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Joseph Stiglitz: US setting 'terrible example' with income inequality

The Nobel Prize-winning economist explains how rising inequality is destabilizing American society.

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Scenes of urban blight in downtown Bridgeport, CT on November 27, 2012. (Ed Kashi/VII/GlobalPost)

NEW YORK — Nobel Prize-winning economist Joseph Stiglitz is the author of the best-selling book "The Price of Inequality: How Today's Divided Society Endangers our Future," which was published in June. Formerly chief economist of the World Bank and head of President Bill Clinton's Council of Economic Advisers, Stiglitz, a professor at Columbia University, was awarded the Nobel in 2001 for his work on income inequality and is widely considered one of the world's leading economists. He spoke with GlobalPost about the growing gulf between rich and poor in America and around the world — and the cost of the failure of many world leaders to address it. Stiglitz argues that the price of allowing the US to continue down the path of inequality, as 1 percent of Americans now control 40 percent of the country's wealth, is the undermining of economic growth, the erosion of democracy and the growing instability of American society itself. American income inequality presents a frightening specter, he argues, for the global economy.

What is the impact of a globalized economy on inequality within countries?

The hope was that globalization would enhance growth, and enhanced economic growth would benefit most citizens and that was true in some countries. But in recent years, most citizens in the United States and many other countries have not benefitted. Globalization, as it has been managed, has resulted in increased inequality, and as inequality increases, growth becomes weaker. The risk is that the middle class is going to be harder and harder hit, and that there will be prosperity for only the few at the top. But the middle class is important for stable growth and a strong democracy. When a society becomes more and more divided, it becomes increasingly class-driven, and it’s very hard for democratic processes to work well in that kind of society.

But the situation is not hopeless — there were very high levels of inequality in America during the Gilded Age and the Roaring Twenties and we were able to pull ourselves back from that. There have also been some experiences where other countries have pulled themselves back from the brink. On the other hand, the dynamic that is in place right now — increasing economic inequality leading to increasing inequality in political power, which, in turn, leads to further increased economic inequality — may make it more difficult for America to reverse its course than when it did so during those other periods.

What lessons can the US take from other countries? Are there any examples of success stories?

“We do so little to correct the inequality in our country.”

I talk about Brazil in my book and how they have been able to reduce their level of inequality, though they still have much to do. France has typically been pretty stable in equality, but very recently their inequality has gotten worse. The Scandinavian countries have maintained relatively high levels of equality and equality of opportunity.

What has allowed other countries to achieve more equality?

It has, I think, partly to do with a moral perspective on economics, and the value that is placed on community. For example, in some other countries, there is a deeper connection between religion and helping others. In Europe, helping others is a basic religious tenet. They look at America and wonder, “America says it’s a deeply religious country, but why doesn't that show up in its values, in how it behaves?”

I think the answer has to do a little bit with our notion of rugged individualism which runs counter to a sense of community. In America, a lot of people think they are self-made, but nobody, of course, is self-made. We all need to recognize the role government and others play in helping us to get whatever successes we achieve — and understand that a more equitable society has moral, civic, and economic imperatives.

What kind of example is the US setting for the rest of the world as inequality grows?

A terrible example. Actually worse than that. To the extent that America is held up as a paradigm of what a market economy is, the way we manage the market economy is not what most individuals (here, or in other societies) want. We have become the country with the least equality of opportunity. People may differ about how much