BOOK

Of the 1%, for the 1%

by Christopher Caldwell
The Price of Inequality: How Today’s Divided Society Endangers Our Future
By Joseph E. Stiglitz
W. W. Norton & Co., 448 pages, $27.95
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A lot of economists — perhaps most of them — believe that in an age of globalization and rapid technological change, that’s just the way the cookie crumbles. Stiglitz dissents. He sees inequality as for the most part politically created. It is the outcome of “rent seeking” behavior by elites. Instead of manufacturing things or performing useful services, rent seekers take advantage of the rules to collect payments from society at large. They may capture the agencies meant to regulate them, or use connections to exploit government-controlled resources, or buy the obedience of elected politicians. Stiglitz argues that the markets most culpable for inequality — finance, agriculture, pharmaceuticals — are hardly free. In fact, he proves it, by resorting to basic free-market principles. “The laws of competition,” he writes, “say that profits (beyond the normal return to capital) are supposed to be driven to zero.” Because successful businesses attract imitators, building a fortune ought to be a Sisyphean game. Huge and sustainable profits are not something one tends to see in open markets.

Stiglitz has a knack for statistics. He takes them as an occasion to start thinking, not, as many economists do, as an occasion to stop. Whatever its cause, growing inequality breaks the link between such economic measures as gross domestic product and the experience of the average American. When, for instance, Mark Zuckerberg and his investors get billions apiece from an initial public offering of Facebook stock, mean incomes rise, but the median American does not necessarily feel better off. Indeed, whereas economists frequently see a tradeoff between income equality and economic performance, Stiglitz writes that “the magnitude of America’s inequality today and the way it is generated actually undermine growth and impair efficiency.” Rent seeking in the finance industry has drawn more and more Americans to where the money is, leading to a “misallocation of the country’s most valuable resource: its talent.”

Even when Stiglitz talks about equality and opportunity, he never does so sentimentally, and he never talks about doing things that are in the interest of all. That is an impossibility. Economics, in Stiglitz’s view, always has winners and losers. It is fraught with drama. It is pregnant with historical consequence. “One cannot escape issues of distribution,” he writes, “even when it comes to the simplest problems in organizing an economy.” Most Americans have come to agree, even those who don’t share his opinion on what that distribution ought to look like.


Christopher Caldwell is a senior editor at the Weekly Standard and a columnist for the Financial Times.

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