Nobel Laureate Joseph Stiglitz sounds the alarm and presents a new economic vision in “People, Power, and Profits: Progressive Capitalism for an Age of Discontent.” Stiglitz has written a definitive economic (and political) blue print for these times.
Transcript: Joseph Stiglitz Conversation
It’s already one of the major issues of the 2020 presidential campaign: Does American capitalism still work?
In the face of ever widening income disparity – not just exponential upward movement at the top, but also, at best, stagnation near the bottom — economic inequality is the key social and political topic. While some on the far left have raised the word “socialism,” a fear that many on the right are all too happy to stoke — remember President Trump’s State of the Union in January — once you get past the word play, at this point it’s hard, I’d even say impossible, to imagine our actually embracing a world where the state controls all means of production.
But that doesn’t mean — even with some recent positive economic indicators — that a re-examination of our economic approach is not required. In fact, it’s well underway. Which is why Joseph Stiglitz’ 55th high school reunion was so telling.
About four years ago, the Nobel Prize winning economist was reminiscing with old friends in Gary, IN, when he heard a story that made him stand up straight. Then he heard another. And another.
These classmates’ stories – about themselves and their families – brought to life the statistics Stiglitz had been seeing in his economic charts: Lost jobs, poor access to health care, shorter life spans, crumbling infrastructure, lost opportunity, waning hope. The numbers hadn’t lied, and now they were talking to Stiglitz at his high school reunion.
Their message: The economy was broken. In fact, more than just the economy wasn’t working – Capitalism itself seemed off.
From his current and past work, Stiglitz knew the causes: Exploitation & market power; mismanagement of globalization; a deregulated financial sector that helped lead to the Great Recession; new technologies that threatened even more job displacement; the growing difference between wealth creation and wealth extraction.
Following that class reunion, Stiglitz further saw an erosion of society’s pillars, and – being an economist – connected them all: The economy, capitalism, and democracy. He decided to sound the alarm, and the result is his new, powerful book: “People, Power, and Profits: Progressive Capitalism for an Age of Discontent.”
Stiglitz has written a definitive economic (and political) blue print for these times – a detailed agenda he calls Progressive Capitalism. “We have to,” he says, “save capitalism from itself.” I was excited to explore the ideas with him, and the conversation didn’t disappoint.
About Joe Stiglitz: Beyond the Nobel Prize, he has earned enough awards to be their own podcast. Just one early example: the John Bates Clark Medal in 1979, awarded by the American Economic Association to the “American economist under the age of 40 who is adjudged to have made a significant contribution to economic thought and knowledge.” Among his career highlights: He served as President Clinton’s Chair of the US Council of Economic Advisers, Chief Economist of the World Bank. He’s the best-selling author of more than 10 books and today is a University Professor at Columbia University.
Chris Riback: Professor Stiglitz, thanks for joining me. I appreciate your time.
Joseph Stiglitz: Nice to be here.
Chris Riback: So, just to be clear, if you hadn’t attended your 55th high school reunion in 2015, would we be reading this book and even talking today?
Joseph Stiglitz: Yes, we would. You know, I had been seeing in the statistics what was happening in the United States, the stagnation of the bottom, actually worse than stagnation, the soaring incomes at the top. I wrote a book called The Great Divide. I wrote another book called The Price of Inequality. But going back to my reunion, my 55th reunion in Gary, Indiana, gave me a visual, a visceral feeling for what was going on. And this was before Trump arrived on the scene but it was the kind of divide that I had warned against in some of my earlier books. You saw the anger of those who basically almost had given up hope.
Chris Riback: So, was it more the stories and what you heard from your friends, was it what you saw in Gary, Indiana? I’m a Chicago kid myself so I’m somewhat familiar with the somewhat rise and terrible fall of Gary over the years. Was it weird, did you kind of know to yourself, “Wait a minute, those statistics that I’ve been reading, I’m hearing them and seeing them in real life?”
Joseph Stiglitz: It was really much of the latter. I had been back in Gary, I did a film, a documentary, about globalization in Gary about 10 years earlier. So I had seen the devastation and I had a chance to talk to a number of people but that’s very different than going back to your high school reunion and seeing your classmates and hearing their stories, their personal stories, of what had happened to them. They graduated from high school and we were in another one of those episodic downturns that couldn’t get a job and they couldn’t afford to go to college and what that meant for them the rest of their lives. It was also very visual because I had, just a little bit before that, gone to my college reunion. I graduated from Amherst. And these were people who were relatively successful in life and seeing just the difference in health.
