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Weighing in with Stiglitz on inequality and its discontents

Weighing in with Stiglitz on inequality and its discontents

Ahmed: Joe, you mentioned choices here, and one of the choices that we can make to combat extreme inequality is taxing the ultra-wealthy. And I want to go there because it feels to me that the world’s moved on from asking “Maybe we should tax the rich” to an increasing debate on how much we should tax the rich.

The US has such an interesting history here. The most progressive tax system in the world in the past—FDR to the early eightiestop earners saw an average at the top margin income tax rate above 80%.

What do you think’s the right rate to tax the ultra-wealthy? Specifically billionaires in today’s era?

Stiglitz: I think we have to realize that most of the billionaires have gotten much of their wealth out of luck. They did something positive, they created something, but there were other people doing similar things. Take Facebook, there was MySpace. One of them was going to win; it was a lottery. And you can say, they came up with a better idea, of clicking Likethat was a big innovation, but is it worth $50 billion or a hundred or $150 billion?

But the real point is would they have done it anywayif instead of having a hundred billion dollars, they only took home $5 billion. My view is what drives a lot of this is the drive to create, to be successful. And if you took away a large fraction of the wealth they get beyond five or $10 billion, they still would’ve done it….

Also, most of the wealthiest have gotten at least a fraction of their wealth out of exploitation. Sometimes it’s just exploitation of market power.

Some of the billionaires … are explicitly exploitive, lying, cheating… So the kinds of proposals that have been put forward in the United States by say, Elizabeth Warren, a wealth tax of 1% or 3% over 50 billion, or over 5 billion dollars, seem to be very reasonable and would really go a long way to raising revenues that could alleviate some of our country’s problems.

Let me make it clear. It’s not that we’re trying to be against success. It’s really a question of sharing the wealth in ways to make our society function better.

Daar: I do want to push you on that, just thinking about the, the top earners specifically on a top marginal rate. I mean, we have seen it over 90% in the past. Is that realistic today? You know, getting up to, to those kinds of percents?

Stiglitz: There have been calculations done by some of the top public finance economists where they carefully look at the trade-offs. People at the top might work a little bit less if you tax them more. But on the other hand, our society gains in having a more egalitarian, cohesive society. And, I think the general consensus is on labor income, that a tax rate of 70% would clearly make sense.

Maybe a little higher. I don’t want to fine tune it too much.

But what we’re talking here is also more about wealth taxes. And the irony is that, while in my view, we should be taxing wealth at a higher rate, because much of the wealth is inherited wealth. One of my friends describes as winning the sperm lottery—they chose the right parents…

In fact, we tax at a lower rate; we tax dividends at 20% at the top. We tax capital gains at a lower rate. And in the United States, if you pass on assets to your children, you can escape capital gains tax. Totally.

Daar: When we think about billionaires, we think about a lot of concentration of wealth. We think about the Elon Musk’s of the world and the Bill Gates of the world. And, and at the same time, there’s a huge concentration of wealth also in low and middle income countries, right?

It’s not just these white men in the Global North, there’s a huge concentration of wealth in other countries as well.

And so I do wanna ask, is that also feasible? We’re seeing these mountains of debt payments accumulating in low and middle income countries, and the proposed solution we often hear from the North is this drive towards austerity. When you have these choked budgets, governments are just moving towards austerityobviously pushed for by the elite, and also by the IMF as this huge dominant external force.

But how much is there as an alternative to austerity? How much scope is there to tax the rich and tax wealth in those kinds of countries?

Stiglitz: Oh, I think there’s enormous scope. One of the things that the international community has to do, of course, is close the tax havens. A lot of the wealth escapes…. There’s been enormous growth of billionaires in China and in India. And those countries, if they wanted to, could clearly make those who do business in their country pay, like we do in the United States. We say that your income is taxed no matter where you make that income. So we discourage tax havens. We don’t do it perfectly, and we ought to do it more, but having global reach is really important, and other countries haven’t done that.

