Download video transcript - Website Design Studio

[MUSIC PLAYING]
JOSEPH STIGLITZ
Well, I'm going to talk about the price of inequality. I grew up in Gary, Indiana, which is a steel town was a steel town - on the southern shore of Lake Michigan. And the history of Gary really reflects the
history of industrialisation in the United States.
It was founded in 1906. It was named after Judge Gary, who was the chairman of the board of US
Steel. It was the largest integrated steel mill in the world. It grew during the mid twentieth century
and then went into decline.
As I was growing up, I saw so vividly problems of inequality, poverty, discrimination. I saw workers
fighting to get a decent wage, a decent income to live on. After I left Gary, things got worse. I went
back a couple years ago to do a film and what I saw really reflected how much worse things have
gotten since the period where I was growing up.
And I want to talk a little bit about the way things have evolved in the United States in the last,
especially, thirty years. These concerns about inequality, about poverty, about discrimination were
among the reasons that, the things that motivated me to study economics. But the consequences of
this inequality now affect not just our economy, it's not just a moral issue, if affects our politics, it
affects our society.
What I've written in my book The Price of Inequality is that we are paying in all these dimensions - in
the invention of politics, society, economy - a very high price for this inequality.
So let me describe first a little bit about the way things have changed. How inequality has been
growing. Now first, let me emphasise that there's no single way of measuring inequality, no single
feature. What's so striking about the United States is that every aspect has gotten worse. The
fraction of the income that goes to the very top, the top one per cent, get around twenty, twentyfive per cent of the total national income. The top one-tenth of one per cent get an even more
disproportionate share of the national income pie.
And things have gotten much worse, as I said. The share that goes to the top one per cent has
doubled since 1980. The share that goes to the top one-tenth of one per cent has tripled. We could
also talk about the hollowing out of the middle. The fact that those in the middle are not doing very
well. And we could also talk about the increase of poverty. Larger numbers of people in poverty. The
miseration of those at the bottom of the income distribution.
So, all of these are ways in which things have been, in many ways, getting worse in the United
States, and in the last especially thirty years. But since the onset of the Great Recession, in 2008,
things have gotten much, much worse.
To give you a little picture of what's happening, some data that just came out very recently shows
that, in the last two years, more than a hundred per cent of all the gain in the United States has gone
to the top one per cent. And that means that while the one per cent is doing very well, the rest of us
are actually doing worse.
Most Americans' major asset is their home. And the result of the crash of the housing prices is that
the median wealth in the United States - well, half of the people are above, half below - has fallen to
the level that it was in the early 1990s. What does that mean? That means that all the gain in the
wealth in the United States over the last two decades has essentially gone to the top of our income
distribution.
Well, there are a number of myths that have persisted about this inequality. Some people have said,
for instance, that inequality is just - to even discuss it - is the politics of envy. They should only talk
about it in quiet rooms, in hushed voices. One of the presidential candidates actually said that. I
disagree. I think it's fundamental to an understanding of what is going on in our politics, in our
economy, and in our society today.
So, one of the important myths is that everybody benefits. This is an old idea called 'trickle down
economics'. I wish it were true because we've thrown so much money at the top, if it were true, we
would all be doing very well. But, in fact, while the top has been doing very well, those in the middle
- in the median - has not. Median income today in the United States is lower than it was a decade
and a half ago. Median income of a full-time male worker - and that's a large part of our population the median income of a full-time male worker is lower than it was in 1968, forty-five years ago.
So if you want to understand why there's a kind of frustration in the United States, it really reflects a
reality of this kind of stagnation. Another myth, that's been very, very pervasive, is the notion that
those at the top deserve their higher income. They contributed more, they made it on their own. A
lot of people who have become very wealthy, they like to convince themselves that they did it on
their own. But nobody makes it on their own. Everybody is helped along the way in one way or
another. We all depend on a functioning society.
There are people in poor countries, that I've seen over and over again, who work extraordinarily
hard. And in spite of working so hard, the level of income that they have is very moderate. Many of
them are very poor. If you look at the people at the top, it's not the people who really transformed
our society, who really transformed our knowledge. It's not the people who discovered DNA, who
invented the laser or the transistor. It's disproportionately a group of people that I refer to as 'rankseekers'.