One of the things I talk about in this book and some of my earlier work is the inequalities in health. And you could see that right in front of your eyes, not only again in terms of the actual physical condition that my classmates were in but also in the roster, how few of my Amherst colleagues had died and how many of my high school classmates had died.
Chris Riback: Yes, an incredible split. So have you written a book about economics or a book about democracy? Or even a book about the future of our society?
Joseph Stiglitz: It’s about all three but one of the themes I hope comes across is that you can’t separate any of these pieces, that our economy … No economy exists in the vacuum. It’s governed by rules, regulations whether we think about it that way or not. There’s no society that can function, no economy that can function without rules and regulations. It’s always a question just of the scale on what the nature of those rules and regulation. And the problem is that if you had the wrong rules and regulations, you went out of the dysfunctional economy that may serve only the upper one percent but not most of the rest of society and may not even grow that well. And then the other link is between those things and our society and who we are as individuals. One of the things I try to bring out in the book is how our economy shapes who we are and then, of course, who we are shapes our economy and our society.
So it’s probably not an accident that we saw such massive, what I call moral turpitude, in the financial sector. When you have the kind of materialist, short-term focus only on how well I do and without regard to the effects on others, you’re going to wind up with more people, not everybody, but more people who are exhibit the socially dysfunctional behavior that we saw in the financial sector and that we saw in Volkswagen when they cheated on diesel emissions and that we’ve seen in the drug companies, Purdue when they pushed drugs that they knew were addictive and would kill people. They put profits over people’s lives. These were maybe extreme cases but it wasn’t a question of a rotten apple, these are pervasive things and they … A lot of research in social science shows the link between our society, our economy and this kind of individual behavior.
Chris Riback: I want to follow up on both levels, both the high level and then kind of some of the detail because that point, the last points that you are making there about the way the economy has evolved and how that compares to our values or our alleged values and that dichotomy. I found myself wondering one, how did we get an economy that doesn’t meet our alleged values? How did we get there? And secondly, in reading your analysis on how we got here I kept coming back to the same question which was why? Why do Americans, why have Americans put up with extraordinary income and wealth gaps? Why do we put up with decreasing health, lower life expectancy? We’re dying younger, we’ve read that elsewhere and you point it out as well, as well as the inequalities in life expectancy that you talk about when you looked at what you saw at Amherst and your reunion there versus your reunion in Gary. And why in the world has this continued for so many years?
Joseph Stiglitz: To answer your first question, how did we get here? You know, my answer a little facetiously is step by step. You don’t go there over night.
Chris Riback: Gradually then suddenly.
Joseph Stiglitz: Gradually, gradually and it’s like one of those things suddenly you wake up and say, “Golly, how did I get here? And why am I here? And how do we get out of this mess?” Part of the way we got here, I think, is we were sold a bill of goods. It was perhaps a plausible, not to me, but I can understand it was plausible. We went through the period of the ’70s where we had stagflation, the economy wasn’t performing as well as we would’ve liked, nowhere near as well as we had done in the decades after World War II. And then along came Reagan and said this idea trickle-down economics, just let the economy grow and everybody will be better off, supply-side economics just rip away, regulations, lower marginal tax rates. It will free up the economy and we will, the burst of energy will make everybody in our society better off. Well, it didn’t work out that way.
In fact, growth slowed. Growth has been about two-thirds of what it was in the decades after World War II, growth per capita about two-thirds of what it was in the decades after World War II. And virtually all the growth went to the upper one percent. If you look at a graph showing the average income of the bottom 90%, which I include in the book, you can’t see any change. You need a microscope to see any improvement.
Chris Riback: It’s a devastating chart.
Joseph Stiglitz: It is a devastating chart. I keep repeating it. It’s hard to believe but other people have replicated it. It is really now accepted as what describes what has happened in the United States. So, as these things happen, one by one we didn’t revisit the logic rather we double down. So when we didn’t get the growth that was promised, we said, “Well, let’s lower taxes even more. Let’s deregulate even more. Let’s deregulate the banks.” And so we’re set on this course and as we double down on this experiment, things didn’t get better. In fact, it eventually led to the 2008 financial crisis and it eventually led to where we are today. Now that we have four decades of this experiment I think we can declare it unambiguously a failure.
That really brings me to the point of the book to say, “Okay, now we know where we are, we know how we got here. Where do we go from here? Is it possible for us to use the power of the market but not just to help the one percent but to help all of our society?” And that’s where I brought in the concept of progressive capitalism.
