Joseph Stiglitz

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“China Has Made It Clear That It Will Respond”

March 6, 2017 in Excerpts, Politics, Science/Tech | Permalink

Late to Industrialization, China entered the process knowing what much of the Western world had to learn the hard way in the 1970s: Urbanizing and modernizing an entire nation brings with it tremendous economic growth, but it can’t be sustained by the same methods–or perhaps at all–when the mission is complete. It’s a one-time-only bargain.

A richer nation can’t grow endlessly on the production of cheap exports, so the newly minted superpower is pivoting more to domestic demand, a nuance no doubt lost in the Trump Administration’s ham-handed appreciation of global politics. In “Trump’s Most Chilling Economic Lie,” a Joseph Stiglitz Vanity Fair “Hive” article, the economist highlights the insanity of America engaging in a trade war with China and expecting to emerge the richer. An excerpt:

Trump’s team may be tempted to conclude, naively, that because China exports so much more to the U.S. than the U.S. exports to China, the loss of a huge export market would hurt them more than it would hurt us. This reasoning is too simplistic by half. China’s government has far more control over the country’s economy than our government has over ours; and it is moving from export dependence to a model of growth driven by domestic demand. Any restriction on exports to the U.S. would simply accelerate a process already underway. Moreover, China’s government has the resources (it’s still sitting on some $3 trillion of reserves) and instruments to help any sector that has been shut out—and in this respect, too, China is better placed than the U.S.

China has already shown how it is likely to respond if Trump should launch a trade war. At Davos, President Xi Jinping came out as the great supporter of globalization and the international rule of law—as well China should. China, with its large emerging middle class, is among the big beneficiaries of globalization. Critics have said that China does not always play fair. They complain that as China has grown, it has taken away some of the privileges, some of the tax preferences, that it gave to foreigners in earlier stages of development. They are unhappy, too, that some Chinese firms have learned quickly how to compete—some of them even appropriating ideas from others, just as we appropriated intellectual property from Europe more than a century ago.

It is worth noting that, although large multinationals complain, they are not leaving. And we tend to forget the extensive restrictions we impose on Chinese firms when they seek to invest in the U.S. or buy high-tech products. Indeed, the Chinese frequently point out that if the U.S. lifted those restrictions, America’s trade deficit with China would be smaller.

China’s first response will be to try to find areas of cooperation. They are experts in construction. They know how to build high-speed trains. They might even provide some financing for these projects. Given Trump’s rhetoric, though, I suspect that such cooperation is just a dream.

If Trump insists on an adversarial stance, China is likely to respond within the framework of international law even if Trump puts little weight on such agreements—and thus is not likely to retaliate in a naive, tit-for-tat way. But China has made it clear that it will respond. And if history is any guide, it will respond both forcefully and intelligently, hitting us where it hurts economically and politically—where, for instance, cutbacks in purchases by China will lead to more unemployment in congressional districts that are vulnerable, influential, or both. If Boeing’s order book is thin, it might, for instance, cancel its purchases of Boeing planes.•

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“So What’s Really Going On?”

September 17, 2015 in Books, Excerpts, Politics, Science/Tech, Urban Studies | Permalink

The spirit of any age must be addressed, even when inconvenient. I doubt Bill Clinton entered politics to be the tough-on-crime President whose policies helped turn the nation into a penal colony within a colony, but there he was in the 1990s, not realizing that crime was about to mysteriously and precipitously decline, waving a badge and a billy club. Clinton likely never dreamed of a scenario in which he would be chastening “welfare queens,” yet there he was doing a better job of it than Ronald Reagan, who coined that odious term. It was no different than when Richard Nixon, having at long last having won the White House, argued in favor of universal healthcare and a basic-guaranteed-income tax plan, something he certainly wasn’t considering before the Sixties happened.

Chief among the prevailing winds of our time is wealth inequality, the enduring gift of an Occupy movement that framed a single election and otherwise sputtered out, at least for now. So GOP candidates must, at minimum, pay lip service to the concern. Donald Trump is suddenly a reformer taking aim at hedge-fund managers. Jeb Bush has spoken about how income disparity has threatened the American Dream (without mentioning, of course, that his proposed tax cuts would only exacerbate the situation). Rick Santorum and the sweater-vest wing of the party want to raise the minimum wage. 

What’s true of politicians is also so of economists, and academics have descended on the problem, which makes this moment ideal for Joseph Stiglitz, who’s spent much of his career, from thesis forward, on the topic. In a NYRB piece, James Surowiecki analyzes the economist’s most recent slate of books, finding fault with Stiglitz’s identification of the twin devils of the contemporary financial arrangement: rent-seeking and a lack of corporate oversight. Surowiecki doesn’t believe these issues explain our 99-and-1 predicament. He doesn’t dismiss Stiglitz’s suggestions and likewise sees no reason why CEOs should be earning so much, but he believes a remedy is more complicated.

