Authors@Google: Joseph Stiglitz


Uploaded by AtGoogleTalks on 24.06.2012

Transcript:
>>Male Presenter: So it's my great pleasure to introduce one of the deepest and most prolific
economists. Joe Stiglitz. Joe is a superb academic who has extensively applied his expertise
in the political sphere. As well as in the journals. Joe is famous for studies of the
affects of asymmetric information. For which he won the Nobel Prize in 2001. He's one of
the earliest to apply game theoretic reasoning for studying policy issues. His work revolutionized
the study of credit markets, insurance, development, and the theory of the firm, where he is responsible
for the concept of efficiency wages. You should all like efficiency wages. That's what gets
us paid more than the competition. He served in the Clinton Administration as the Chair
of the President's Council on Economic Advisers. He also served as Chief Economist of the World
Bank where he's noted for criticizing the World Bank.
[laughter]
He's a co-author of the inter-governmental panel on climate change. More recently he's,
Joe Stiglitz has been advising Obama but has also been sharply critical of the Obama Administration's
financial industry rescue plan. To give a quote, he said "Whoever designed the bank
rescue plan is either in the pocket of the banks, or incompetent."
[laughter]
And I hope he will tell us which.
[laughter]
Without further ado, let me introduce one of the best economists, Joe Stiglitz.
[extended applause]
>>Joe: Well, it's a real pleasure to be here again. The subject of course, that I'm talking
about is not so, uh, attractive. The topic is "The price of inequality. How today's divided
society endangers our future." The book grew out of an article that I wrote in Vanity Fair.
Vanity Fair is maybe not the usual media for academics to publish in. But the Vanity Fair
article did get more attention than my 1969 Econometrica article on the same subject.
[laughter]
The title of the Vanity Fair article went viral. Was "Of the One Percent, By the One
Percent, For the One Percent." And you can sort of get the tone of the article. And it
got picked up by a part of the chant of the Occupy Wall Street. The issues that I'm talking
about are not the politics of envy as one of the political candidates has said. One
of the political candidates has said "You shouldn't be talking about inequality except
to quiet rooms in hushed tones." But in fact, I believe that inequality is one of the most
important problems our society faces today. And needs to be talked about actually quite
loudly. What most Americans do not realize is that quietly without people noticing it,
America has become the advanced industrial country with the highest level of inequality.
And we were already at, had that distinction a number of years ago. But while other countries
have worked hard to contain the inequality, to slow the increase. In recent years the
level of inequality in the United States has been increasing markedly.
Just a couple examples, the share of income that accrues to the upper one percent has
doubled from 10 percent in 1980 to 20 percent today. The, there are a number of other statistics
that describe the degree of inequality. Perhaps one, two, I think that maybe I should mention
in the beginning here. One of them is that Americans like to think of our country as
a land of opportunity. It really defines part of the American identity. But in fact, that
notion that America is a land of opportunity is really a myth. Now we all know people who've
made it from the bottom to the top, middle to the top. Immigrants who come to the United
States and succeeded. But from the point of view of the economist, what's relevant is
the statistics. Not the examples, not the exceptions, but what happens on average. And
on average, America is less equal even than old Europe, let alone any of the other advanced
industrial counties for which there's data.
What does that mean? It means that the life prospects of a young kid in the United States
is more dependent on the education and income of his parents than in any other country.
And you can see, it gets reflected in a number of aspects. Both in terms of movement, up,
but also movement down. People at the top who don't do very, whose children don't do
very well in school, wind up with higher income than people from the bottom and middle whose
children do very well in school. So it really shows the influence of parents in determining
opportunity in the United States.
Some of you may have seen the article that appeared yesterday reflecting the outcome
results of the Fed's survey of wealth and income in the United States. The most recent
one. And it was very, very telling. You know, it would be one thing if all that success
at the top benefited everybody. And the idea that that was so is called 'trickle down'
economics. You know, you throw enough money at the top, and everybody benefits. The evidence
is to the contrary. That while the top has done very well, the median, people 50 percent
below, 50 percent above. Median income in the United States today is lower than it was
a decade and a half ago. And what's been happening to wealth is even more troubling. The top
one percent controls about 40 percent of all the wealth. But the recession was really,
really bad for most Americans in terms, not only in terms of income, but even more so
in terms of wealth.
Not a surprise. But with people at the bottom and middle putting all their wealth into the
homes, when the home prices went down, on average over 30 percent, in some areas over
50 percent, they lost a very large fraction of their wealth. So in fact, the wealth, particularly
of the middle, and the bottom, is now back to where it was over two decades ago. No increase
in wealth over two decades. The, in the recovery from the crisis in 2010, we got another picture
of the degree of inequality in our society. 93 percent of the growth that occurred in
2010 went to the upper one percent. So again, most Americans are not sharing in what's going
on.