People who've been very good, of seizing a larger share of the pie, rather than making the pie bigger.
People like monopolists, people in the financial sector, who really perfected skills of predatory
lending, abusive credit card practices. So a whole variety of ways in which people can grab a bigger
share of the pie. We're used to thinking of people in oil-rich countries as rank-seeking. And
unwittingly, we have become, to a large extent, a country in which those who are rewarded the
most are rank-seekers.
A third important myth concerns opportunity. We would like to believe America is a land of
opportunity. That's the notion of the American dream and it's very much in part of our psyche.
Stories of Horatio Alger, people who did make it by dint of their own hard work. From the bottom to
the middle, the bottom to the top. Really a part of the American psyche.
But if you look at the numbers, they don't support this view. If you look at the numbers, yes some
people do make it from the bottom to the middle or the bottom to top, but what matters is what is
the chance? And President Obama in his inaugural address talked about the fact that somebody
born into a poor family should have an equal chance of making it to the top. It's not true today. .
But what's even more striking is, not only is the United States the advanced industrial country with
the most inequality of any of the other countries, but it's also the country with among the worst
equality of opportunity. That means the chances of somebody going from the bottom to the middle,
the bottom to the top, are lower in the United States than even in northern Europe.
It means that the life prospects of a young person in the United States is more dependent on the
income and education of his parents than in other advanced countries for which there's data. And
this, of course, goes very much against our own self-image.
The fact that there are such different outcomes, really, in different countries, itself destroys another
myth. That myth is that this is inevitable. This is just market forces. Just learn to live with it. But the
same market forces are operating on both sides of the Atlantic, both sides of the Pacific. Those are
global forces.
Then why is it with the same global forces, the same laws of demand and supply, the same economic
forces, America has wound up as the country with the most inequality and among the worst in terms
of equality of opportunity of any of the advanced countries? And the answer is, it's the way we
shape those market forces. It's our laws, regulations, how we enforce them.
Just to give you one example, something that reflects one of the most heart-rending stories that I
encountered as I went around the country talking about my book. And that is taking something - an
arcane thing - like bankruptcy law. In the United States, bankruptcy means that who gets money
when the debtor can't pay back all the money he owes. In the United States, it's the banks and their
derivatives - those risky products that brought AIG down and required 150 billion dollars bail-out
from the United States government - those get the first claim.
And when you have something like a first claim of that kind, you are, in effect, encouraging
speculation. You're encouraging not only those individuals to get more money, they get claimed
before workers. And in most other civilised countries, it is the workers who have the first claim. But
not only is that true, at the other end, students cannot discharge their debt even in bankruptcy.
When I was going as I say around the country, I heard over and over again stories of young students
graduating from college with debts. The average debt in the United States now is over 25,000
dollars. But saying they can't get a good job. They know that to get a good job they need a graduate
education. But their friends who have rich parents can afford to send them to graduate school. Their
friends who have rich parents can take an unpaid internship . They couldn't do that. And that meant
that their life prospects were diminished, particularly in a period in which jobs are so short.
And that brings me to the final myth that I want to talk about. And that is the notion that yes,
inequality may be bad, but to do anything about it, we would have to pay a very big price. There's a
trade-off we'd have to give up. We'd have to give up growth, we'd have to give up on economic
efficiency. The main message in my book is that's wrong. It's very wrong.
That the level of inequality, and the way inequality is created in the United States, has resulted in
our economy performing more poorly than it would if we had less inequality, if we began to attack
these forms of rank-seeking, if we were to try to create a more equal society. Once you know that,
there has to be something in what I'm saying, when a magazine like The Economist - not normally
known as a liberal magazine, a left-winging magazine - agrees with me on almost every aspect of
what I've just said.
It should be a source of concern. The final question is, is there hope? Inequality has been at the level
that it is now in the United States in two previous periods - the Gilded Age and the Roaring Twenties.
In both of those instances, Americans looked over the brink. They decided they didn't like the
direction in which we were going. In both of those instances, we pulled back from the brink. The
Gilded Age was followed by the Progressive Era. The Roaring Twenties was followed by important
social legislation in the Thirties.
The question today is, as we understand the enormous cost that our society is paying by this highlevel of inequality, will we once again pull back from the brink?
Thank you.
[APPLAUSE]