Do you agree with Joseph Stiglitz that inequality is a threat to growth and stability?

China recognises the danger of inequality while in the West politicians are silently implementing policies that increase the gap between rich and poor. Watch Nobel Prize winning economist Joseph Stiglitz discuss the pheonomena with Vanity Fair Contributing editor, William Cohan:

Interesting video, isn’t it. Above all how China and the U.S. are responding to the threat rising inequality pose to economic growth and stability. And it is not only in the United States that politicians are actively and quietly making sure the gap between rich and poor is growing. Believe it or not, but even in Sweden the government was recently implementing policies that take from the poor and give to the rich. So it comes as no surprise that poverty is increasing.

American approach to rising inequality

Simply put; doing nothing and in fact making the gap increase. Median income is the same as forty years ago and medium wealth the same as it was twenty years ago. In other words the US economy is not delivering to a large section of Americans.

For the Chinese it’s a top priority

Whatever your feelings about China you have to give them credit for getting somewhere between 400 and 500 million people out of poverty.

They know what problems inequality entails and reducing the gap between rich and poor is hence a top priority for their leadership. Why? Because they have seen first hand the detrimental impact inequality has on economic growth and stability. And in case you regard them as a communist country, don’t forget that Milton Friedman went to China and taught Deng Xiaoping how to implement neo liberal policies. And to this day the Chinese economy is run according to Milton Friedman’s gospel.

Who’s on the right path?

Sure, China is still much poorer that the US. Their per capita income is about a fifth of that of the United States. But don’t forget that they are growing on average 7-8% a year, while the US and Europe are hardly growing at all. China is according to some estimates the largest economy in the world and their voice in the global economy is carrying more impact.

Do you agree with Stiglitz that inequality is a threat to economic growth and stability? Is China right to make reducing the gap between rich and poor a top priority? Or is the US and EU doing the smart thing by implementing policies that increase inequality? What can the West do to increase equality? Do you agree with Joseph Stiglitz that better education for all, investment in technology and infrastructure would have a positive impact? Is that likely to happen in a society where politics are as divided as in the United States? What’s your recipe for reducing inequality? Or maybe you think it’s a good idea for the gap between rich and poor to increase?

Video: Asia Society – Picture: Abhisit Vejjajiva

70 thoughts on “Do you agree with Joseph Stiglitz that inequality is a threat to growth and stability?

  1. Inequality is, without doubt, the biggest threat to growth. It is also the cause of the frequent economic instabilities and slumps. It is not just a political problem as it is popularly perceived.

    However, it is one thing to understand the link between inequality and growth and quite another to understand the root causes of inequality and take steps towards mitigating it and keeping it down to a level where it stops hindering growth.

    Of course, countries like China had done a lot in the past to minimise the divide between the rich and power but, these countries are also nowadays falling a prey to the lures of monetary capitalism and short cuts it promises for people to get richer faster. The recent run on the Chinese stock market is a telling example of this trend.

    The sources of inequality are integral to the monetary capitalism and pre-emptive property rights.
    Unfortunately no one is looking at the basic and systemic problems which create, persist, proliferate and aggravate inequalities.

  2. This is a great interview. Thanks you for posting it. And yes I agree with his analysis. One of the frightening things here is that we are at the beginning of a presidential election campaign with something like 15 candidates between the two parties and with the exception of one long-shot candidate no one is addressing the issue of income inequality. It is really heartbreaking to read and here the stories of people who work the crappiest jobs for minimum wage and can't possibly meet their expenses. There was one in the Times this weekend about a pretty young guy with a wife and child who was working his butt off as a temp in an Amazon warehouse because if he was a really high producer he thought he'd get a permanent position. Instead he had a heart attack and dropped dead on the job.

  3. I agree that anything that can be done to erase inequality is worth pursuing, but history shows us that it's not always an easy solution, due to the complex nature of the problem. We need to be watching what's working around the globe, and be willing to make changes, regardless of political motives.

    1. It’s not a quetion of implementing communism that, as we know don’t work. However neoliberal economics based on Milton Friedman’s ideas have made billions of people in the world poor or semi poor. And that form of economics is also the reason people in the US working on low levels of companies such as McDonalds earn so little they can’t even pay for their basic expenses. Neoliberalism crashed the world economy in 2008 and proved without a doubt that markets don’t correct themselves as they are supposed to do according to Friedman’s theories. But unfortunately the majority of people don’t understand economics and hence frequently without knowing it vote for politicians that will make them poorer.

