Joseph Stiglitz believed that inequality in America was the result of a conspiracy between the rich and powerful. He also added that the U.S. government assisted them. He placed blame on their shoulders and he was angry because of his convictions.
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Stiglitz acknowledged that there are other forces at work but conceded that the major reason for the inequality is due to the actions of the wealthy, the corrupt and the opportunists. Stiglitz labeled the ability of the rich and powerful to steal from the weak as the art of rent seeking. Stiglitz observation must be considered in order to build an egalitarian society.
Stiglitz traced the root-cause of inequality and said that it can be traced back to the acquisition of military power in ancient times. He said that the rich and powerful seized power in order to extract resources from the people that they have dominated. An overview of feudal systems and empires can easily confirm this assertion.
Kings, landlords, warlords, emperors and pharaohs demonstrated the immutable fact that those who had the military and economic power to subdue people can force others to pay tribute. They also earned the capability to allocate resources in their favor.
The author said that the ultimate goal of corrupt leaders and businessman is not to create wealth but to transfer wealth. He added that the rich and powerful had perfected various schemes that compeled others to pay tribute even if they did not work for it. The author said that this phenomenon is called rent seeking.
Stiglitz cited examples such as: 1) hidden and open transfers and subsidies from government; 2) laws that make the marketplace less competitive; 3) lax enforcement of existing competition laws; and 4) statutes that allow corporations to take advantage of others or pass costs on to the rest of society (Stiglitz, p.39).
Stiglitz condemned rent seeking and used strong terms to denounce the evil created by corrupt members of society and he wrote:
To put it baldly, there are two ways to become wealthy: to create wealth or take wealth away from others. The former adds to society. The latter typically subtracts from it, for in the process of taking it away, wealth gets destroyed (Stiglitz, p.32).
One can just imagine the wasted opportunities when wealth was destroyed through corruption. At the same time one can just imagine the ripple effect of a single act of benevolence. A businessman that created a high-quality product and sold it at the right price contributed in the creation of a better society. But a greedy businessman with inferior products and overpriced goods sold will create inefficiency in society.
Stiglitz also condemned predatory lending practices and expressed his displeasure when he stated that the government’s inability to curb credit card woes was an outrageous form of social injustice. He added that the government must intervene and that policymakers should establish rules and regulations that will protect the poor from unscrupulous businessmen.
Stiglitz argued that the solution to inequality is effective income distribution. He said that it is the byproduct of both political and economic processes. Therefore, the government must exert political will in order to shape and control the economic process so that it does not only favor the powerful and the rich.
For example, a company’s failure can be traced to the hefty bonuses given to the CEO. The outrageous sums of money given to corporate heads led to the downfall of certain companies because the CEOs were forced to manipulate financial data in order to show that the company is profitable and therefore strengthen their hold on their position of authority as well as their large pay bonuses. The government can end this problem by enforcing laws against different forms of fraudulent business practices.
Aside from creating effective laws and enforcing them, there is another way that the government can help in the process of income distribution and this is through a more practical and effective method of raising revenue through taxes. The problem of taxation becomes evident when it comes to the amount of money collected through the extraction of natural resources.
Stiglitz said that most of the time, the government fails to collect the correct amount that has to be paid after mining firms had extracted minerals from government lands. Stiglitz therefore concluded that in effect this is comparable to giving money away to the rich and powerful.
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If the government develops a better system to ensure effectvie collection of taxes and fees, then, there are more funds that can be used to help poor families. Furthermore, there will be more funds that can be used to create opportunities for those who wanted to break the power of poverty over their lives. If Stiglitz can prove his claim that the government failed to collect the correct amount of taxes from mining firms and other companies, then, there are hundreds of millions of dollars that remained in the hands of the rich and powerful.
The same resources should have been re-distributed in favor of the less fortunate. One can just imagine the impact of an additional $1 billion in taxes that can expand the scope of public service. Consider for instance the impact of an additional $2 billion injected into the public school system. Consider the impact if the government has enough money to finance the education of 1,000 college students.
Stiglitz was correct when he said that rent seeking could destroy an economy. The financial crisis of 2008 was a powerful reminder of what can happen if power is concentrated in the hands of a few people. Stiglitz pointed out that since the beginning of time the rich and powerful will do everything to maintain the status quo.
Stiglitz also highlighted an important fact and he said that rent seeking required a sophisticated and concerted effort. It is difficult to dismantle the apparatus that created rent seeking. It is difficult to eradicate rent seeking because one can only dismantle the said apparatus with the help of the government.
Rent seeking can be destroyed through the ratification of particular laws that will create checks and balances in the system. The government plays a vital role in the eradication of rent seeking because it will require political will to go after white-collar crimes.
However, the regulatory agencies that were established to monitor industries and enforce laws are manned by people from the private sector. For example the energy regulatory agency is under the supervision of people that used to work in oil companies. Stiglitz said that these people who were appointed to a government post will never do anything to jeopardize their standing in the said industry.
They knew that their present job in the government will not last long. In some cases their position is dependent on the next presidential election. Therefore, they will do everything in their power to appease the CEOs so that they will be assured of a comfortable and profitable job when they go back to the private sector.
Stiglitz, Joseph. The Price of Inequality.New York: W.W. Norton, 2012. Print.