Joseph Stiglitz defines economic terms for 2020: "The swamp has never been murkier"

Defining terms for 2020 before Trump gets a chance: the economy should serve the people, not the other way around

Published April 27, 2019 10:00AM (EDT)

Joseph Stiglitz (AP/Mark Lennihan)
Joseph Stiglitz (AP/Mark Lennihan)

You have to give it up for the Republicans when it comes to consistency concerning government policies. If it helps corporations and the wealthy, they love it! But when it comes to programs that actually help people they slam it as “socialism!”

That was one of the many compelling points Nobel Prize-winning economist Joseph Stiglitz made in our discussion this week on "Salon Talks" about his new book "The Price of Inequality: How Today's Divided Society Endangers Our Future." Stiglitz, who served as chair of President Bill Clinton’s Council of Economic Advisers, explained in a brief, yet instructive history lesson how the right has long sought to oppose programs that help everyday Americans by dubbing them “socialism.”

“Back when Franklin Roosevelt introduced Social Security, some people called it socialist. Now everyone is in favor of Social Security.” He added, “When Lyndon Johnson introduced Medicare, some Republicans said that’s ‘socialism.’ Today you ask one person on Medicare whether they’re socialist?! No . . .  And the fact is that it produced a health care for the aged that has worked and it’s one of the reasons why we have seen extended longevity.”

As Stiglitz makes clear, none of the 2020 Democrats are pushing for socialism in the classical sense of government controlling the means of production. Rather, the leading Democratic presidential candidates today, like in the past, are pushing for programs that help Americans in a range of areas from health care to education.

Stiglitz, who also wrote the 2013  New York Times bestseller, "The Price of Inequality," addressed how income inequality today has also given rise to “political inequality.” He rightly notes that so many believe our political system today is “rigged” to favor the wealthy, which is spreading a sense of “discontent” that could lead to people checking out of our political system. Stiglitz is clear that we need laws that will curb, although not eliminate, the influence and power of money in our political system.

He also offers a similar analysis for the growing concentration of corporate power in America which has led to an increasing number of monopolies in areas like prescription drugs. And, he delivers a cautionary note about Trump taken from the lessons of history, which he says shows parallels between 1930’s Germany and the rise of the Nazis to power.

And while Stiglitz is deeply concerned by these parallels, he’s still optimistic that our nation will correct itself. Clearly, that depends on us. Watch my "Salon Talks" episode with Joseph Stiglitz here, or read the transcript of the conversation below.

This transcript has been lightly edited for clarity and length

Your book gives a history of how we got here and prescriptions going forward, but first, I want to ask you about the 2020 campaign. You have actual 2020 candidates asking if they embrace capitalism. Can you explain to us, from an economist’s point of view, simply what is capitalism?

Joseph Stiglitz: These are words that we create to try to summarize a complex economic system. It used to be that the word capitalism was used pejoratively. It was capital, the owners, the means of production, were using their economic power to exploit workers. Then Milton Friedman turned it around and said, "Capitalism is a virtue, not a vice," and said, "It's what makes our economy great." So capitalism became a good thing then.

Now, back in those days, socialism was about government ownership of the means of production. Have you heard any political candidate on any spectrum saying the government should take over the steel mills or the coal mines?

No, no, of course not.

Of course not. So we're not talking about socialism. We're not talking about Maduro in Venezuela. We're not talking about that.

So socialism, really, is the government takes over the means of productions, banks, farms, companies, and then dictates what will be produced, what's not going to be produced, and picks, essentially, the winners and losers of our economy. Is that accurate?

That was socialism a hundred and some years ago.

So that’s what it meant more in a classical definition of socialism?

In the classical definition. And after the experiences of the last 150 years, no one is in favor of that kind of socialism. But there's a very different kind [that exists]. In Europe, it's called Social Democrats, and in Europe sometimes there are even parties called Socialist parties, but they don't believe in that classical form of socialism.

If you listened carefully the other night at the Fox News town hall where Bernie Sanders tried to articulate what he stood for, he says he thinks the economy ought to be serving individuals. Who could be against that, that the purpose of the economy is to serve society, not the other way around? So that is what he means by democratic socialism. The kinds of agenda that he's talking about are things that, again, most Americans believe, [such as] Social Security.

