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Joseph Stiglitz: Why Even Talk About Income Inequality?

By Morgan Housel - Apr 17, 2013 at 2:38PM

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Joseph Stiglitz on the economy.

Wealth and income inequality in the United States is large and growing. "The upper 1 percent of Americans are now taking in nearly a quarter of the nation's income every year. In terms of wealth rather than income, the top 1 percent control 40 percent," writes economist Joseph Stiglitz. "Twenty-five years ago, the corresponding figures were 12 percent and 33 percent."

One common response to these figures is, "So what?" Why should you care how much someone else earns?

It's a fair question. I sat down with Stiglitz, the Nobel prize-winning economist, last week in his office at Columbia Business School. Here's how he responded (transcript follows):

Joseph Stiglitz: What has happened in the United States, particularly in the last 30 years, even more in the last ten years, is that inequality has grown out of bounds. The top 1% has doubled the percentage that it did just 30 years ago. The top 1/10th %, three to four times what they got.

So inequality has been growing, and even more disturbing is that there has been a lack of equality of opportunity. Americans really believe the American Dream, everybody can make it. The statistics don't show that. The statistics show that the child, American child's lifetime prospects is more dependent on the income/education of his parents than in almost any other of the industrial countries. The notion of "American Dream" is a myth.

We probably always exaggerated this ability to move. We celebrated it of course with the Horatio Alger stories of rags to riches, just by stint of hard work. And America has always been a country where a few people have made it. Those are newsworthy because they're so rare. If it was happening every day, you wouldn't make a news story about it. The fact is that things have gotten much worse, I'd say probably in the last 30 years, one of the reasons for that is what's been happening to our education system.

We have an education system that is very dependent on where you live. Where you live depends on what you can afford. We've become a more economically segregated society; that is to say, rich people live in their communities, poor people live in their communities much more than it used to be the case. So that means that this access to the kind of education that would allow you to compete in a 21st century economy is not there for those who are in the bottom of our income distribution.

It’s one thing if the reason people at the top are there because they’ve made larger contributions to our society, they’ve made the size of the economic bite better, bigger, then everybody would benefit.

The fact of the matter is that while the rich have been going up, those in the middle have actually been going down. Median income, income in the middle today is lower than it was in 1996, over a decade and a half ago. So it isn’t as if everybody benefits from what’s sometimes called trickle-down economics; some of the gains at the top have been at the expense of the bottom and the middle.

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