Supplement for Third Class of Pr

[xii-xiv, the 8^th paragraph of the Kindle’s Preface] the true source of “the wealth of a nation” lies in the former, in the creativity and productivity of the nation’s people and their productive interactions with each other. It rests on the advances in science, which teach us how we can discover the hidden truths of nature and use them to advance technology. Further, it rests on advances in understanding of social organization, discovered through reasoned discourse, leading to institutions such as those broadly referred to as the “rule of law, systems of checks and balance, and due process.”

[30, the 4^th paragraph of Chapter 1’s “A misshapen economy creates misshapen individuals and a misshapen society” section] all individuals combine self-interest and other-regarding (altruistic) behavior (as Smith himself noted), and the nature of our economic and social system changes the balance between the two. Cf. p. 238.

Stiglitz’ footnote to this passage’ reference to Adam Smith reads: [270]: ‘especially in his Theory of Moral Sentiments (1759), which opens with the famous lines: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”

Chapter 1’s section titled “A misshapen economy creates misshapen individuals and a misshapen society” provides a summary of sorts to the first part of the book and to Stiglitz’ “political” and “economic” core contentions.

A Decent Life For All: Reclaiming America, Restoring Democracy, and Restoring Our Economy

In Chapters 8, 9, and 10 proposes his “political” agenda and “Economic agendas. In the in the ensuing two Chapters he intends to

[179-180, 2^nd paragraph of Chapter 9] … flesh out an economic agenda—based on the principles already outlined—that can restore growth and social justice and enable most citizens to have the middle-class life to which they aspire. All of this will only be possible if there is more collective action—a greater role for government. Properly defined, this greater role doesn’t constrain society, but rather liberates it and the individuals within it, by allowing them to live up to their potential. Further, by restraining the power of some to harm others, government can free those who would otherwise always have to be on their guard, always having to take protective measures.

[160, final paragraph of introductory section of Chapter 8] this chapter focuses on three critical areas: ensuring fairness in voting, maintaining an effective system of checks and balances in government, and reducing the power of money in politics.

[162, 6^th paragraph of “Voting Reforms…” section] six reforms that could make a difference are (1) voting on Sunday (or by mail or making voting day a holiday), (2) paying individuals to come to the voting booth (or alternatively fining them for not coming, as Australia does), (3) making it easier to register, (4) ending the disenfranchisement of those who have served prison time, (5) ending gerrymandering, and (6) ensuring a path to citizenship for the Dreamers—young people who have grown up in the country and know no other home than the US. These reforms are based on a simple set of principles: every American citizen should vote, and every vote should count equally.

Frankly, and I believe unfortunately, he is probably at his most specific at this point in the three chapters!

In regard to maintaining an effective system of checks and balances in government he recommends that:

[164, final paragraph of Chapter’s “Preventing Abuses of Political Power…” section]… we need to strengthen our systems of checks and balances and the role of our professional civil services and our independent agencies. We need to think more how we can maintain democratic accountability and, at the same time, prevent politicization and enhance the professionalization, efficiency, and efficacy of government.

He also believes we need to have term limits for Supreme Court justices recommending that [167, final paragraph of Chapter’s “The Judiciary” section] “the next Democratic administration should formally propose such an amendment, and as a temporary measure, until the amendment is passed and goes fully into effect, the number of positions in the Court should be increased.”

Finally, in regard to reducing the power of money in politics he recommends that

[172, final paragraph of Chapter’s “Curbing Campaign Spending” section] corporations should only be allowed to make a political contribution with a vote of a supermajority of their shareholders (say, two-thirds)—so it’s not just the voice of the CEO that’s being heard. If shareholders want to contribute on their own, that’s another matter—and that’s already well regulated.

In the Chapter’s “Curtailing Revolving Doors” section, without specifying details, Stiglitz maintains we need norms and ethics to break down the revolving door between government work and employment thereafter, and while discussing the roles of political parties and movements, he offers no specific proposals.