It would be one thing, as I said, if the success of those at the top income benefited everybody.
But it hasn't. And also it would be one thing if the successes at the top reflected their
contribution to society. This is not about envy. The question is, have they really made
contributions that are commensurate with their incomes? And those of you who study elementary
economics know this is a 19th century theory called the 'marginal productivity theory.'
Well, the crisis actually gave lie to that theory. We all saw in the crisis the bankers
walking off with huge bonuses even though they brought to the global economy to the
brink of ruin. Even though they brought their own company to the brink of ruin. In fact,
some of the banks were so embarrassed about calling these bonuses "performance bonuses"
that they changed the name to "retention bonuses". There was no "performance" so they had to
have another name. But then the question was "Why would you wanna retain somebody who had
messed up your company so badly?" and all this actually speaks to one of the key issues
that I raise in the book. What is the true source of wealth? Of those say, at the top?
If you look at the list of people at the top, it doesn't include the great innovators. You
know the people who invented the computer, Turing. It doesn't include the people who
invented the transistor. The laser. That discovered DNA. None of these people who really made
important contributions to our society are in that list of the wealthiest in our society.
It's basically with the argument I have is, a very large proportion of these are people
that economists call "rent seekers." Let me try to explain what the concept of rent-seeking
is. You can see it in a couple ways. There are two ways to create wealth. To get wealth.
One of them is to make the size of the national pie larger. And to get a share of that increase.
The other one is to try to seize a larger share of the existing pie. And that's what
rent seekers do. And in that process they actually make the pie smaller. So an example
are monopolists. How do monopolists make their profits? Partly by restricting output. They're
making the output actually smaller than it otherwise would be. And yet that can generate
large, large incomes for themselves. So if you look at the disproportionate people at
the top, they are in this group of what economists will call rent seekers.
Let me give you a couple other examples. When the bankers engage in predatory lending, or
abusive credit card practices, what they're doing is moving money. They're not creating
value. What they're doing is taking money from poor Americans, financially unsophisticated
Americans and moving it from the bottom to the top. That doesn't create wealth. It actually
in some sense destroys wealth. Why does it destroy wealth? Well, one of the most important
resources of any society are their human talent. The young people. And when you devote those
people to this task of moving money from the poor people. Through predatory lending. You
misallocating your scarcest human resource. So it's not a surprise, and this is really
one of the most important points of the book. It's not a surprise that economies in which
the divide is larger, when the inequality is larger, grow more slowly.
You see that in the history of the United States and the period in the decades after
World War II. We had just fought a war together. And there was a sense of national cohesiveness.
We passed laws like the GI Bill, that provided education for all. The result of that was
our economy went through the most rapid period of economic growth and it was a period in
which every part of our economy grew. Those at the bottom grew most rapidly. So that the
divide between the top and the bottom got reduced. Since 1980 what has happened is growth
has slowed. And the divide has grown. And that's not an accident. And one of the things
I try to do in the book is to try to explain why there is this negative correlation between
inequality and growth. Why inequality is bad for economic growth. And there are a couple
factors that help explain it. One of them is, this phenomena of rent-seeking that I
just described. That resources got misallocated to seeking rents, rather than to producing
increasing value. And there are a whole list of the kinds of rent-seeking activities. When
the drug companies spend money to persuade congress to give them a drug, to pass a law
that says "The us government, while it's the largest purchaser of drugs, cannot bargain
with the drug companies, the result of which gives the drug companies a gift over 10 years
of a half a trillion dollars. Money that could go into making our economy more productive.
That's rent-seeking activity that does not lead to a stronger economy.
When we have a tax law again, as a result of lobbying, that says that speculators should
be taxed at less than half a rate, the rate that those who work for a living. Because
the special provisions capital gains, we're destroying our economy. More resources move
into speculation. Less into creative activity. And again, our economy is weaker. It's also
of course, not fair. And it's one of the reasons that the top one percent pays an average tax
rate of 15 percent. Which is much less than those whose income is substantially lower.
There are other reasons that inequality is bad for our economy. For an economy to work
well, there needs to be a basic level of public spending on basic, on what you might call
the common good. You have to have investments in education, public education. One of the
reasons why we've become a less equal society is that we are not investing as much in public
education. People in California know that access to the university is becoming much
less restricted. And it's not as open as it was 30 years ago. And these are things that
mean that many young people are not gonna live up to their potential. And again a waste
of resources. You need to invest in technology. Google. A lot of the most important innovations
of the recent decades are based on government funded research. The internet was supported
by government funded research. We've been living off, draining the well, of ideas that
basic research helped support. But we haven't been refilling the well. And that requires
government support. National Science Foundation. NIH. All kinds of things. We've underfunded
those. And finally you need infrastructure. Any of you who've come into Kennedy Airport
know that America has been under investing in our infrastructure. A comparison between
US airports and those in Asia is embarrassing.
