The Price of Inequality

Stiglitz explains that since America’s level and type of inequality is unique in the world—a “distinctly American achievement” (28)—the 1 percent must be pulled back, more assistance must be given to the poor, and the middle must be sent reinforcements. The 1 percent engage in rent seeking, defined as “getting income not as a reward to creating wealth but by grabbing a larger share of the wealth that would otherwise have been produced without their effort” (32). During market failures like the Great Recession, the 1 percent get richer because of externalities (defined as when an individual has positive or negative effects on others but neither gets the benefits nor must pay). To pull back the richest 1 percent in a practical sense means putting limits on rent seeking.

Historically, the Greeks were the first to reject the religious idea that the 1 percent ruled and led through divine right; instead, they argued that those with power were made stronger, and those without became the underclass. In the mid-19th century to the current day, this idea became the marginal productivity theory: those who have more in society give more, those with less skills make less, and the market determines worth.