Finally, he concludes this chapter regarding his “political agenda” with the up-coming two chapter discussion of his economic agenda by indicating they are inseparably intertwined:

[178-179, third and second to last paragraphs in chapter 8] how do we break out of this equilibrium, this vicious circle where economic inequality leads to political inequality that maintains, preserves, and even augments economic inequality?

It can be done, but only if there is a countervailing power—sometimes called “people power.” Large numbers of truly engaged individuals, in movements such as those described above, with the movements working in concert with each other, through a political party, can be more important than money.

Of course, while recent years have had a number of progressive political movements involving “large numbers of truly engaged individuals”—for example: the 2017 Women’s March, the Indivisible Movement (2016-present), The Black Lives Matter movement (beginning in 2012 and surging more recently—it really isn’t true, however, that they’ve “worked in concert.” Moreover each of these movements quickly generated active and large groups of engaged individuals who may, in fact, more truly be described as “working in concert.” Indeed in his first chapter Stiglitz draws attention to how wealthy conservative families have used their political power to effect some of the vey economic policies that he contends led us to lose our way:

[43, final two paragraphs of Chapter 1’s “Inequality of Wealth” section] we described earlier two key ways to become rich: create more wealth or grab more wealth from others. In the case of wealth, there’s a third: inherit it.

Many among the top—including the Walton family (heir to the Walmart fortune) and the Koch brothers—had achieved that success not by working hard but, at least in part, by the good luck of large inheritances. Americans like to think of wealth inequality here as being different from that in old Europe, based on a landed aristocracy of a bygone era. But we have been evolving into a twenty-first-century inherited plutocracy.

Stiglitz’ footnote to the mention of the Walton and Koch families reads as follows: “these two families’ vast wealth (reportedly almost $175 billion for the Waltons, and $120 for Charles and David Koch in 2018) is as large as the total wealth of a staggeringly large proportion of Americans—as of 2016, the most recent year for which a reliable comparison could be made, the Waltons and the Kochs held as much as the total wealth of the bottom 50 percent. Data for wealth distribution is based on the Federal Reserve’s Survey of Consumer Finances 2016, removing consumer durables. Wealth data for the Waltons and Kochs comes from Forbes magazine. Jane Mayer’s bestselling book Dark Money: The Hidden History of the Billionaires behind the Rise of the Radical Right (New York: Doubleday, 2016) documents the outsized influence of the Koch brothers on American politics.”

It appears to me that as Stiglitz’ confronts the “inseparably intertwined” economic and political issues his “progressive agenda” faces a funded well-organized and deeply coordinated movement—one which arose from “one percenters,” but which they successfully pitched to “large numbers of individuals.”

Of course he has to be well-aware of the challenge and difficulty which his progressive agenda faces, and this is why he is proposing to meet the challenge with “people power!”

[178-179, 2^nd paragraph of Chapter 9] … flesh out an economic agenda—based on the principles already outlined—that can restore growth and social justice and enable most citizens to have the middle-class life to which they aspire. All of this will only be possible if there is more collective action—a greater role for government. Properly defined, this greater role doesn’t constrain society, but rather liberates it and the individuals within it, by allowing them to live up to their potential. Further, by restraining the power of some to harm others, government can free those who would otherwise always have to be on their guard, always having to take protective measures.

[180, first paragraph of Chapter’s “Growth and Productivity” section] economic growth depends on two factors: growth in the size of the labor force, and increases in productivity, output per hour. When either one goes up, so does the output of the economy. Of course, what matters is not just growth in national output, but in living standards of ordinary Americans [Wealth of Nations], and that requires not just increases in productivity, but that ordinary citizens get a fair share of that increase. The trouble in recent decades is that neither labor force participation nor productivity have been doing well—and the benefits of what gains have occurred have gone to the top.

In regard to labor force growth he maintains that we need to accommodate older employees and employees with children, and we need to make our workforce healthier.

