This week, Weekend Reader brings you an excerpt from The Price of Inequality: How Today’s Divided Society Endangers Our Future by former World Bank Chief Economist Joseph E. Stiglitz. Stiglitz details the disparity between the top 1 percent who hold 40 percent of the country’s wealth and the remaining 99 percent of Americans, as well as the damaging policies put in place by elected officials that have and will continue to stunt growth and increase inequality.
You can purchase the book here.
The Rising Tide That Didn’t Lift All Boats
Although the United States has always been a capitalist country, our inequality—or at least its current high level—is new. Some thirty years ago, the top 1 percent of income earners received only 12 percent of the nation’s income. That level of inequality should itself have been unacceptable; but since then the disparity has grown dramatically, so that by 2007 the average after-tax income of the top 1 percent had reached $1.3 million, but that of the bottom 20 percent amounted to only $17,800. The top 1 percent get in one week 40 percent more than the bottom fifth receive in a year; the top 0.1 percent received in a day and a half about what the bottom 90 percent received in a year; and the richest 20 percent of income earners earn in total after tax more than the bottom 80 percent combined.
For thirty years after World War II, America grew together—with growth in income in every segment, but with those at the bottom growing faster than those at the top. The country’s fight for survival brought a new sense of unity, and that led to policies, like the GI Bill, that helped bring the country even closer together.
But for the past thirty years, we’ve become increasingly a nation divided; not only has the top been growing the fastest, but the bottom has actually been declining. (It hasn’t been a relentless pattern—in the 1990s, for a while, those at the bottom and in the middle did better. But then, as we’ve seen, beginning around 2000, inequality grew at an even more rapid pace.)
The last time inequality approached the alarming level we see today was in the years before the Great Depression. The economic instability we saw then and the instability we have seen more recently are closely related to this growing inequality, as I’ll explain in chapter 4.
How we explain these patterns, the ebb and flow of inequality, is the subject of chapters 2 and 3. For now, we simply note that the marked reduction in inequality in the period between 1950 and 1970, was due partly to developments in the markets but even more to government policies, such as the increased access to higher education provided by the GI Bill and the highly progressive tax system enacted during World War II. In the years after the “Reagan revolution,” by contrast, the divide in market incomes increased and, ironically, at the same time government initiatives designed to temper the inequities of the marketplace were dismantled, taxes at the top were lowered and social programs were cut back.
Market forces—the laws of supply and demand—of course inevitably play some role in determining the extent of economic inequality. But those forces are at play in other advanced industrial countries as well. Even before the burst in inequality that marked the first decade of this century, the United States already had more inequality and less income mobility than practically every country in Europe, as well as Australia and Canada.
The trends in inequality can be reversed. A few other countries have managed to do so. Brazil has had one of the highest levels of inequality in the world—but in the 1990s, it realized the perils, in terms both of social and political divisiveness and of long-term economic growth. The result was a political consensus across society that something had to be done. Under President Fernando Henrique Cardoso, there were massive increases in education expenditures, including for the poor. Under President Luiz Inácio Lula da Silva, there were social expenditures to reduce hunger and poverty. Inequality was reduced, growth increased, and society became more stable. Brazil still has more inequality than the United States, but while Brazil has been striving, rather successfully, to improve the plight of the poor and reduce gaps in income between rich and poor, America has allowed inequality to grow and poverty to increase.