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A
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B
Hello, everybody. This is Marshall Po. I'm the founder and editor of the New Books Network. And if you're listening to this, you know that the NBN is the largest academic podcast network in the world. We reach a worldwide audience of 2 million people. You may have a podcast or you may be thinking about starting a podcast. As you probably know, know their challenges basically of two kinds. One is technical. There are things you have to know in order to get your podcast produced and distributed. And the second is, and this is the biggest problem, you need to get an audience. Building an audience in podcasting is the hardest thing to do today. With this in mind, we at the NBM have started a service called NBN Productions. What we do is help you create a podcast, produce your podcast, distribute your podcast, and we host your podcast. Most importantly, what we do is we distribute your podcast to the NBN audience. We've done this many times with many academic podcasts and we would like to help you. If you would be interested in talking to us about how we can help you with your podcast, please contact us. Just go to the front page of the New Books Network and you will see a link to NBN Productions. Click that, fill out the form and we can talk. Welcome to the New Books Network.
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C
Hello, everyone. Welcome to another episode of New Books Network. This is your host, Moteza Hajizadeh from Critical Theory Channel. Today we are honored to have Professor Joseph Stiglitz with us to talk about his most recent book. Professor Joseph Stiglitz needs no introduction. He's a very famous American New Keynesian economist, a public policy analyst, a political activist, and also a professor at Columbia University. He's also the recipient of the Nobel Memorial Prize in Economic Sciences and John Bates Clark Medal. Joseph, welcome to New Books Network.
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D
Nice to be here.
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C
I'm conscious we don't have much time and this is such a wonderful and huge book. So I'm trying to get as much as we can in the short amount of time we have. But before we start talking about the book, can you just, can you just very briefly tell us about the idea behind this book, how the book came about, how long the book has been in the making. And I'm conscious that this is not the first book about the origin of inequality. There has been more recently. There has been a lot of book on the origin of inequality. Would be great if we tell us how the book came about.
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D
So the book in some sense began well over 60 years ago when I entered economics and entered studying PhD because of my concern about inequality. I had grown up in Gary, Indiana, which was a city marked by enormous inequality, economic inequality, racial inequalities. And those inequalities really were what motivated me to switch from studying physics, which is what I had planned to do, into studying economics. I wrote my thesis on the issue of growth and distribution. Growth and inequality. A major chapter of that thesis completed in 1966, 59 years ago, was on the distribution of income among individuals. Distribution of income and wealth among individuals. It was published in Econometrica a couple years later and I'm pleased to say one a major reference point in the literature, subsequent literature on the economics of inequality. Building on that work, I spent, you know, return to the topic over and over again in the succeeding 59 years. And then roughly a decade ago, I returned to the subject maybe 15 years ago when I wrote an article called of the 1% for the 1% and by the 1%, focusing on inequality at the top. I was asked by my publisher to expand that article into a book. And I wrote a book called the Price of Inequality, discussing how our society pays an enormous price for the inequality in terms of economics, politics, societal cohesion. And that was then followed by a series of papers. And then I was encouraged to sort of put together that whole opus, that whole body of work into a volume. So it's an unusual volume because it begins with a series of popular articles that I wrote, places like Scientific American, a whole variety of, you might say, accessible articles to ordinary or, you know, people, not, not professional economists. And then moves from there into my original paper, my paper in Econometrica that I mentioned, and into the way previously unpublished papers that extended that model in a whole series of ways that I think are important. And I came up with some new ideas, new concepts, new understandings, and then ends with a large number, a number of other papers filling in issues like how do we measure inequality? How is inequality related to the design of the tax system, expenditure system, welfare policy, the welfare state? So it packages together these very accessible articles on with some very new stuff that has not been published before and then with some older papers, but with a lot of narrative bringing all this together into, I think, as a coherent whole.