In regard to increases in productivity he maintains that there to be large public investments in basic research, education systems that can support the advance of knowledge, a facilitation of the transition to “a postindustrial economy, and more attention to providing social protections:

[189, first paragraph of Chapter’s “Social Protection” section] almost all advanced countries provide social insurance to cover at least many of these risks. Governments have become fairly proficient in providing this insurance—transaction costs for the US Social Security system are a fraction of those associated with comparable private insurance. We need to recognize, however, that there are large gaps in our system of social insurance, with many important risks still not being covered either by markets or by government.

He discusses unemployment insurance and suggests consideration of a Universal Basic Income deserves serious consideration. While there are some experiments with this idea at the local levels, however, it would seem as if a national program would be highly unlikely to be adopted without extraordinary political change. Then he goes on to discuss full employment, and fiscal and tax policy, and the importance of life-work balance. According to him in our current situation

[199, the final two paragraphs of the Chapter’s “Restoring Opportunity and Social Justice” section] inequality is created not just by the rules that affect the incomes individuals receive, but also by those that govern how corporations can engage in exploitation. Our financial system is designed to increase inequality: those at the bottom pay high interest when they borrow but get low interest rates when they put their money in the bank. “Reforms” in the financial sector—such as the abolition of limits on interest rates charged—have only made matters worse. Too much of the increasingly limited competition that remains in this sector is directed at how to exploit the unwary.

There are many reforms that could lead to greater equality. For instance, other policies to help those at the bottom are increasing minimum wages, and providing wage subsidies and an earned income tax credit, topping up what the private sector pays to the level of a livable wage.

Finally the Chapter discusses how wealth and advantage (and poverty and disadvantage have passed from one generation to the next, and how taxation policies might help address these problems:

[205-206, the first paragraph of the chapter’s “Taxation” section] a progressive, fair, and efficient tax system should be an important part of a dynamic and just society. We’ve described the important activities that government needs to undertake, including public education, health, research, and infrastructure; running a good judicial system; and providing a modicum of social protection. All of this requires resources, meaning taxes. It is only fair that those who have a greater capacity to pay—and who typically gain more from our economy—contribute more. But as was noted in chapter 2, those at the very top actually pay a lower tax rate than those with lower incomes. In these and other ways, matters have only grown worse in the last three decades—with the 2017 tax bill, with its increase in taxes on a majority of those in the middle to finance tax cuts for corporations and billionaires, standing out as perhaps the worst piece of tax legislation ever.

Here his “agenda” is relatively clear and clearly controversial. Between 2004 and 2008 I made some progress in Florida in advocating that the Governor and Legislature delay their efforts to dismantle the state’s intangible tax—a tax which largely affected the wealthy and which the state eventually eliminated. It is my belief that once a tax source dries up, it is very unlikely to be reinvigorated. In Maine our former Governor wanted to eliminate the income tax (and is campaigning now advocating this again. The preferred strategy for those Stiglitz has been criticizing has been to reduce taxation so as to starve the sorts of governmental programs Stiglitz offers. On his issue, however, Stiglitz is uncompromisingly progressive:

[208, final paragraph of the chapter’s “Taxation” section] special interests will line up against each of these taxes. I don’t want to pretend that it will be politically easy. But, politics aside, there should be no shortage of funds to ensure that America will no longer be a rich country with poor people—that a middle-class life can be and should be attained by all Americans.

a combination of markets, civil society, and government regulations and programs like free public education created the middle-class life with middle-class jobs of the last century—making life for workers far better than the abject state they were in a century earlier. But over the past forty years, we seem to have taken our middle-class life for granted and grown complacent. The result is that large fractions of citizens are struggling to maintain that lifestyle, and for significant numbers, it’s become unattainable. When wages for very large parts of the country stagnate or decline over a period of a half a century in the most prosperous large country in the world, it is clear that something has gone wrong. The reforms discussed in the previous chapter would go a long way toward ensuring that the take-home pay of every worker is at least a livable wage in twenty-first-century America. They also hold the prospect of restoring sustainable growth. But they won’t suffice to enable many Americans to have a decent, middle-class life.

