How to fix inequality: Squash the finance industry and redistribute more
June 2, 2015 2:02 AM   Subscribe

Joe Stiglitz on Inequality, Wealth, and Growth: Why Capitalism is Failing (video; if you don't have 30m, skip to 20m for discussion of political inequality, wealth, credit and monetary policy) - "If the very rich can use their position to get higher returns, more investment information, more extraction of rents, and if the very rich have equal or higher savings rates, then wealth will become more concentrated... economic inequality inevitably gets translated into political inequality, and political inequality gets translated into more economic inequality. The basic and really important idea here is that markets don't exist in a vacuum, that market economies operate according to certain rules, certain regulations that specify how they work. And those effect the efficiency of those markets, but they also effect how the fruits of the benefits of those markets are distributed and the result of that is there are large numbers of aspects of our basic economic framework that in recent years have worked to increase the inequality of wealth and income in our society... leading to a society which can be better described, increasingly, as an inherited plutocracy."
There's a third explanation which sees the growing wealth inequality as a result of misguided monetary policy... The government has, de facto, delegated responsibility for the creation and allocation of credit to private banks... so we've privatized a key national asset... This control over the credit creation process is a major source of inequality in our society.


V. Policy

More direct role of government in the provision of credit
  • Crisis showed that private markets were not good either in allocating credit or managing risk
  • Relatively little credit goes to productive investments
  • Importance of significant macro-economic externalities not taken into account by private sector
Mike Konczal: The Rules are What Matter for Inequality - "As we argue, inequality is not inevitable: it is a choice that we've made with the rules that structure our economy. Over the past 35 years, the rules, or the regulatory, legal and institutional frameworks, that make up the economy and condition the market have changed. These rules are a major driver of the income distribution we see, including runaway top incomes and weak or precarious income growth for most others. Crucially, however, these changes in the rules have not made our economy better off than we would be otherwise; in many cases we are weaker for these changes."

-Rewriting the Rules of the American Economy: An Agenda for Shared Prosperity (pdf)
-Vox explainer about Stiglitz and the Roosevelt Institute's economic policy ideas
The problem isn't just one of distribution, the report argues. The problem is that the economy is fundamentally broken, shot through with opportunities for the rich to get richer not by building wealth but through exploitation and taking...

Stiglitz, Abernathy, Hersh, Holmberg, and Konczal have found a way to rearticulate left-of-center economic policies as more than just attempts to even out the income distribution or expand the safety net for its own sake. Those are worthy goals, but so is boosting economic growth. The report challenge the idea that growth requires getting out of the way of the market, and embraces the notion that it requires constant, active government intervention. It's a necessary and bracing challenge to years of conventional wisdom, in which being "pro-growth" and "pro-market" were seen as basically equivalent. Markets fail, Stiglitz and his co-authors remind us, and when they do the government is needed to set them right.
also btw...
  • The age of open financial imperialism[*] - "Until some twenty years ago, the world was structured (at least in principle) around two simple rules: within nations: 1 person = 1 vote; at the international level: 1 country = 1 vote. Globalization requires some changes in the latter. But surely, it would be thoroughly regressive, although not in discord with the spirit of our age, to go both nationally and globally to the new single rule, as proposed by Nate: 1 dollar = 1 vote."
  • Why finance is too much of a good thing - "We have a great deal of evidence that too much finance damages economic stability and growth, distorts the distribution of income, undermines confidence in the market economy, corrupts politics and leads to an explosive and, in all probability, ineffective rise in regulation. This ought to worry everybody."
  • When is a Felony Not a Felony? When You're a Bank - "It's not enough that the banks are avoiding prison — they needed a guarantee they wouldn't see the regulatory equivalent of probation, either."
  • How to Reduce Income Inequality - "I would add: Do more to eliminate monopoly and monopsony power (they distort the flow of income)."
    1. Tax appreciated assets when inherited or transferred inter-vivos.
    2. Raise income tax rates on capital income — capital gains and dividends — to levels just below labor, e.g. maximum rate at true current marginal tax rate or 30%. And curtail practices of defining earnings as capital income, e.g. "carried interest" provisions.
    3. Reduce political rents: close tax loopholes that benefit mainly the wealthy (e.g. cap on deductions for employer-provided health insurance); turn deductions that benefit the richest into credits, many refundable, to benefit lower- and middle-income families; allow drug purchases at "best price" rates, not market rates, for Medicare; get rid of oil and gas exploration tax subsidies; limit and phase out agricultural subsidies.
    4. Use tax revenue to improve public infrastructure (including internet).
    5. Improve college prep classes and college counseling for students.
    6. More and better apprenticeships (get employers involved).
    7. Raise the minimum wage to $10 per hour, index it, and enforce labor laws (e.g. on scheduling).
    8. Universal child allowance at $2,500 per child, refundable if this is more than income taxes owed, and separate from the EITC.
    9. Profit sharing among all long-term (full year or more) employees.
  • Inequality - What To Do About It? "Inequality has been on the rise since the 1970s - Tony Atkinson and Sabine Alkire ask what can be done about it?"