- [07:54]
C
I do believe it is a coherent. I'm one of those layman readers, let's say I'm not an economist, but I've done a lot of reading on economy, on the history of economics, and I've found the first part of the book really accessible. I mean, most parts. But you're right because. And math is not my strongest suit. So there were parts where you were talking about taxation that just went over my head. There were a lot of formulas there. You could see the love of physics, but that's economics anyhow. But I guess for the most part, when I was introducing the book to my friends, I told them, brooke, I think you can just have a look at the table of content and basically pick any chapter. Any chapter you want. Still makes sense if you read it in isolation, but you do. But what I loved about the book is the sense of that you mentioned. They talk about the origin of inequality. What are the causes of the inequality. You come up with policies and let's say progressive taxation, taxation policies to contain economics. So I do see that there's a thread running throughout the whole book and hopefully we'll get to talk about some of them. There's a question I wanted to ask maybe towards the end of the interview, but I think it's time if I ask it now. Thomas Piketty is another famous economist who's written about the origin of inequality. But your account of the origin of inequality differs from me. But let me ask you this first. I found it quite interesting that you mentioned inequality is not an inevitable outcome of capitalism. Capitalism doesn't have to lead to inequality by nature. But what is the cause of inequality? What are some of those economic, political or institutional forces that have increased inequality even in liberal democracies and developed countries?
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D
Sure. I mean, one of the theses themes of the book is that inequality does not result from the laws of nature, it's the laws of man. It's been a choice, a political choice of what we do or what we don't do. In particular, if you look at each part of the inequality problem, you could see either what we've done or what we've not done. I put a lot of emphasis on what I call the rules of the game, the economic Rules that govern our economy, our society. So for instance, at the top, a lot of the wealth is associated with the exercise of monopoly power. And you see that in the oligarchs in the United States who control things. Facebook, Google, Twitter. You realize what you were taught in your standard economics course was that competition drives profits down to zero. Well, that doesn't seem to be happening. And there's persistent monopoly power. And if we had good enforcement of our competition laws, that would not be the case. So the failure to have good competition laws, antitrust laws, is a source of inequality at the top. Another example is what we call corporate governance laws, the laws that dictate how corporations work, which mean how much the CEO and those around him can take out of the corporation legally without anybody stopping them. So the most famous case right now is, should Elon Musk be allowed to take $100 billion out of Tesla as compensation? Is that a fair wage? Obviously, if you have the CEOs taking so much out of corporations, you're going to get a lot of wealth at the top and that's going to be inequal at the bottom. A lot of what we see as a result of discrimination, and again, enforcing anti discrimination laws is important. It's also a consequence of failed macroeconomic policies. The people who suffer the most when you have a recession are the people at the bottom. And so if you don't run the economy and way, if you run the economy in ways that there are a high percentage of people unemployed, you will have more poverty. Inequality is multidimensional and various parts interact with each other. I talk a lot about not only inequality of outcomes, but inequalities of opportunities. And if you don't have a good public education system, you'll wind up with the children of the rich getting access to better education, health than the children of the poor. You get inequality perpetuating itself and becoming larger. So that's another aspect of the driver, of a driver, of, of inequality. So in a way, what I've tried to illustrate here is how almost every aspect of our society affects inequality. Whether we have laws that encourage unions, collective bargaining, or we don't, whether we have good education, whether we have public health, good access to health, that it is such a multidimensional thing and it's not a single single driver, but multiple. And then the core idea in my book is that there are forces at play to either pull our society apart or bring it together. What I call it disequilibrating or equilibrating. And in equilibrium, those Two are balanced. One of the things that I suggest is that over the last 50, 40 years, the disequilibrating forces have been greater than the equilibrating forces. And it's pulled us apart. And that's why while we had relatively stable inequality for a long period, actually declining inequality in the decades before 1970, for almost half a century since 1980, we've had a huge increase in inequality. Part of the analysis is why is that what changed between the period before 1980 and period after? And I argue extremely largely changes in the rules of the game, but it's also related to some changes in the structures of our economy.
