Perspectives
Book
Whats wrong with inequality?
If a few people get very rich, do the
rest of us have something to complain
about? If the few had got rich by
harming us, we would certainly have
legitimate cause, but otherwise,
whats the issue? Envy, perhaps, but
that is hardly a compelling basis for
public policy. Poverty should certainly
concern us, but if the rich get richer,
without harming anyone else, then
good luck to them. This was long the
view among mainstream economists.
Those further to the left recognised the
desirability of equality, but noted that
there had to be a compromise between
equality and the need to reward people
for working. Besides, inequality didnt
change much over time, so no one was
much interested anyway.
This complacency has been shattered
by events, by rapidly rising income
inequality in many rich countries, and
by data that show astonishing levels
of income among the very rich. After
decades of stagnation, the share of
total income going to the top 1%
mostly bankers, hedge fund managers,
CEOs, lawyers, celebrities, and a few
doctorshas soared to levels not
seen for 100 years. Worse still, this has
happened at a time when most people
in these countries have seen little or no
gain in their living standards. Is there
really nothing to complain about?
Joseph Stiglitz doesnt think so. The
stagnation of the living standards of
the majority is not at all unrelated to
the success at the top; in eect, those
at the very top are plundering the
poor and the middle classes. In The
Price of Inequality, Stiglitz argues that
market democracy is incompatible with
extreme inequality. He contends that
the market is at risk because extreme
dierences of power make a mockery
of the voluntary nature of market
transactions. The political system is
at risk because plutocracy gradually
replaces democracy. Stiglitz focuses on
what inequality does to the economy
www.thelancet.com Vol 381 February 2, 2013
and on the process of rentseeking.
In a well-functioning market economy,
people get rich by making things,
innovating, and generally expanding
what the system can oer. By and
large, their personal incentives are
aligned with what is good for society.
Rent-seekers have another way of
getting rich. They do not create, but
try to redistribute in their own favour
Stiglitz argues that market
democracy is incompatible with
extreme inequality.
by lobbying, by rewriting the rules, or
by rewarding and being rewarded by
their cronies in business and in government. Bankerswho are Stiglitzs
main targetsuccessfully lobbied to
change the laws of bankruptcy so that
people who have been enticed into
taking on inappropriate loans cannot
use bankruptcy to escape from their
liability. And when the whole edice
came crashing down, their bonuses and
salaries were largely untouched while
escape clauses for mortgage holders
were successfully opposed by the
bankers lobby. Successful rent-seeking
reinforces itself. The more successful
the lobbyists, the richer their clients
become, and the more money there is
for lobbying. And as the rewards have
soared, talent is sucked in and diverted
from inventing new technologies, or
discovering a cure for cancer.
Stiglitz tends to characterise the
forces of evil as the Right, who are in
favour of unfettered capitalism, oppose
regulation (except when it helps them),
and work for smaller government. I
think this is wrong: it is the money that
is the primary problem, not partisan
politics. Democrats may be mildly less
enthusiastic curators of special interests
than are Republicans, but it is a matter
of degree. Big money is careful to hedge
its bets, and makes sure that legislators
of all stripes are on board. It is this that
makes many of us so pessimistic. If it
were Right versus Left, there would be
much more hope in electoral politics
than there seems to be.
Banking is not, however, the only
industry whose rent-seeking is hurting
us. The US health-care industry
pharmaceutical companies, device
manufacturers, insurance companies,
physicians, and hospitalsaccounts
for 18% of US gross domestic product.
Perhaps as much as a half of this
spending does anything for population
health. Yet there is overwhelmingly
eective opposition to anything
that would help bring costs under
control. The industry vehemently
opposes anything that looks like the
UKs National Institute for Health and
Clinical Excellence (NICE). US industryfunded researchers help write the
national guidelines that set treatment
thresholds, creating an epidemic
of overtesting and overtreatment.
Lobbyists agitate for Medicare
payment schedules that provide rich
paydays for manufacturers and that
prevent Medicare seeking discounts
for bulk purchase. In the meantime,
the richest Americans live in a world in
which public goodsincluding public
health careare irrelevant. Their wealth
insulates them from any need for the
collective action on which national
health depends. Instead, an ineective
but grotesquely expensive healthcare system is one more way in which
they get rich at others expense. In
eect, when inequality becomes large
enough, the very rich no longer live
in the same society as everyone else.
It is thusnot through some sort of
pollution eect of income inequality
within the general populationthat
the gap between the rich and the rest is
such a threat to our health.
The Price of Inequality
Joseph E Stiglitz. Penguin, 2012.
Pp 448. 1499.
ISBN 9781846147364
Angus Deaton
[email protected]
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