  • A Conversation About Inequality and Atkinson - "Tony Atkinson, in many ways the father of modern inequality research, has a terrific new book — 'Inequality: What Can be Done?' — that is, um, about inequality and what can be done. A few weeks ago Janet Gornick, director of the LIS data center, led Bob Solow and yours truly [Paul Krugman] in a wide-ranging discussion of issues raised by Tony's book."

  • After Piketty: 12 policy proposes to reduce inequality of outcomes
    1. The direction of technological change should be an explicit concern of policy-makers, encouraging innovation that increases the employability of workers, notably by emphasizing the human dimension of service provision.
    2. Public policy should aim to reduce market power in consumer markets, and to re-balance bargaining power between employers and workers, contribute to reducing the share of capital.
    3. Return to a more progressive rate structure for the personal income tax, with a top rate of 65 per cent on the top 1 per cent of incomes.
    4. The government should offer guaranteed employment at the living wage to everyone who seeks it.
    5. Employers should adopt ethical pay policies that share common principles, and the adoption of such a policy should be a pre-condition for eligibility to supply goods or services to public bodies.
    6. Increased taxation of investment income via the re-introduction of earned income relief in the personal income tax, so that earnings are taxed at a lower rate over an initial range.
    7. A fresh examination of the case for an annual wealth tax, and the prerequisites for its successful introduction.
    8. All receipts of inheritance and gifts inter vivos to be taxed either under a lifetime capital receipts tax or under the personal income tax, with appropriate averaging provisions and thresholds.
    9. The government via National Savings should return to offering a guaranteed positive (and possibly subsidised) real rate of interest on savings, up to a maximum per person.
    10. The encouragement of institutions to represent the interests of savers and to provide alternative outlets for saving not driven by shareholder interests, aided by the establishment of a publicly-funded money advice service providing independent guidance free to all savers.
    11. A capital endowment for all, either at adulthood or at a later date.
    12. An EU initiative for a participation income as a basis for social protection, starting with a universal basic income for children.
  • The Case of the Missing Minsky[*] - "Why did the system become so vulnerable? Was it deregulation (or failure of regulation to keep up with institutional change)? Simple forgetting, as memories of past crises faded? Excessively loose policy?"

  • The redistributive consequences of monetary policy - "Monetary policy is not intended to benefit one segment of the population at the expense of another by redistributing income and wealth. But as Makoto Nakajima explains, it is probably impossible to avoid such redistributive consequences."

  • Why helicopter money is a political economy issue - "From a macroeconomic point of view, there is an obvious way around this deficit obsession, and that is to finance any fiscal stimulus using money rather than debt. In a recession creating money does not create an inflation problem, as we have all seen in the last few years with Quantitative Easing (QE). The problem with this textbook solution (often called money financed fiscal stimulus) is that we have ruled it out by creating independent central banks. Governments cannot create money to finance fiscal stimulus. Central banks are creating money - lots of it - but can only use that to buy assets. Whatever political economy problem independent central banks have helped to solve, they have restricted our policy options in what has turned out to be a very serious way."

  • Iceland looks at ending boom and bust with radical money plan - "Icelandic government suggests removing the power of commercial banks to create money and handing it to the central bank."