Back when Franklin Roosevelt introduced Social Security, some people called it socialist. Everybody's in favor of Social Security. I don't know anybody who says, "Because I'm in favor of Social Security, I'm a socialist." No, nobody would say that. When Lyndon Johnson introduced Medicare, some of the Republicans said that's socialism. Today, you ask one person on Medicare whether they're a socialist. No.

The Republicans even had Ronald Reagan going around the country, lobbying for them, saying Medicare is socialism. It’s the same exact language we hear today.

Yeah, and the fact is it produced a health care for the aged that has worked and has been one of the reasons why we've had extended longevity. So, again, it's part of making sure that everybody in the country has access to health care is part of the Social Democratic agenda in Europe and part of what's called the Democrat Socialist agenda in the United States. No one could disagree with that.

Access to education for everybody, now, is that socialism? I don't think so. I think that's, again, good investment. If I were trying to say what is the most important investment that a society can make, it's in their people.

If you're born poor, you don't have the wherewithal to make those investments. So for society to make those investments and then reap the returns, the guy is going to be making higher incomes, and because he's making higher income, he'll be paying more in taxes. The government will get back the return in the form of higher taxes. That's just good investment policy. So I wouldn't call that socialist. I would call that just good policy.

It’s great that you point out that on the right, Medicare, Social Security, even the ACA was called socialism. To them, it seems like if it's not helping corporations or the top one percent, it's socialism. The only thing that's not socialism is that. Now explain to me the title of your book and how can you be a progressive and a capitalist at the same time?

What I mean by Progressive Capitalism is that the word capitalist is to remind us that the market is going to be a big part of the economy. None of us want to run steel mills or coal mines, but there are many things that the market on its own won't provide—like good annuities, health care, unemployment insurance.

You tell me what private company is providing unemployment insurance today, all these other forms of social protection. So to me, what I see [in]Progressive Capitalism is just another way of saying a mixed economy with better balance between the market and collective action, between the state, and I also include civil society here because that's an important part of our institutional structure.

Sure. Absolutely.

I come from universities. Some of our best universities are not state universities. They're not-for-profits. The only for-profit universities are things like Trump University that have excelled in only one thing, figuring out how to rob people's pockets and exploit the most vulnerable members or our society.
When we start thinking about how our economy actually works, it actually has a broad ecology of institutional arrangements, and what I'm calling for in Progressive Capitalism is just a shorthand for saying let's get a better balance—that we need the state collective action, not only to temper the market and make sure we don't pollute the environment, have banks that engage in excessive risk taking or in abusive practices, that we have adequate safety, health, all these kinds of things. That's a regulatory framework which I think is core. And we who live in New York City know that without simple regulations like stop lights, which say who can go first and then who can take a turn, we would be a massive gridlock. We couldn't survive.

That's one part which is the regulation, but the other part is there are many services that the market simply won't provide, or provide adequately. So basic research, which is the basis of the growth of our economy, why our standard of living is higher than it was 50, 100, 150 years ago, the private market doesn't engage in adequate amounts of basic research. I talked about education for those who are poor.

As you document in your book, a big swath of American has not seen their income go up for decades now, even for a generation to be blunt. They feel like the system is rigged, so when they hear a Bernie Sanders or Donald Trump saying it's rigged, it resonates with them because they're not seeing any growth. They're seeing the wealthy get wealthier. I have concerns in the long term for this country. If they don't believe in the country, they're not going to vote anymore. It goes from income inequality to political inequality, and that we're run by essentially wealthy oligarch. So what do you do? What do you say to the people who feel that the system is not working for them?

Well, the point you make that it is very natural for people to say the economy is rigged and our political system is rigged and to be almost angry that Donald Trump gets elected on a platform of draining the swamp. And then what do you see? The swamp has never been murkier, overflowing. He criticized the banks, and then he brings in a rash of the worst bankers that you could've imagined.

There is real grounds for the discontent. There's only one way to respond to that. And to say, "We are still a democracy." We are a distorted democracy. There's voter suppression. We have gerrymandering. We have money-driven politics. We've legalized it. But, we still have a system where if enough people go out to vote, they can change our elected officials and they can change the laws. And we can change the laws to curb—not eliminate, but curb—the influence of money in our politics. We can change the laws to curb the influence of money in our economy, corporate power.

