 10 percent of families have nearly $1.2 million. That’s the kind of gap not seen since the 1920s, just before the Great Depression.

For people on the left of the political spectrum, those figures aren’t just disheartening, they demand action, or at least talk — lots and lots of talk. Flip through the TV or radio dial, and you will find no shortage of progressive politicians, journalists and thinkers offering analyses and critiques of the growing wealth gap. The White House, too, has joined in, bringing the populist argument to President Obama’s stump speeches and attack ads. Make no mistake, the income divide is the subtext to the debates over presumptive GOP nominee Mitt Romney’s tax returns and time at Bain Capital — and there’s a not whole lot of “sub” to the text.

But even if the left’s concern about growing inequality is justified, not all the arguments against it are created equal. Democrats have been shaking their fists in anger at inequality for years and talking about it in such basic terms as “what is fair” and “what is right.” In his new book, “The Price of Inequality,” Nobel Prize-winning economist Joseph Stiglitz does not merely express anger — or rather, he expresses it only to set up a much larger discussion of the problem.

In the process, he does liberal thinkers everywhere an immensely important service: He gives them a trenchant, engaging tool for arguing economics from the left in 2012. Stiglitz, who chaired the Council of Economic Advisers under President Bill Clinton, does much more than point fingers; he discusses consequences. The problem with the current economic path is not — or not just — that it is unfair, it’s that it is unsustainable.

“We are paying a price for our large and growing inequality, and because our inequality is likely to continue to grow — unless we do something — the price we pay is likely to grow too,” Stiglitz writes. “When one interest group holds too much power, it succeeds in getting policies that benefit itself, rather than policies that would benefit society as a whole.”

He then proceeds to outline in chapter and verse what he means, citing specific examples and research from economists, psychologists and social scientists. Inequality undermines people’s faith in government, he says. It undermines worker efficiency and the economy. It even undermines people’s belief in the rule of law.

For example: Stiglitz writes that the bonus system for chief executives is detrimental to the nation. Yes, it creates inequality and overvalues the influence of one person on a corporation’s well-being, but more to the point, incentive pay often creates a desire for short-term profits, and it rewards people for a business performance they often don’t really control. Airline executives, he notes, get bonuses anytime the cost of fuel falls because their airlines become more profitable. And incentive pay is a one-way street, he argues. While stock-option bonuses were always there when companies did well, CEOs “didn’t suffer commensurately when stocks went down.”

When rank-and-file workers in those companies read stories about what management is getting and see their own paychecks stagnating, they are often displeased and less efficient, Stiglitz argues. “People are not like machines. They have to be motivated to work hard. If they feel they are being treated unfairly, it can be hard to motivate them.”

Stiglitz writes clearly and provocatively. He’s the kind of economist who can talk about terms such as “rent-seeking” and the “euro crisis” and bring readers along for the ride. But he’s still an academic, as his 100-plus pages of footnotes attest.