  • Iceland's daring raid on fractional reserve banks - "In recent years Scandinavian central bankers have shown the same dauntless appetite for exploration that once saw Nordic ships fan out across the globe. In this spirit Reykjavik should give sovereign money a shot. Nations far bigger and meaner than Iceland have struggled to come to grips with financial excess through conventional means. As well as showing other countries a potential way forward, by bringing the axe down on fractional reserve banking the Icelanders might just regain some control over their economic destiny."

  • Iceland's grand monetary experiment? - "One of the oddest things about the aftermath of the financial crisis is the extent to which things haven't changed. Yes, there are plenty of new rules, and stress tests, and of course there are more fines for wrongdoing, but the basic structure of the financial system doesn't look much different from before it blew up. There is still plenty of money to be made (and lost) issuing short-term 'safe' debt to buy long-term, illiquid, risky assets. Lenders still exacerbate the cycle by increasing their leverage when asset prices rise only to cut back on lending when the economy sours. And everyone knows that taxpayers are still on the hook when things go bad, which acts as a massive subsidy for the financial industry. As if all that weren't bad enough, the current system makes it far too hard for central bankers to accomplish their mission of stabilising the economy."
  • If implemented, it would dramatically improve the ability of central bankers to stabilise nominal spending without distorting the composition of economic activity.

    However, the current proposal leaves open a large loophole in the way that banks can fund themselves, to say nothing of bank-like financial firms. Closing this loophole would require more radical measures, such as a requirement that all investments are funded by equity, or by venture capital-style lockups.
  • Should Iceland abolish fractional reserve banking? - "The government will create new money by printing and injecting it into the economy through fiscal policy... Under this scenario, how powerful does the state become? On what do they spend the money?

  • Top Icelandic banker jailed for role in 2008 financial collapse - "The former head of the Icelandic bank Landsbanki has been sentenced to a 12-month jail term. Sigurjon Arnason was on trial for his role in the collapse of the financial sector in 2008. Two other of the banks executives received nine month sentences."

  • The Brailsfordian road to socialism - " 'Small changes can have big effects' wrote Duflo and Banerjee. The transition to socialism will not happen by protesting, emoting or even perhaps by voting. It'll come instead by small and individually innocuous steps."

  • Our Kids and Coming Apart - "External forces, such as automation and global economic competition... are exacerbated by an increasingly winner take all economic system."

  • Going Past Capital - "The current transition is as profound as the ones from the forager age to the agrarian age and from there to the industrial age... The agrarian system worked reasonably well while the interests of land owners were somewhat aligned with those of peasants. That broke down with the technologies for industrial production. The industrial system worked reasonably well while the interest of capitalists were somewhat aligned with those of workers. That is breaking down now with information technologies. Just as we had to go past land back then we now need to go past capital. Current policies such as quantitative easing and austerity are all designed to continue to support capital in a mistaken view that it still is the critical factor. What then is the critical factor going forward? I have argued previously that it is knowledge (in my own broad definition). The argument for Universal Basic Income then is that it enables us to go past capital towards knowledge by freeing everyone to participate in its creation and maintenance."

  • Technological Underemployment: Addressing Common Objections - "We won't run out of things to do. Humans are creative and think up new things. I believe that also. But that's not the question at all when it comes to employment. The question is can you get *paid* for whatever it is that you do."
*The basic platform of Stiglitz and the Roosevelt Institute
posted by kliuless (27 comments total) 174 users marked this as a favorite
Well, that should just about cover it.
posted by fredludd at 3:18 AM on June 2, 2015 [7 favorites]

Wow. I don't usually go for long posts, but there's a lot here I look forward to reading in the next few days. Nice work!!
posted by barnacles at 3:18 AM on June 2, 2015 [3 favorites]

Excellent post.
posted by topynate at 3:33 AM on June 2, 2015 [2 favorites]

Amazing work. Thank you.
posted by bakery at 3:52 AM on June 2, 2015 [1 favorite]

Y'know, given the length and breadth (and complexity) of the issues involved here, I can't help but think that a well-annotated Metafilter post like this could very well become a basic policy document for a lawmaker.
posted by Thistledown at 4:07 AM on June 2, 2015 [10 favorites]

There will be a test on Friday. If you have any questions, please check the syllabus first.
posted by Thorzdad at 4:50 AM on June 2, 2015 [5 favorites]

Y'know, given the length and breadth (and complexity) of the issues involved here, I can't help but think that a well-annotated Metafilter post like this could very well become a basic policy document for a lawmaker.

