The Price of Inequality

This chapter illustrates the depth and breadth of economic inequality in the United States, the stark gap between the rich (the 1 percent) and the rest (the 99 percent). With the top 1 percent earning 20% of the national income, Stiglitz rejects the idea that America is still the land of opportunity; for those now at the bottom, their chance to rise is lessening. However, the loss of opportunity, accompanied by growing inequality, is not solely the result of market forces, and therefore inequality “is not inevitable” (4).

The current level of inequality is new even though some inequality has always been evident in the US economy. Only 30 years ago, the top 1 percent earned just 12% of US income. But the gap between rich and poor continues to grow, with the wealthy getting wealthier and the poorer getting poorer. Those who defend America’s growing inequality argue that the rich deserve what they get because inequality derives from capitalism (i.e., they work harder and are better rewarded); it is the price America pays for a capitalist market; even if the system is unfair, it would be too costly to fix; and when the 1 percent have more income, it benefits the 99 percent too. Stiglitz disagrees.

Since World War II, the US economy has grown faster when more equal because inequality and how “it is generated undermine growth and impair efficiency” (6). Because of market distortions, incentives lead the 1 percent to take wealth from the 99 percent rather than create it. The poor are quickly losing ground: Poverty has increased, with 37% of America’s poor living in extreme poverty (on less than $2 per day) in 2010. Since the Great Recession of 2007, workers and the poor suffer most because they lack a social safety net and experience more economic insecurity and less opportunity, accompanied by a significant drop in their standard of living. Across the five key indicators for standard of living—life expectancy, infant mortality, social patterns, crime, and poverty—the trends in the early 2010s showed increasing distress for America’s 99 percent. Wages for the wealthy steadily increased (up by 150% by 2010) while barely rising for the bottom 90 percent (up only 15%). At the same time, opportunity for the lower and middle classes to rise was limited by workforce “polarization”: the jobs requiring moderate skills and decent wages moved to other countries, and American middle-class workers were pushed into low-skill, low-pay jobs, even as chief executive officers (CEO) made 200 times the average worker’s salary. Against the world, measured by the Gini Coefficient (when a country ranks .3 or less on the Gini, the economy is characterized as equal) the United States ranks .47, just below Iran and Turkey.

Since the Great Recession, America’s 99 percent remain worse off. In The Price of Inequality, Stiglitz argues against the positions of America’s political right, or the Right, who suggest that inequality must be measured over a lifetime (some people are always at the bottom), that poverty in America is not real but is relative depravation because the poor have access to things like televisions and indoor plumbing, and that statistics are wrong because inflation is estimated at too high a rate, so growth in income has been underestimated. Stiglitz counters that the price of inequality is too high, that it results from political choices made by the 1 percent, and that the 99 percent are paying for it. But to better understand inequality, “we have to understand the economic, political, and social forces” (27) that created it, which is a central argument in this book.