Every four years, the nation seems to find itself wrapped in a debate about economic fairness and the struggles of the middle class. A presidential campaign has a wonderful way of focusing Washington’s mind on the country’s largest economic voting bloc, and 2012 is no exception.
But the concerns seem more real and more threatening this time. There is increasing evidence that the nation is splitting into a land of haves and have-nots. I’ve seen the disparities first-hand in small communities and big cities around the country. And recent figures from the Federal Reserve show that the median family has assets (including their house but subtracting their mortgage) of roughly $77,300. The top 10 percent of families have nearly $1.2 million. That’s the kind of gap not seen since the 1920s, just before the Great Depression.
For people on the left of the political spectrum, those figures aren’t just disheartening, they demand action, or at least talk — lots and lots of talk. Flip through the TV or radio dial, and you will find no shortage of progressive politicians, journalists and thinkers offering analyses and critiques of the growing wealth gap. The White House, too, has joined in, bringing the populist argument to President Obama’s stump speeches and attack ads. Make no mistake, the income divide is the subtext to the debates over presumptive GOP nominee Mitt Romney’s tax returns and time at Bain Capital — and there’s a not whole lot of “sub” to the text.
But even if the left’s concern about growing inequality is justified, not all the arguments against it are created equal. Democrats have been shaking their fists in anger at inequality for years and talking about it in such basic terms as “what is fair” and “what is right.” In his new book, “The Price of Inequality,” Nobel Prize-winning economist Joseph Stiglitz does not merely express anger — or rather, he expresses it only to set up a much larger discussion of the problem.
In the process, he does liberal thinkers everywhere an immensely important service: He gives them a trenchant, engaging tool for arguing economics from the left in 2012. Stiglitz, who chaired the Council of Economic Advisers under President Bill Clinton, does much more than point fingers; he discusses consequences. The problem with the current economic path is not — or not just — that it is unfair, it’s that it is unsustainable.
“We are paying a price for our large and growing inequality, and because our inequality is likely to continue to grow — unless we do something — the price we pay is likely to grow too,” Stiglitz writes. “When one interest group holds too much power, it succeeds in getting policies that benefit itself, rather than policies that would benefit society as a whole.”
He then proceeds to outline in chapter and verse what he means, citing specific examples and research from economists, psychologists and social scientists. Inequality undermines people’s faith in government, he says. It undermines worker efficiency and the economy. It even undermines people’s belief in the rule of law.
For example: Stiglitz writes that the bonus system for chief executives is detrimental to the nation. Yes, it creates inequality and overvalues the influence of one person on a corporation’s well-being, but more to the point, incentive pay often creates a desire for short-term profits, and it rewards people for a business performance they often don’t really control. Airline executives, he notes, get bonuses anytime the cost of fuel falls because their airlines become more profitable. And incentive pay is a one-way street, he argues. While stock-option bonuses were always there when companies did well, CEOs “didn’t suffer commensurately when stocks went down.”
When rank-and-file workers in those companies read stories about what management is getting and see their own paychecks stagnating, they are often displeased and less efficient, Stiglitz argues. “People are not like machines. They have to be motivated to work hard. If they feel they are being treated unfairly, it can be hard to motivate them.”
Stiglitz writes clearly and provocatively. He’s the kind of economist who can talk about terms such as “rent-seeking” and the “euro crisis” and bring readers along for the ride. But he’s still an academic, as his 100-plus pages of footnotes attest.
“The Price of Inequality” isn’t perfect. Stiglitz draws strained connections between the democracy movements of the Middle East and the “Occupy” movement (The Occupiers have not shown themselves to be the game-changers many believed them to be). And one wonders if the solutions he proposes at the end of the book will fix all the problems he lays out elsewhere — it is an immense and troubling catalogue. For example, there is a lot of support for “correcting trade imbalances” and “improving access to education,” but getting everyone to agree on what those policies look like is very tricky. And even with those fixes — and others outlined in this book — a great deal of crushing weight is coming from the other direction.
Still, Stiglitz is laying out important arguments that deserve to have great bearing on the 2012 campaign.
If his book is a thoughtful, step-back analysis of what’s driving inequality and why it is dangerous, Donald L. Barlett and James B. Steele’s “The Betrayal of the American Dream” is a brawling, journalistic mix-it-up. As journalists, Barlett and Steele have been studying the decline and troubles of the middle class for more than three decades. They entered the national consciousness in 1992 with their book “America: What Went Wrong,” which was adapted from their 1991 series of articles in the Philadelphia Inquirer.
The authors’ passion and anger are as clear in these pages as they are in the title — after all, they are arguing that someone has been betrayed. They present the Democratic contention that the new economy simply isn’t fair to many people. Outlining how freer trade has harmed U.S.workers, they note that one hedge fund manager said the global economic transformation lifts four people out of poverty in China and India for every one worker harmed in America.
“The only problem is that no one told working Americans they were going to forfeit their future so that people in China, India, Brazil, and other developing countries could become part of the middle class,” they write. “In theory, this should not be a zero-sum game. But it is because Washington and corporate America have structured the rules that way.”
Unfair trade rules may have something to do with it, but the bigger advantage for developing countries is that a lot of people there are willing to work for less money than U.S. workers. Fixing trade rules won’t alter that part of the equation.
At times, Barlett and Steele seem to be arguing not for different policies but for a different reality, and to be fighting old battles over companies that have moved production offshore or slashed jobs. There is no doubt that many Americans have been hurt by the offshoring of jobs. The lower prices that come with foreign production are cold comfort to someone who lost his livelihood and his benefits when the local plant closed. But retelling those stories, as compelling as they may be, doesn’t plot a course for what the country should do now.
Parts of “The Betrayal of the American Dream” could benefit fromStiglitz’s obsessive footnoting. In one section where the authors discuss the practices of the Newell Corp., they write: “With certain exceptions, the corporate takeover targets were profitable. They just were not as profitable as corporate raiders and Wall Street wanted. And they certainly were not profitable enough to pay bloated salaries to layers of executives.”
That’s a powerful passage, but it calls out for supporting data. What were the profits? What were the salaries? No figures are given.
The book does have some bright spots, such as a section taking on the old saw that a college education is the path to a better life. Increasing costs and legal changes mean students are increasingly laboring under a mountain of debt. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, for instance, made it extremely difficult for anyone with student loans to declare bankruptcy, and in the last recession, that restriction hit younger Americans hard. But there aren’t enough sections like that one.
The end of the book, where Barlett and Steele offer their proposals for “Restoring the American Dream” — revise the tax code, make free trade fair, invest in America — offers little that’s new. It’s essentially the same list of proposals one often sees at the end of “whither the middle class” books such as this. But “The Betrayal of the American Dream” is not really about solutions. Like many works of journalism, good and bad, it is about raising the reader’s ire. The problem in this case is that the path feels familiar and well-trod.
And therein lies the difference between these two books. Stiglitz isn’t just writing about people being hurt by inequality, he is also writing about the system itself being in jeopardy and what needs to be done to fix it. Barlett and Steele are more concerned with recapping, as many have, how good things were and how bad they have gotten. One approach tries to show a way forward. The other largely looks back.
THE PRICE OF INEQUALITY
By Joesph E. Stiglitz
Norton. 414 pp. $27.95
THE BETRAYAL OF
THE AMERICAN DREAM
By Donald L. Barlett and James B. Steele
PublicAffairs. 289 pp. $26.99