If only lawmakers would focus seriously on inequality.

There is actually a long history on both the left and right of putting together policy readers and sample legislation -- ALEC has been getting more attention lately and has been exceedingly well-funded, but it comes out of that more ad-hoc tradition. This FPP definitely has a hint of that and it is indeed easy to imagine the same links being repackaged and reframed for a political audience.
posted by Dip Flash at 4:54 AM on June 2, 2015 [2 favorites]

Via Rolling Stone in relation to Occupy Wall Street (anyone remember that?)...

Nobody hates them for being successful. And not that this needs repeating, but nobody even minds that they are rich.

What makes people furious is that they have stopped being citizens.

Most of us 99-percenters couldn't even let our dogs leave a dump on the sidewalk without feeling ashamed before our neighbors. It's called having a conscience: even though there are plenty of things most of us could get away with doing, we just don't do them, because, well, we live here. Most of us wouldn't take a million dollars to swindle the local school system, or put our next door neighbors out on the street with a robosigned foreclosure, or steal the life's savings of some old pensioner down the block by selling him a bunch of worthless securities.

But our Too-Big-To-Fail banks unhesitatingly take billions in bailout money and then turn right around and finance the export of jobs to new locations in China and India. They defraud the pension funds of state workers into buying billions of their crap mortgage assets. They take zero-interest loans from the state and then lend that same money back to us at interest. Or, like Chase, they bribe the politicians serving countries and states and cities and even school boards to take on crippling debt deals.

Nobody with real skin in the game, who had any kind of stake in our collective future, would do any of those things.

posted by fairmettle at 5:16 AM on June 2, 2015 [65 favorites]

[I]nequality is not inevitable: it is a choice that we've made with the rules that structure our economy.

Quoted for truth.

Excellent post.
posted by Gelatin at 6:31 AM on June 2, 2015 [4 favorites]

Just a quibble: inequality is not a choice "we" have made.
posted by mondo dentro at 6:40 AM on June 2, 2015

>Just a quibble: inequality is not a choice "we" have made.

Oh, I don't know... depends what you mean by 'we', I guess, but an awful lot of people have wholeheartedly embraced the ideas that poor people are poor because they're lazy, rich people are rich because that's how God indicates His approval, and social programs are the way liberals take away the rightful property of God's corporate representatives. Seems to me people have chosen this stuff again and again. All the signs say "Anything But Feudalism, Next Nine Exits" pretty clearly, and we just keep driving past 'em.
posted by Sing Or Swim at 6:57 AM on June 2, 2015 [7 favorites]

Nobody with real skin in the game, who had any kind of stake in our collective future, would do any of those things.

In a system where sociopaths make the best CEOs precisely because they're immune to issues of conscience, and where we believe that money is the best insulator against reality, what do we expect?
posted by sneebler at 7:05 AM on June 2, 2015 [5 favorites]

John Le Carre:

"So, ask me what corporate power means to me, it means the ability of
the individual to sacrifice his own instincts, his own decent
instincts, in the name of the corporation, that people will do things
to—on behalf of the corporation, to a group of people, which they
would never do to their next-door neighbor, so that all the decent
humanity seems to be set aside the moment they walk through the
corporate doors."

posted by Trochanter at 7:48 AM on June 2, 2015 [5 favorites]

My American history knowledge base is spotty, but might the odds have favored a different and better history, had Andrew Jackson not abolished the National Bank? Was there ever any attempt to reestablish it?
posted by mmiddle at 8:50 AM on June 2, 2015

Wow. terrific post. Will have to dig in later.

poor people are poor because they're lazy, rich people are rich because that's how God indicates His approval

this. i know an awful lot of people who don't think 'wealth inequality' is even an issue. it's how they measure their own awesomeness. I have actually heard, "well, if they didn't want to be poor they shoulda buckled-down in high school." I have a enormous headache in my eye.

it would be a huge shift to simply have a majority of americans agree that it's even worth talking about.

