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FourScore Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Apr-04-11 12:21 PM
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Of the 1%, by the 1%, for the 1%
Of the 1%, by the 1%, for the 1%
By Joseph E. Stiglitz
May 2011

Its no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nations income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous12 percent in the last quarter-century alone. All the growth in recent decadesand morehas gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow.

Economists long ago tried to justify the vast inequalities that seemed so troubling in the mid-19th centuryinequalities that are but a pale shadow of what we are seeing in America today. The justification they came up with was called marginal-productivity theory. In a nutshell, this theory associated higher incomes with higher productivity and a greater contribution to society. It is a theory that has always been cherished by the rich. Evidence for its validity, however, remains thin. The corporate executives who helped bring on the recession of the past three yearswhose contribution to our society, and to their own companies, has been massively negativewent on to receive large bonuses. In some cases, companies were so embarrassed about calling such rewards performance bonuses that they felt compelled to change the name to retention bonuses (even if the only thing being retained was bad performance). Those who have contributed great positive innovations to our society, from the pioneers of genetic understanding to the pioneers of the Information Age, have received a pittance compared with those responsible for the financial innovations that brought our global economy to the brink of ruin.

Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after yearan economy like Americasis not likely to do well over the long haul. There are several reasons for this.

First, growing inequality is the flip side of something else: shrinking opportunity. Whenever we diminish equality of opportunity, it means that we are not using some of our most valuable assetsour peoplein the most productive way possible. Second, many of the distortions that lead to inequalitysuch as those associated with monopoly power and preferential tax treatment for special interestsundermine the efficiency of the economy. This new inequality goes on to create new distortions, undermining efficiency even further. To give just one example, far too many of our most talented young people, seeing the astronomical rewards, have gone into finance rather than into fields that would lead to a more productive and healthy economy...

http://www.vanityfair.com/society/features/2011/05/top-...
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