America’s Nonexistant Free Market
If video won’t play go to http://www.youtube.com/watch?v=gKOJqnAET9A
The above clip is a recent talk by former World Bank economist Joseph Stiglitz on his recent book The Price of Inequality: How Today’s Divided Society Endangers Our Future.
The main premise of Stiglitz’s presentation (and book) is that the US is the most unequal of advanced industrialized countries. In other words, they have the largest gap between rich and poor, with the upper 1% controlling 40% of the nation’s wealth.
In my view, the most important point of the whole talk is that economies with extreme inequality are always incredibly inefficient. This, in turn, seriously hampers economic growth.
The other important point Stiglitz makes is that America’s extreme inequality does not result from “free market” forces, but from deliberate government intervention that favors their wealthy elite and “rent seeking.” Although other industrialized countries also operate according to so-called “free market” principles, they don’t have such extreme income inequality because they don’t allow the same level of government interference in the operation of their markets.
Stiglitz defines rent seeking as wealth accumulation resulting from “ownership” claims rather than effort – in other words the production of goods or performance of services that add to their overall wellbeing of society. Because rent-seeking doesn’t contribute to overall economic wealth, it merely serves to shift it from the 99% to the 1%. Some specific examples he gives include monopolies (which decrease real wealth by limiting production to increase production), predatory lending, abusive credit card practices and derivatives speculation (which crashed the global economy).
He drives the point home by reminding us that the richest Americans aren’t the inventors or researchers whose products and discoveries have massively enriched are lives. The richest Americans are corporate CEOs. This fact isn’t lost on our most talented university students, who overwhelmingly choose careers in business and banking, rather than science.
Specific examples he offers of America’s pro-corporate government regulation:
- Federal bankruptcy laws – recent changes which give precedence to holders of derivatives (rewarding the type of speculation that caused the financial crash) in dissolving a bankrupt business and which prevent students from discharging student loan debt in bankruptcy.
- More than $15 trillion in bank bailouts in 2008-2009.
- Federal law requiring the government to pay corporations more than the fair market price for their products (e.g. the Medicare drug benefit).
- Federal law requiring the government to sell national assets (e.g. oil and mining rights) below market.
- Federal corporate laws that deny shareholders into CEO salaries (unlike Australia and the UK which have Say on Pay laws).
- An extremely unequal federal tax system in which billionaires like Warren Buffett pay at a lower tax rate than their secretaries.
Here’s a link to the Vanity Fair article Stiglitz mentions in his talk: The Top One Percent