I will canvas for anyone at any level who campaigns on either the 9 or 12 point plans above. srsly. call me.
posted by j_curiouser at 8:51 AM on June 2, 2015 [1 favorite]

In fairness to everyday, run of the mill 99%er social conservatives - they don't actually know what's going on, not fully, and if they did, mostly they would NOT approve of it.

"The study found that the top 1 percent has more of the country's wealth than nine out of ten Americans believe the entire top 20 percent should have."
posted by showbiz_liz at 8:59 AM on June 2, 2015 [5 favorites]

Anytime kliuless creates one of these megaposts (for which I am grateful, don't get me wrong), I have two thoughts.
1. This is interesting information.
2. This information will make no difference. Nothing will change.
posted by wittgenstein at 9:16 AM on June 2, 2015

thanks, showbiz. good to see some data confirming the lack of interest/knowledge/give-a-shit-ness.
posted by j_curiouser at 9:24 AM on June 2, 2015 [1 favorite]

I'm excited to dive into this but know that'll just piss me off. So thanks? :)
posted by Arbac at 11:53 AM on June 2, 2015 [2 favorites]

Fucking ace post. But..."Joe"?
posted by Joseph Gurl at 4:33 PM on June 2, 2015

And in other news, a universal basic income will directly reduce inequality, while simultaneously empowering consumer demand, raising productivity, and increasing the bargaining power of all workers by providing them the option of saying "No" to employers.

Stiglitz has yet to openly support basic income, but I don't think he's that far away, and the same goes for Solow and Krugman, who both in this video talk about a basic income for kids, aka a universal child allowance, which they both like and agree means-testing leads to serious problems.

Robert Reich has already switched to openly talking about basic income, which is a big step forward. I've no doubt others will follow suit.

Right now, the big names for the most part are talking about the problems, and talking even about the need for stronger safety nets, lower inequality, higher incomes at the bottom, less means-testing, the price of poverty, the savings of housing first policies, the inability of education to address all of these problems, etc. But saying the words "basic income" is only just now entering the Overton Window.

This however will change, and I wouldn't be surprised if it changed fairly quickly as soon as these kinds of names start saying the actual words - basic income.
posted by 2noame at 5:50 PM on June 2, 2015 [4 favorites]

That's great and all, but how is increased economic growth going to curtail anthropogenic climate change?
posted by j03 at 6:37 PM on June 2, 2015 [1 favorite]

trust me to get scooped by kliuless.

What Thomas Piketty and Larry Summers Don’t Tell You About Income Inequality, especially that it's worse than you think, didn't fall during the Recession, and there isn't any Enough Already, since "There is no point at which those who accumulate money become satisfied," and every major solution on the table is a self-licking ice cream cone and we're all just running on fumes. Even JP Morgan is worried that we're at the edge of the abyss. Inequality is a Choice (and it matters) made by The Three Types Of People Who End Up Rich (and destroy the wealth of others), by doing things like capturing government institutions: How the Federal Reserve Is Destroying Your Economic Future and rewarding shareholders instead of spending on workers over the last seventy years in Capitalism, American Style (if that's even close to an explanation). So are you going to play the game or change the game? It's too bad there are no rich people in America and that America is a meritocracy, otherwise we'd have to think about What Can be Done? Maybe a A Conservative Case For The Welfare State.

it's not the first time this has happened, either: Revisiting the Great Upheaval and the first gilded age.

What Caused Capitalism?
It was only a matter of time before this Sturm und Drang affected the genteel world of historians. Since the future seems up for grabs, so is the past. Chances are, if a historian’s narrative of the European miracle and the rise of capitalism is upbeat, the prognosis for the West will be good, whereas if the tale is not so triumphal, the forecast will be more ominous. A recent spate of books about the history of global capitalism gives readers the spectrum. The Cambridge History of Capitalism, a two-volume anthology edited by two distinguished economic historians, Larry Neal and Jeffrey Williamson, presents readers with a window into the deep origins of capitalism. Joel Mokyr’s The Enlightened Economy explains how capitalism broke free in a remote corner of western Europe. And in Empire of Cotton, Sven Beckert, a leading global historian, offers a darker story of capitalism, born of worldwide empire and violence.
posted by the man of twists and turns at 8:37 PM on June 2, 2015 [9 favorites]

So much to read and digest. When looking at it from my own kiddy pool: all. this. so. much.
According to the study, no one who is working full-time making minimum wage can afford a two-bedroom apartment at market rent [in Oklahoma].