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C
I think you made a lot of wonderful points and you've recently toured Australia and unfortunately I missed your talk when you were in Melbourne. The talk about the monopoly of power, the monopoly of resource corporates having monopoly with resources. So in a country like Australia, which has more or less been luckier compared to other parts of the world, it's still, it's the things are shifting maybe toward that disequilibrium that you just mentioned. And during COVID I guess we just saw this rising inequality again. It was the people at the bottom end that who suffered more from the crisis of cost of living and rising deaths and things of this sort. So I know that it's a. It's a very complex question for each one of them. Health, education, you've written a lot about it in the book and we can't really delve deeper into them. But I'm keen to know. How does this account of inequality you describe differs from Thomas Piketty here? Does he feel that it's capitalism that mainly leads to inequality?
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D
Well, he focuses on one aspect of the issues that I talk about, and it's actually an issue that I discussed in my thesis 59 years ago. The one driver of inequality is that the rich have more wealth by definition than the poor, that because they're richer, they can save more. And if the return on capital is high enough, then that compounding makes them richer and richer. That's a disequilibrating force. It's one of the disequilibrating forces I talk about. On the other hand, they have children and their wealth gets divided among their children.
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B
And.
- [17:55]
D
Their children may not be as good at making money as they are rags, the richest in three generations, and so they may not get as high a return. And that's an equilibrating force. You divide it in smaller and smaller. An example I think I talk about in one of the chapters is at the time he died, John D. Rockefeller was the richest person in the world. And if his wealth had just compounded from then in the way that St. Piketty would have talked about, that family would have been worth well over a trillion dollars. They've given away their money, a lot of it. And there's a Rockefeller Foundation, Rockefeller Brothers funds. They've done an enormous public good. They gave money to the University of Chicago. I can't tell you how many things they've contributed to. The family today is wealthy, but I think the aggregate though is a fraction of that number and much smaller than people like Jeff Bessos and Elon Musk. So that's an example of where the equilibrating forces work quite strongly. They had children and grandchildren and the money got divided and divided. I don't want to say that they're suffering, but they aren't where they were because of this process. So Piketty doesn't pay as much attention as I do to the equilibrating forces that offset the dis. Equilibrating forces. The other thing I discussed a lot in my earlier work and in this book is that if it were the case that people saved as much as he focuses on, then eventually the rates of return on capital will come down. And he talks about the critical factor is the rate of return on capital vis a vis the rate of growth of the economy. Is the wealth of the capitalist growing faster than the rate of growth of the economy. And the more they save, of course there's diminishing returns, the rate of graduation return on capital will come down. And so that can't be an equilibrium. It can go on for a long while, but it can't go on forever. And so we've had long periods where we got inequality actually decreased would be contrary to his thesis. The point that I'm trying to make is that capital accumulation, which I have talked about, as I said in my earlier work and was the center of my thesis, is overwhelmed in many cases by some of the other things going on. Changes in tax rates, changes in monopoly power, all those other things that we talked about before. So I tried to bring in a. A much broader landscape into what are these equilibrating and disequilibrating forces. It's not just capital accumulation.
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C
Yeah. And I really enjoyed myself that multidimensional aspect that you look at this cause of inequality. And one of the other parts of the book that I really enjoyed was when you discussed the economic growth and inequality because we are all. I mean, most economists are Obsessed with economic growth, with governments and countries. And there is this new discussion about degrowth. Do we need a lot of economic growth? And what does that mean? Do you think there's a trade off between equality and economic growth? Or can they be complementary without all the environmental plights and also causes that lead to inequality?