But you need ports and roads if you're gonna export. If you're gonna grow. So. We've not
been investing in these things. And one of the reasons we haven't, is when you have a
divided society, those at the top worry that if you have too strong of a government, it
might use its powers to redistribute. So they'd rather have a weak government that can't do
anything. That's tied up. That's gridlocked. Than a government that might engage in redistribution.
I'll come back to that in the end.
But the point of all these are just, some of the mechanisms by which inequality leads
to poorer economic performance.
There's one more final one I want to mention that's gotten a lot of attention more recently.
It's not a surprise that the last time inequality reached the kind of level that it's reached
more recently in the United States was during the "roaring '20s." Right before the Great
Depression. And the IMF, the UN Commission, that investigated the global financial crisis.
Other scholars have come to the consensus that inequality is systematically associated
with instability. We have time later in the question period. I can try to go through the
mechanism by which that happens. But it is a regularity. And so one way of thinking about
it is, when you move money, people at the top save a larger fraction of their income
than people at the bottom. So you move money from the bottom to the top, there's a lack
of demand. Or there would be a lack of demand unless something is done about it. And what
the Fed did about it was to create a bubble. [chuckles] And it worked. For a while. But
it put our economy in jeopardy. And this has happened not only this time,
but it's happened on other occasions. So all of these are reasons why greater inequality
is associated with weaker economic performance. And that's really one of the main themes of
the book, of "The Price of Inequality." We're paying a high price for this inequality.
This is a markedly different perspective than that taken by those on the right. Those on
the right say "We understand you don't like inequality. We wish we could get rid of inequality.
But we can't without paying a very high price." Now old textbooks used to talk about a tradeoff.
You can get lower inequality but at the cost of, lower growth, less economic efficiency.
There's a tradeoff. So that what they said in fact was that the price that you, not only
the top would pay, but everybody would have to pay if we try to reduce the degree of inequality
is just too high.
What my book argues is quite the contrary. That in fact, we are paying a price for not
attacking inequality. That we could have, as I say, a stronger economy and a more equal
society. One of the concerns I have is that this inequality then starts to affect not
only our economy but our democracy, our system of justice. Budget battles. The conduct of
macroeconomic policy. I'll try to explain it in a few minutes how inequality has this
kind of pervasive affect on our society.
Before that I wanna discuss a puzzle that arises in political science. In political
theory. We're supposed to have a democracy. And in a democracy with one person, one vote,
the outcome of the democracy is supposed to reflect the middle. There's a well-developed
theory that some of you may have studied, called "the medium voter." That the medium
voter, half want more spending, half want less spending. And you can go through any
issue in the medium voter theory describes, it's the person in the middle that's supposed
to be determining where our polity goes.
But if you look at the United States, you look at the decisions we've made in our politics,
it's very clear that that doesn't describe what's going on. If you look at what's going
on, it's better described by a theory of one dollar, one vote, than one person, one vote.
And the question is, why? 'cause we have a democracy. Why is the outcome so different?
Well, in discussing the economics and how the economy leads to the degree of inequality
that we have, what I point out is that it's not just market forces. Market forces are
universal. They affect countries all over the world. But the way we shape marked forces
has resulted in the US having more inequality than any other country. So laws and regulation
help to shape market forces.
An example, for instance, is take a bankruptcy law. Every country has a bankruptcy law but
we are distinct. We have two provisions in our bankruptcy law that is distinctive. Are
distinctive. One of them is at the top, we give priority to derivatives. That says that
if a company goes bankrupt, the derivatives, the CDSs are paid off before anybody else,
before workers, before anybody else. And we have a law like that, that encourages derivatives.
These speculative products. Remember that AIG had a 150 billion dollar bailout? That
was a result of government encouraging this through our bankruptcy law. At the other end,
this may be a sensitive subject, but in the United States we have another distinctive
provision of our bankruptcy law that students cannot discharge their loans even in bankruptcy.
Even if the school does not provide the education that they promised.
You know, in other areas of our life, companies say, "Satisfaction guaranteed or your money
back." These for-profit schools say, "Satisfaction is almost guaranteed not to occur." Because
they all, dropout rates are huge. But you never get your money back, and in fact, we're
gonna be on your shoulders for the rest of your life."
Well that's the result of politics. Of the laws that we passed that shape our economy.
That encourage people to provide education that doesn't really serve the needs. Because
they can get their money back.