Chris Riback: Let me ask you to pause there because, yes, we will get into progressive capitalism and your vision and the plan. You outline them. You outline a platform and an approach and that certainly is going to be very much part of the discussion as we get into 2020. But just two questions on the how we got here. One, just to kind of put a point on it, at the very end of the book you argue that perhaps there is more inequality today than after the Gilded Age or the Roaring Twenties. We’ll get into your potential optimism for the future later as we talk about your progressive capitalist plan but that’s quite a condemnation of our current state of affairs.
Joseph Stiglitz: Yes, and it’s partly … When I say that it’s a reflection of the multiple dimensions of inequality in the United States today, inequalities that should be unacceptable. We have marked disparities in life expectancies. We have marked disparities in access to education opportunity. And America prided itself in being the American dream but the data show otherwise. The life prospects of the young American are more dependent on the income and education of his parents than in almost any other society, among the advanced countries.
Chris Riback: Now would somebody say, could someone say, “But, Stiglitz, you were President Clinton’s chief economist.” You had, for a period, a seat at the table, obviously many other things as well, World Bank, et cetera. And under Clinton, financial deregulation and globalization increased while you were there. Did you feel at the time that those factors could be controlled? I know that you were advocating and you’ve advocated for decades on a, let’s call it, a proper approach to globalization, a balanced approach to globalization. As those forces really were advancing, at times while you were there did you feel that they could be controlled? Financial deregulation and globalization?
Joseph Stiglitz: Well, there were many, many fights that we had within the administration we have written about elsewhere. And, for instance, I strongly opposed the repeal of Glass-Steagall and I was very concerned about the … We needed regulation of derivatives. And while I was chairman of the Council of Economic Advisers, those things did occur but then forces of corporate and financial power were overwhelming after I left in January of 1997, the Clinton administration did pass those bills that led the derivatives to be unregulated and repealed the Glass-Steagall Act that separated investment banks and commercial banks. The whole deregulation atmosphere in the financial sector, as we now know, brought on the financial crisis. On globalization, again, I worried about the dangers of excessive, unmanaged globalization, worried, for instance, particularly from the perspective of developing countries what was called capital market liberalization lending money slash around the world going in and out of countries contributing to financial contagion as we saw in the 2008 crisis. And we saw also an East Asia crisis, so those are the kinds of battles that I fought. Some of them held the day, you might say, but-
Chris Riback: You’ve got the battle scars?
Joseph Stiglitz: I have the battle scars and maybe I contributed to putting off these deregulation measures a little bit but eventually we did deregulate the financial sector and we had a kind of poorly managed globalization.
Chris Riback: So, let’s shift and let’s look forward a little bit. What is progressive capitalism? What are the principles of it?
Joseph Stiglitz: The basic idea of progressive capitalism is the notion that the power of the market can be tamed to serve society more generally, not just the one percent. And it’s based on trying to understand what are the true sources of wealth of a country and distinguish between the ability to get wealthy by creating wealth and contributing to society and what has the source-able, the wealth-able, a lot of people which is wealth grabbing or rank seeking, trying to steal a larger fraction of the economic pie and the process actually often make the economic pie smaller than it otherwise would be.
Chris Riback: Wealth creation versus wealth extraction.
Joseph Stiglitz: Exactly. And that wealth extraction is often associated with exploitation. And there’s been a lot of exploitation. Exploitation of consumers, exploitation of workers, exploitation of the environment. Overall, you can say it tries to restore a balance between the market, the state, the government, and civil society recognizing that government has to play an important role in any society and any government and any economy. It plays a role. We talked before about the role in regulation but it also plays an important role in providing essential services where the market won’t do what is needed. So, for instance, the market didn’t provide adequate retirement benefits, that’s why we have Social Security, didn’t provide health care for the aging, that’s why we have Medicare, doesn’t provide benefits for unemployed, that’s why we have unemployment insurance. It doesn’t provide insurance for depositors, that’s why we have deposit insurance but most basically when I talked before about what is the source of the wealth of a nation or country like the United States, it’s innovation and all innovation is based on basic research and basic research has to be supported to a large extent by government.
And right now everybody in America’s aware of the deficits in our infrastructure. That’s because we’ve scaled back government. A decade ago when interest rates were, in real terms, negative that was a time that we should’ve done massive investments in infrastructure.
Chris Riback: Indeed.
Joseph Stiglitz: But we didn’t because a few people, some of the conservatives said, “Oh if you do it, we’ll have too big of a deficit.” The irony is that decades later they were willing to undertake massive deficits not to make our country stronger but to give a tax cut to billionaires and to big corporations.
Chris Riback: That’s only true if you characterize two trillion dollars as massive.
Joseph Stiglitz: That’s true. This year is going to be the first year on record we’ll have a trillion dollar deficit. Two trillion dollars used to be viewed as a big number, I know.
