The Price of Inequality

This chapter sets out a series of reforms that Stiglitz believes can mitigate the fact that “America is no longer the land of opportunity” (267). Inequality has taken its toll. The current economic model is not based on how a person at the top contributes to society, even though many do more than make money from rent seeking alone. If America is to be more equal, and if others besides the poor and the 99 percent are to pay the price for inequality, then reform is needed. Stiglitz’s suggested reforms are not based solely on output (GDP) but on indicators that can show standard of living and sustainable growth.

The first group of reforms is designed to limit excess at the top by ending rent seeking and downsizing the financial sector to give all Americans a chance. The reforms will end the worst banking practices (e.g., predatory lending), make banks more transparent, limit bonuses, close offshore banks to keep capital at home, enforce competition laws (e.g., ending monopolies and unfair competition), improve corporate governance (e.g., making laws that keep CEOs from funneling money to themselves), end corporate welfare by closing loopholes, and make legal reforms that ensure everyone can have their day in court.

The second group of reforms will add programs and investments to give the 99 percent more resources. These reforms include access to education, programs that help people build savings, universal healthcare, and improved social programs that help people exit poverty.

A third set of reforms will temper the effects of globalization because it puts US labor at a disadvantage. For example, high-tech jobs go abroad because of lower labor costs, but this deskills US labor. These reforms will enforce and add to capital controls and close loopholes that make it easier or advantageous for corporations to move operations offshore.

A final group of reforms will restore full employment. These reforms will require a change to the fiscal and monetary policies discussed in Chapters 8 and 9, as well as a correction of the trade imbalance so that America has more exports than imports, which will add to job creation and lower the deficit. Lastly, programs would be implemented to help labor move to other sectors.

To institute these reforms, Stiglitz argues that America will also have to commit to a new social compact, one that allows collective action like unions, adopts affirmative action to counter discrimination, and encourages Americans to commit to “sustainable and equitable” growth (282). These reforms will also impose taxes on corporations that fail to reinvest in society and give tax breaks to those that do. Over the long term, the focus will be on investment, innovation, and saving jobs. Importantly, Stiglitz advocates for political reform that will reduce money in politics, allow the public access to unbiased information, and make voting a requirement.

Stiglitz remains hopeful because humans can shape markets. While the Great Recession deepened America’s inequality, it did not create it. Given US politics, either the 99 percent could come to see that the 1 percent has different interests, or the 1 percent could come to see that its interests need to align with the rest of America’s; both are possible. Clearly, politics and economics are linked, so it will be difficult for true political reform to take place with the current level of inequality. America could realize a society that is more equal or one that is more starkly divided into the “haves and have nots” (289). There is still hope, but “time is running out” (290).