Well, the same thing is true about politics. That the way our political system works is
shaped by the rules and regulations. If you have rules and regulations that say, for instance,
affecting lobbying, campaign contributions, revolving doors, they determine the influence
of the one percent. The people at the top. So like, the citizens united, the supreme
court decisions that will allow corporations to give unbridled spending gave more influence
to those at the top. The consequence of this is that we have a vicious circle. Where economic
inequality feeds into inequality of political power. And that inequality of political power
leads to rules and regulations that lead to more economic inequality. In a what I would
call a downward vicious circle. In some ways it's even worse than I've just described because
as ordinary citizens see this process in work, they become disillusioned. They say "What
good is it to vote?" And you see the consequence of that in the last election, 2010. Where
80 percent of the young people said it wasn't worth their while to exercise their democratic
right to vote. That's astounding.
Other countries are marching to get the right to vote. Countries fighting to get democracy.
We have democracy but 80 percent of the young people said it wasn't worth the trouble of
going to the poll. Because no matter who wins, wall street wins. The one percent wins. And
it's not gonna affect what happened. But then that itself gives more power to money. Because
money then has to be used to get out the vote. And they targeted getting out the vote to
those who will support their views. So that's one of the reasons why we've wound up with
this kind of distorted democracy that we have. The other reason that I talk about briefly
is based on some insights from recent research and behavioral economics. College-age marketing.
Corporations have discovered that they can market goods. Good example is for instance,
the cigarette companies. Were able to persuade most Americans that there was no credible
evidence that cigarettes caused cancer. Or had other ill-health effects. Even though
the cigarette companies had in their files that evidence. But they were very effective
in casting doubt about the nature of the scientific evidence. And people continued to smoke for
several decades after the evidence was overwhelming.
Well, if you can sell toxic products you can also sell toxic ideas. And the one percent
has both the resources, the tools, the techniques and the incentive to do that. And that's again,
played a very important role in shaping our politics. And helps explain why we wound up
with these outcomes that seem so out of line with what you would expect to get in a democratic
society.
Let me talk just very briefly about three other, two or three other manifestations of
this inequality. Not only has it put our democracy at peril. It's also put our system of justice
at peril.
One of the basic values I think that most Americans take seriously is justice for all.
You know, in the Pledge of Allegiance, we say "Justice for all." But in the recent mortgage
crisis the mortgage debacle, what we saw was not justice for all. Many Americans were thrown
out of their homes when they didn't owe anything. The banks signed an affidavit, said that they'd
looked at the record, and said that this individual owed money. But they were lying. They hadn't
looked at the record. This was the robo-signing where they just had so many signed thousands
of these a day. They hadn't looked at the record. And obviously if you haven't looked
at the record you're gonna make a lot of mistakes. Now the banks response is that most of the
people that they threw out of their homes did owe money. That's like a system of justice
that says "most of the people that get capital punishment were probably guilty. They must
have done something wrong." But that's not our system of justice. "Innocent until proven
guilty." The burden of proof. But the fact of the matter is, after all of this has been
brought to light, not one of the people who committed this kind of perjury to the court,
over and over again. Not just once, over and over again, has gone to prison.
There is some attempt to get financial reparations to make up for the people who have been thrown
out of their homes. But the result of this if you look and this is just one example,
we've wound up with a system that is better described, not "justice for all" but "justice
for those who can afford it."
Now take another issue that's been very big in the United States in recent years. The
battle over the budget. How do we bring down the deficit? And if I begin to analyze that
problem, I begin with a very simple observation. Just a little over 10 years ago, 2001, the
US had a large surplus. So large that Alan Greenspan said that he was worried. He was
worried we were gonna pay back the entire national debt and that would be very hard
for him to conduct monetary policy with no national debt. You know the details of how
monetary policy is conducted, is buying and selling national debt. Now you should understand
that this was a totally specious argument. And incredible that anybody took Alan Greenspan
seriously. But then he was a hero.
I cannot believe that if say, in 2015, those surpluses had persisted and we almost paid
down the national debt, Alan Greenspan or a successor could have come to Congress and
the Administration and say "You know our country faces a real emergency. You need to spend
more to create a debt. And I know you don't wanna spend. But sacrifice, but your country
in front of anybody else. Cut taxes, spend more. Please, please." I can't believe that
congress would not have responded and relatively quickly to this national emergency.
[laughter]
But somehow Alan Greenspan said "No, we can't wait until that dire moment, we have to act
in 2001 to give a tax cut to the richest Americans. Let's not look at the details of whether we
can afford it. Let's get that tax cut right on the books as soon as we can." What that
shows you was that macro-economic policy, monetary economic policy, these independent
central bankers really often have a political agenda. They're not these god-like figures
who are only worrying about the details of inflation and so forth.
