The American Dream Has Become A Myth

The finance industry is to blame for the growing divide between the rich and poor in the United States, says Nobel Prize-winning economics professor Joseph Stiglitz. In an interview with SPIEGEL, he accuses the industry of preying on the poor and buying government policies that help them get richer.

Economist Joseph Stiglitz:

...recognize that there is a problem. Watching inequality grow is like watching the grass grow. You don't see it happening day by day, but over a period of time it becomes visible.

In the last decades, income and wealth disparity have grown dramatically in this country. Let me give you an example: In 2011, the six heirs to the Walmart empire commanded wealth of almost $70 billion, which is equivalent to the wealth of the entire bottom 30 percent of US society.

...the American dream has become a myth. The life chances of a young US citizen are more dependent on the income and education of his parents than in any other advanced industrial country for which there is data. The belief in the American dream is reinforced by anecdotes, by dramatic examples of individuals who have made it from the bottom to the top -- but what matters most are an individual's life chances. The belief in the American dream is not supported by the data.

There has been no improvement in well-being for the typical American family for 20 years. On the other side, the top one percent of the population gets 40 percent more in one week than the bottom fifth receive in a full year. In short, we have become a divided society. America has created a marvelous economic machine, but most of the benefits have gone to the top.

...when the Democrats say that they are supporting the middle class, they are really talking about inequality. And they highlight the contrast with the Republican candidate Mitt Romney, who is emblematic of the top one percent of the population. Romney's denigration of the 47 percent of Americans who don't pay income taxes had an enormous reaction, partly because it showed how out of touch those at the top were with the rest of the country.

It is the group of people who get 20 to 25 percent of the income. Their share has doubled in the last 30 years. And they own about 35 percent of the wealth or more. They have the best houses, the best education and the best lifestyles.

...the top one percent in the United States has an average tax rate of less than 30 percent of their reported income, and the large proportion who take much of their income as capital gains pay far less. And we know that they are not reporting all of their income.

There is nothing wrong if someone who has invented the transistor or made some other technical breakthrough that is beneficial for all receives a large income. He deserves the money. But many of those in the financial sector got rich by economic manipulation, by deceptive and anti-competitive practices, by predatory lending. They took advantage of the poor and uninformed, as they made enormous amounts of money by preying upon these groups with predatory lending. They sold them costly mortgages and were hiding details of the fees in fine print.

The financial elite support the political campaigns with huge contributions. They buy the rules that allow them to make the money. Much of the inequality that exists today is a result of government policies.

In 2008, President George W. Bush claimed that we did not have enough money for health insurance for poor American children, costing a few billion dollars a year. But all of a sudden we had $150 billion to bail out AIG, the insurance company. That shows that something is wrong with our political system. It is more akin to "one dollar, one vote" than to "one person, one vote."

The United States doesn't have much of a revolutionary spirit. My real concern is that people get alienated from politics. In the last election we had a voter turnout among young people of around 20 percent. These are the people whose future is most at stake, and 80 percent of them think it's not worth to vote because it is a rigged system and in the end the banks are going to run the country anyway.

The main problem in Europe right now are the austerity packages, they depress demand and weaken economic growth. The reversal of this policy is absolutely essential to develop growth and more equality. Spain, for example, gets weaker and weaker, money flows out of the country, and it is a vicious downward spiral.

Europe's crisis is not caused by excessive long-term debts and deficits. It is caused by cutbacks in government expenditures. The recession caused the deficits, not the other way around. Before the crisis Spain and Ireland ran budget surpluses. They cannot be accused of fiscal profligacy. More fiscal discipline will only worsen the downturn. No economy ever recovered from a downturn through austerity.

The crisis countries don't suffer from excessive spending. The problem is not supply but demand. It is the responsibility of monetary and fiscal policy to maintain the economy at full employment.

... if the government cuts back its spending, it has a major effect. An expansion of spending can increase production by creating jobs that will be filled by people who would otherwise be unemployed.

We need roads, bridges and airports. That's obvious. The returns from public investments in technology on average have been very high -- think about the Internet, the Human Genome Project and the telegraph.

Europe is facing a critical point. The alternatives are "more Europe" or "no Europe." The halfway configuration is unstable.

Via: "Der Spiegel Online"