It’s a hidden form of corruption; a lot of the wealth is created in these countries by political connections—that drive a lot of the wealth accumulation in developing countries and emerging markets.

Daar: And, thinking about tax havens, and how these decisions get made in international spaces, I actually wanna move the conversation towards there and towards multilateralism.

You were such a tremendous force in the discussion on vaccines during the Covid 19 pandemic… In so many of these multilateral discussions, we’ve seen poor countries almost literally locked out of the room on decisions, and then at the end of the day, getting a very, very raw deal.

It blows my mind that we still have such a neo-colonial dynamic almost. How do we shift that dynamic?

Stiglitz: That’s a really good question; you’re absolutely right. There’s been a greater effort to have what they call inclusive frameworks on the tax. They’re in the room—but not being listened to. The conversations are structured in ways that the voices of the poor countries are effectively not heard. And you see that in the outcome of the OECD initiative on tax reform.

They wouldn’t even disclose how much extra money the developing countries were going to get. And we know why—because those who did preliminary calculations said they’re getting a pittance. So the question you ask is the right one: how do we change that?

A new geopolitics is emerging. During the Cold War, there was a kind of rivalry for the hearts and minds of those in the third world; then, at the end of the Cold War in the late eighties, that competition disappeared.

We’re entering an era of a new Cold War, and we’re seeing a failure of the West. When I look at the Russian invasion of Ukraine, I find it so outrageous. It is a disappointment to me that there hasn’t been the kind of support I would’ve liked to have seen from developing countries and emerging markets. But I understand their anger.

They say, when we were dying with COVID-19, you wouldn’t even share the intellectual property. And you still won’t share that intellectual property. You’re putting your profits—of Pfizer and Moderna—above our lives; and now there’s this war in Europe, and we’re paying the price of higher food and oil prices, and you expect us to support you in this. So I understand that anger.

Then you conduct your monetary policy in ways that result in our having to pay higher interest rates, and much of our debt is in dollars, which is increasing the value. And then you’re telling us we have to have austerity because otherwise we won’t be able to pay back our debts.

Maybe the answer to your question is, the new realities of the new Cold War will force the US and Europe to begin paying more attention to the developing countries than the emerging markets.

Ahmed: Profound answer, Joe and what you say really relates also to what we hear from folks we work with across the world. I want to get to a final question here…

You’ve led the world to address inequality. Sometimes the fight does feel quite hard. What keeps you going, Joe, to, to keep fighting for a more equal world?

Stiglitz: I just can’t accept a world with the kind of social injustice that we see. I don’t think I could sleep at night if I felt I weren’t doing what I could to help create a better world. On the positive side, I think there has been progress. Sometimes I feel like it’s two steps forward, and then one step back.

We’ve been criticizing the IMF and austerity, but when I wrote Globalization and Its Discontents, I think things were much worse …Now, there is more focus on inequality.

There’s been a recognition that capital controls may be a better way of running capital markets in the midst of a crisis. There’s a recognition that austerity hurts, and is not the way to promote even paying debts, let alone growth. There are new views on how to deal with technical issues like debt sustainability.

I don’t want to say it’s unmitigated victory. I said it’s two steps forward, one step back. Maybe I’m too much of a student of the Enlightenment where I believe in progress and reason, progress…

I come to this from a fairly academic perspective. I very much believe in Enlightenment values, and I have to believe that if we reason together, we get out the facts; then maybe you might say it’s reason plus the moral goodness—the empathy that Adam Smith talked about in the Theory of Moral Sentiments—that will lead us in the right direction.

Daar: On that note, I’m smiling, during a tough week of thinking about the state of the world. Joe, this has been such a treat. You’re so inspiring, energizing, as ever. I’m truly grateful that you took the time with us today. Thank you.

Ahmed: Embracing that, embracing that moral goodness. Joe, thank you so much.

Howdy. You made it this far, why not check out our 2023 report on inequality? It’s pretty shocking. Survival of the Richest. Cheers!

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