Over recent decades, markets have not done a good job of ensuring the basic requisites of a decent life for all. Some of these failures are by now well understood: markets would prefer to insure only the healthy, and they devote enormous resources to differentiating between the healthy and others. But a society where only the healthy can get insurance will not be a productive or healthy society. So too, markets can do a good job at providing education for children of the rich, but a society where only the children of the rich get a good education is neither fair nor efficient.

Sometimes, conservatives say, these aspirations to correct market failures and to overcome their limitations are well and good but they cost money. It’s something we can’t afford now, especially with our massive public debt. This is sheer nonsense. Countries much poorer than the US do a better job than we do in meeting these aspirations of their citizens to health care and education for all and the other prerequisites of a decent life. In fact, the United States did a better job some sixty years ago. At the end of World War II, we were much more indebted, and we were much poorer, with a per capita income just a quarter of what it is today.

The chapter discusses four elements of “a decent life:” health care for all, a decent retirement, home ownership, and education. In each of these aspects of a decent life, he argues, the market has not provided many Americans with a possibility of a decent life.

-in the case of health care market-based plans are unaffordable for many while government funding has done a better job but isn’t yet sufficiently broadly available,

-in the case of retirement greater strides have been made, but proposals to privatize the system are dangerous, and the talk of it as an “entitlement” ignores the fact that all pay into it (and its future funding problems, I might add, are partially the result of significant withdrawals from the Social Security Trust Fund by the Congress for funding non-retirement expenses,[1]

-in the case of home ownership he contends that the financial crises and the current public-private mortgage system (which he contends leaves the private side with the profits while the public side takes on the risks) has made mortgages too costly and potentially removes this element of the decent life from far too many,

-in education he maintains higher tuition and higher debt are fundamental problems I making educational opportunities available to all.

In each case Stiglitz believes that that brad public support can help restore the sort of broad enjoyment of a middle class life hat was available for many in the 1950s. In the Chapter’s “Conclusions” Section he maintains:

there are just a few things that are at the core of a decent life: people care about jobs with fair pay and a modicum of security both before and after retirement, about education for their children, about owning a home, and about access to good health care. In each of these areas capitalism American-style has failed large swaths of our population. We can do better. The program outlined above is a beginning. It cannot fully address some of the deep-seated problems that have been festering since the era of Reagan. We should have done something to help those who were losing their jobs and whose skills were not up to the new technologies. But we didn’t. We should have had better health care and education systems. But we didn’t. We should have helped those cities that were facing deindustrialization and the destruction of their community. But we didn’t. We are now paying the price for these failures. We can’t redo history, and we shouldn’t try to go back to the past. We have to do the best we can, given the hand we’ve dealt ourselves.

The agenda I’ve laid out can be achieved within the financial constraints facing the country today, making our families’ lives better and our economy stronger. To those who say we can’t afford it, I reply: we, as a rich country, can’t afford not to ensure that this middle-class life is within the grasp of more of our citizens.

In this Chapter Stiglitz talks about the disparity between our values and our social reality. He maintains that:

[223-224, 2^3rd paragraph of Chapter’s “The Disparity…” section] the vessel of the country will veer into dark seas, where the most vulnerable are left to fend for themselves, rule-breakers are rewarded, regulators are effectively “captured” by those they are supposed to regulate, watchdogs are cowed, economic gains accrue mainly to those who are already rich, the result of exploitation rather than wealth creation, and ideas like truth, facts, liberty, empathy, and rights are mere rhetorical devices, employed when politically convenient.

As he sees it a significant factor behind the disparity between our values and reality is our acceptance of the “myth of the self-made individual.” It encourages the view that governmental programs are unnecessary. When combined with a deep conservatism when it comes to social and economic change, the disparity becomes difficult for some to even detect, let alone address. Then he further elaborates our shared values and anxieties, and the problems created when public institutions are undermined:

[240, the 5^th paragraph of the chapter’s “How we arrived at this juncture” section] we didn’t understand the true foundations of our well-being—the increases in our standard of living as well as the fulfillment of our highest ideals—rested on the foundations of science, rational enquiry, and discourse, and the social institutions derived from them, including the rule of law based on democratic processes.