But more to the point, if you understand that just over a decade ago we had a surplus and
you see the large deficits, where would a reasonable place of beginning to get rid of
the deficits? Well, to ask, how did we go from that surplus to the deficit and let's
see if we should reverse those? And there are actually only four things. This tax cut
that we couldn't afford, especially for the top. Two very expensive wars that didn't do
anything and a military buildup beyond that. Weapons that don't work against enemies that
don't exist. That's the good news. That the enemies aren't there. The Cold War is over.
The Defense Department doesn't seem to know it yet. Thirdly, a drug benefit for, I mentioned
before that we don't bargain with the drug companies. And that's a half a trillion dollar
giveaway over 10 years. And finally, probably one of the most important is, the recession.
And this is very important. The deficit didn't cause the recession. The recession caused
the deficit. The best way of getting the deficit down would be put America back to work. To
create jobs. To get America functioning again. Well, if you look at the deficit reduction
commissions, a whole set of them. What you see is they don't focus on the issues that
I've just described. There are all kinds of things. Like, can you imagine a deficit reduction
commission that says "Let's lower the corporate income tax." Now how does that help reduce
the deficit? Now I agree, you need to reform the tax structure to get rid of all the loopholes.
That's important. But, lowering the rate? What you should be doing is saying "Let's
lower the rate on firms that invest in America and raise the rate on firms that don't invest
in America." That would provide the incentive for the creation of more jobs.
Well, I want to conclude by saying, by discussing what is it that we can do about this problem?
In the last chapter I provide an economic agenda. There are many aspects of America's
inequality. Too much wealth at the top. Too many poor people. People in poverty have increased.
A hollowing out of the middle class. And each of these requires its own agenda. There's
no magic bullet. There's gonna be lots of things. Every law and regulation like the
bankruptcy law, competition law, corporate governance laws that allow CEOs to take a
larger share of the pie, of the corporations. All of these things help shape the inequality
that we have in our society today. And so you can't just do one thing. There are many
things. But it's all doable. It's actually not that complicated.
And other countries have done one or more of the things that I describe in that agenda.
The problem of course, is the politics. And our political system is distorted so the question,
and it works for the one percent, the question is how are we gonna reform the politics? So
I end, the question, is there hope?
And my publisher told me that people don't buy books if there's no hope.
[laughter]
They don't want to finish a book and be depressed. It's just not, at least part of the American
personality. A few years ago I think I came here and gave a talk about my book with Linda
Bilmes called "The Three-Trillion-Dollar War." And the book was very influential in shaping
the debate about the war. When people started using the, the war, they said "the three-trillion-dollar
war." And it helped people understand the huge cost of the war. We were very explicit.
We had underestimated the cost of the war. In particular the numbers that have come in
since then have shown that we were accurate. And we were right that we had underestimated
close to one out of two Americans coming back from Afghanistan and Iraq are disabled. And
that's going to cost us a trillion dollars in the coming years to pay for their health
and disability payments. But anyway, the point is, not that many people bought that book.
'cause it was so depressing.
[laughter]
So let me end on a note of hope.
[laughter]
The United States has had, well, we'll get two notes of hope. If you look around the
world, there are some other countries that have looked over the precipice and said, "We
don't wanna go there. One in particular, Brazil, had very high levels of inequalities. And
then beginning with President Cardoso, just about 20 years ago he said "This is not the
direction that we wanna go." And there was a broad consensus in the society. Including
the one percent. They understood it was in their enlightened self interest to do something
about this. Otherwise their whole society was gonna fall apart.
And the result of that was a successful program of bringing up education. And then President
Lula had a program to make sure there was , that the problems of hunger or the problems
of access to health care for poor children was addressed. And remarkably, in 20 years,
you can see that Brazil is bringing down the level of inequality. It's been working. So
and today you go visit Brazil, and there already is across the spectrum, from business people
to unions, a consensus about the direction their economy, their society, should be going.
In the United States, we've reached high levels of inequality a couple of other times. The
Gilded Age. The Roaring '20s. Each time we looked over the precipice and we said "That's
not the direction we wanna go." The Gilded Age was followed by the Progressive era. Legislation
like anti-trust legislation. The Roaring '20s was followed by a whole set of legislation.
The Wagner act. Social security. Laws about hours and working conditions. That really
served to re-balance our society. Reduce the level of inequality. And the question today
is, will Americans wake up to the degree of inequality and the lack of equality of opportunity
that we have today? And will they pull back from the brink? And the hope of this book
is that they will.
Thank you.
[applause]
>>Male #1: Let's talk about your vanity fair article, 'cause that actually made sense to
me. So your story is that it's in the interest of the one percent to preserve a stable economy.
