People, Power, and Profits: Book Review
People, Power, and Profits: Progressive Capitalism for an Age of Discontent (2019), Joseph Stiglitz. Stiglitz takes aim at Republican ideology of supply-side economics, free markets, deregulation, and tax cuts for the rich, causing both inequality and huge deficits. Trump is the worst in his view: "voodoo economics on steroids." "[Trump] has been shrewd enough to detect the disgruntlement, to fan the flames of discontent and exploit it ruthlessly ... willing to make the people of Middle America worse off" (p. xv).
Barry Goldwater in politics and a hostile takeover movement could be starting points for the big business/Republican efforts (or earlier events such as all the treaties at the end of World War II), but Stiglitz primarily focuses on Ronald and afterwards. The "government is not the solution, government is the problem," "welfare queen," huge tax cuts and deregulation were big events, combining free market rhetoric with protectionist policies, "naked willingness to serve corporate interests"; plus no empathy for the poor. A distinguishing feature of Reagan versus Trump: "Reagan kept up at least the facade of reason and logic. There was a theory behind his tax cuts, the supply side economics. ... It is this disdain for truth, for science, for knowledge, and for democracy that sets the Trump administration and similar leaders elsewhere apart" (p. xvii). Strategy: keep the rich happy and their contributions get you elected; plus blatant voter suppression and gerrymandering. He called rent-seekers shortsighted wealth-grabbers.
One theory was: "once a country reaches a certain stage of development, inequality shrinks--and America had exemplified that theory. In the years after World War II, every part of our society had prospered, but the income of those at the bottom grew faster than those at the top" (p. xix); "Inequality is a choice. It is not inevitable" (p. xx). "Trump doesn't have a plan to help the country; he has a plan to continue the robbery of the majority by those at the top" (p. xxi). "America has led the way, with more inequality, worse health, and a greater divide than elsewhere" (p. xxi). "Markets on their own will fail to achieve shared and sustainable prosperity. ... They often fail to produce fair and efficient outcomes, producing too much of some things (pollution) and too little of others (basic research." Markets on their own are not stable" (p. xxii). Nor do markets work well when information is imperfect and some key markets are absent; or when competition is limited. ..."Markets won't produce enough of what are called 'public goods'--goods whose use is easily shared by the entire population and hard to charge for in any way other than taxes. ... Capitalist economists have thus always involved a blend of private markets and government" (p. xxiii). "Nations grow wealthier by becoming more productive, and the most important source in productivity is the result of increase in knowledge" (p. xxiv). "Rent--rent-seeking is associated with attempting to get a larger share of the nation's economic pie, in contrast with wealth creation, which strives to increase the size of the pie" (p. xxiv). "Education is part of the solution" (p. xxv). "Economic inequality inevitably gets translated into political power" (p. xxvi). Republicans include a coalition of religious and social conservatives, those with self-interest against science, and the business community, demanding deregulation and tax cuts.
Impressive analysis of economics from a liberal perspective so far and this is only the Preface. The problem is, this is the basic summary of Stiglitz's positions. The rest of the body covers mainly these same point in a bit more detail, but with limited supporting information. Thus a good bit of the body was redundant. Much additional information is presented in the extensive Notes, which is inconvenient; plus he refers to additional analysis from his earlier books. No problem, but I wanted a more extensive analysis in the body of the book. Below is a summary of additional information presented (mainly useful quotes).
He starts (Chapter 1) with the financial crisis of 2008, suggesting that "capitalism wasn't all that it was supposed to be--it seemed neither efficient nor stable" (p. 3). Part of the problem: "Those with money and power have used their power to write the rules of the economic and political game" (p. 5). "The true wealth of a nation is measured by its capacity to deliver, in a sustainable way, high standards of living for all its citizens. This in turn has to do with sustained productivity increases, based partly on investments in plants and equipment,but most importantly, in knowledge" (p. 8). "The absence of royal or ecclesiastical authority to dictate how society should be organized meant that society itself had to figure it out" ... One had to create systems of governance" (p. 10). "Progressive Era legislation and the New Deal curbed the exploitation of market power and tried to address the failures of the market" (p. 13). "If you can sell bad and even dangerous products, you can sell bad and even dangerous ideas ... These insights were picked up and used with vengeance by Steve Bannon and Fox New ... including selling the majority on policies that are against their own interests (p. 18). "Academics had pointed out that globalization could actually lead to lower wages of unskilled workers, even adjusting for the lower prices of the goods they purchased, unless the government took strong countervailing measures ... elites, in both parties, thought that focusing on GDP could be a substitute for focusing on people" (p. 21). "Government's role in a market economy is to do what markets won't and can't do as well as make sure that markets act a they are supposed to. For markets to work well, there has to be robust competition, information has to be perfect, and actions of one individual or firm can't impose harm" (p. 24). "Deregulation, especially of the financial markets, brought us the downturns of 1991, 2001, and most grievously, the Great Recession of 2008" (p. 25).
