Concession and resolution

The rich get richer. But why? Joseph Stiglitz denies that wealth accumulation by a few is the necessary outcome of a market economy. Markets, he argues, are imperfect, yielding less-than-desirable outcomes for the Rest of Us. Moreover, markets have been rigged to favor the rich at the expense of everyone else. His views and arguments are under review by the New Yorker‘s James Surowiecki in the current issue of the New York Review of Books (paywall), who begins:

The fundamental truth about American economic growth today is that while the work is done by many, the real rewards largely go to the few. The numbers are, at this point, woefully familiar: the top one percent of earners take home more than 20 percent of the income, and their share has more than doubled in the last thirty-five years. The gains for people in the top 0.1 percent, meanwhile, have been even greater. Yet over that same period, average wages and household incomes in the US have risen only slightly, and a number of demographic groups (like men with only a high school education) have actually seen their average wages decline.

The United States, as I’ve mentioned often, is a grossly unequal society. Income and wealth flow upwards, leaving most boats level if not sinking. I’ve also included charts of the Gini index, the standard measure of inequality. I do so again.

gini index through 2014

On these pages, and out of head-banging frustration, I’ve touted the good old days of union rebellion, which produced many of the benefits we now take for granted, including Social Security, paid weekends, and a minimum wage. But sentimentality can get the best of me. Stiglitz is earnest in his offer of remedies. I should be too.

So, I say that we go ahead and accommodate the forces of innovation, entrepreneurship, and even competition. After all, some very bright men and women create amazing products and services that many of us enjoy, such as the Apple computer I’m using here. Let them thrive and make lots of money.

However, we should keep in mind that wealth is not created in a vacuum. Tax-financed public institutions, especially the legal system, enable and protect wealth accumulation. We should also keep in mind that while a few do exceedingly well, wide swaths of the population suffer misery and hardship. Extremes in wealth and poverty do not a society make.

Stiglitz supports redistribution after-the-fact. And so do I. Surowiecki:

After all, the policies that Stiglitz is calling for are, in their essence, not much different from the policies that shaped the US in the postwar era: high marginal tax rates on the rich and meaningful investment in public infrastructure, education, and technology. Yet there’s a reason people have never stopped pushing for those policies: they worked. And as Stiglitz writes, “Just because you’ve heard it before doesn’t mean we shouldn’t try it again.”

Amen.