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Economic and Power Inequality in Stiglitz’s View Essay

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Updated: Aug 20th, 2020

Introduction

The concept of inequality of power was explored by many authors and still is a notion that encourages discussions and research. Economic inequality and the issue of redistribution of power as elaborated by Joseph Stiglitz provide valuable insights into the nature of the problem. Stiglitz indicates the role of unrestricted power of monopolies and the government’s inaction in that respect as the main causes of the problem. Meanwhile, Karen Ho demonstrates the unified notion of success and smartness among the students of the most prestigious colleges. She indicates that Wall Street ideology and its dominance in the college recruitment processes are the underlying reasons.

The inequality of power affects the society and the individual in a negative way and can be reduced by certain measures undertaken by the government and market segments other than banking, aimed at limiting the power of monopolies and modifying Wall Street’s status of prestige, power, and exclusivity.

Analysis

The main causes of the economic and political inequality, as well as of the unified notion of success seen in students of the most prominent colleges, are the government policies and the monopoly of Wall Street. Thus, economic reasons underlie the problem, as well as political ones. It is possible to assume that the concept of power as understood by Stiglitz is a dominant political force that has an exclusive right to regulate the economic situation. “A political system that gives inordinate power to those at the top, and they have used that power not only to limit the extent of redistribution but also to shape the rules of the game in their favor” (Stiglitz 396).

This quote provides an example of the idea of an exclusive character of power that dominates American society. This feature is significantly strengthened by the ability of those at the top to regulate the economic situation in their favor without the society comprehending or even noticing these mechanisms at work. Therefore, the inequality of power pertains to the idea of unequal redistribution, criticized by Stiglitz. The author emphasizes that the idea is intertwined with the regressive tax system and rent-seeking which means taking money from society and redistributing it in favor of those at the top. The existing monopolies impose the rules of market competition, thereby securing their power.

The influence that the inequality of economic and political power exerts on the society, as well as on the individual, is substantial. Given the unequal redistribution, the results affect society in a way that changes its structure. The middle-class segment of society is diminishing, and poverty is on the increase. Regarding the influence of the discussed phenomena on the individual, it is necessary to point out the limited possibilities of the underprovided to acquire the skills necessary to obtain a profitable job and improve the social status. Thus, government policies are aimed at maintaining the family’s social status and the income level instead of providing opportunities for improvement.

Financial and human capital is, therefore, distributed in an unequal manner, thereby securing the dominance of the higher-ups. This manner of development influences society significantly, leading to the results described above. Acquiring a fortune can happen either by taking the resources from others or by creating these resources. The first way exerts a positive influence on society and the second has a negative impact. Meanwhile, Karen Ho explains that by spreading the unified notion of success and smartness, the banking and financial sectors make sure that the most talented and creative young people devote their lives to working in the economy, which usually implies contributing to the increasing profits of the leading companies and monopolies.

The author suggests that this factor is a driving force of the power of Wall Street. “Investment banks define their notion of both what it takes and what it means to be a successful subject in an age of global capital. To play the role of “master of the universe” requires no only especially strong doses of self-confidence and institutional legitimation, but also a particular set of beliefs regarding Wall Street’s role in the world” (Ho 168). The causes of inequality as described by both Stiglitz and Ho concern the hegemony of the dominant political and economic forces that have a negative impact the society as a whole and on the individual.

Inequality can be reduced by introducing a progressive taxation system, as well as new expenditure policies, while the unified perception of smartness and success can be helped only by the other market sectors’ attempts to be appealing to students. It is suggested that stronger unions could contribute to the reduction of the inequality of economic and political power. Moreover, Stiglitz emphasizes the role of monopolies in enforcing competition laws.

In this case, the government’s non-action plays the most significant role. By restricting the monopolistic practices in rent-seeking and the banks’ predatory lending activities, the government could reduce the problem of unequal redistribution (Stiglitz 402). Such practices should either be limited or constituted as illegal. As the monopolies continue to exploit the lesser-educated, and the companies’ higher-ups continue to dominate over the large part of the profits, the government should impose restrictions on these activities, as well as enforce the legislation and introduce an efficient system of fines. An effective system of regulation of the competition laws can be a significant step towards reducing inequality.

Adopting and enforcing an efficient system of corporate governance legislation can limit the power of the companies’ higher-ups regarding the appropriation of the profit. Regarding the problem of Wall Street’s monopoly and the influence it has on the students’ vision of success, it can be dealt with by encouraging other market sectors to offer a recruitment system that would present the alternative career paths in an appealing way.

