Stiglitz Economics

Analysis of the Issues

Here is a summary of his analysis of the issues which can be found in Part I of his book, People,
Power, and Profits: Progressive Capitalism for an Age of Discontent. The title of Part I gives
you a clue; it is "Losing the Way."

• "Both experience and studies have made it clear to me that economics and politics cannot
be separated, and especially not in America's money-driven politics."
• America took a regrettable turn between the mid-1970s and early 1980 and implemented
a series of policies based on the almost fanatical belief in the power of unfettered
markets.
• Supply-side economics has not worked and "trickle down" has failed to reach the lower-
and-middle income workers.
• Tax laws are stacked in favor of the wealthy.
• The true "wealth of a nation" lies in the creativity and productivity of the people and their
productive interactions with each other.
• Progress rests on advances in science, in the understanding of social organizations
discovered through reasoned discourse and leading to a system based upon the rule of
law, systems of checks and balances, and due process.
• Civility is required to build a civilization.
• We have digressed from the "greatest middle-class society the world has ever seen" to
levels of inequality not seen since "the Gilded Age at the end of the nineteenth century."

Key Economic Principles

In order to understand Stigliz's recommendations, we need to understand the economic principles

that form the foundation of his approach:

1. Markets play an invaluable role in any well-functioning economy and yet they often fail to
produce fair and efficient outcomes.

2. The 2 pillars of the wealth of a nation: a) the nation becoming more productive and b)
increases in knowledge that lead to that increased productivity.

3. Do not confuse the "wealth of a nation" by the wealth among a few individuals in that
country. Wealth developed by people and companies that provide new products that consumers
want is one way; a more negative way to wealth is by what is referenced in economics as "rent,'
i.e. grabbing a larger portion of the existing economic pie in contrast to increasing the size of the
pie which benefits all.

4. An economy based on equality performs better. An especially onerous drag on an economy

comes from inequality based on race, gender and ethnicity.
5. Markets have to be structured. Government programs to achieve shared prosperity need to
focus both on the distribution of market income (pre-distribution) and income enjoyed after taxes
and transfers (redistribution).

6. Economic reform will be dependent on political reform. Our current political system, which
has devolved more into one dollar one vote as opposed to one person one vote, will need to
change.

7. The greed, selfishness, moral turpitude, willingness to exploit others, and the dishonesty
exposed in the Great Recession needs to be replaced by developing a more inclusive, more
socially cohesive, fairer and more just economic system that rewards genuine production.

8. As a country we mismanaged the process of technological change and

globalization. Isolationism is not an option. We need to accept the blame for our own
mismanagement.

9. Power is too concentrated in corporations with excessive market power; there needs to be
more balance including more bargaining power for workers. It includes support for basic
research and more encouragement to the private sector to engage in wealth creation rather than
"rent-seeking."

10. Incrementalism will not work. There is a need for dramatic change, and those changes can
only be achieved with a strong democracy.

Yang, Lee, and Stiglitz Find Similar Conditions

Stiglitz, Yang, and Lee, each analyzing our current situation from different perspectives,
nevertheless, seem in agreement regarding the dangerous direction we're heading. All three of
them express deep concern about the direction our economy has been going for decades and
continues to devolve. The gradual but ever-expanding gap growing between the top earners and
wealthiest in our society and the lower/middle income earners is not sustainable, represents a
danger to our democratic republic, and is on course for a societal explosion. This gap is fueled
by financial manipulation of our political system, imbalanced tax laws, and a series of publicly
funded corporate benefits with little or no public oversight. Our approach for decades including
our current approach, to the competition, advancing technology, and globalization is not
working. We need serious and systemic changes.

Yang, Lee, and Stiglitz all seem to agree on the depth and breadth of the problems we
face. They also see changes to our capitalist system as the key to a new, more productive
society, and one that embraces and promotes intelligent and long-term responses to
competitiveness, advancing technology, and globalization.

Stiglitz Outlines His Suggested Reforms

Voting Reforms and the Political Process

Stiglitz sees a number of political reforms as a necessary prerequisite for "lasting economic
reforms." (p. 160) He considers it a civic duty to vote, and we must do all we can to discontinue
the ongoing attempts to disenfranchise the US electorate. In terms of those reforms, he suggests
the following:

1. Vote on Sundays (or by mail or making voting day a holiday) so that working people will not
find it challenging to vote.

2. Pay individuals to come to the voting booth (or, as Australia does, fine those for not coming).

3. Make it easier to register to vote.

4. End the disenfranchisement of those who have served prison time.

5. Ending gerrymandering.

6. Ensuring a path to citizenship for the Dreamers.

7. Reforms that restrict politicizing the judiciary including potential term limits (20 years for
judges including Supreme Court Justices.

8. Strengthening our system of checks and balances and the independent and integrity of
government bureaucracies.

9. Reducing the power of money in politics including changes to policies that allow corporations
to dictate policy (for example Pharmaceutical companies pushed through a regulation that means
Medicare patients pay 73% more for drugs than Medicaid).

10. Enacting better disclosure laws may help embarrass politicians from taking dark money.

11. Curbing campaign spending and reducing the influence of big (and hidden money) on our
elections) and providing for public funding of elections and adequate time provided by networks
for candidates.

12. Politicians are accustomed to getting their big payoffs after leaving office by getting lucrative
jobs from their corporate contributors. This invidious practice needs to be curtailed.

