|Joseph Stiglitz packed out the Sydney Town Hall|
This second part concludes the guest post by outlining Stiglitz’s thoughts on the causes and consequences of inequality. He also makes some proposals for addressing the issue.
Causes of inequality
Echoes of a distinctly North American debate rippled across the Pacific after this year’s Australian Federal Budget. Speaking to the Sydney Institute, Joe Hockey (Australian Treasurer) argued that more Australians should be ‘lifters, not leaners’‘ and that the government should be concerned with “equality of opportunity rather than equality of outcomes.”
Stiglitz shuns these ideas. The belief that hard work determines one’s income or security (when most workers’ incomes are inadequate reflections of their contributions) or that opportunities can be separated from outcomes (when the lucky few seem only to get luckier) contradict recent common experience and common sense. Stiglitz points to the world’s wealthiest 100 individuals, suggesting that most of these ultra-rich made their fortunes not by their physical inventiveness or their superhuman productivity, nor by the creation of a happier, healthier society. Instead, Stiglitz states, they did it by seizing more of the available economic output. Rather than ‘increasing the pie’ (of available resources), Stiglitz claims that these ultra-rich simply ate more of it. And although greater ‘equality of opportunity’ may spark the hope that ordinary effort might be more justly rewarded, Stiglitz shows that opportunities are only more equal tomorrow if outcomes are more equal today.
Consequences of Inequality
Despite his training as an economist, Stiglitz knows that the costs of inequality are not only measured in dollars. An unequal society is a divided society and a less democratic society. More enlightened social sciences have described these consequences for many years. But Stiglitz notes that the economics profession is gradually realising that faster economic growth and greater equality are not exclusive, but co-requisite. Inequality stifles growth and leads to more fragile economic and political systems. These and a host of other maladies inflicted by inequality are the centrepiece of The Price of Inequality.1
The Great Rebalancing
The effects of inequality are known, so how can they be redressed? Free markets cannot guarantee fair outcomes, but government policies in many nations have proven to be inadequate. Stiglitz argues that, nonetheless, politics remains paramount and that the policies we choose dictate the level of inequality we tolerate. Taxes and welfare settings mould the distribution of income and are decided by governments. But these adjustments are not enough to tackle a persistent and pervasive problem.
The package of policies that Stiglitz proposes for the United States apply similarly well to Australia and elsewhere. Stiglitz advocates for reform of the financial sector by breaking monopolies and ending privatisation, legal reform to ensure fairer access to justice, taxation reform for a more progressive system with fewer loopholes, repairing the social safety net to provide free education and universal health care, and an economic policy agenda which promotes growth led by public investment and which guarantees full employment at a fair wage.
While these ideas seem ambitious in a political system which itself has become more unequal, we can take heart from Stiglitz’s intellectual forerunner Keynes, that
“…soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”1. Joseph Stiglitz, The Price of Inequality: How todays divided society endangers our future. W W Norton and Co., New York, London, 2012, 2103.
Note from editor. Stiglitz is pro-growth as this report indicates. This blogsite has often argued for de-growth if we are to move towards a sustainable future.