So I wanna question some of the statements you made in this talk. I looked at the numbers
for when inequality went down and one time was between '29 and '33. Because the stock
market collapsed. And the real estate market collapsed. And we poor homeless folk, we don't
own any real estate, so it didn't hurt us any. And another time it, the inequality level
decreased was between fall 2008 and spring 2009. And that was the same situation. Poor
people didn't have any money in the first place. Rich people lost all their money they
had in stocks and real estate. So what makes the equality gap go down, is actually having
an economic collapse. If I was in the one percent, I don't happen to be, but if I was,
I would really wanna avoid that. I would thank people like Roosevelt who restored capitalism.
And Obama who restored capitalism again. So how do we help the one percent avoid losing
all their money?
>>Joseph: Well, let me just make an important reflection on the observation you made. Which
is, because there are all these fluctuations because of cyclical disturbances that's why
we need to look at inequality over longer periods of time. But 10, 20 years is a longer
period of time. And therefore the recent data that I began my talk with where 20 years of
wealth accumulation had been wiped out. That's significant. It's not just three years. It's
20 years of wealth accumulation. When I said that the median income adjusted for inflation
is lower than it was 15 years ago, that's a long period of time. If you ask the question,
what's happened to the median income of a full-time male worker? It's lower today than
it was in 1968, almost, more than four decades ago. These are not just cyclical fluctuations.
And really speak to the--
>>Male #1: Sorry, but that's not true either. You're just looking at the United States.
If you look at the world wide. People in China are just a lot better off than they are now.
>>Joseph: Oh, I was talking about inequality in the United States. There are other countries.
I mentioned Brazil where things are getting better. Poverty is, the interesting thing
in China is that poverty has gone down remarkably but inequality is going up. And that shows
you that there are many dimensions to the distribution of income. But I should get the
next person. Yeah.
>>Male #2: thanks for your book. And for your talk. I have a question about the marketing
and propaganda basically, and I mean that in a positive way, about ideas. It seems that
republicans do a much much better job pedaling their version of the world to all of us than
people who are democrats. And I'll cite two examples. One of them is this phrase "death
tax" that was created by Frank Lunz and all of his focus group testing. The Cope brothers,
etcetera, etcetera. They wanted to eliminate the estate tax. Well that would cause other
taxes to go up and other bad effects. So they had to find a way to market that to the 99
point nine percent people who aren't really affected by the inheritance tax. Or aren’t
affected very much, I should say. So they came up with this idea of "death tax" and
they made a big joke about it. "Even when we are dying, there are taxes." Another one,
you were one KQED forum and you had a gentleman yesterday who called in and he talked about
how half of Americans don't pay any taxes. Which is this meme that's been repeated and
repeated and repeated on talk radio and on TV. So these are two examples where Republicans
have found a way to reduce the complexity of economics and all of this in a way that
really makes an impact on politics. And I wonder if there's some organizations that
are doing it in a way that's consistent with what you write in your book. And, which is
consistent with my economic values. I agree, the way that we're headed is not good. Even
for people at the top one percent. We're all gonna suffer from this. We're suffering now.
So do you agree with my idea that we're kind of losing, we're winning the economics battle,
we've got the economics right, but we're losing the propaganda battle.
>>Joseph: Yeah.
>>Male #2: And what can we do about it? And if I had some money to donate to it, where
should I donate?
>>Joseph: Well, I agree that this is in some ways the key issue. I suppose, I mean, and
it's one of the reasons I wrote the book because I wanted to try to crystallize some of the
arguments that are wrong in the you might say, the conservative interpretation of inequality.
So I suppose if you're willing to do something, I would say buy a lot of copies of my book
and give them to all your
[laughter]
Friends and neighbors. But [chuckles] more seriously, there are, there is one Washington
think tank that is very concerned about this issue. It's the Center for American Progress.
To how do we get across this particular message. Set of messages. And in the book, I look at
this example of the "death duty". And it's astounding. You know, most Americans opposed
the repeal, opposed the death duty. Even though in the United States, if a married couple
will only pay the death duty if their income, their wealth, their bequests, exceeds 10 million
dollars. Now, there aren't many Americans, certainly not the average American, is facing
this dilemma of what to do with their 10 million dollars. I wish it were so. But they simply
don't know. Moreover, they've been so, a lot of these are several myths together. They
believe, "Oh yes, I don't have 10 million dollars now, but we are a land of opportunity
and I'll become one of these guys with 10 million dollars." Anything is possible, but
the probability is point zero, zero, zero, zero, zero, zero, one. So it could happen.
But it's not likely to happen. So the question is, how do we give more fact based discussion.
You talk about the bottom 10 percent, 15 percent not paying taxes. That ignores the fact that
they pay sales taxes, property taxes, a whole set of other kinds of taxes.
>>Male #2: [inaudible] taxes.
