by Joseph Stiglitz Pub. by Project Syndicate June 6, 2012
America likes to think of itself as a land of opportunity, and others view it in much the same light. But what really matters are the statistics. Nowadays these show that the American dream is a myth. There is less equality of opportunity in the United States today than there is in Europe – or, indeed, in any advanced industrial country. America has the highest level of inequality of any of the advanced countries – and its gap with the rest has been widening. In the “recovery” of 2009-2010, the top 1% of US income earners captured 93% of the income growth. Other indicators – like wealth, health, and life expectancy – are as bad or worse. The trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom.
It would be one thing if the high incomes of those at the top were the result of greater contributions to society, but a closer look at those at the top reveals a disproportionate role for rent-seeking: some have obtained their wealth by exercising monopoly power; others are CEOs who have taken advantage of deficiencies in corporate governance to extract for themselves an excessive share of corporate earnings; and still others have used political connections to benefit from government munificence – either excessively high prices for what the government buys (drugs), or excessively low prices for what the government sells (mineral rights).
Likewise, part of the wealth of those in finance comes from exploiting the poor, through predatory lending and abusive credit-card practices. Those at the top, in such cases, are enriched at the direct expense of those at the bottom. All of the benefits of growth have gone to the top. America has become a country not “with justice for all,” but rather with favoritism for the rich and justice for those who can afford it – so evident in the foreclosure crisis, in which the big banks believed that they were too big not only to fail, but also to be held accountable.
Market forces, of course, play a role, but markets are shaped by politics; and in America, with its quasi-corrupt system of campaign finance and its revolving doors between government and industry, politics is shaped by money. For example, a bankruptcy law that privileges bankers and impoverishes many at the bottom. In a country where money trumps democracy, such legislation has become predictably frequent. But growing inequality is not inevitable. There are market economies that are doing better, both in terms of both GDP growth and rising living standards for most citizens. Some are even reducing inequalities.
America is paying a high price for continuing in the opposite direction. Inequality leads to lower growth and less efficiency. Lack of opportunity means that its most valuable asset – its people – is not being fully used. Many are not living up to their potential, because the rich, needing few public services and worried that a strong government might redistribute income, use their political influence to cut taxes and curtail government spending. This leads to underinvestment in infrastructure, education, and technology, impeding the engines of growth.
Most importantly, America’s inequality is undermining its values and identity. With inequality reaching such extremes, it is not surprising that its effects are manifest in every public decision, from the conduct of monetary policy to budgetary allocations. America has become a country not “with justice for all,” but rather with favoritism for the rich and justice for those who can afford it – so evident in the foreclosure crisis, in which the big banks believed that they were too big not only to fail, but also to be held accountable.
America can no longer regard itself as the land of opportunity that it once was. But it does not have to be this way: it is not too late for the American dream to be restored.
Joseph E. Stiglitz is University Professor at Columbia University. He received the Nobel Prize in Economics in 2001 for research on the economics of information.
© 2012 Project Syndicate