In fact, a person making minimum wage would need to work 76 hours a week in order to afford a two-bedroom unit.
I'm looking for a job. Every single recruiter or interview I've talked to in the past two years have stated that the job they need a 20+ year experienced person for (read: me) has told me that they are offering less than I am making now -- and I'm already making not much as I took this job during the depths of the "recession recovery" and have had minimal merit increases since then that don't even match cost of living increases (official) and cost of living increases (on the ground reality).

The wolf is not at the door by any stretch, but I really wish I hadn't bought into the American Dream bullshit sometimes about being able to work hard and get ahead just fine.
posted by tilde at 10:17 AM on June 4, 2015 [1 favorite]

kliuless, I would often like to discuss your posts, which I find very interesting, but by the time I have read even a small portion the discussion has petered out.
Maybe you could occasionally make short posts on the same themes too?
posted by bystander at 8:10 AM on June 7, 2015 [1 favorite]

posted by the man of twists and turns at 8:23 PM on June 13, 2015

Maybe you could occasionally make short posts on the same themes too?

ok, here's an attempt! (at trying to connect theory and practice ;)

like i kinda try to already (i guess?) but in comments where the discussion hasn't petered out :P

i think part of the problem is stating the, er, problem clearly and being able to articulate exactly what is going wrong. otherwise it's really easy to default to received/conventional wisdom.

like it takes 20m for stiglitz to say that markets aren't some inviolable arbiter of measuring personal or organizational worth. price systems generally only work well if certain conditions are met, and so there are laws and regulatory rules under which they are supposed to function, but which have become crazy gamed into what amounts to "inherited plutocracy" (almost followed by a sheepish 'there, i said it')

we all know or at least have some vague sense that something is wrong or must be done -- unless of course the situation of you and yours has somehow miraculously improved over the years -- but when it comes to how the financial system operates or, perhaps more to the point, why your bank account has certain digits there (and not others) there's this surprisingly vast lacunae between the story you tell yourself -- your social status and value to society; the part of you that mr. rogers sees -- and, i'd submit, how it all actually operates.

maybe deliberately we don't learn this in school?

on top of that (or integrally connected with this) is an information revolution that if not eating the world (or at least productivity and inflation statistics) is dissolving large chunks of its institutional foundations.

Nothing will change.

i guess beyond moving the overton window, besides ideological framing, i'd like to think (perhaps presumptuously!) that it's about drawing more people into a "reality-based community" with the (meta-)knowledge that 'social reality' is collectively defined and simultaneously determined.

so it may hinge on whether you have an ayn rand or anne frank (hopefully provisional ;) view of the world and other people, but by opening up a nonmonotonic probability space, you can at least show, if not demonstrate, another world is possible [/cliché?]

anyway, rewriting the 'abstraction layer' and getting closer to 'bare metal' (for the planet) with a better understanding of experimental/experiential evidence and first principles for greater functionality and sustainability means recognizing that knowledge can be an infinite resource -- moreso than nominal notions of money, credit or capital per se -- and that it's a public good (not rivalrous and shouldn't be excludable) in which case how would you want to structure society and what's the 'best' way to get from here to there?

from what i've seen, and i'm willing to be persuaded otherwise, the capital reward structure and global financial architecture (not to mention the security state and various 'defense' apparati) have been thoroughly gamed beyond productive usefulness -- the app economy? -- where it's to the point where we're actively working to make each other miserable; can we all just get along just pay people not to do that? wouldn't that be an improvement? acknowledge that artificial scarcity is artificial and trying to keep it so is not only wasteful and retrograde, but spiteful and soul crushing?

so like iceland and kind of like scandinavia i feel more generally are saying, you know what? this doesn't seem to be working for us so lets try and reinvent our public institutions such that they do...

tl;dr: corporate organizations that exist to make ... 'profit!' and public institutions that enable them by providing them with tokens of exchange seem kind of quaint and silly in retrospect.
posted by kliuless at 1:23 AM on July 2, 2015 [3 favorites]

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