An excerpt: 

It’s possible, of course, that further reform of corporate governance (like giving shareholders the ability to cast a binding vote on CEO pay packages) will change this dynamic, but it seems unlikely. After all, companies with private owners—who have total control over how much to pay their executives—pay their CEOs absurd salaries, too. And CEOs who come into a company from outside—meaning that they have no sway at all over the board—actually get paid more than inside candidates, not less. Since 2010, shareholders have been able to show their approval or disapproval of CEO pay packages by casting nonbinding “say on pay” votes. Almost all of those packages have been approved by large margins. (This year, for instance, these packages were supported, on average, by 95 percent of the votes cast.)

Similarly, while money managers do reap the benefits of opaque and overpriced fees for their advice and management of portfolios, particularly when dealing with ordinary investors (who sometimes don’t understand what they’re paying for), it’s hard to make the case that this is why they’re so much richer than they used to be. In the first place, opaque as they are, fees are actually easier to understand than they once were, and money managers face considerably more competition than before, particularly from low-cost index funds. And when it comes to hedge fund managers, their fee structure hasn’t changed much over the years, and their clients are typically reasonably sophisticated investors. It seems improbable that hedge fund managers have somehow gotten better at fooling their clients with “uncompetitive and often undisclosed fees.”

So what’s really going on? Something much simpler: asset managers are just managing much more money than they used to, because there’s much more capital in the markets than there once was.•

 

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“The First Order Of Business Should Be Creating A Fair Tax System”

August 25, 2015 in Excerpts, Politics, Science/Tech | Permalink

Months before the first 2011 Occupy protest in Zuccotti Park, economist Joseph Stiglitz was bemoaning the 1%, doggedly working to put a spotlight on wealth inequality and the rigged system that abets it. These days, he feels the discussion has evolved but there haven’t been any real material changes. 

Gawker took a break from being yeesh! long enough to allow Hamilton Nolan to do his typically smart work, interviewing Stiglitz about how disparity can be mitigated. Simply put, he doesn’t believe fairness can be achieved through charitable donations but will require systemic changes. An excerpt:

Question:

Is there a red line level of inequality past which you think there will be some sort of tipping point?

Joseph Stiglitz:

We’re always gonna have some inequality. There is a small enough level of inequality that, while you might worry about it, it doesn’t have a corrosive effect. We’ve reached a level of inequality where it’s unambiguously clear to me and to most observers that it’s interfering with our economic performance. It’s having a corrosive effect on the way our democracy works. It’s having a corrosive effect on the way our society functions. So we’re in the bad regime. We’re facing very large costs.

The other question that you’re asking is, “Is there a tipping point, a dynamic where things get more and more unequal and increasingly hard to pull back?” I would say yes, and what that point is depends on a number of factors, including the political landscape. I believe a lot of inequality is a result of the policies we make. Those policies are a result of political processes. Political processes are affected by the rules that [govern] how money gets translated into politics. So if you have a political system like the US, where money talks more than in Europe, that is going to have a more corrosive effect—a lower tipping point. I try to be optimistic. I wouldn’t be working so hard if I believed we were over that tipping point. There’s some chance we are over it, but there’s some chance that we’re not. The fight right now is to make sure we don’t go further over it.

Question:

Is it possible to rein it in with our current campaign finance system?

Joseph Stiglitz:

It’s possible, and difficult. We’ve seen successes in the minimum wage campaign. We’ve seen successes in when the Republicans try to restrict voting rights in Pennsylvania, it backfired and people got so angry that they came out and voted. So every once in a while you see an outpouring of democratic forces.

Question:

Where would you set the income tax rates, if it was up to you?

Joseph Stiglitz:

The first order of business should be creating a fair tax system, so that we tax dividends and speculators at the same rate that we tax ordinary income.•

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“Now China Is The World’s No. 1 Economic Power. Why Should We Care?”

December 8, 2014 in Excerpts, Politics, Science/Tech | Permalink

China has quietly surpassed the U.S. this year as the world’s largest economic power, and that’s not a situation likely to reverse itself anytime soon, even if that nation should suffer a large-scale financial downturn. But what is the significance of America being number two? From Joseph Stiglitz at Vanity Fair:

Now China is the world’s No. 1 economic power. Why should we care? On one level, we actually shouldn’t. The world economy is not a zero-sum game, where China’s growth must necessarily come at the expense of ours. In fact, its growth is complementary to ours. If it grows faster, it will buy more of our goods, and we will prosper. There has always, to be sure, been a little hype in such claims—just ask workers who have lost their manufacturing jobs to China. But that reality has as much to do with our own economic policies at home as it does with the rise of some other country.

