National Taiwan University

Department of Agricultural Economics

Agricultural Policy Analysis

Book Review

The Price of Inequality by Joseph Stiglitz

Student:

Ren Alberto Vargas Zamora

Instructor:

Dr. Kuo-Ching Lin

Taipei, May 12th 2014
The central theme of the book is to point out the fact that Neoliberal
influence has driven the reduction of state involvement in economic
activities, while significantly reducing government spending on social
content. These policy choices have simultaneously increased
inequality by benefiting those at the top and hurt the economy.
Within these policy failures, they include; macroeconomic
stabilization, industry deregulation, and underinvestment in
infrastructure, public education, social protection and research
factors that have currently contributed to the U.S.s, but also the
worlds, current disintegration. This is essential to explain the growing
inequality that has occurred over the past 35 years.

Stiglitz points out that this making has been no accident. This has
occurred due to corporations having and using political influence
through senior government officials providing the conditions for the
top 1 percent of the U.S. population to earn 20 percent of U.S.
national income, today.

1,500 banks have failed between 2008 and December 2012, but
financial monopolies have grown: JP Morgan bought Chase, Citibank
bought Bank of America who had bought Merril Lynch, etc. Another
example; Robert Rubin, Treasury Secretary during the deregulation
phase begun in 1980, benefited Citibank through a law in 1998. In the
years Robert Rubin left office, he received $ 126 million from Citibank.
This, in U.S. law, is not corruption or a crime.
Those responsible for the economic and financial crisis led by the market
are currently still trying to impose the new rules of international economic
and financial game in the B20 through G20 and T20, with the B20 group of
companies, and T20 a group of think tanks that put the agenda at the G20.

Due to the top 1 percent set up the rules, theyve been able to
successfully implement and enforce the whole argument of trickle-
down economics, which consists that giving more money to the top
will benefit everyone, partly because it will lead to more growth but
its been more of the riches accruing at the top to have come at the
expense of those down below, as it is evidently clear.

Therefore, it has not been a sudden increase in CEO productivity that

has allowed them to amass such riches in the last couple of decades
but rather an enhanced ability to take more. Much of the wealth at
the top in the United States and some of the suffering at the bottom
stems from wealth transfers instead of wealth creation.

Inequality is the result of political forces as much as economic ones.

Those with power use that power to strengthen their economic and
political positions or at the very least to maintain them. They also
attempt to shape thinking, to make acceptable differences in income
that would otherwise be odious.

Modern Capitalism has become a complex game, where those who

win often possess less admirable characteristics; as the ability to
skirt the law, prey on the poor and uninformed lending them huge
amount of money with predatory lending and abusive credit card
practices. To add injury to insult, those at the top have managed a tax
system in which they pay less than their fair share; they pay a lower
fraction of their income than do those who are much poorer.

The Fed could have curbed the reckless and predatory lending; the
abusive credit card practices, but chose not to. Again, the banks were
the winners; the rest the losers. The institutional arrangements by
which monetary policy is set are designed to give disproportionate
voice to the bankers and their allies. Especially when they raise
interest rates and tighten credit to purposely maintain unemployment
at an unnecessarily high level. This is done to choke off wage
increases despite the fact that productivity has been growing six
times faster than wages.

And while all this takes money from society and redistributes it to the
top, creating the core of growing inequality, broader forces exert
influence on two other aspects the hollowing out of the middle class
and increase in poverty.

This is because investment is shifted away from public investment;

such as roads, ports, education or basic research. Stiglitz points out
that these conditions must be met due to the broad social benefits
that flow from them. These cuts have occurred despite the evidence
that a boost in these investments give to the economy far exceeds the
average return in the private sector, and is certainly higher than the
cost of funds to the government.
The combination of low wages, as the mother of the economy,
coupled with the growth of consumer credit is via effects on quality of
life of the population has made employment more precarious and
social rights have been lost in favor of concentrating income, as a
central policy objective. When the population who have suffered job
loss started protesting, it was perceived as a terrorist threat. Surely
this points to the transformation of laws against social protest anti-
terrorism laws. From Chile to United States social protest is listed as a
terrorist, the treatment of the detainee, therefore, is the non-citizen.
The person has no rights when arrested for terrorism, this being
actually a wage or employment or quality of life protest. The
treatment of protesters in Madrid, New York and other capitals in the
dissolved and Occupy Wall Street campaign was in that direction.