  4. Not sure I'd hold China up as a shining example of how to treat ones citizens, but I definitely think that inequality is a threat to growth & stability. The cost of Living is so expensive in San francisco now, that people in restaurants & cafes are having difficulty finding staff who will work for $15 -20 because no-one in that wage category can afford to live in the city. Many have moved across the SF Bay Bridge to the east bay which is a little cheaper, or gone further afield. Having extremes of income is never going to be a good thing.
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    1. China is a dictatorship that is no role model, AK. But isn't it interesting that they do more to reduce poverty than Western countries? The philosophy of inequality comes from the United States i.e. from the economist Milton Friedman. Another word for it is American robber capitalism which has unfortunately spread around the world. China is also implementing Friedman's version of economics with the exception of taking from the poor and give to the rich. Good examples you mention of US salaries.

  5. You must look at what happened in the US. At the turn of the last century, there was a huge pay gap, in fact there was not a middle class. When there was no change done about this gap, then workers began forming unions. There was a huge conflict between business and unions, some of which caused destruction, violence and death.
    I think by taking on this gap difference, China is removing the formation of unions. This would work in their favor in the long run.

  6. I get that certain amount of income inequality is inevitable. Maybe some economist feel it’s essential for a healthy economy. But, income inequality has gotten out of hand. One of the problems is that in the US people underestimate the level of wealth inequality. They don’ realize the extent of the problem. I think the education system in America fails to educate students to think in terms globally. Global thinkers are self educate. We tend to see ourselves as separate from the rest of the world, and that’s a problem.

    1. Agree with you about the reasons you mention that accounts for the problem in the US being worse than anywhere else in the West. Truly wish Americans would wake up because they are being deceived, to put it mildly.

  7. Of course inequality is a threat to growth and stability. Unfortunately here in the US the very rich have a fist firmly clasped on wealth and they do NOT want to share. They can control politicians by funding their campaigns. They spout the ridiculous mantra that wealth trickles down. It is maddening.

    1. Spot on, Beth. The US is the worst country in the West when it comes to inequality. It's also from America that neoliberal economics come. Your country has for decades forced developing countries all over the world to implement neoliberal policies and poverty has hence spread enourmously. Neoliberalism has been tried all over the world since the 70s and never worked anywhere. But still that kind of economics is being implemented. Not least because of Congress. If you elect a republican president it will get even worse.

  8. Where I live in Los Angeles, the public schools are just horrible. They teachers are spread so thin and I imagine it is really challenging to get a good education in these schools. Most of the kids who go there are very poor, because if you have any money, you try to get your children out of those schools. However, just a few years ago, California was bankrupt and many teachers lost their jobs. So finding the funding to make the schools better has been a challenge for California. We did approve a bill with a new tax to go straight to school funding, but I’m not sure if things have gotten any better. Areas that can’t afford good schools put their kids at a disadvantage as they go forward in life. So that really does seem to be a problem. And it makes sense that the children of those with money really do get a head-start on life, taking the inequality with them into the next generation.

    1. What you mention is a huge problem with neoliberalism i.e. American robber capitalism according to Milton Friedman's ideas of economics, Erica. Intelligence has nothing to do with background and race. Super intelligent poor people instead turn to crime because they don't see any other way out. There are examples in Sweden of children of poor imigrants being the best in their class.

  9. The divide between rich and poor grows wider by the day.

    Education and ambition provide a way out of poverty. I am a great believer of a good education for all children, not just for those whose parents are wealthy enough to pay for independent schools.

  10. I definitely think the gap between the rich and the poor can be a threat to stability. I don’t know enough about economics to speculate on its impact on economic growth, but it is hard to fathom how growth that benefits a shrinking small part of the population can be sustained . I think policy focus should be on ensuring everyone has opportunity to make a living wage.

  11. They are right that it's rarely mentioned that more equality equals more growth. I think the problem in the US is that the perception of equality it tied to the idea that in order to achieve equality, you have to take something hard earned from the haves and give it for free to the have nots. That will never fly in a capitalist country.

  12. Laws of Economics and / sociology such as these , some how against laws of Nature (Read Physics) which drives forces for the benefits. Why ? I am not an economist , but I am of opinion that these root cause and fight for Equality is Populist Democracy . These Economist and Politicians wants to promise population at large that they will raise there economic level by giving every thing FREE and tell every body that Equality is MUST, just for the sake of VOTES. Experience of last hundred odd years of Democracy and Populist Economics has neither improved Poverty , Employment nor Hunger. Unless there is basically wrong with theories , things wont go wrong.