Restoring a Dynamic Economy with Jobs and Opportunity for All

1. The key to economic health includes growth in the size of the labor force and increases in
productivity, output per hour. It involves not just increased productivity but also improving
living standards for ordinary Americans.

2. Labor force growth can be impacted by government policies introducing more women into the
labor force with more family-friendly policies including greater flexibility of hours, better family
leave policies, and more support for child-care.
3. Challenging the current forced retirement of able bodies workers can add to the labor force.

4. Reversing the 2017 tax bill can free up funds for infrastructure improvements which will both
add to the job market and enhance the work being completed.

5. Creating a learning society includes recognition that increases in productivity and living
standards are typically tied to knowledge, learning, and the advance of science and technology.
The 2017 tax bill taxes our leading research universities, something no other country has ever
done.

6. Place-based policies will facilitate decisions for economic development in areas suffering the
most from an economic downturn. Other countries (see the UK and Manchester, England as an
example) have done this "place-based" economic development with some success.

Social Protection

Stiglitz recognizes that the sense of insecurity can severely damage an individual's growth and
productivity. In this section, we'll also disclose Stiglitz's evaluation of UBI.

1. Revisit our unemployment insurance policies and develop new guidelines that also address
immediate job seeking as well as long term unemployment. (Our current system provides for up
to 26 weeks of unemployment insurance).

2. UBI: Because of the significant place I have given UBI in this class, I will provide some detail
of Stiglitz's critique of UBI. He positively states that "UBI could increase equality and provide a
backstop for those who fail to get jobs. It could eliminate the bureaucratic processes entailed in
getting access to each of the multiple safety net and social protection programs, like food stamps
and Medicaid."

He goes on to provide his negative assessment: While Stiglitz admits UBI, as an idea, "should
not be dismissed," he then concludes "but I remain unconvinced that it solves the inherent
economic problems, the deficits to dignity of widespread unemployment." He is concerned that
"simply providing income is the right approach: for most people work is an important part of
life."

While your Instructor thinks Joseph Stiglitz may be short sighted on the topic of UBI, please
remember that he is a Nobel Prize winner in economics and we are not.

3. A guaranteed job for all willing to work. India has provided such a guarantee, 100 days of
work for anyone willing to do the work that needs to be done. Fifty million Indians have taken
advantage of this program. We have plenty that needs doing in the US and our renewed focus on
infrastructure jobs is one place to begin.

4. Because of the shift over the years from one income earner per household to two income
earners (and often with more than one job), there is a need to prescribe and require family leave
and flexibility policies.
5. Restoring opportunity and social justice can be addressed through policies addressing both
pre-distribution of market income as well as redistribution of income. Making such decisions in
our current political climate seems challenging.

6. Gender, racial, and ethnic discrimination is a cancer on American society and undermines the
vitality of the economy. Those who suffer from discrimination often are unable to live up to
their potential, a significant waste of the country's most important economic resource, our
citizens. There is an ongoing need to address discrimination in finance, housing, and our justice
system. Why, for example, does the US with 5% of the world's population have 25% of the
world's prisoner population?

7. Restoring justice across generations includes investing in the repair of our infrastructure,
providing an adequate education, addressing air pollution and other practices negatively
impacting our planet, and reversing the trend of straddling students with mounds of student debt.

8. Tax legislation that not only raises rates on wealthier Americans but also eliminating the
"myriad loopholes" that lobbyists for special interests have helped write into our tax code.

9. A tax on carbon emissions could help companies rethink some of the practices producing
excessive pollution as well as raise money to correct air pollution and other climate issues. In
2017 we experienced a record $245 Billion loss from hurricanes Harvey, Irma, and Maria.

A Decent Life for All

Mr. Stiglitz points to a number of foundational decisions that are central to a "decent life for
all." They include:

1. Access to health care for all is central to that decent life. It's been pointed out many times that
every major industrialized country in the world -- except the US -- provides health care to all its
citizens.

2. A safe retirement includes maintaining Social Security as it is (and not privatizing it as has
been recently proposed) and even adding a "public option" where individuals can make voluntary
additional payments into social security that eventually increase their monthly checks.

3. Advances in technology can lead to a more efficient and responsible mortgage

system. Utilizing data from existing data bases can add efficiency to the system. We have a
great deal of data in our Social Security system and in the IRS. There needs to be a rethinking of
the mortgage lending procedures and a 21st century system developed. A home continues to be
our most important asset; we need to make sure that more Americans can buy homes and then
keep their homes once they purchase them.

4. Education is another area most Americans will identify as key to a "decent life" for themselves
and their children. Equalizing educational opportunity requires a comprehensive agenda and one
without burdensome student debt. Supporting local education with local taxes leads to poorer
communities providing poorer educational opportunities. Our education system, originally
designed for an agricultural society, needs serious reform that adapts to the requirements of
student and families today.

While I cannot claim I've done justice to the array of recommendations presented by Joseph
Stiglitz in his book, People, Power, and Profits: Progressive Capitalism for an Age of
Discontent," I've provided you with a summary of his main points and have hopefully drawn a
contrast to the ideas from Andrew Yang and Kai-Fu Lee. To add to and close out this section on
potential ways to reform our economic/political system, I refer you to “Conscious
Capitalism.” Instead of the views of one person, I present you with a new concept of how to
revise Capitalism for the 21st century.