Joseph Stiglitz: time to get radical on inequality

An interview with Nobel prize-winning economist Joseph Stiglitz on the rise of inequality, particularly in the US, but also in many other rich countries. This has been reflected in stagnant or falling wages for lower and middle income earners, and soaring incomes and wealth at the very top of society.

Stiglitz debunks ‘trickle-down economics‘ and calls for relatively radical changes in the way capitalism in the US and elsewhere is structured. He is an economist of the centre-left, and in recent years has become increasingly critical of the mainstream economics which he himself has contributed towards during his career. He sees as vital changes in the power structure of society in order to reduce inequality and increase economic efficiency. The two can go together and this is refreshing to hear.

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3 thoughts on “Joseph Stiglitz: time to get radical on inequality

  1. Thx for posting the Stiglitz interview. Although he didn’t give explicit ideas on reducing inequality, he hinted that systemic solutions to restoring the middle class encompass more than merely raising the minimum wage or advocating redistribution. In talking about how the purchasing power of the middle class has shrunk, he admitted that policies encouraging average workers to spend more fail since their finances are tight.

    Since record low interest rates are hard on savers and bond markets, we need to explore other ways to stimulate the economy that don’t pinch the middle class. If we continue to expect the middle class to bear a large brunt of economic stimulus, it’ll become destabilizing. Therefore, it may be time to boost fiscal policy by creating a temporary or permanent infrastructure labor force to lower unemployment, and increase economic demand. After all, not only could fiscal policy be good for growing the middle class, it could do much to move many western economies away from the malaise they experience due to high unemployment and underemployment.

    • No problem, glad you appreciated it. On the subject of increased inequality and claims that it undermines aggregate demand, see my recent post on the work of Thomas Palley, who is a post-Keynesian and has written a great deal on this topic. Many economists and commentators have argued that increased spending on necessary infrastructure would be a timely and beneficial policy, from the US to here in the UK, which should crowd-in private investment and boost growth, employment and productivity.

      If stagnant wages for the lower and middle classes are the problem, policies that strengthen the power of labour market institutions such as trade unions could help boost wages and from there aggregate demand. This is part of Palley’s argument, that the balance of power between capital and labour is a structural determinant of demand. This remains controversial and a matter of debate between post-Keynesians and Marxists. The latter hold that growth is profit-led rather than wage-led, so that a rising wage share in the economy will lower profits, investment and growth. I have read quite a bit on this and I am still not sure which is the dominant process. Palley has argued that both can be in effect. Anwar Shaikh has argued for the two as a temporal process, but that in the long run, profit-led growth dominates. If so this means that the strength of labour can become a problem for long-run prosperity. But there must be limits to both processes.

      Having said all that, figures for the US show (at last) that lower and middle income earners have gained proportionally more in wage increases than those at the top in recent months. Long may it continue.

  2. Yes, it’s good news that the middle and lower class wages in the US are finally on the rebound. Hopefully, this can continue.

    I read your post on Palley and agree with your assessment. As you and many note, the policies of the past 30 years have gotten us to the point where major economies are now financialized. Sadly, this process has not only led to the rise in wealth inequality we’re seeing, it’s also led to many social dislocations. Regarding the findings of Palley and Anwar Shaikh, I agree that capital and labour can and should play equal roles in sustaining demand. Reducing the demand situation to an either/or mindset definitely creates dislocations. And although it’d appear that Shaikh is correct to say profit-led growth is eventually more dominant, it’s refreshing, for the sake of balance, that both Palley and Shaikh, in addition to Stiglitz, reflect labour’s true importance in the equation.

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