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Insights from a Presentation by Joseph Stiglitz at UBC Law School

Nobel Laureate in Economics

sponsored by UBC School of Economics and the Liu Institute

Joseph Eugene Stiglitz (born February 9, 1943) is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is a former senior vice president and chief economist of the World Bank and is a former member and chairman of the (US president’s) Council of Economic Advisers. He is known for his critical view of the management of globalization, free-market economists (whom he calls “free market fundamentalists“), and some international institutions like the International Monetary Fund and the World Bank.

In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. He has been a member of the Columbia faculty since 2001, received that university’s highest academic rank (university professor) in 2003, and is the co-chair of the university’s Committee on Global Thought. He also chairs the University of Manchester‘s Brooks World Poverty Institute as well as the Socialist International Commission on Global Financial Issues and is a member of the Pontifical Academy of Social Sciences. In 2009 the President of the United Nations General Assembly, Miguel d’Escoto Brockmann, appointed Stiglitz as the chairman of the U.N. Commission on Reforms of the International Monetary and Financial System, where he oversaw suggested proposals and commissioned a report on reforming the international monetary and financial system. Since 2012 Stiglitz has been the president of the International Economic Association (IEA). He presided over the organization of the IEA triennial world congress held near the Dead Sea in Jordan in June 2014.

Based on academic citations, Stiglitz is the 4th most influential economist in the world today, and in 2011 he was named by Time magazine as one of the 100 most influential people in the world. Stiglitz’s work focuses on income distribution, asset risk management, corporate governance, and international trade. He is the author of several books, the latest being the best seller, The Great Divide: Unequal Societies and What We Can Do About Them (2015).

Below are some notes on his presentation at UBC. It is interesting to read this against the background of The Sermon on the Mount in Matthew 5-7 and Jim Wallis’ profound and compassionate book The (Un)Common Good. Chrystia Freeland’s book Plutocrats and Thomas Picketty’s book Capital in the Twenty-first Century are also very insightful contributions to the economic state of our world.

Overall, Stiglitz’ concern is about both the economics and politics of inequity. Clearly we all agree that it is an unjust situation and morally bankrupt as well. Thus the Occupy Movement protests after the 2008-9 great recession. Accountability is severely lacking.

Stiglitz mentioned the Gilded Age in the late 19^th century where inequity was at a terrible level. US President FDR (Teddy Roosevelt) did something about it, taking some serious policy measures to rebalance things in America. Today, we have choices to do something about this insidious problem of inequity (America has the worst imbalance in the developed world) which is bad for the economy and destabilizing for society. We can and should shape new policies. Small changes are not effective. Radical changes are needed. Side note: Scandinavia has most equitable system. Canada lies somewhere between France and the USA.

Here’s the situation The top wealthy 1% garner 20-25% of all income; the top 0.1% has increased their wealth 3 to 4 fold in last three years. The late 70s/early 80s brought a big change with Regan and Thatcher policies and the movement to deregulation and lower taxes on the most wealthy. Wages have stagnated since then while productivity has doubled. The trickle down effect has not worked. Median income is lower than 25 years ago; median income of males is same as it was 40 years ago; minimum wage is the same as 50 years ago. This has produced a lot of pressure on the lower half of society and a lot of angry people. His conclusion is that it is essentially a dysfunctional economy.

The big change leading to our problem is supply side economics which included a false promise of increased wealth for everyone—via deregulation, lighter taxes for corporations and top wage earners. Monetary policy shifted to focus on inflation. Middle and bottom wages stagnated; this slowed economic growth and produced greater inequity. There is also a great inequality of healthcare with 40 million Americans uninsured, even though 17% of GDP is spent on health (largely private). There is also a tremendous inequality of opportunity: college education is not generally accessible to the poor. Inequality in wealth is even much greater than inequality of income: e.g., the Waltons of Walmart and Coke Brothers own 44% as much as the bottom half of America.

Inequality was at its highest just before the Great Depression and before the Great Recession of 2008-9 resulting in a seriously unstable situation. This should provide fair warning to us all. The IMF says that this is why global growth is slowing down. Inequity is bad for the economy and also bad for social stability and thus needs our full attention. There is now a general realization that this is a major problem. Conclusion: the system is broken and the government is broken. Something must be done to correct this severe imbalance and government ineffectiveness.

What Can Be Done About Our Problem?

Dr. Stiglitz says that we need a new playbook, we need to re-write the rules of the economy (see his upcoming book on policy changes needed). We need a sea change of understanding of inequality: it is bad for the economy, bad for business, unsustainable, wasting huge human resources at the bottom. Here are some preliminary suggestions which are in much more detail in his upcoming book.

1. Increase minimum wage (70% of Americans agree).
2. Tax and transfer-break out of a distorted tax system that undermines growth (e.g. lower tax for capital gains, poor land tax, poor inheritance tax). This needs correction to avoid a worse problem.
3. CEO pay is out of control: used to be 20-30 times average worker, now 300 times, or in some cases, 1000 times. It demoralizes the workers. Stock options for CEOs are insidious and dilute stock values.
4. We need more transparency of where the wealth is, rather than tax havens and hidden wealth.
5. We must strengthen human capital and respect hard-working people.
6. Massive need to reform the political system: excessive numbers of lobbyists, cronyism, political contributions.
7. Need financial sector reform; presently, they make up way too much of the economy.
8. Thomas Picketty strongly advises that we must deal with taxing wealth/capital and reform the inheritance issue to make things more fair.

Notes taken and compiled by Gordon Carkner (corrections on detail welcomed)

See also Al Gore’s book The Future: six drivers of global change.

Paul Williams on Capitalism and Globalisation