Joseph Stiglitz, author of the new book 'The Price of Inequality,' argues that the wealth gap in the United States 'is holding us back' because it weakens consumer demand. 'If we want to restore growth, and therefore full employment and greater tax revenues,' we need to address this gap.
Joseph Stiglitz was awarded the Nobel Prize for economics in 2001 and is a member of the Berggruen Institute’s 21st Century Council. He spoke with Global Viewpoint Network editor Nathan Gardels about his new book, “The Price of Inequality.”
Nathan Gardels: What is the central thesis of your book, “The Price of Inequality”?
Joseph Stiglitz: My argument in the context of the current debate is that no large economy has ever recovered from recession through austerity. But more than that, the sharp rise in inequality – especially in the United States, which has the greatest inequality gap in the advanced countries – is holding us back. The lack of aggregate demand that has resulted from this inequality is a key factor hindering a return to growth.
Simply, those at the top where wealth has concentrated spend much less of their income than those at the bottom or in the middle. So, demand drops. If we want to restore growth, and therefore full employment and greater tax revenues, we need to address the underlying problem of inequality.
Gardels: And the cause of that inequality is what? Trade? Technological innovation? Tax policy?
Stiglitz: Certainly the US faces the same challenges of globalization and technological job displacement as other advanced economies. But much of the US problem is that it has rising inequality because of policy choices that allow, and even encourage and incent, “rent-seeking” economic behavior at the top.
Rent-seeking distorts the efficient operation of markets. When financial gains from speculation are taxed at a lower rate than innovation, resources that would support productivity-boosting activities are diverted into, well, legalized gambling. Predatory lending policies and abusive credit-card practices fit in this same rent-seeking category.