- [22:26]
D
Yeah, well, that's one of the main insight of this body of work of my book. And it was one of the ideas that I tried to bring out my earlier book, Price of Inequality, which was traditionally the view was that if you want more equality, you have to give up on economic performance and economic growth. One of the reasons for that was again this excessive focus on capital accumulation. And the notion that capital accumulation was focused on the private sector. The notion was that rich people save more than poor people. That if you want more capital accumulation, give more money to the rich and the savings rate will go up and then that will fuel more economic growth. And in the narrow sense, I said that's wrong. Because if you tax the rich, even the rich are saving, I mean, are consuming part of their income, they're not saving it. The savings rate is actually on average about under 40%. And so if you tax the rich and you take that money and invest it in education, technology, infrastructure, the economy will actually grow faster. And there are a lot of evidence for that. The so but there's another aspect that, that I try to bring out, which is that many aspects that give rise to inequality actually represent a distortion to the economy. Like I began by discussion of monopoly power. That's a distortion that undermines economic performance, but it creates more inequality. So if I make the economy more competitive, I get more dynamic, I get a better economic performance and less inequality. And then at the other end, what I emphasize is if we invest more in education, ordinary American, ordinary citizens, right now, those at the bottom of the distribution don't get the education they need to live up to their potential. So in effect, we are wasting our most valuable resource, our human resources. So a more egalitarian policy, which makes sure that every child gets the education that can enable them to live up to their potential is good for economic performance. So the thesis of the book is that in fact there are many, many policies which can both increase, improve economic performance and reduce inequality.
- [25:53]
C
And this is where we talk about rewriting the rules, the policies to contain inequality. And you have a lot of examples of progressive taxation. And I'm conscious that this question I'm going to ask is terribly, terribly general. What are some good policies? How can we rewrite Those, if you could have a couple of examples, what specific policies do we need or what most urgent policies we need to be able to contain this rising inequality and reverse this trend?
- [26:24]
D
Well, I divide the analysis into two parts. One is what can we do to make market income more equal? And that itself is divided into two parts. How can we get more equal distribution of assets? And the second part is how do we change the distribution of income between workers and capital, or rents? So to go through the kinds of ideas very quickly, better inheriting taxes mean that you don't get inherited plutocracy and that increases equality of wealth. Inequalities of wealth are much greater than the inequality of income. The making sure that everybody gets access to the education that allows them to live up to their potential. Economists think about education as an asset. And so it's creating a more equal distribution of education. So that's creating more equal assets, more better distribution between capital, labor and rents. The most important thing there is reducing what we call rents. Rents are things like monopoly power, profits exploitation on the one hand, and the other is helping workers who have very little bargaining power. One of the things that's happened over the last 30 years, 30, 40 years, is in the advanced countries, the bargaining power of workers has been weakened by reduced unions and globalization. And so together that's led to a declining wages relative to productivity. And so that's hurt workers. In terms of policies, there are policies, policies that encourage unionization, collective bargaining, give more worker power. And there are those that go the other way. And unfortunately we went one direction. I would advocate going the other direction. So that's what is called sometimes pre distribution, the distribution, the factors that determine the distribution of market income. And then, then there's redistribution. And that's where again there are two sets of policies. Redistribution policies that focus on income taxes and transfers, more progressive taxation. Strange thing, in places like the United States, people at the top actually pay a smaller percentage of their income and taxes than those not so well off. It's understandable, they have good tax lawyers that enable them to avoid paying their fair share of taxes. But it's outrageous and it contributes to inequality. So you know, we call that regressive taxation. And then there's progressive expenditure policies. So I've already referred to them making sure that everybody has good retirement incomes, social protection, education, health, the basic necessities of life. And government expenditure policies make a very big difference. And you see some countries that have been much more successful in those policies and in creating a more equal society than others.
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C
And well, one Thing about the taxes. So I, as I said, you, you're also more or less familiar with what's happening in Australia because it was last month that there was a report published by Australian Taxation Office and a lot of companies that usually use natural resources here, they basically paid no tax and it's all legal. I paid more tax than they did when where they made billions of dollars in profit, which is, as you mentioned is outrageous, but it's legal there. Anyhow, as a final question, which I guess I'm hoping to be able to bring it all together as a final question, in the book you discuss the importance of strengthening a welfare state. And these days, I guess anywhere in the world you talk about welfare state, you quickly labeled a communist. But I'm keen to know what does a mother modern welfare state that could effectively work would look like in a country like America or generally speaking, everywhere in the world that can address this inequality and also promote more inclusive environment and bring more prosperity to the wider community.
