Joseph E. Stiglitz - Rewriting the rules of the American economy: an agenda for growth and shared prosperity

Also by Joseph E. Stiglitz

The Great Divide:
Unequal Societies and What We Can Do About Them

Creating a Learning Society:
A New Approach to Growth, Development,
and Social Progress (with Bruce C. Greenwald)

The Price of Inequality:
How Todays Divided Society Endangers Our Future

Freefall:
America, Free Markets, and the Sinking of the World Economy

The Three Trillion Dollar War:
The True Cost of the Iraq Conflict (with Linda J. Bilmes)

Making Globalization Work

Fair Trade for All:
How Trade Can Promote Development (with Andrew Charlton)

The Roaring Nineties:
A New History of the Worlds Most Prosperous Decade

Globalization and Its Discontents

Copyright 2016 by Joseph E. Stiglitz and The Roosevelt Institute

All rights reserved
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The American economyand its discontents

Rewriting the Rules comes at a watershed political moment. Americans are anxious and angry, and rightfully so. This is, of course, a book about economics, but it is really about people.

The vast majority of Americansnot just the poorare deeply worried about the very basics: getting their kids a decent education, bringing home a paycheck that can put food on the table or pay the bills, saving enough so that one day they can retire. In the 2008 crisis and the deep recession that followed, more than 10 million families lost their homes or entered foreclosure, and 8.7 million workers lost their jobs. Even now, those with a home are worried about keeping it, and many displaced workers have either permanently dropped out of the workforce or taken low-skill jobs for less pay.

However, as this book will show, these economic troubles are not a recent phenomenon, and not only attributable to the crisis. Decades of meager pay have eroded not just economic security but also hope for a better future. For too many Americans, achieving or maintaining a middle-class lifestyle seems increasingly out of reach. They hear about economic growth and recovery on the news but dont see that translated into steady income or growing paychecks. Those at the top have more than recovered what they lost in the crisis as the stock market has soared. But not so the rest, who saw what little wealth they had wiped out. Ninety-one percent of all increases in income from 2009 to 2012 went to the wealthiest 1 percent of Americansthe epitome of unequal growth.

Some commentators point to other signs of recovery, especially in the job market. But despite a headline unemployment rate of 5.3 percent, millions remain trapped in disguised unemployment and part-time employment. The workforce participation rate has fallen to levels that predate womens widespread entry into the labor market in the late 1970s. The unemployment rate including those working part time involuntarily and those who are marginally attachedmeaning they want a job but are not actively looking for workis over 10 percent. In communities of color, rates are even higher, with unemployment among African-Americans double that of whitesas has been true for half a century.

Across every political divide, across every generational divide, and across our anguished racial divide, the American people are hungry for a new direction and for solutions that will create a path to a new and widely shared prosperity. Politicians in both parties now struggle to speak the language of inequality, trying to find ways to connect to the electorates anxiety. The 99 percent and the 1 percent have become part of the national dialogue. But no national leader has yet figured out how to explain, forthrightly and clearly, how the U.S. has become a nationwith so much talent and such a track record of growth and innovationnow mired in such chronic suffering. Nor has anyone laid out a clear, comprehensive plan to lead the country out of the morass.

It is in this moment that we offer a simple idea: we can rewrite the rules of the American economy so they work betternot just for the wealthy, but for everyone.

Our Answer: Rewriting the Rules

This book has been written to help explain whats wrong with the economy and how to fix it. It lays out a broad agenda for how we can rewrite the rules of the 21st century economy to achieve shared prosperity, with enough detail to show what needs to be done and to provide confidence thatif there is the political willit can be done.

This book was originally released as a report through the Roosevelt Institute, and was intended primarily for political decision-makers. But it struck a nerve far beyond that group. The New York Times called it an aggressive blueprint for rewriting 35 years of policies that... have led to a vast concentration of wealth among the richest Americans and an increasingly squeezed middle class. Time magazine said Rewriting the Rules revealed a secret truth about inequality. The Ford Foundation called the report a landmark. Of course, politicians listened, too. Senator Elizabeth Warren lauded the report as groundbreaking. Advocates, labor leaders, members of Congress, and presidential candidates called, requesting briefings and discussions and further explications of the rules. Importantly, they saw the report as a call to action: what could we do, specifically, now, to begin to create a stronger economy?

What We Thought We Knew about Economics Was Wrongand Why Thats a Good Thing

The core message here is simple: The American economy is not out of balance because of the natural laws of economics. Todays inequality is not the result of the inevitable evolution of capitalism. Instead, the rules that govern the economy got us here. And we can change those rules using what we have learned in economics and what we know about the people who make the rules and how they are chosen. Best of all, changing the rules to promote economic stability for American families will actually be good for the economy.

The rules shaping our current economy were informed by an economic orthodoxy that we now know is incorrect and outdated. Supply-side economics posited that constraints imposed by regulations and disincentives imposed by taxes and a generous welfare system were limiting growtha sharp break from earlier decades, when Keynesian economists emphasized insufficient demand as the limiting factor. Supply-side ideas led not only to deregulation and lower tax rates on top incomes, but also to cuts to social welfare programs and public investments. The results are now in: We cut top tax rates and repealed regulations, but the benefits didnt trickle down to everyone else. These policies increased wealth for the largest corporations and the richest Americans, increased economic inequality, and failed to produce the economic growth that adherents promised.

There has been a radical shift in economic theory since the middle of the 20th century, and a raft of new evidence allows us to better understand the strengths and limits of markets. The evidence shows that markets do not exist in a vacuum: they are shaped by our legal system and our political institutions. It also tells us that we can improve economic performance and reduce inequality at the same time. Put simply: the notion that we have to choose between economic growth and shared prosperity for many more Americans is false.