This is how the 1 percent has now more knowledge on how to shape
preferences and beliefs in ways that enable the wealthy to better
advance in their cause, and more tools and more resources to do so
setting the stage for a new social construction of reality to make
people rich and poor - believe that the rich obtained their wealth
largely through their own hard work, with contributions of others and
luck playing a minor role. Basically, saying that what one has is a result
just of his own efforts, therefore no wealth should be shared with
others who one thinks chose to exert less effort and as a result, is in a
bad situation.
Stiglitz also talks about rectifying the excessive economy-related
impacts on ecosystems and human health. Modern assessment
measures like GDP or gross corporate revenues are chimeras, for
figures like national growth and corporate profits do not account for
the substantial deleterious impacts on the environment that they
inflict. For example, the unconscionable lack of taxation on
environmentally degrading or carbon emitting activities means that
the collective bears the burden for the activities of a few.

The purpose of the policies today is clearly the concentration of

income, succeeding. Never in history has the world been more
focused and never in history has there been such a gap between the
poor and rich countries, and within the rich and poor of these
countries themselves. During the Colonial world, the objective was to
colonize and transfer wealth from one point to another. In the neo-
colonial world, the object is to impoverish one side of the world it
grows to enrich the other that does not grow. The world and its riches
are subordinated to serve the major powers. This can be regionally
scaled within countries and regions themselves.

All of this is possible due to the fact that the Market today is
considered and viewed as the bearer of truth. The market is
omnipresent and perfect: all-knowing and all-powerful, speaking and
listening throughout the world. Knowledge, however, does not
prevent the further spread truth as a dogma. That is the function of
neoliberal economic theories and neo conservatives in politics that
make postmodernity that dominates the way of understanding the
early twenty-first century. In this field, political philosophy is ahead of
experience and proposes a non-existent social order from individual
relations only. No class interests, not national only individuals who
must be attended immediately. Immediacy is an element of this post-
modern individuality taken to the extreme: the isolated and urged
economic agent.

Stiglitz clearly points out that if a country doesnt do what the

financial markets like, they will threaten to downgrade the ratings,
pull out their money, and raise interest rates; where all these
mechanisms are effective. When Greece proposed to submit the
tough austerity program that had been prepared to a popular
referendum, there arose a shout of horror from European officials and
the bankers fearing the Greek citizens might reject the proposal,
meaning the creditors wont be paid.

This eventually led the appointment of a technocratic government to

oversee the implementation of the program and dictate the
parameters. Clearly the financial markets get what they want theres
no true democracy, theres no voting in matters such as issue of
economics. The economic and financial system has undermined
countries self-determination and the power of their democracies.

This has been able to be spread all over the world through
globalization and more specifically, the International Monetary Fund
(IMF), whom countries have been forced to turn over their economic
sovereignty. It wasnt until 2011 where they conceded the fact that
longer growth spells are robustly associated with more equality in
the income distribution Over longer horizons, reduced inequality
and sustained growth may thus be two sides of the same coin.

Yet, it was through U.S. foreign policy (Monroe Doctrine, Roosevelt

Corollary, Washington Consensus ) that has allowed policies that
empower the ruling class be transferred to other countries. This has
led for the dominant sectors of the native bourgeoisie within a
country - resolve its basic contradictions with foreign capital and
integrated system of domination to participate in a subordinate
manner. In exchange for sharing the benefits arising from the
exploitation of their peoples, they have assumed the important role of
social and political control of the country. The native bourgeoisie then
ceased to be the representative of his nation from the metropolis to
become speaker of the metropolis in the nation.