    1. Thank you for giving us your thoughts, Yeshwant. Economics has not delivered what it promised. Complete equality is impossible. But increasing inequality has proved to lead to more crime and violence. Is that really the kind of world we want?

  13. Interesting that the one thing I am interested in does not get mentioned by Professor Stiglitz when has is responding to the question of what needs to get done.

    My background and experience suggests that there can be amazing change in the performance of the economy after there is radical reform of the metrics we use to benchmark performance and set goals. As long as the primary metrics are money profit for business, capital market prices for investors and GDP growth for policy makers, then there will be more of the bad outcomes already being experienced.

    I want to see rigorous metrics not only about business profit, but also the impact on people and planet. This can be done … though it is not simple. We have the technology, and the challenges are really quite modest.

    Peter Burgess – TrueValueMetrics
    Multi Dimension Impact Accounting

  14. You raise many interesting and important question. The growing gap between rich and poor here in the US is rather alarming and frankly extremely destabilizing in every way.. Knowing that money talks, too many decisions that impact our society as a whole are made by those who stand to benefit the most from them… such as what is happening right now in Washington with i-522… this is just one example where policy is dictated by profit and not what is right for the good of our people… inequality breeds instability. The solution.. not easy to find but bridging the gap between rich and poor is essential. T

  15. There is a lot in this video I do agree with, other things which I would have to further think about or research.

    I recently watched a documentary about the 41 billionaires in the USA who are calling the shots with our political system. It was a most dour picture of WHY there is the increasing and widening gap in income in the USA as Sitglitz led with. One of my take aways which ties into his points here is that unless we can somehow put the power back in the hands of the REST of the population, these 41 people will continue to get wealthy as they pay off the politicians (that is what happens behind the scenes) then the gap will continue to widen.

    If China has the same issues that are undermining the poor, maybe other countries just need to look beyond their own biases of China and admit, they might be onto something.
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  16. I appreciate his comments on deficiencies in public education. I wonder how things would change if education on a collegiate level became more affordable?

    Changing rules of the game sounds like the right track but I agree that in a society with diverse political agendas, it would be a difficult task to even begin. Those at the top don’t want to lose their place and without some give to even things out, I believe there will always be a substantial gap financial inequality.

  17. Inequality in America will only be successfully addressed when those who oppose closing the inequality gap learn how to better see the whole picture of cause and effect. Conservatives here love to bash Obamacare, and yet don't realize the insured-half of the population are the ones who are paying for emergency room visits anyway. People shop at Walmart because the prices are low, but don't realize how many of the workers receive welfare just to be able to survive. It's easy to bash what you don't fully understand, and Americans love to engage in such futile arguments that ignore core causes.
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  18. Unfortunately I think there will always be inequality although I don't agree with it. One reason why governments get away with it is the poor do not have the voice to do something in most western countries. I didn't know about China and what they are doing but agree with you about their growing importance.
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  19. Interesting post Catarina. I am not a fan of "everyone gets a trophy", however, the last comment Stiglitz says in the video is alludes to the fact that politics interferes with progress. This is very true. Agenda's over shadow prudent policy, which at the end of the day hurts everyone. It is frustrating to see people thinking they can start their own business, who struggle with common sense, and then they wonder why? Public education in the US, in my opinion, has been watered down to more of a focus on test scores, and as a result, the next generation struggles with critical thinking. Decisions are made at the point of decision with very little forethought as to the ramificaitons of those decisions.

    Ok… Off my soap box! I really enjoyed this post!

    Thank you for sharing!
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  20. Ok, so I seem to be the outlier here. Part of the problem is that we have no manufacturing in the US due to increased labor costs that include pensions and Cadillac healthcare plans that sent manufacturers overseas to produce goods. Just as an aside, the unions have now asked for a waiver from The Affordable Health Care Act. Seems they have better insurance. Tax revenues both on the state on national level are at an all time high, yet our deficient is decreasing at an appalling low speed. Welfare is off the charts and the government has people on the street soliciting for new subscribers. Obama has waived the welfare to work programs instituted by Bill Clinton. It's not surprising that our working poor numbers have increased being as low skill jobs are at an all time low, and part-time work is now becoming the norm. I fret for college student graduating that may have to take 2 or 3 part-time jobs in order to pay the rent. We could have taken every single un-insured person in the US and put them on Medicaid for a fraction of the cost (both economically and politically) that this bill will cost us. My belief is that we need to tackle the income inequality problem with a robust economy and job growth.
    My recent post Have We Lost That Personal Touch?… Where’s The Justice?