Chapter 2: Toward a More Dismal Economy. Problems started about 1980, as GDP rose but incomes in the middle and below did not. Jeff Bezos up, everyone else stagnates. Annual growth went from 3.7% (1947-80) to 2.7% (1980-2017). American exceptionalism should be a higher standard of living and higher growth rate. Human Development Index [life expectancy, education, and per capita income]: US ranks 13th, including inequality and US is 24th. [Norway, Switzerland and Australia top the list; with inequality, Iceland, Japan and Norway are on top.] Education: US ranks 40th in math, 24th in reading, and 25 in science. The US does fine on GDP growth, even productivity; it just does not benefit the masses. "Globalization and changes in technology have weakened the demand for unskilled workers; unions, which had helped equalize wages, are weaker. There has been an increase in concentration of market power" (p. 39). There are health disparities between the US and other advanced countries, and between America's rich and poor. "America has a low-income trap" (p.44). "Those on the Right, beginning with Reagan, restructured markets to serve those at the top. But they made four key mistakes: they didn't understand the evisceration effects of ever larger inequality; they didn't understand the importance of long-term thinking, they didn't understand the necessity of collective action--the important role that government has to play in achieving equitable and sustainable growth; and most importantly, they failed to understand the importance of knowledge" (p. 45). Wealth by wealth creation or exploitation.
Chapter 3: Exploitation and Market Power. Warren understands pricing power and businesses surrounded by moats, including barriers to entry. Is there any reason why US telecom prices, including broadband, should be so much higher than those in many other countries--and the service so much poorer? ... Telecom is now a global technology, requiring little labor. The answer to this puzzle is simple: Market power ... Market power also allows firms to exploit workers. ... Market power gets translated into political power" (p. 49). They can use opaque pricing structures, as in the health care industry. They can engage in predatory lending, market manipulation, insider trading. ... A major form of 'grabbing wealth' is corruption. In 'corruption American style,' it becomes much more sophisticated, such as passing laws that ensure that one gets overpaid for what one sells to the government (defense contractors and drug companies) or that one underpays for natural resources that rightfully belong to the public (oil and mining, timber). ... The exploitive way of getting wealthy is just wealth distribution" (p. 50). National wealth increased more than capital, the difference is the value of rent-generating assets, much of which goes to hi-tech companies.New tech abuses market power, e.g., Google. Abusing the patent system. Pharmaceutical abuse: evergreening--extending the life of patents; preemptive mergers (potential future competitors). Plus lax enforcement of anti-trust laws. Chicago School: "Their central precept was that government was bad and the private sector was good" (p. 68). Corporate welfare, Amazon getting cities bidding for its second headquarters. Intellectual property rights and market power.
Chapter 4: America at War with Itself Over Globalization. Trump: bad trade deals.; criticism of globalism. Advocates: job loss because of technology. Global rules tilted in favor of US at the expense of developing countries: strong intellectual property protections, open markets to US finance, all favoring corporate interests. US imports labor-intensive goods (comparative advantage). "Trade agreements and tax have effectively encouraged firms to move manufacturing abroad. ... Trade agreements typically giver American firms more secure property rights abroad than they have at home" (p. 83). Globalization deprives US of tax revenues. Corporate tax rate dropped to 21% in 2017 (earlier, capital gains and dividend rates were cut); "fiscal paradises." Weakens worker rights, but legislation reduced it even more. Problem of unsafe or unhealthy profits, when corporations want profit. Big pharma uses IPRs to protect drugs. Trade deficits determined largely by macroeconomic factors: budget deficits, lack of savings, exchange rates. Trade deficit = shortfall in domestic savings: trade agreements affect patterns of trade more than trade deficits. World has efficient supply chains; large cost of adjustments (e.g., from new tariffs). Trump trade war with China, China exports more; China has controlled economy and better prepared for countervailing measures. Issues of national security. US and EU insist on subsidizing agriculture. Winners and losers: groups need government offsetting measures; e.g., retraining, social protections.
Chapter 5: Finance and the American Crisis. "They had caused the crisis, yet government provided massive largesse to the banks and the bankers--without any sense of accountability" (p. 102). "Wells Fargo opened up accounts for individuals without their consent, Multiple banks engaged in market manipulation in foreign exchange and interest rate markets, and the rating agencies and most of the investment banks committed massive fraud" (p. 103). "Lloyd Blankfein made it clear that the reputation for honesty and trustworthiness was a quaint relic of the past" (p. 104). "The government still has to underwrite the vast majority of mortgages. The bankers want the fees from issuing mortgages, but don't want to take the responsibility for their failures of judgment" (p. 107). "Greenspan said that he assumed that the bankers would manage risk better. This was the great "flaw" in his reasoning" (p. 111). "The financial sector has been the example par excellence of rent-seeking--the bankers increased their wealth at the expense of the rest of society in what clearly turned out to be a negative sum game" (p. 113).
