An Economist Who Believes Only Government Can Save Capitalism

Stiglitz is mostly right, including about the need to go beyond incrementalism. We're in too bad shape for that now and his work doesn't even appear to give due weight to the overwhelming environmental element of that. Yet, the mutually "reinforcing economic and political divides" are not enough to point out. There are also the psychological and sociological factors that also reinforce excess loyalties to old "isms," animosities to caricatures of other "isms," and prevents us from attaining the necessary humility and creativity to create hybrids of apparent opposites between them, while being open to new possibilities. New ideas exist, but there seems to be little mainstream interest in and outlet for them. Instead there is too much of an helpful, unexamined mindset that "That there is nothing new under the sun." We're going to have to learn our way out of the many holes we are in to seek transformational changes. Certainty mindsets and thinking that any one side must have all the answers--to everything; common sense communications assumptions "to keep it simple," regardless of the actual complexity of a situation; failing to see new policy approaches as part experiments because failures, instead of being seen as opportunities to learn and reset, are just fodder for political opponents are rules of the game that must change. Somewhat freed from that, we could use a lot more thought about just how government and capitalism (and a lot of other things) could best work together.

I read this review in light of our most pressing problem for the next 17 months or so: how to pick our next president. In particular, I wanted to know what Stiglitz, a Nobel laureate had to say about the two Democratic candidates whose main themes are economic inequality: Bernie Sanders and Elizabeth Warren. From this review, I take it Stiglitz is in agreement with Elizabeth Warren in making our capitalism work for the people. On Democracy Now (4/24/19) he supported Warren's economic plans, saying they are realistic and doable. In a 2018 BBC broadcast he said Warren was certainly electable. Not being an economist, but realizing our ever widening economic inequality is inhumane and destabilizing to our democratic way of life, I look to economic scholars for their opinions on our 2020 candidates. I think Warren can add a second Nobel laureate to her fan list, Stiglitz joining Krugman.

The problem with antitrust law is that lawsuits are inevitably reactive, not proactive, and take decades, while market forces act in milliseconds. Antitrust litigation is clumsy, slow, expensive, inefficient and largely ineffective. We need a better tool. Sheer size exerts an anticompetitive effect. Oligopoly as well as monopoly dominates markets, leads to regulatory capture, and suppresses innovation and competition. A progressive tax on corporate gross income (not net, not profit) would do the job. Taxing bigness, progressively more as companies get bigger, would neutralize the anticompetitive benefits companies gain by being huge. If everything in Mega-Mart cost 20% (or 50%??) more than it does, the corner store could compete and create jobs. Creating an automatic economic force to oppose bigness would counter multiple economic forces that promote bigness efficiently, invisibly and effectively, another application of 'the invisible hand.' As Stiglitz argues, markets can serve social needs and goals.

Spot on review focusing on the diagnosis of this alarming rising inequality in all nations. So many different actors have been pointing this out over the last few years. Even the super wealthy who attend Davos have been sounding the alarm bells. One cannot expect an economist to provide not just the cause of this problem but also the remedy. It is the politicians who need to wake up and start the process of gradual reversal of this trend. Unfortunately I don't see this happening in USA anytime soon. Republicans who were the champions of fiscal responsibility at one time have been taken over not just by Trump but by the Federalist Society that wants to refashion our judiciary. All they want to do is make the rich and powerful even more so. I think the desire for social conservatism has blinded them to the dangers of potential populism and chaos, of which the prime example is Trump.

Joseph Stiglitz succintly describes the vicious circle of economic inequality concentrating political power into fewer hands which further reinforces economic inequality. Many observers now describe American system as kleptocracy. Regulation of private companies has laxed contributing to problem of low wages, outsourcing of jobs, perpetual budget and trade deficits and gouging of customers. With mergers and acqusitions many industries are dominated by few huge companies giving them strong pricing power. Internet is primary example. In my area there are two companies, both charge obscene amount and keep raising prices every year by hefty amount. Just like drugs the internet service is available in other countries at a fraction of American cost. We value our economic activity at these obscene prices and call it world's largest economy.

Some years ago, a good collection of essays was published call Varieties of Capitalism. As the title promises, it shows that different countries have different kinds of capitalist systems: France, England, Germany. Each is fitted more or less well to the culture and politics of the country. America is the most individualist and free-market of these countries, and has the least effective safety nets. Therefore it is most subject to inequalities of all kinds, including life-span and health. Regarding climate change, taxes won't help much. What is required is a strict carbon budget for each country.

"The rules of the game have been stacked in favor of the haves over the have-nots. This has widened economic inequality and increased the concentration of market power among leading firms in every sector, slowing down broad-based productivity growth. These firms and wealthy individuals are converting their riches into political power, further revising the rules to entrench their position at the top." That is the way it has been from the beginning: The week before starting law school nearly fifty years ago, I stopped by the home of a former governor and then state supreme court justice and asked, "what should I know about the law, Governor?" "The law is what you think it is," he replied. I liked the sound of that but did not quite understand, and after a few minutes asked the gentleman, younger then than I am today, to expand a bit. "Son," he said, "the laws of this country were written by and for white anglo-saxon Christian men from families with property, men just like you."

Strong support for Stiglitz's position comes from Pikety's massive tome "Capitalism." It shows with mind numbing amounts of data that with one exception, capitalism has led to the supremacy of capital over labor. The exception was the period after WWI & WWII had destroyed massive amounts of capital. As Stiglitz maintains, Piketty shows this was extended for 27 years because of an expansion of the role of gov. My one complaint here is that according to the review, Steiglitz still believes in the kitchen table idea that gov operations are paid for by taxes or borrowing. The idea that the federal gov has to pay for things with taxes or borrowing is just plain wrong. The gov doesn't need your money. It can (thru the FED) create as much as it needs out of thin air. Just think about where money you pay your taxes with came from in the first place. Unless you have a printing press in your basement, it originally came from the federal gov. But there's a catch. If the gov needs to create too much money to do the things we want it to do, we may not be able to make enough stuff to soak that money up & will have too much money chasing not enough stuff, i.e. excessive inflation. This is rare & is usually caused by shortages, e,g, of oil. But that's easy to solve & where taxes come in. Taxes allow the gov to take back the excess money & prevent inflation. The purpose of taxes is to adjust the amount of money in the private sector. The more we can produce, the lower taxes can be.

This somewhat misleading headline "Economist Touts State-Sponsored Capitalism" got me curious to read the book review. "State-Sponsored Capitalism" is not even mentioned in Drezner's review. What is it? Is Stiglitz advocating such a system? When we look around the world for an example of "State Sponsored Capitalism" China comes to mind. Chinese leaders are loathed to be called Capitalist. They prefer to be called modern socialist. The China model has a 40-years track record to show that it works very well for Chinese people: lifted millions out of poverty, greatly expanded the middle class, built world class infrastructures, and ready to move up the economic food chain. Did Stiglitz devoted some pages to compare the China model to his "Progressive Capitalism"? It deserves a chapter. If not, then the book missed an important topic.