    1. Thank you for giving us your thoughts on Obamacare and Obama, Jacueline. Glad you agree that a robust economy and job growth is the way forward. What's your recipe for achieving that? Does it help that politicians interfere with progress in order to further their own agenda? The shutdown of your government works against growth of your economy and jobs. And it also has a negative effect on the world economy.

      1. I completely agree that politics is the biggest problem with too many people in our government wanting to further their own agenda. The shutdown helps no one at all, and hurts far too many. I think both parties are equally to blame. Recipe? I'm not sure there is one. But I do believe the private sector has to create jobs and the government has an obligation to create an environment where that is attractive. And our government has to make welfare less attractive
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  21. Catarina, I must have missed the memo, how do we sit in a democratic country and argue for inequality rationally? I can only assume that we have allowed those old and outdated perspectives on the causes of poverty to permeate our societies to the point that most people believe that poverty is the fault of the poor, or perhaps like Yippy, we think it's ok because it's "normal".

    While we’re embracing that old ideology we are clearly not looking at the consequence of our actions. I say we, because we collectively keep electing governments that reinforce inequality. Over the long term, I have to wonder what kind of strange growth or stability we think we’ll gain? Do we think stability is minimal movement in our per capita income? I could have sworn that was stagnation. I normally say thank you for your thought provoking posts, and this one was definitely that, but it also leaves me feeling frustrated. I was having this conversation about poverty when I was in my 20's….yes, that long ago. 🙂 I can't believe we've learned so little.
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    1. Glad, but nor surprised, that you agree with Stiglitz and myself, Debra. In one of his books Stiglitz calls the phenomena American robber capitalism and, as we both know , it comes out of university of chicago. We all used to believe Friedman's theories worked. But now it has been showed beyond doubt that they don't with what happened after Lehman Brothers collapsed. But the same principles are still being implemented in the West. Like Einstein said "trying the same thing over and over and expecting a different result is insanity…":-)

  22. This is a very complex topic, Catarina. I think it has more to do with societal norms and pressures than the size of the gap – look at India, for example, which has on of the largest gaps between rich and poor, and yet the poor are generally less fractious there than in many countries with much smaller gaps.

    The biggest danger is too much government – after all, governments do not inherently have money (democratic ones, that is), but take money from some people/companies and give to others – a modern-day Robin Hood, if you like. The danger is that the size of government keeps increasing, costing more while delivering less. I saw something a while back that suggested that Whitehall today had more than 100 times the number of civil servants that it had when England had an empire covering 1/4 of the world. There certainly isn't 100x the workload!

    People need to feel that if they work hard and take (business) risks, they can reap the rewards. The less fortunate needing a helping hand, but it should be a helping hand onto the ladder, helping them to be able to succeed – the old story about teaching a man to fish rather than just giving him one. This is where Western governments should be focusing their efforts, and reducing the cost of government, too…

    1. Yes Guy. It's definitely a complex topic. But Stiglitz is right that the more spending power the people have the more the economies grow. That's why the Chinese have made inequality a priority. Austerity has the opposite effect. We need to decide if we want a society where poverty is rising with all the problems that entails, or not.

  23. inequality is a normal outcome, that rattles the guilt ridden leftoids and chardonnay socialists. There is no such thing as a gap, it's a distribution, specifically a pareto distribution, occurs with mathematical certainty just as it does with city sizes, blog links and other networked structures.

  24. I knew nothing of what China was doing, but it makes perfect sense. Why on earth would the west be sitting on their hands when the proof is right there?
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    1. That's a good question, Rebecca. The West keeps on implementing policies that made the world economy crash and expect a different result. To some extent it is because of pressure from vested interests. Another reason is that when someone studies economics at university the mainly learn neo liberal theories. That explains why they keep on doing what they master.

  25. As I see it, the problem with inequality is the concentration of activity into fewer and fewer hands, which has a strange leveraging effect. There is a very strict limit to the growth from good decisions from the few whose decisions count because the masses do not have the resources to benefit, however there seems to be no limit on the destructiveness of stupid decisions, c.f. the effects of the last "banking crisis". The "invisible hand of the market" only really operates when players can come and go from an activity as they see fit and what they do does not perturb the market. Now we have the situation where only too few people can cause considerable economic harm just by being greedy.