Chapter 6: The Challenge of New Technologies. "New industries are prone to numerous abuses, from market power, to invasion of privacy, to political manipulation" (p. 117). Polarization: hi-tech jobs demand high skills, while the remaining growth in jobs is low skill; potential of secular stagnation. Low interest rates mean low cost of capital relative to wages. Stigler policies: increase bargaining power of workers, share intellectual property rights more broadly (especially when funded by government), restructure service-sector economy (hire more people to care for sick, disabled and elderly, increase education). Equifax scandal as deceptiveness of corporate sector (data breech, then attempted to profit from it). Soft regulations: transparency; hard regulations: oversight and prohibitions. Facebook as a natural monopoly: hard to break up, hard to regulate. Different legal frameworks on the internet (e.g., US, Europe, China--China may have the advantage). Better to join with Europe on privacy protections.
Chapter 7: Why Government? "Collective action was first realized in ancient rice growing societies" (p. 138). Rule of law, infrastructure, technology, a balance between individual and collective action. "Markets on their own did what the rules of the game allowed them to do, what those rules incentivized them to do" (p. 140). Social versus private returns, markets produce pollution etc. Advances in knowledge are public goods. Government efficient at Social Security, Medicare. "Banks wanted rights without responsibilities" (p. 144). Laws: regulations left to regulators, cost-benefit analysis plus "notice and comment." Advances in interests at the the expense of others--government failure. Private firm capture. Importance of critical and independent media, transparency. Market fundamentalism (neoliberalism). Changing economy: production of knowledge, government in central role; urban economy: traffic, health care, environment. Planetary limitations, global warming. Complex economy: post-industrialist, financially innovative. Economy in flux: aging population, service sector; globalized economy, more interdependent, tax avoidance opportunities. Government: power of compulsion, with free rider problem.
Part II: Restructuring. Chapter 8: Restoring Democracy. "In the 2012 elections, Democrats couldn't even gain a majority in the House of Representatives despite getting 1.4 million more votes than Republicans did" (p. 159). "Citizens United v, FEX opinion, reinforcing the role of money and economic inequality in our political system" (p. 166). "Have the government pay too much for what it purchases;" not only the military but drugs for Medicare. Needed agenda: "reducing the power of money in politics, entailing reducing the need for private financing, promoting greater transparency, and curbing contributions and other sources of moneyed influence" (p. 171). Curbing campaign spending, problem with free speech. Republican Party: religious right, blue collar, and ultra-rich.
Chapter 9: Restoring a Dynamic Economy with Jobs and Opportunity for all. Economic growth: increase in labor force, productivity; neither doing well, plus benefits going to the top. Moe women in the labor force with family-friendly policies. Better regs for food, better health care system. Curb market power, invest in infrastructure; knowledge, learning and advances in science and technology. Knowledge a public good (basic research by government); firms try to keep secret firm-produced knowledge. Republican theory of tax cuts: spur growth, savings and investment--which failed. Tax cut distortions: fiscal deficit, savings and investment do not go up, wealth distribution distortions. Increase tax on corporations that don't invest in US. Deindustrialization and globalization: job training and education, place-based policies. Unemployment, health and retirement are risks that markets do not handle well. Infrastructure: roads, fast trains, reliable electric grid. Supreme Court gutted Voting Rights Act of 1965 in 2013.
Chapter 10: A Decent Life for All. Markets great for healthcare for the wealthy, ditto education. Public option: Americans value choice, also true of retirement. [That doesn't mean their good at making choices.] Social Security: investment types of investments; allow workers to contribute more. Chapter 11: Reclaiming America. Myths can reinforce shared values: rugged individualism (e.g., entrepreneurs). Attachment to mythological self-image leads to bad policy. "Trump, taking a page from Andrew Jackson, is attempting to undermine both our regulatory system and our professional civil service," including new discretion to fire federal officials (p. 231). Government spending as a waste. Pillars: we better understand how to organize society (rule of law, checks and balances) and better understand nature (science and technology (p. 233). Trump: power-based managed trade" (p. 240). "New social contract includes the preservation of the environment ... and restoring political and economic power to ordinary people" (p. 243). "Only government can protect the environment, ensure social and economic justice, and promote a dynamic learning society through investments in basic research and technology that are the foundation of continued progress. ... The 1 percent worry about the potential of a strong government using its powers to take money away from them" (p. 244).