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The Nobel Prize-winning economist explains how rising inequality is destabilizing American society.
wrong. It’s moral turpitude. It may not be outright theft, but it should be considered equally wrong.
Those engaged in such behavior either try to make such practices legal or in the cases where it is illegal, they try to make sure the laws aren’t effectively enforced. Ultimately, we need equal access to justice. To this day, in the aftermath of the foreclosure crisis, when some people were being thrown out of their homes who did not owe any money, and banks were in effect lying to the court, saying that they had examined the mortgage records, but hadn't, those banks still haven’t been properly prosecuted.
How and when did our society get so off track?
Day by day. Our society took a turn around 1980 around the time when Reagan came into office. During World War II, our country fought together and was brought together by the war. In the decades after, the country grew together: the incomes of the people at the bottom grew more than those at the top. We passed the GI bill which provided our veterans with the opportunity for higher education, enabling them to get a better job, buy a home, and to move up in the world, and many seized that opportunity. During this time, our economy grew quickly and there was shared prosperity.
But then attitudes started to change and Americans were sold a bill of goods — that lower taxes, de-regulation, more corporate welfare, and less help for the poor would help our economy grow even faster, but it didn’t. Ultimately, they sold Americans on the bill of goods that if those at the top did well, the benefits would trickle down and everyone would benefit. But those in the middle and the bottom have not fared well. Instead, we became a more divided society. We passed bad bankruptcy laws, we didn’t enforce anti-trust laws as effectively as we should have. The effect of individual laws may have been small in and of themselves, but together they had a great impact. As I state in my book, inequality didn’t happen overnight. Instead, it grew as a result of a large number of seemingly small decisions.
If it took us decades to get into this mess, will it take us decades to get out of it?
We could reverse this situation fairly rapidly — in principle. The full effects, of course, wouldn't be felt overnight, but if we can start reforming our politics — it's all in the politics — then we have a shot.
First, though, we need to get over the belief that we don’t live in an unequal society. Many people still buy into this mythology and ideology that we [America] have more equality than other countries. Many people either don’t believe we have inequality or don’t believe that rent-seeking has created this inequality. And many of those who do believe we have inequality and would like to get rid of it, are stuck in the belief that doing so would hurt our economy too much. In this view, it doesn’t “pay” to get out of the inequality cycle. A major thrust of my book is to show that, to the contrary, we can have a more productive and efficient economy, with more rapid growth, by reducing inequality.
But given our current set of political rules, it’s very difficult getting over our influence of money. We see that so forcefully in bank reform. Almost all Americans understand the central role that the banks played in causing the crisis, and 75 percent of Americans believe that we need to regulate the banks better. But banks have the power to fight reform and they are fighting it rather successfully. This is not to say that we haven’t made some reforms, and this is not to say that all banks are bad. There are good bankers and banks. What's worrisome is the political power of those who don't want reform.
When did government become the devil?
Demonizing the government goes back to the 1980s. The irony is that those who demonized government often did a very poor job in running the government — while the Republicans preached fiscal responsibility, both President Reagan and President Bush rang up unprecedented peace time deficits.
Those that demonize government seldom mention the failures of the private sector. Furthermore, no democratic government has ever wasted resources on the scale of the waste caused by the financial sector’s misdeeds and misjudgments in the run-up to the crisis.
So what’s your outlook for America now?
Things are better than they were four years ago, when we were in free fall. But, unless we have another round of fiscal stimulus and do something about the continuing foreclosure crisis, it is unlikely that we will return to robust growth, with full employment, any time soon. More likely, we will continue with anemic growth, too slow even to provide jobs for what would normally be the new entrants into the labor force, let alone make a quick dent in the some 23 million Americans who would like to get a full time job and can’t get one today.