Review: Rewriting the Rules of the American Economy by Joseph Stiglitz

This book works as a corrective for people who think that government policy has little impact on wealth equality, but who also care about wealth inequality as morally bad. I'm not sure exactly what audience that is. Some elected democrats, I suppose, and some of their more dedicated but privileged voters. And that is, of course, who this book is addressed to. (Stiglitz wrote this report in 2016, presumably imagining a Clinton administration. In 2024, his discussion of recession recovery, inflation rates, etc, seems already somewhat dated.)

There are many entirely reasonable policies presented here. Capital gains rates should indeed be taxed at a higher rate. Worker bargaining needs to be strengthened. Patent laws are stifling innovation and hurting the general public, who cannot afford life-saving medications, or who have to pay exorbitant costs for it due to laws that block the public sector bargaining for a discount. Addressing these issues would indeed lead to a better economy for the majority of Americans. Though (perhaps because of this work and works like it) there is nothing particularly novel about these recommendations nor the way in which they are advocated.

There is very little role for the State to play in Stiglitz's path forward, other than simply tweaking the rules here or there. I, for example, would argue that if a business is too big to fail, it should be a state owned enterprise, while Stiglitz thinks such banks merely need to have better wills, and maybe be held to a higher level of scrutiny. I also think there should be a public retirement savings plan and many other such public programs, subsidized and well-governed, while Stiglitz believes the main responsibility of a public program is to encourage better market competition and that they should not be subsidized or otherwise given "unfair" advantages.

The analysis is overall flawed for three reasons, one economic, one political, and one philosophical. First, Stiglitz believes that "The American economy is not out of balance because of the natural laws of economics. Today's inequality is not the result of the inevitable evolution of capitalism." This is stated without further justification, as an axiom on which the rest of the book rests. Capitalism necessitates inequality, and sharpens inequality. If everyone has equal wealth and opportunity, there would be no workers for capitalists to hire, or no capitalists for workers to sell their labour to. Because owning capital means you can make money by having money, and without working, inequality naturally rises. Stiglitz takes aim primarily at the financial sector for not doing its job of providing liquidity for investing in production. This is, of course, not the job of the financial sector. The financial sector, like the manufacturing sector and every other private sector, has as its task the goal of accumulating capital. That is what it means to live under capitalism. The finance sector has done a fantastic job of accumulating capital. Stiglitz's proposals, such as implementing a tax on all financial trades, are no more than a game of whack-a-mole of trying to curb the less useful innovations in accumulation of capital.

Second, Stiglitz appears to be uninterested in how policy changes. There is, of course, a hand-waving towards how the government is primarily composed of the wealth, and how the private sector has captured the bodies that regulate them. These issues are to be solved with, for example, easier voter registration and holidays on election days (which are, I agree, policies worth fighting for!). But why would people with political power fight to disprivilege themselves? There is little evidence presented that they would, and Stiglitz seems convinced that simply reasoning with his audience and presenting them a few statistics would be enough for them to willingly sign over a few extra million dollars of their own wealth each year.

Finally, Stiglitz's analysis is ahistorical. In his telling, past efforts were all simply misguided policy decisions. "We now know" that "[supply-side economics] is incorrect and outdated", that "developed economies can rise without lifting all boats," that by "giving into such threats" that businesses would move elsewhere if we did not deregulate we "lost doubly" by hurting the economy and worsening income inequality, and that "the arguments put forward by advocates for capital tax breaks--that they spur investment--is wrong." But these were known before. Each of these policy changes were sharply criticized and opposed at the time. These critics have been proven correct, to little fanfare or reward. But Stiglitz seems uninterested in pursuing why we made these erroneous policy changes. And without asking that question (is it because of who had political power? is it due to fundamental assumptions about economics that must be revised, such as whether capitalism inherently breeds inequality?) how do we know we are not making incorrect policy decisions once more?