The American dream is that any child can make it from the bottom to the top. But this is much less true, in economic terms, than most Americans think. Social mobility is less easy in America than in other countries. For example, three-quarters of Danes born in the lowest-earning 20 percent of the population escape their plight in adulthood. But fewer than six in 10 Americans do so. On the whole, America's wealthy prosper while the average citizen struggles; the richest 1 percent of Americans gained 93 percent of the additional income created in 2010.
Joseph Stiglitz, a Nobel prize winner in economics and a regular critic of liberal capitalism, addresses this issue in his new book. To Stiglitz, inequality results from public policy being captured by an elite that has feathered its own nest at the expense of the rest. Its members have used their power to distort political debate, pushing through tax cuts to favor the rich and adjusting monetary policy to favor banks. Many of the new rich are not entrepreneurs but "rent-seekers," he says, who use monopoly power to boost profits.
Stiglitz's views are representative of clever, leftish America and Stiglitz is (mostly) skilled at making his argument. Imagine, he says, what it would be like if the world had free movement of labor, but not of capital. "Countries would compete to attract workers. They would promise good schools and a good environment, as well as low taxes on workers. This could be financed by high taxes on capital." The result would be a much more equal society.
When it comes to solutions to the inequality problem, Stiglitz wants a top income tax rate "well in excess of" 50 percent, targeted fiscal stimulus and greater bank regulation. Whether or not these are the right answers, Stiglitz is surely right to focus on the issue. Across the developed world, the average worker is suffering a squeeze in living standards while bankers and chief executives are still doing very nicely. This dichotomy is bound to have social and political consequences.