Therefore, these are the struggles in which countries have dwelled in

and have been fighting to change especially in Latin America,
considered to be the backyard of the United States. But Stiglitz
during his book insists on setting a difference, even in language of
words; that evolution, not revolution must be reached, despite clear
comparison on U.S.s current situation of the poor and the poor
around in other countries.

Stiglitz claims that myths greatly supported have been shattered. Such
as those that everyone has benefited from the growth occurred in the
preceding quarter century, along with the focus on inflation was the
cornerstone to economic prosperity, and that the best way of
ensuring economic stability was to have an independent central bank.

Also, I will come out and say that I feel Stiglitz is trying to save face a
system that has been unequal for a long time. It claims it drew
attention and real debate due to the growing obvious and
undeniable inequality in the United States. But it was only when the
side-effects of such system occurred in the United States that it was
considered and viewed as an issue. Did the rest of the world not
matter? It is popularly blamed that Communism has led to the worlds
decay, which it could have some extent, but Capitalism has been the
ruling system for the last 20 years and the statistics show that the
breach of inequality between the rich and poor have increased; while
sharpening the intensity of poverty. Has Oxfam published in 2014, the
richest 85 people across the globe share a combined wealth of 1tn,
as much as the poorest 3.5 billion of the world's population.

But at least, Stiglitz does recognize that the United States has become
a country not with justice for all (if it had been at any point) but
rather with favoritism for the rich and justice for those who can afford
it clearly evident in the foreclosure crisis, in which the big banks
believed that they were too big not only to fail, but also to be held
accountable.

To shine some light on hope, Stiglitz finalizes his book on various

policies to move forward, these include; curbing the excesses at the
top, curbing the financial sector, stronger and more effectively
enforced competition law, improve corporate governance,
comprehensive reform of bankruptcy laws, end of government
giveaways, end corporate welfare, legal reform, tax reform, and
create a more progressive, effective and effectively enforced income
and corporate tax system.

Though I agree that the way to fix this is impressive concentration through
state action - the natural way is the tax. A pathway may be to increase the
marginal rates to charge more to the very wealthy and eliminating
deductions and exemptions to income stock positions. Along with these
measures is essential to incorporate actions to increase the income of the
poorest and poor families. Overall, a comprehensive policy strategy is
needed.

But this is incomplete, being the declining presence of regulation and

government, along with dominance of the market as an allocator of
productive resources, the practical disappearance of national control
capital movements and deregulation of economic activities in the world -
created a truly global economy in which large capital enjoyed the freedom
to control global markets. International institutions as the International
Monetary Fund (IMF), World Bank (WB) and others; must stop serving to
financial creditors interest as they have done in the past till the present.

The structure itself of these international organizations must also change.

They dictate rules and rank countries in compliance to their norms and
rules. Shouldnt people from around the world get to choose and vote
who they want to be represented by in such a powerful position?
Shouldnt directors who fail to act be held accountable for their
incompetence?

But in truth, how will this happen? It has already been expressed,
identified and shown how people have been disempowered to be able to
choose which direction to go. Its as if the rich have been able to infiltrate
every structural platform of society (education, health, financial, political,
etc.) to make it exclusive. Stiglitz spoke against characters who vouch
against the system, but its not about a group of people being anti-
system its really about an existing ruling class being anti-the rest of
the world.

Literature will remain and will always be there, whose words will be
accompanied or echoed by other times of aggressive and rude inequality
but also social revolt and rebellion, as history is there to prove
something that we can be sure to come. What is absent, clearly, are
democratic policies to engage such blatant inequality. If injustice prevails
at all levels this will cancel or encroach channels for voice and action
claiming freedom, leading to break-out the social resentment and
bitterness of spirit that will obstruct dialogue and become futile the call
for civility.