  26. Unfortunately, as you know from following politics in the U.S., the government will probably shut down in a day or two because the Republicans in Congress want to delay/defund the Affordable Health Care Act — known as Obamacare — which will enable millions of Americans who are without health insurance to buy it on insurance exchanges and get the health care treatment they deserve. We need to decide what kind of country we want to be — providing healthcare, housing and a decent life for everyone or a country where the rich thrive and the poor fall through the cracks.
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    1. Great points, Jeannette. And the same decision applies to the whole of the West. Do we really want poverty to keep on increasing with all the negative results that entails? Besides for an economy to grow the people have to have spending power.

  27. I love Stiglitz, and have read his book too. Yes, I can see why inequality can lead to destabilization. In the U.S, in history it was the middle-class that built the economy especially with purchasing power, it was that same lack of purchasing power that brought down the economy in the Great Depression.

    The thing is, with neo-liberal and Capitalist principles we need poverty. I don't think Capitalism (in its purest form) can survive without having a poor demographic to exploit. But obviously, like many third world countries, once a significant amount of the "needs" are not being met, then protests start to rise– and this can lead to social/political destabilization (coup d'etat, military rules…etc) and investors, worried, will take out their capital. I think with the Occupy Wall Street protests, the police had to jump on that very quickly to make sure it didn't turn into some "American Spring" because it was the hugest protest/political dissent we had in decades and it spread from east coast to west coast…but now what do we hear of it? A bunch of hippies in the park that were too lazy to work. Yep, Capitalism at work…

    1. Well said. Isn't it amazing that a section of Americans have not had a rise in salary since the 70s. And a section of them need food stamps to survive. Do we really want to turn the clock back and keep on increasing poverty with all the problems that entails?

      1. Yeh, I didn't know that there is a section of Americans that hasn't had a raise since the 70's. I don't know if those are special cases like migrant workers or waitresses (because they earn tips). I do know about the food stamps and that's because I used to help enroll folks, even former employees of Wall Street are going to food pantries and such….the thing is, people are looking out for themselves– and not really "the good of the country" but they don't realize that come hell or high water having all that money and materials won't matter.
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        1. Good points. People working at McDonalds in the US need food stamps to survive. They don't get tips. By the way, desparate people don't think of what's good for the country. Their only objective is to survive. But the top 1% should – but unfortunately are too greedy to think of what kind or a society they are building up. It takes their children being robbed and killed or something even worse to give them a wake-up call,unfortunately.

          1. I guess, for most people (even those that aren't the top 1%) if it's out of sight then it's out of mind. Until it affects them directly. But what most people don't understand is that poverty, racism, sexism, illiteracy…it affects EVERYONE even if you can't feel it directly.
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          2. People hear and see what they want to hear and see. And to my astonishment a lot of people that are far from wealthy believe what they are served in the media i.e. neo liberalism is a good idea. And they defend it. Often without ever having read about Milton Friedman and his ideas, much less understanding what them. Another problem that makes a lot of people greedy is that they have high self confidence but low self esteem. So they need to own as much as they can to feel good about themselves.

          3. Yeah I agree. And in regards to the later part of your comment, the media makes it worse. exploiting our vulnerabilities and selling us things to make us "feel better" like nice cars and strong deodorant will bring beautiful women.
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          4. You cannot buy happiness. Have personally turned down guys with yachts and private airplanes and much much more. Money neither buys happiness nor self esteem. But according to what they read in the papers and watch in movies, it does:-) Mind you, most girls would have married the guys I turned down. So there you go…

  28. I think here is where you'll find two different answers: one coming from the people "down in the gap" and another from the people "uphill".

    Personally, however, I think the phrase in your text "doing nothing, in fact, increases the gap" says it all.

    Long time ago, an economist explained to me how a, say a one dollar bill, had to pass by every person in the society, rich AND poor, in order for the society to be financially well. It had to "flow" like the former logotype of coop in Sweden, (or rather, Domus) the infinity symbol, otherwise the society would come to a financial halt in the end, after it started forming two sides, and thus that famous gap – and look, what happened: Exactly that is what is now going on, across the world..

    1. Glad you agree with Joseph Stiglitz, and myself, Maria. Good points you make. Isn't it interesting that China is growing and erasing inequlity is a priority. The West is, at best, stagnating but still keep on implementing policies that increase inequality.

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