Joseph Stiglitz and Erich Weede on the growing inequality of opportunity and what the state can do about it
“The richest of the rich will become more wealthy, the poor will become poorer and more numerous, and the middle-class will be gouged,” summarized Stiglitz in the beginning of his new book. This development is the result of the globalized economic system, which is increasingly dominated by the richest one percent of the population. This trend is particularly drastic in the United States. “When it comes to equality of income, the United States performs worse than anywhere else in the world,” said Stiglitz on Wednesday at the DGAP.
The different socio-economic groups have increasingly grown apart: While income at the top has risen the fastest, that of low-income earners has actually declined. For example, wages for the lowest income earners have risen by 15 percent over the last 30 years, while income for the top one percent has increased by 150 percent. The top one percent of Americans now hold one-fifth of the entire national income—a trend that continues to grow.
The American Dream Is Now A Rarity
The result: There is no more equal opportunity in the United States. “The American Dream has become a rarity,” said Stiglitz. Today, career advancement depends more on financial circumstances or earning capacity than any other factor. But the wealth of the richest citizens is disproportionate to both their productivity and to their contributions to society, which are not nearly as outsized as their income.
Stiglitz mainly holds politics responsible for these developments. Indeed, the degree of inequality can be traced back to the failure of market forces: “But it is politics that shapes these market forces,” wrote Stiglitz in “The Price of Inequality.” America could attain more equality without weakening its economy. “For instance, with better bankruptcy laws or tax regulations,” according to the Nobel Prize winner. “Current tax law facilitates speculation more than work.”
Erich Weede shared his criticism of politics, but wondered whether a stronger state is able to solve the problem of inequality. “Joe Stiglitz hopes that politics can change society—but my impression is that politics often misses the mark.” He advocated for a small state and maximum economic freedom. Stiglitz countered: “Nobody attains anything on their own.” The importance of strong government cannot be trivialized. Other states have pursued different paths. Now he is hopeful that his government can also improve.