On another level, the emergence of China into the top spot matters a great deal, and we need to be aware of the implications.

First, as noted, America’s real strength lies in its soft power—the example it provides to others and the influence of its ideas, including ideas about economic and political life. The rise of China to No. 1 brings new prominence to that country’s political and economic model—and to its own forms of soft power. The rise of China also shines a harsh spotlight on the American model. That model has not been delivering for large portions of its own population. The typical American family is worse off than it was a quarter-century ago, adjusted for inflation; the proportion of people in poverty has increased. China, too, is marked by high levels of inequality, but its economy has been doing some good for most of its citizens. China moved some 500 million people out of poverty during the same period that saw America’s middle class enter a period of stagnation. An economic model that doesn’t serve a majority of its citizens is not going to provide a role model for others to emulate. America should see the rise of China as a wake-up call to put our own house in order.

Second, if we ponder the rise of China and then take actions based on the idea that the world economy is indeed a zero-sum game—and that we therefore need to boost our share and reduce China’s—we will erode our soft power even further. This would be exactly the wrong kind of wake-up call. If we see China’s gains as coming at our expense, we will strive for “containment,” taking steps designed to limit China’s influence. These actions will ultimately prove futile, but will nonetheless undermine confidence in the U.S. and its position of leadership. U.S. foreign policy has repeatedly fallen into this trap.•

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“So Why Has America Chosen These Inequality-Enhancing Policies?”

June 29, 2014 in Excerpts, Politics, Science/Tech, Urban Studies | Permalink

The poor and middle class in America are not only under siege by the automation of industries but by our inability to execute policies that intelligently remedy disparity, that keep the gulf from growing so wide. In the final installment of “The Great Divide” series at the New York Times, Joseph Stiglitz looks at how we traveled from World War II to 99 and 1. An excerpt:

“Our current brand of capitalism is an ersatz capitalism. For proof of this go back to our response to the Great Recession, where we socialized losses, even as we privatized gains. Perfect competition should drive profits to zero, at least theoretically, but we have monopolies and oligopolies making persistently high profits. C.E.O.s enjoy incomes that are on average 295 times that of the typical worker, a much higher ratio than in the past, without any evidence of a proportionate increase in productivity.

If it is not the inexorable laws of economics that have led to America’s great divide, what is it? The straightforward answer: our policies and our politics. People get tired of hearing about Scandinavian success stories, but the fact of the matter is that Sweden, Finland and Norway have all succeeded in having about as much or faster growth in per capita incomes than the United States and with far greater equality.

So why has America chosen these inequality-enhancing policies? Part of the answer is that as World War II faded into memory, so too did the solidarity it had engendered. As America triumphed in the Cold War, there didn’t seem to be a viable competitor to our economic model. Without this international competition, we no longer had to show that our system could deliver for most of our citizens.

Ideology and interests combined nefariously. Some drew the wrong lesson from the collapse of the Soviet system. The pendulum swung from much too much government there to much too little here.”

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“Mrs. Helmsley’s Remark Might Actually Have Been Prescient”

April 15, 2013 in Excerpts, Politics, Science/Tech, Urban Studies | Permalink

From Joseph Stiglitz, on tax day, in the New York Times:

“Leona Helmsley, the hotel chain executive who was convicted of federal tax evasion in 1989, was notorious for, among other things, reportedly having said that ‘only the little people pay taxes.’

As a statement of principle, the quotation may well have earned Mrs. Helmsley, who died in 2007, the title Queen of Mean. But as a prediction about the fairness of American tax policy, Mrs. Helmsley’s remark might actually have been prescient.

Today, the deadline for filing individual income-tax returns, is a day when Americans would do well to pause and reflect on our tax system and the society it creates. No one enjoys paying taxes, and yet all but the extreme libertarians agree, as Oliver Wendell Holmes said, that taxes are the price we pay for civilized society. But in recent decades, the burden for paying that price has been distributed in increasingly unfair ways.

About 6 in 10 of us believe that the tax system is unfair — and they’re right: put simply, the very rich don’t pay their fair share.”

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“The American Dream Has Become A Myth”

October 5, 2012 in Excerpts, Politics, Urban Studies | Permalink

The best and brightest people I’ve met in my life haven’t been the most successful ones. America doesn’t work that way now. It probably never did, but it seems to be getting worse. What people believe to be a promise has become, at best, a lottery ticket.