One of the things that happened 100 and some years ago was we were at a moment where inequality was soaring. It was called the gilded age. And we had companies like Standard Oil, monopolies, and we passed laws. It was called the Progressive Era. And part of the reason of the choice of Progressive Capitalism is an echo back to that Progressive Era. We passed antitrust laws, the Sherman Antitrust Law, the Clayton Act, a series of laws, the intent of which was to curb the monopoly power, and it worked. We broke up Standard Oil. We broke up other monopolies.

But then in the period of the'60s, '70s, a doctrine began to grow. And that doctrine is that markets are naturally competitive. We even forgot the reason that we passed this legislation, bipartisan by the way, was not just economics. It was politics. There was a worry that we were going to lose our democratic politics—democratic in the sense that we were going to become overrun by a country of oligarchs, politicrats.

So it was more than just a little bit of economic efficiency. It was about the very fiber of our democracy. And the Chicago economist did two things. One, they narrowed the scope to say, let’s just look at economics, and then let's pretend that the economy is naturally competitive. So most of the time when you see something that looks anti-competitive, it's just the wonders of the market working themselves out, and you sort of have to look at the glory of this wonderful artifice that we created.

What we've now discovered is that most of those things that looked like they were anti-competitive, guess what, they were.

They weren't competitive. That's it.

And we now have an economy where we have large pockets of market domination, not only in the things you see every day, the internet, telephone, airlines, drugs, and so forth, but even in little things like pet food and drug stores. You can have multiple drug stores with different names all with the same ownership. So you don't even know that you're facing this kind of market power.

Why should the average person be concerned by this concentration of power in the handful of a smaller and smaller number of corporations, in terms of their powers and also in terms of the price that we ultimately pay for these products?

What happens when you have market power, you use it and increasingly abuse it, so you raise prices to the level you can get away with. In the case, there's a big distinction here between the United States and Europe. In the United States, we have a doctrine that says if you've legitimately acquired your monopoly power, your market power, for instance a company buys the right to produce a drug, you can raise your prices 1,000 percent, no matter how important the drug is, that people will die as a result. We don't balance any of that. We just say if you have a legitimately acquired market power, use it.

In Europe, there's a doctrine called abuse of dominant power, abuse of market power. So the kinds of things that we've seen in the United States with drug prices going up 1,000 percent doesn't happen in Europe because they say that's abusive.

Talking about prescription drug prices, my mom is older, she's on prescription drugs and the prices they keep going up. I heard so many stories of others and I've talked to countless people who are elected officials who spoke to seniors who have said I have to decide whether I'm going to eat, literally have dinner or not, just to pay for my drugs because they keep going up in prices. Do we need the government to step in and put a caps on this?

Well, the basic point that I'm trying to focus on here is we have to have a real focus on abuse of market power. When Facebook takes away your privacy rights, it's because it has market power. And Germany is taking action to try to curb that kind of abuse of market power.

When you go and sign up for a credit card or a telephone company or a relative has to go into a nursing home, you sign a contract. Usually in that contract you sign away your right to use public courts to adjudicate disputes, and disputes will arise.

Sure, through arbitrations.

What you do is you go to arbitration. Arbitrators are appointed by the companies, and these arbitrators work for the companies, so that's an example of market power, which you don't even think about when you sign the contract. But you have a dispute, and you will think about it. The Supreme Court has basically come down on the side of corporations. They have said, you should have read that fine print, as if you read that fine print, you wouldn't have time to do any work.

And they're not going to change it anyway. They're going to tell you, "This is our standard clause. Take it or leave it” and your grandma or mom doesn't go the nursing home. And you're like, "All right. I'll sign it”

Exactly, or you go to the other internet company, and what do you find?

Same exact language.

So what good does it do?

All hope is not lost here though. In your book you have a chapter on A Decent Life for All. I wish you called it A Wonderful Life for All, but I understand the decent part is. In there, you talk about public options and not just a health care public option, but in various areas. How can a public option be helpful for people to get health care at less cost that's still good for them and it's still accessible?

One of the things that we should have anticipated, and we've seen now in the last several years, is that there are in many parts of the country only one, two, or three health insurance companies, some places zero, are limiting people's choice. You asked me before what happens when there is limited choice, and then you have high market power. What do people do with market power? Raise prices.

The notion of a public option is you would have a government program increasing people's choice, and the public isn't trying to rip off, just trying to break even and provide services that people want. So the very existence of this public option would give people more choice but also curb the monopoly power of the private sector. It would lead to lower prices in the private sector better than regulation in some ways because it's giving somebody a choice and making them think, how do I create alternatives that are preferable to what the government is providing? To me, it will actually encourage innovation, as well as lower prices.