>>Joseph: So it is really distortion of the stories. So what I've tried to do in the book
is tried to explain at least some of those distortions and what the truth about those
matters are.
>>Male #2: I think that's good, but I still think we need like two bumper sticker phrases.
>>Joseph: I agree. But I'm not good at bumper sticker phrases.
>>Male #2: Because the book
>>Joseph: As you've just seen from my long talk, I'm much better at long winded answers
than bumper stickers.
>>Male #2: So the Center for American Progress is a good place to go?
>>Joseph: Right. They're trying very hard. They've come up with a little pamphlet actually.
The American Middle Class, Income Inequality, and the Strength of our Economy. Where they've
tried to articulate this in simple terms.
But it's where they're trying to go. And they're trying to get, I and people like them are
trying to get President Obama who does hopefully have a knack for articulating these things
in a way that will have resonance.
>>Male #2: thank you very much.
>>Male #3: So you mentioned wanting to leave people with hope. Well I'm from Wisconsin
and was recently involved in the Recall Movement. So I'm desperately in need of some hope.
[laughter]
So for those who don't know in Wisconsin we had a fairly radical anti-union governor who
played with various budget manipulations and then kinda drove the state into a ditch and
then blamed it on public employees. And in this recent recall election, the incumbent
Scott Walker's side had seven times the spending on campaign materials and on advertising that
his challenger Tom Barrett did. And the majority of that came from very wealthy out of state
donors, many of whom were able to remain anonymous because they didn't give directly to his campaign
but because they gave to superpacs. Which are allowed by the recent Citizens United
decision. And this kinda ties in with what the previous person was talking about. But
how do we change the political system to promote better outcomes in the economy and less inequality,
if there is already such a tremendous inequality in the money that goes into the political
system? And you have a situation, I mean, is our only hope to rely on relatively enlightened
one percenters? Like say Warren Buffet? Who have a distaste for superpac spending? As
well they should. I mean, what is the path out of that?
>>Joseph: I think there are two that I sorta outline in my book. One of them is that eventually
enough of the one percent realize this is not in their interests. And there are people
like Warren Buffet who've been very articulate about the dangers of going the direction that
we're going. Not only dangers but the fundamental inequity that he pays a lower tax rate than
his secretary. The other one is reflects my other perspective. That I, that the 99 percent
might finally begin to realize that they've been sold a bill of goods. That what is in
the one percent interests may not be in their best interests. Some of it is, but some of
it is not. Low tax rates for speculators is not in their interest. There's a whole set
of, a system of appropriately designed estate taxes really does help, raise needed revenue,
enhances equality of opportunity. So there are a whole set of reforms that it should
be possible to articulate that the 99 percent will realize is in their interests. And that
there is this potential conflict and that will change our democratic process. We're
still are a democracy, and we still have the potential of changing the legislation.
>>Male #4: so I'm sympathetic to the argument that wealth inequalities can be economic inefficient.
But isn't it dangerous to talk about "the one percent" because it sort of conflates
income and wealth. Which are very different things? And also, it sort of presents "the
one percent" as a homogeneous group. Whereas people at the bottom end of that, who aren't
poor by any means, they still aren't going to buy any influence in Washington. Whereas
the upper percentiles of the one percent are qualitatively different. So why do you use
the term "one percent" and what
>>Joseph: I use it because you have to simplify. And in the book, I raise exactly the point,
when I use the words "one percent" I'm using generically for something above the top. And
some of those at the, and I do make the point that the one percent in wealth is not the
same as the one percent in income. And that
>>Male #4: But still they're kind of fundamentally different remedies. Like the only way you're
ever going to penalize the Walton heirs is through an estate tax. There's no income tax
that will ever change that inequality.
>>Joseph: Let me just, one of the numbers that I mention in the book that it's gotten
a lot of resonance is the fact that the six heirs to the Walton fortune have as much money,
much wealth, as the bottom 30 percent of America. And that is a testimony both to the wealth
at the top and to the lack of wealth at the bottom. But you're absolutely right. That's
something that's going to need the estate tax. And what I said was, that we have many
dimensions of inequality in our society. And each of them requires their own remedy. We
also have inequality in health outcomes. And that, the remedy of that is, a better healthcare
system.
So there are many of these dimensions and obviously in a short talk I couldn't go into
all of them. Also, you're all, absolutely right that it's unfair to the one percent
to lump them all together. I mentioned that Warren Buffet has actually been very articulate
in saying that we oughta do, a system of taxation is unfair. He even addressed the issue of
class warfare when he said, you know, cause one of the reactions to some of the statements
that I've made and others like it is "You're fomenting class warfare." And his response
was, and this is from somebody at the very top, he said "We've been at class warfare
for a very long time, and our class has been winning." So he gave I think a perspective
on what is at stake. This is not about class warfare. This is about how you make our society
work better.