“This shocking narrowness was verified (…) I found not only that most bankers came from a few elite institutions, but also that most undergraduate and even many graduate students assumed that the only “suitable” destinations for life after Princeton (…) – were, first, investment banking, and second, management consulting” (Ho 170). Thus, we can see that diversification is necessary in this case, just as it is crucial for the government to take measures in order to limit the power of monopolies.

The political and economic system is operating in a way that limits the opportunities of the decreasing middle-class and reshapes the minds of future graduates according to a sole economic ideology. “Our political system has increasingly been working in ways that increase the inequality of outcomes and reduce equality of opportunity” (Stiglitz 396). Karen Ho describes the culture of smartness as a way for Wall Street to dominate the needed market segment and ensure that the best college graduates join their forces. These practices are identified as empowering the investment bankers to enhance the omnipresent power of capitalist ideology.

The latter can be considered analogous to the notion of the inequality of power mentioned by Stiglitz. In this case, the inequality of both political and economic power is effectuated through the institutional culture that develops an ideology of stakeholder values, which further reshapes the working lives of people across the U.S. The ideology that Ho mentions dominates in the universities such as Harvard and Princeton, monopolizing the idea of success and smartness and limiting its meaning to a career in investment and banking sectors. Such a unified or even narrow understanding of the notion of success is a direct consequence of the institutional Wall Street culture that Ho describes.

The power is held by the banking sector that is responsible for creating and spreading the vision of success, which does not allow for deviations. Thus, for the most talented graduates, the only prestigious, respected, and lucrative career path is connected to Wall Street. The influence of this phenomenon of inequality is, therefore clear: the attention of the most talented and promising student is thereby effectively monopolized.

Aggressive recruitment is the basic tool designed to capture their attention and convince them that the career path they offer is the only respectable option for a graduate. The influence that the intensive recruitment process exerts on the student culture is significant: “It is hardly surprising then, then, that the much-mythologized field of investment banking often presents itself as the solution to anxieties about post-graduation life” (Ho 177).

More often than not, those who do not choose such a career path, feel as though they are not as smart as the future bankers are. In fact, it seems as though those who fall under the charm of the culture of smartness cultivated by Wall Street lose an essential element of their education process, i.e. an exciting moment of self-discovery. Thus, many students’ talents and abilities remain unrevealed. The unified understanding of success and smartness as defined by the banking sector is the instrument of the self-proclaimed elite to shape the rules in their favor if we were to employ Stiglitz’s expression.

Whether this increasingly disturbing problem of the power of Wall Street can be reduced remains an open question. Similar to Stiglitz’s ideas about the government’s non-action contributing equally to the unchanging inequality of power, the non-action of other market sectors in this respect contributes to the perpetuation of the power of Wall Street. Perhaps it would be best if representatives of other domains made efforts to dispel the myth of the Wall Street elite, thereby introducing an array of choices for the graduates of the most prestigious seats of learning.

Conclusion

The inequality of economic and political power as described by Joseph Stiglitz in the Rent-Seeking and the Making of an Unequal Society is a direct consequence of the government’s lenient policies regarding the monopolies. Those at the top are effectively running the mechanisms of competition regulations without the public noticing how it works. It leads to the diminishing middle class and an increase in poverty.

Unequal redistribution also implies unequal accessibility to education that hinders the possibility of a given family to improve its income level and social status. The inequality might be reduced by introducing the system of progressive taxation and new expenditure policies. Similarly, Karen Ho describes the culture of smartness that dominates the students’ minds. The unified notion of success is perpetuated. In both cases, the higher-ups are involved in creating and imposing their own rules for the purposes of maintaining high profits.

The inequality of power is a problem that has a negative impact on the individual, as well as on society. Wall Street’s influence on the students’ minds can be reduced by the efforts of other market segments attempting to present their career paths in an appealing way. Meanwhile, the inequality of power as elaborated by Stiglitz can be reduced by enforcing progressive taxation and new expenditure policies thereby restricting the power of monopolies.

Works Cited

Ho, Karen. “Biographies of Hegemony.” New Humanities Reader. Ed. Richard E. Miller and Kurt Spellmeyer. Stamford: Cengage Learning, 2015. 165-192. Print.

Stiglitz, Joseph. “Rent Seeking and the Making of an Unequal Society.” New Humanities Reader. Ed. Richard E. Miller and Kurt Spellmeyer. Stamford: Cengage Learning, 2015. 393-419. Print.

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