The public option, if it's run by the government, let's say it's a health care plan where the CEO's not making $15 million and not sponsoring a stadium for the New York Mets to play at. Their money is focused, and it's much more limited in what they're going to use. They're not driven for profits or stock buybacks or driving up stock prices.

And they're not spending money, what I call cream skimming, [which is] trying to find out who are the lowest-risk people and getting rid of the high-risk people, and saying, that's their problem.

Based on your experience, should 2020 Democrats be talking more about public option as opposed to Medicare for all?

That's my preference. I think the public option, you might say, is a more conservative approach, but I think it is an approach that ensures health care for everybody but enriches choice. The broad idea of a public option is something I think we ought to be exploring in other areas like in retirement.

Go ahead, tell us about retirement.

In retirement, we know how the private financial sector has focused on how it can exploit ordinary individuals. We had a big fight during the Obama administration. He proposed that those who sell financial products to older people should be subjected to a fiduciary standard, that just means that when you sell a product, you should think about the interest of the person to whom you're selling the product.

And the financial companies said, "No, no, no, no. We can only survive if we are allowed to exploit our conflicts of interest, pursue our interest over that of the client." To me that was unimaginable.

We need to be predatory, right?

We need to be predatory.

It's remarkable.

So the public option is to say we have a good retirement insurance program called Social Security. It provides a kind of annuity that no private sector provides that guarantees against inflation, not a problem now but who knows in the future. The idea here is that if you want to make a larger contribution to Social Security, you can do that, and that would increase your retirement benefits commensurately. That's a public option. No salesman, you just go on, and you make your additional contribution, and you get additional benefits. Very simple. Low cost.

And they're practical.

No new bureaucracy. And the public Social Security program's administrative costs are minuscule compared to private annuities.

At the end of your book you have a chapter on Reclaiming America, and you were pretty optimistic, but at the same time, you warn us about the dark history of authoritarianism. When you see what Donald Trump is doing on a daily basis, literally today before we came one here, and tomorrow and the day after, he'll continue to attack our checks and balances, our institutions, and now stonewalling Congress to the point where he truly wants to be a king, how are you still as hopeful? Is he a cautionary tale that we can be hopeful, but we better be alert to history and what this man could become?

Very much so. In particular, I make some reference to the book to what happened in the '30s. The parallel between what has been happening in the United States in the '30s is a little bit more than a little bit unnerving. Basically, the Nazis never won a majority of votes. They seized control by giving a minority, very similar to the minority that are the core Trump supporters, joined with the business community that said, "Well, we'll keep his excesses under control, but it will be very convenient for us to be good for business."

In just the way so many of the business community have said we'll overlook Trump's flaws, his undermining our democracy, his weakening of our systems of checks and balances. We'll even ignore the fact that even though our historically we've been for globalization, and the fact that he's for protection, we'll even look the other way on that.

If we can just get a tax bill that gives a tax cut for corporations, a tax cut for the billionaires, even if a majority of Americans in the middle have to pay a higher tax rate, let's grab it. And if we can get a deregulation to our finance sector, maybe an opportunity for another grant prices like 2008. They don't talk about it that way.

But remember, I was at a dinner with one of his people, and he was talking about enthusiasm of the deregulation and somebody said, "Didn't we have a crisis in 2008, and wasn't that caused by the excesses of the banks?" You know, that was ancient history. And you talk about environmental regulation. We're headed for a crisis. We need to accelerate our efforts, and he's trying to roll them back.

It certainly is a wake up call. Like you, I'm optimistic. I think our history allows us to be optimistic in this country. But at the same time, we must be aware of world history and where this can go. And thankfully for those people who were engaged in 2018, we won the House of Representatives. We also flipped seven governorships. And that showed if we come out big, we can correct things that are going in the wrong way. This is not the time for timidity. Thank you, Joseph.

Thank you.

By Dean Obeidallah

Dean Obeidallah hosts the daily national SiriusXM radio program, "The Dean Obeidallah Show" on the network's progressive political channel. He is also a columnist for The Daily Beast and contributor to Opinion. He co-directed the comedy documentary "The Muslims Are Coming!" and is co-creator of the annual New York Arab American Comedy Festival. Follow him on Twitter @DeanObeidallah and Facebook @DeanofRadio

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