The internationalism and free markets of neoliberalism with its false promises are now being replaced with primitive protectionism and nativism, whose promise of restoring the United States to prosperity is even less likely to be fulfilled. For an economist, it is easy to attack the market fundamentalism/neoliberalism that came to dominate in the years after Reagan. It was based on a set of refutable (and refuted) hypotheses. But at least one could have a rational discussion about neoliberalism, ascertaining whether there is a grain of truth in some of the arguments and empirical hypotheses. Not so for Trump, partly because the underlying ideas (if they can be dignified with that term) are inchoate. While in domestic policy he champions the virtues of the market economy—even America’s rent-seeking variant—in international trade he takes the opposite stance: he doesn’t believe in unfettered competitive markets, but rather in power-based managed trade, going back to discredited mercantilist ideas.

He summarizes some of the core political and economic contentions we have covered, discusses our anxieties and despair, and then contends that

[246-247, the first four paragraphs of the chapter’s “Is there hope?” section] America’s history gives us hope. But any student of the dark history of authoritarianism and fascism in other countries knows this brighter future is not inevitable.

As we’ve noted, America twice before pulled back from extremes of inequality—after the Gilded Age and the Roaring 20s. The challenge today, though, may be even greater than then: there is perhaps even more inequality now, and with recent Supreme Court decisions, money has more power in politics. And modern technology can more effectively translate disparities in money into disparities in political power.

Ultimately, today, the only countervailing power is people power, the power of the voting booth. But the greater the inequality of wealth and income, the harder it is for this countervailing power to be exercised effectively. That is why achieving greater equality is not just a matter of morals or good economics; it is a matter of the survival of our democracy.

With the agenda I’ve proposed, all Americans can attain the life to which they aspire—in ways that are consonant with our values of choice, individual responsibility and liberty. The agenda is ambitious and yet necessary: as bad as things are today, there is a good chance that, with the advances of technology that are already on the horizon, they may get much worse—if we continue on our current course. We may wind up with even more inequality and an even more divided society, with even more discontent. Incrementalist policies—a little more education here, a little more assistance there—as important as they are as components of an overall strategy, are not up to the challenges America faces today. We need the dramatic change in direction that this book’s progressive agenda calls for.

Note: (click on the note number below to return to text for the note)

[1] According to Wikipedia: The Social Security Administration collects payroll taxes and uses the money collected to pay Old-Age, Survivors, and Disability Insurance benefits by way of trust funds. When the program runs a surplus, the excess funds increase the value of the Trust Fund. As of 2021, the Trust Fund contained (or alternatively, was owed) $2.908 trillion. The Trust Fund is required by law to be invested in non-marketable securities issued and guaranteed by the "full faith and credit" of the federal government. These securities earn a market rate of interest.

Excess funds are used by the government for non-Social Security purposes, creating the obligations to the Social Security Administration and thus program recipients. However, Congress could cut these obligations by altering the law. Trust Fund obligations are considered “intra-governmental” debt, a component of the “public” or “national” debt. As of June 2015, the intragovernmental debt was $5.1 trillion of the $18.2 trillion national debt.

According to the Social Security Trustees, who oversee the program and report on its financial condition, program costs are expected to exceed non-interest income from 2010 onward. However, due to interest (earned at a 3.6% rate in 2014) the program will run an overall surplus that adds to the fund through the end of 2019. Under current law, the securities in the Trust Fund represent a legal obligation the government must honor when program revenues are no longer sufficient to fully fund benefit payments. However, when the Trust Fund is used to cover program deficits in a given year, the Trust Fund balance is reduced. One projection scenario estimates that, by 2034, the Trust Fund could be exhausted. Thereafter, payroll taxes are projected to only cover approximately 76% of program obligations. Social Security Trust Fund - Wikipedia accessed 01/28/22.