Chris Riback: I remember when it was a lot of money.
Joseph Stiglitz: And the problem was we were promised when we had that tax bill was that the tax cut for corporations would lead to more investment and would lead to more growth but we actually saw where the money actually went. Again, last year a trillion dollars of share buy backs and if you include dividends, what we realize is that the vast majority of the money from the tax cut for corporations went back to shareholders in the form of cash or in other forms but did not go into investments, let alone into wages that would make an economy stronger.
Chris Riback: Now, you know the criticism of course, particularly, is the politics start to get involved what you call progressive capitalism is really just a nicer way to say socialism. What’s the difference between progressive capitalism and socialism?
Joseph Stiglitz: Well, classically, the term socialism meant government ownership, the means of production. And neither I nor any of the candidates in the Democratic party are talking about government taking over our steel mills, our coal mines, our auto companies. No one is proposing that kind of an economy. What they’re talking about is making sure that somehow everybody gets the basic necessities of a middle class life, access to education for their children, access to health care, access to decent housing, a good job, modicum security in retirement. These were the promises of middle-class life that we had back in the ’50s and we seemed within reach at that point but today, that middle-class lifestyle is increasingly out of reach of a very large fraction of Americans. We are now so much wealthier than we were in the ’50s that it’s clear that we can afford this. In fact, I would argue we can’t afford not to do this. And what I try to lay out in the book is how we can make all these things possible within the constraints of our economy.
Chris Riback: You mentioned just a moment ago the presidential campaign. Is there a presidential candidate who best captures your economic agenda?
Joseph Stiglitz: I think most of the Democratic candidates, in one way or another, are picking up on one or more of the teams that I’m emphasizing. A lot of them are talking about the excesses of market power, which is one of the themes that I talk about, the increased concentration, the need to have stronger anti-trust laws. A lot of them, Elizabeth Warren, has talked about the need for better financial regulation. A lot of them are talking about better ways of managing globalization, doing something about the big tech companies and not only their market power but also the invasion of profit privacy and political manipulation. And a lot of the candidates, almost all the candidates, are worried about what I call the basic pillars of a new social contract. Americans are rightly concerned about health care and rightly asking the question, “Why is it we’re spending 18% of our GDP on health care compared to 11% in Canada, 11% in France and yet we get poor health outcomes?”
And millions of Americans don’t have health insurance. Millions of Americans feel a kind of precariousness. Millions of Americans are aware that if they lose their jobs, they lose their insurance and pre-existing conditions may make it difficult for them to get a new insurance policy. And President Trump and the Republicans are saying, “We’re going to take away Obamacare.”
Chris Riback: So you have a note of optimism at the end of your book and it’s noted on a few different components including a bit of a look at history and how this isn’t the first time we’ve gone through various stages like this. You talk about Andrew Jackson and some of that period. You talk about reconstruction. You talk about the Supreme Court and some of the challenges it’s had. And you also talk about the Gilded Age and the Roaring Twenties, et cetera. Economists are not only supposed to help us understand the past, which you do, they’re also supposed to help us prepare for the future even at times prognosticating what the future holds. You talk about the powerful and the powerless. Which do you think will present the stronger influence on our future? The desire of the powerful to maintain power or the need of the powerless to radically change their situations?
Joseph Stiglitz: It’s going to e a conflict and that’s one of the reasons I put power very central in the title of my book. It is going to be a struggle, as you put it, between those who have power today and want to continue to exercise that power for their own benefit and the millions of Americans who are feeling increasingly powerless, feeling alienated from society, feeling that the system is rigged. So, in the end, another word in the title … If we are going to get out of this mess, it’s going to be people power. We’re still a democracy. People still have the right to vote even though we have gerrymandering, we have attempts of voter suppression. If enough concerned Americans go to the voting booth, they can correct these distortions in our society and our economy and our politics. We don’t need to have the influence of money the way it is. We are the only democracy where money has such influence in our politics.
So, it seems to me that that’s the element of hope. And when I see our young people, my students, the young people who’ve been so active in trying to bring to the fore issues of their future, climate change, issues of corruption in our politics, the engagement that they’ve had in the last couple of years that is what gives me hope going forward.
Chris Riback: You have a whole section on restoring democracy and what you just described is why I asked at the beginning, and I cheated of course, I did know the answer about whether this was a book on economics or on democracy and of course the answer is both. Thank you, Professor Stiglitz. Thank you for your time and thank you for just a fascinating, important book.
Joseph Stiglitz: Well, thank you very much. I’m glad you enjoyed it.