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The Price of Inequality
The Price of Inequality
Submitted by Francesca R
9th August 2013
The Price of Inequality

This reviewer had high hopes for this book--which advertised itself as an analysis of the causes of income/wealth inequality as well as of the economic and political impacts--and is written by a Nobel laureate.

It has none of the charts and estimation coefficients with which "The Spirit Level", a flagship analysis of distributional inequity from a few years ago which captured many hearts and minds--including hers--is adorned. Unfortunately, those are replaced with polemicism. References to "the 1%" or "the financial wizards who brought the world to the brink of ruin" or the rich who "resist taxes" drip from almost every page, which really started to grate after about 50 pages. This reviewer tried to block it out as her hopes faded that Stiglitz might get bored of it . . . but that does not seem to happen, and it colours the text with more than a tinge of ranting. That is a real pity, and she did not pick up the same at all from previous books such as "Globalization and its Discontents".

Some very useful discussions include rent-seeking (unjust surplus of private reward over social return) and regulatory capture (extraction of benefit by special interests), its wastefulness and its immorality. But this truth is interleaved with calls for more regulation (which presumably won't be captured) as well as calls to strengthen some preferred special interests (who will presumably not organise to capture, or seek rents). But the book's call for policy that reduces scope for rent-seeking, intervenes against market failures, and (almost an afterthought) encourages more complete risk-hedging markets (not engineered by bankers one assumes)--is its finest hour.

Another moral claim Stiglitz advances, to a greater transfer from the rich is their dependence on infrastructure, enforcement of property and contract rights, and the (state?) provision of an educated workforce. There then seems to be an implication that the more money was made, the more these inputs must have contributed, to which the business owner or whomever is therefore in debt. Alas this fails to acknowledge that the inputs have been paid for in full, hence the moral reasoning is weak, and better arguments for (more) progressive tax exist.

By referring to lower capital tax as a "giveaway" the author displays blindness to the double-tax aspect of this, which unfortunately means the argument will be easily dismissed by opponents. It would have been better to focus on the myriad ways in which differential capital / income tax rates get gamed, as a basis for merging them.

There is a diagnosis that the US suffers deficient demand, and has done for a couple of decades (temporarily palliated by tech stocks then housing), and that more radical income redistribution would fix this (because of the higher propensity to consume at lower income levels), and jobs would then be created. But stimulating consumption--just in an alternative, preferred way--does not seem like something the US has needed over this period (which the author briefly recognises in chapter 4)

The author's primary issue is what is called "cognitive capture", which appears to underlie all rent seeking, regressive subsidy and lobbying success. In short this charge is that too many of those in power share a help-the-rich mindset, being both drawn from and returning to their ranks. This reviewer would classify that as corruption at its finest if true, and she would heartily agree with it being corrected in almost any way possible. But she would also wonder how and why an electorate could do such a shoddy job of getting its representation. Until such time as democracy really did become traded at market prices, the fix to that would seem to be fairly straight-forward.

With regret she concludes that much of this book echoes the message that the author does not really want to change the "game", but rather to increase the chances of one "side" winning more of it, and the moral force of too many arguments seems to be lacking.

The Spirit Level was so much better.
Joseph E Stiglitz
By Francesca R on 19th August 2013, 09:42 PM
Review referenced above: The Spirit Level (Pickett and Wilkinson)
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