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The Nobel Prize-winning economist explains how rising inequality is destabilizing American society.
they care about equality of outcomes, but everybody believes in fairness and equality of opportunity. People that are born at the bottom now stay at the bottom whereas in the Scandinavian countries people are still able to work their way up the ladder. Those that start at the bottom have a much better chance of getting to the top than those in the United States.
More specifically, what other countries should find disturbing about America are three things:
One, we don't recognize the benefits of people getting access to medicine and other basic necessities of life. In spite of being a rich country, those at the bottom in the US have inadequate healthcare and food. When I visited India this year, I remember how scandalous they thought it was that not everybody had access to food. People in other societies view this as a lack of humanity. A kid born into a poor family should at least have access to adequate food and healthcare.
Two, America has become a rent-seeking society, a term of opprobrium we usually hear applied to oil-exporting countries. Rent-seekers extract profit from existing industries without contributing value – in the form of innovation, entrepreneurship, and growth – to the economy. They use their wealth to consolidate their power, by influencing regulations and government policies. This has happened in many instances – we see it in our military and drug companies, in our banks that succeeded in stripping away regulations, which allowed them to earn huge profits at the expense of the rest of society – and it's not a model for a competitive dynamic economy.
Three, we do so little to correct the inequality in our country. In fact, we do much less than countries that have less inequality than we have, and that's disturbing.
What’s the trajectory of our country if we continue down this path of inequality?
We are paying a very high economic price for this inequality – our economy is less productive and efficient. It may continue to be the case that the 1 percent does reasonably well, and they can take advantage of global markets, but in terms of the typical American we are sinking. As I note in my book, the median income of a male worker today is lower than it was in 1968.
We are not just paying an economic price, but we are also paying a price in terms of our politics and our society — inequality is undermining our democracy and our basic values.
What can America do to minimize our inequality?
Inequality has tarnished our democracy by giving money a disproportionate amount of influence — from the role of lobbying to campaign contributions to the role of revolving doors. In almost all democracies, those three things exist to a certain extent. In the United States, they’ve gotten out of control. To help change them, there needs to be small reforms and big reforms. We could, for instance, reverse the ruling on Citizens United, which allows, in effect, corporations to give an unlimited amount of money to campaigns. We could also work within the framework of Citizens United and require the company’s shareholders to approve campaign contributions. We could pass corporate governance laws that would give shareholders a voice, which I think would reduce the influence of corporate campaign contributions.
Outside of politics, there are many other steps we can take to minimize both inequality and its deleterious effects. Capital gains income could be taxed at the same rate as income derived from working, for one. And government can use those increased revenues to invest in those areas that will give a boost to the opportunities of the middle and bottom income earners – especially investments in education, health, technology, and infrastructure.
What other sort of reforms need to take place?
Elizabeth [Warren] is fighting very effectively for one set of reforms that are very, very important— reforms in our financial system. We need to make sure that our banks better manage risk, and engage less in securities fraud and market manipulation. Through predatory lending and abusive credit card practices, banks have taken an enormous amount of money from the bottom and have given it to the top. The discriminatory lending that has gone on is just morally