I watched Carly Fiorina on TV the other day extolling Mitt Romney’s great command of facts and figures at the first Presidential debate. Like, say, his assertion that half of the clean tech companies that the President invested stimulus money in had gone belly up. Except that isn’t close to the truth. From what I can gather, more than 90% of those companies have thus far been successful. That’s an amazing rate. Far better than Romney’s record at Bain and far, far better than Fiorina’s lousy tenure at Hewlett-Packard. I’m all for inventors and creators and builders making good, but you have to question a system that so richly rewards an executive like Fiorina, who contributes little, or Romney, who doesn’t acknowledge he had a huge advantage in a very uneven playing field because of family money and connections. The disconnect between such people and most Americans is enormous.

Economist Joseph Stiglitz has been calling bullshit on the situation for some time now. From a recent Q&A with him at Spiegel: 

“Spiegel: 

The US has always thought of itself as a land of opportunity where people can go from rags to riches. What has become of the American dream?

Stiglitz:

This belief is still powerful, but the American dream has become a myth. The life chances of a young US citizen are more dependent on the income and education of his parents than in any other advanced industrial country for which there is data. The belief in the American dream is reinforced by anecdotes, by dramatic examples of individuals who have made it from the bottom to the top — but what matters most are an individual’s life chances. The belief in the American dream is not supported by the data.

Spiegel: 

What do the numbers suggest?

Stiglitz:

There has been no improvement in well-being for the typical American family for 20 years. On the other side, the top one percent of the population gets 40 percent more in one week than the bottom fifth receive in a full year. In short, we have become a divided society. America has created a marvelous economic machine, but most of the benefits have gone to the top.”

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Two More Great 2011 Nonfiction Pieces Online

December 26, 2011 in Excerpts, Urban Studies | Permalink

Scanning the Browser‘s list of the best 2011 articles reminded me of two more of my favorite pieces from this year: Economist Joseph Stiglitz’s Vanity Fair essay from May, which I blogged about at the time, was ahead of the curve in its crystallization of wealth inequality; and Peter Hessler’s excellent September New Yorker profile looked at the workaday life of a small-town Colorado chemist and the amazing way the past revisits him.

••••••••••

From “Of the 1%, by the 1%, for the 1%“:

“It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow.”

••••••••••

From “Dr. Don“:

“When outsiders come to town—loners, drifters—they often find their way to Don. A number of years ago, a man in his seventies named Tim Brick moved to Naturita and rented a mobile home. He placed special orders at the Apothecary Shoppe: echinacea, goldenseal, chamomile teas. He distrusted doctors, and often had Don check his blood pressure. It was high, and eventually Don persuaded him to get on regular medication. Soon, he was visiting every four or five days, mostly to talk.

Don referred to him as Mr. Brick. He had no other local friends, and he was cagey about his past, although certain details emerged over time. His birth name had been Penrose Brick—he was a descendant of the Penrose family, which came from Philadelphia and had made a fortune from mining claims around Cripple Creek. But for some reason Mr. Brick had been estranged from all his relatives for decades. He had changed his first name, and he had spent most of his working life as an auto mechanic.

One day, his mobile home was broken into, and thieves made off with some stock certificates. Mr. Brick had never used a broker—to him, they were just as untrustworthy as doctors—so he went to the Apothecary Shoppe for help. Before long, Don was making dozens of trips across Disappointment Valley, driving two hours each way, in order to get documents certified at the bank in Cortez, Colorado. Eventually, he sorted out Mr. Brick’s finances, but then the older man’s health began to decline. Don managed his care, helping him move out of various residences; on a couple of occasions, Mr. Brick lived at Don’s house for an extended stretch. At the age of ninety-one, Mr. Brick became seriously ill and went to see a doctor in Montrose. The doctor said that prostate cancer had spread to his stomach; with surgery, he might live another six months. Mr. Brick said he had never had surgery and he wasn’t going to start now.

Don spent the next night at the old man’s bedside. At one point in the evening, Mr. Brick was lucid enough to have a conversation. ‘I think you’re dying,’ Don said.

‘I’m not dying,’ Mr. Brick said. ‘I’m just going to pray now.’

‘Well, you better pray pretty hard,’ Don said. ‘But I think you’re dying.'”

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“It’s No Use Pretending That What Has Obviously Happened Has Not In Fact Happened”

April 3, 2011 in Excerpts, Science/Tech, Urban Studies | Permalink

"The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year."

From “Of the 1%, by the 1%, for the 1%,” a cogent takedown in Vanity Fair of the rising wealth inequality by economist Joseph Stiglitz:

“It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow.”

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