- [32:05]
D
So let me begin by explaining why modern economics argues that there should be a welfare state. Because there is the right wing as the market. Leave it to the market. And there are two, at least two fundamental problems. One of them is that markets don't provide the insurance that people need to face the risks that they face every day to deal with those risks. Before government came along, there was no unemployment insurance. Before the government came along, there was actually no retirement annuities. It helped create that market. And now there is a private market and older people couldn't get health insurance. That's why we provided Medicare for elderly people in the United States. It was not that the government pushed out the private sector. The people just couldn't get it. And modern theory has explained why insurance markets often don't work. It has to do with asymmetric information, the kind of research that earned me the Nobel Prize. But we have a sound understanding now why it is that the private sector often can't provide the kinds of insurance that individuals need to protect them. And insecurity really is a major problem for most people. The second thing is imperfect capital markets. If you're a 20 year old, you can't borrow in ordinary markets to finance your education. If you're a six year old, you can't borrow to finance your education. We realize that even if a parent says my child is a genius, I'll go to the bank and borrow money to make sure he gets the education that would allow him to live up to his potential. No bank will lend you that money. So if you want an efficient investment in young people, you need to have public provision of investment in children. And that happens. That's the obvious example. But young couple may not be able to afford child care. They both want to work but they can't afford child care. You could say, well, why don't they borrow? You can answer that yourself, you can. Or the interest rate that you would borrow at would put you into the poor house. So the fact is that the state can borrow at a very low interest rate and then when I'm older, in a way repay it. Do you follow me? So it can enable the investment at young people and children at critical points of their life that private markets can't. So we now have a really sound foundation for the principles underlying the welfare state. So you ask me, you asked me, you know, in this world where everybody says, you know, isn't the state too big, is it I giving you the kind of rationale why a strong welfare state is important for both economic performance because if you're not investing in your young people, you aren't going to be growing well. But also fundamentally we care about the well being of our citizens and social protection. Investment in children are just absolutely critical for that. And working together, a community social cohesion, we can do that for each other. You know, I don't want to say it's easy and you know, we have problems. We call free rider problems. We have, you know, and you don't, you know, if tax rates get too high, that's itself a problem. So you have to balance things out very carefully. But I feel absolutely confident that any well run society will have a strong welfare state.
- [37:09]
C
This is a. Your example of child care I guess was a very good one. And I'm a new father myself of a five month kid and that's why I was able to wake up early, because I woke up early to feed him. And it makes my wife and I relatively make good money now. And there's a subsidy in Australia for childcare and he's going to go to childcare center in a few years, months. We need to pay more out of pocket. But we are happy because a few years ago we were not in the same position we are now. If my wife wanted to go to work, it would be impossible for her. So it's a system that is, it has diminished over time of course, but it's still working. And it just goes to show the importance of working welfare state which could bring about more social cohesion around the country. And again my examples are mostly from Australia. A few years because I'm guessing you're also familiar with that. If you. A few months ago there was this march of right wing populace about mass migration. But when you listen to them, their concerns had very little to do with migration and they had genuine concern sometimes, which was lack of housing, rising cost of living. But then the root cause of that is not really migrants. And I read an article about that which was really important, which was saying that basic, even in Australia, those that welfare estate, which was a really good working welfare state back in 19, let's say 80s, it has diminished over time. It's still good, it's still working, but it's diminishing. And this is one of the action, not the only one, but one of the causes of that rising inequality. And to have that welfare estate, you talk at the Australian think tank and if you basically start taxing all those mining companies, well, you have enough money, more than enough to.
- [38:51]
D
Exactly. I mean the idea that Australia is taking some of its most important assets, it's gas, it's natural resources, and basically giving them away to foreigners, I mean it's, you know, it was one of the mind boggling things when I visited Australia, you know, why are you doing this?
- [39:17]
C
Professor Joseph Stiglis, I can't thank you enough for your time. I know how busy you are. Really, really enjoyed talking to you. The book we just discussed was the Origins of Inequality and Policies to Contain it, published by Oxford University Press in 2025. Really, really. Thank you for your time to discuss the book with us on New Books Network.
- [39:36]
D
Thank you, Sam.