Joseph Stiglitz: Democracy, Justice, and Inequality

Why is inequality bad for democracy and justice? What can be done about it?

In this post, we present the works of Joseph Stiglitz, a Nobel laureate, economist, and professor at Columbia University. Focusing on three of his key books, “The Price of Inequality,” “The Great Divide,” and “People, Power, and Profits,” we present Stiglitz’s insights into the ever-growing issue of wealth and income inequality in the United States. Stiglitz attributes the rise in inequality to neoliberalism and supply-side economics, which have led to lower growth and a disproportionate distribution of wealth.

Stiglitz highlights the distortion of democracy and the erosion of justice due to the influence of money and manipulation, putting both the democratic process and the justice system at risk. Stiglitz advocates for a progressive capitalism, which would entail a new social contract between the market, state, and civil society, putting societal objectives at the forefront and maintaining a commitment to democracy.

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About Joseph Stiglitz

Joseph Eugene Stiglitz is an American New Keynesian economist, public policy analyst, and full professor at Columbia University. Born on February 9, 1943, he received the Nobel Memorial Prize in Economic Sciences in 2001. Stiglitz served as senior vice president and chief economist of the World Bank and was part of the Clinton Administration in the 1990s.

Stiglitz has written several influential books, including “Globalization and Its Discontents” (2002), in which he argues that developing economies are not developing at all and blames the IMF for their stagnation. In “The Price of Inequality” (2012), Stiglitz discusses how the top 1% benefit from the best health care, education, and wealth, while the remaining 99% struggle. He proposes a comprehensive agenda to create a more dynamic, fair, and equal society. For “The Great Divide: Unequal Societies and What We Can Do About Them” (2015), Stiglitz expands on his diagnosis from “The Price of Inequality” and suggests ways to counter growing inequality in America, arguing that it is a choice resulting from unjust policies and misguided priorities. And in “People, Power, and Profits: Progressive Capitalism for an Age of Discontent” (2019), Stiglitz highlights the dire situation where a few corporations dominate sectors of the economy, contributing to inequality and slow growth. He identifies the true sources of wealth and advocates for progressive capitalism, with markets working for U.S. citizens rather than the other way around, to recreate shared prosperity.

This post is based on three books: The Price of Inequality (2012) and The Great Divide (2015) and People, Power and Profits (2019).

Inequality rising

Stiglitz highlights the growing problem of income and wealth inequality in the United States. The issue, he argues, is not one of envy, but rather a matter of concern for the nation’s future. Stiglitz points out that the U.S. has become the advanced industrial country with the highest level of inequality, with the share of income accruing to the top 1% doubling from 10% in 1980 to 20% today. Contrary to the popular belief of America being a land of opportunity, Stiglitz explains that the life prospects of a young person in the U.S. are more dependent on their parents’ education and income than in any other country. This lack of opportunity is evident in both upward and downward mobility.

Neoliberalism failed

Stiglitz attributes the rise in inequality in the U.S. to a set of ideas known as neoliberalism in Europe and supply-side economics in the U.S. These ideas became popular around 1980 with leaders like Reagan, Thatcher, and Schroeder. The core idea was to strip away regulations and lower taxes at the top to free up markets and incentivize growth. This growth was expected to be sufficiently fast to improve the well-being of people at the bottom as well, which was called “trickle-down economics.”

He argues that trickle-down economics theory did not work. The median income in the U.S. is lower than it was a decade and a half ago, and the top 1% now controls around 40% of all wealth. The recession hit middle and lower-income Americans particularly hard, as they lost a significant portion of their wealth when housing prices crashed. The recovery from the crisis has been uneven, with 93% of growth in 2010 going to the top 1%.

In the U.S., real wages at the bottom have stagnated, with wages adjusted for inflation remaining the same as they were 60 years ago. The median income of a full-time male worker has remained the same for 42 years. The U.S. has become the country with the highest level of inequality and one of the lowest levels of equality of opportunity.

The neoliberal model has led to lower growth, and all the growth that has occurred has gone to the top. Stiglitz believes that after 40 years, it is clear that this particular economic model has not worked. He argues that it is time to reassess and change the system, as it has significantly impacted a large portion of the history of capitalism.

Democracy and Justice

Money and manipulation have distorted the democratic process in the United States, putting both democracy and the system of justice at risk.

Money targets specific voter groups to support certain views, leading to a distorted democracy that frequently does not represent the will of the majority. The wealthiest 1% has the resources, tools, techniques, and incentives to shape politics in ways that serve their interests, which in turn leads to political outcomes that don’t align with what one might expect in a democratic society.

Justice has increasingly become available only to those who can afford it. He refers to the Pledge of Allegiance, which includes the phrase “with justice for all,” arguing that the reality in the U.S. contradicts this statement.

The Great Recession of 2008 showed inequality in access to justice. The justice system allowed banks to throw people out of their homes even when they didn’t owe money. The banks lied to the courts, signing affidavits without proper verification, while the courts showed deference to the banks. Many individuals affected by this couldn’t afford a lawyer and had no access to court-appointed representation, leaving them helpless.

Stiglitz emphasizes the irony that none of the banks or bank officials who committed perjury by lying to the courts have been held accountable or brought to justice. This situation highlights the dimensions of inequality present in the justice system, which disproportionately affects those without the means to navigate it.

Summary

Stiglitz underscores the importance of addressing the distortion of democracy and the erosion of justice in the United States due to growing inequality, corporate influence, and the manipulation of public opinion. These are threats to the very fabric of American society and the values it holds dear.

Stiglitz argues for progressive capitalism, similar to European social democracy, as an alternative to the prevailing neoliberal economic model of the past 40 years. It would require a new social contract between the market, state, and civil society. Markets would still play a central role in organizing complex societies, but the term “progressive” highlights that unfettered capitalism should be a means to broader societal objectives, not an end in itself. Social democracy emphasizes concern for all of society and a fundamental commitment to democracy.