>>Male #4: Thank you.
>>Female #1: Hi, I'm just going a little bit off topic here. But I'm wondering as an economist
who's focused on inequality from an economic standpoint, how do you feel about Obama's
nomination for World Bank President?
>>Joseph: Well, this, it's an interesting nomination. I don't know if you know, the
first point I'll make is that the G20, had agreed that the next president of the World
Bank ought to be chosen on the basis of merit. That traditionally it's always based on, it's
always been an American. And they said "Why does America have the monopoly on talented
people? There's actually a world out there. And we oughta open it up." And the US agreed
to that, sort of. But and everybody had expected this case would be one where countries would
put forward good candidates and there'd be an open and fair competition.
Well it turned out that it was more open than there had previously been. There were two
very good candidates from developing countries. So, Antonio Compo from Columbia, and Ngoze
from Nigeria. Both really outstanding people who would have made good presidents of the
World Bank. Both with a lot of experience. Both who had served as senior ministers in
their government. Head of Foreign Policy. Head of Economics. You know, so a lot of experience.
In the end, the United States, said, "Oh, we didn't really mean chosen on the basis
of merit. We meant a good American. As opposed to somebody like Wolfowitz who was not a good
American." [laughter]
So the good news of the G20 was the Administration had been considering appointing somebody who
would have been a disaster. And the fact that there was a more open process meant that everybody
could pile in and tell Obama "Don't do that. That would be a mistake." And there was a
lot of press discussion. And he decided not to appoint that person. Last minute he got
the guy that, Tim, that he chose. A person who's done fantastic work in the area of health.
At least a lot of people say. You don't, but, but that's only one part of the portfolio
of the World Bank. And so the concern is that it's, it's not sufficiently broad relative
to the needs of what the World Bank. But we'll see how that evolves.
>>Female #2: Hi, so I've done some reading and research on the relationship, if any,
between a country's ethnic fractualization or the ethnic or racial relations of a country
and its economic growth especially with variables like corruption or like rent-seeking like
you talked about earlier. So I'm just wondering what your perspective is on that type of research.
Ike what your perspective is on the theory and how you think it's maybe relevant to the
US and inequality.
>>Joseph: Yeah, that's actually interesting. There is this body of research that basically
is focused on different, how societies work together and the extent to which there can
be ethnic divisions. A lot in Africa where you have tribal divisions. Some interesting
aspects of it is, when you have two or three groups, things work worse than if there's
either one group, or very many groups. I think that it's relevant in the following sense.
That it is clear that some more homogeneous societies like the Scandinavian countries
have managed to have a higher degree of cohesiveness. Have much broader policies that support greater
equality. And have grown together. But I think at the same time while America is a very diverse
society, there's absolutely nothing about any of the policies that I've described here
that couldn't be implemented in a very diverse society.
>>Female #2: Thank you.
>>Male #5: Hi. You made a point about how rent-seeking can shrink the economic pie.
I'm wondering if you have any thoughts about whether labor unions exhibit rent-seeking
behavior and how that affects the economy.
>>Joseph: That's a good question. Labor unions have played both an important and in some
cases an ambiguous role. [pause] The reason that unions originally grew to the importance
that they have is that there was an imbalance in economic power. Particularly bargaining
power. One, when the introduction was talked about game theory. The standard economic models
pretend that there is perfect competition. And there's a, just a supply of labor and
a demand for labor and everything works out very smoothly. The reality is not, that doesn't
describe the reality. There is a difference in bargaining power. And again, one of the
points I make in the book is that the rules and regulations of how we run our economy
affect that bargaining power. For instance, when we run globalization in a way that we
say that capital and goods can move anywhere in the world, but labor can't, that affects
bargaining power. Because a firm bargaining with workers can say to the workers "If you
don’t take lower wages, we're gonna move somewhere else and then we're gonna be able
to bring the goods back home." So it totally distorts the bargaining power. I tell my students
"Think of another world with a different set of rules. Let's assume that we have a set
of rules that capital couldn't move, but skilled labor could. So an economy would have to compete
for skilled labor. And so they would compete by having old schools, good environment. Totally
different world than the world that we live in." The important lesson of this is that
rules and regulations do affect the bargaining power. In that kind of a world, unions have
played an important role in trying to redress the imbalance that has emerged naturally and
out of the distortions in the rules and regulations. Now there are some cases where they themselves
have high bargaining power and have tried to use that for obviously the benefit of their
members and particularly sometimes their older members. And that's had an adverse affect.
The point of that is, you don't say, let's get rid of all unions. You have to understand
the role that unions play and try to correct the problems that have arisen in those unions.
>>Female Presenter: Not a question. But a thank you for coming to Google.
[applause]