Welcome. We continue our conversation with one of the worlds most influential economists sited by his colleagues in the field. Hes a nobel laureate, and hes mad as hell, infuriated by americas growing inequality as those at the top buy the politicians who write the rules that rig the system. Hes especially angry at how the tax code has been manipulated and abused to place the burden on the earners of ordinary income, instead of on the rich and powerful most able to pay. But Joseph Stiglitz says there are solutions. Heres what he told us in our last episode we have a tax system that reflects not the interest of the middle. We have a tax system that reflects the interest of the one percent. And i want to do is create a tax system that has incentives to create jobs. And if you tell a corporation, look it, if you dont create jobs, youre taking out of our system, youre not putting back, youre going to pay a high tax. But if you put back into our system by investing, then you can get your tax rate down. Theyre willing to take but not to give back. And now Joseph Stiglitz has come up with a plan for reform, a 27 page white paper for the Roosevelt Institute here in new york city, where hes a senior fellow. Its proposals could make the tax code fair, address our fiscal problems, shrink inequality, and help rebuild our country. Whatever else you do this summer, read it. Then, this fall, ask the candidates for congress where you live if they have read it, too. Joseph stiglitz, welcome back. Its nice to be back. You said in a recent speech, an Economic System that only delivers for the very top is a failed Economic System. You were pronouncing judgment americas economy has failed. Has our system failed . Unfortunately, thats what the numbers say. The Median Income of the american, median means half above, half below, median american today is lower than it was almost a quarter a century ago. Our economy has grown over the quarter century. Lets be clear about that. In a particular sense, but all of that growth has gone to the top. So you look at the middle, theyve stagnated. And if you look at, say, an important demographic group, males, Median Income of a fulltime male worker today is lower than it was 40 years ago. 1972 i think you say. Thats right. Amazing. Its amazing and americans have not yet grasped the reality of where we are. That our Economic System has not been delivering for most americans and the fact that this has been true and that we have no longer a country where theres opportunity, where the life prospects of a young person are so dependent on the income and education of his parents, means that our view of the way our Economic System works has to change. My view is that these are not inevitable. These are not just the result of the laws of economics. You know if it were just inevitable, just the laws of economics, youd sit back as an economist, youd say, well, thats the way it is. You know, thats, nature didnt deal us a good hand. But the same laws of economics are operating in other countries that have done better for their typical citizen, that have provided more opportunity for more of their citizens. So its not a result of our, of laws of economics. Or at least not a result of the laws of economics alone. Its the way our, its our policies and our politics that have shaped our economy, and shaped it in ways that have not served most americans. And an important part of those policies are our tax policies. Can you fix a point where inequality becomes unconscionable . Its not just the level of equality, its the form of inequality, the nature of inequality, the sources of inequality. So, for instance, give you two aspects of americas inequality that i find particularly unacceptable. Corporate ceos, that we were talking before, rather than making a more, a better product, spend their time lobbying to get their tax rates down. The bottom line is the same, if you make a better product or if you get your taxes down. It may be easier to lobby your congressman than to produce a better product. The result of that . A weaker economy, an unfair politics undermining democracy, more inequality. But thats the direction weve been going. So thats one example of what i call the unconscionable inequality. When it comes out of that kind of way that you can get the larger piece of the pie, not by making the pie bigger but by taking a bigger slice of an existing pie. The second aspect that is really been troubling about american inequality is the lack of equality of opportunity. And the problem is that inequality of outcome typically translates into inequality of opportunity. America likes to think of itself as the land of opportunity, the american dream. The statistics show that america is among the advanced countries with the least equality of opportunity. Its something thats hard for us to accept, its something hard for others to accept. But thats what the numbers show. So this is why Thomas Piketty in his book, capital in the 21st century, is concerned about this enormous transfer of wealth that is about to happen from all the billionaires and multimillionaires transferring their money to the next generation. Thats right and a quite legitimate concern that we are creating a new plutocracy. And so what ive been trying to argue in this paper is that doesnt have to be. We can have a tax system that can help create a fairer society. Only ask the people at the top to pay their fair share. Its not asking a lot. Its just saying, you know, those in the top one percent shouldnt be paying a lower tax rate than somebody much further down the scale. Shouldnt have the opportunity to move his money offshore and keep it in an unlimited ira account. And thats what really what my work has been about, to try to explain whats going on, to try to explain that its not inevitable, that its not just a matter of economics, that it is a matter of policies and politics, that there are alternatives. But that they wont happen on their own. That there are strong forces Political Forces trying to grab a larger share of the economic pie to exacerbate the already present distortions to favor the upper one percent. And that unless the others get together and try to act as a countervailing force things wont change. Wouldnt they be arguing that, well, they pay a lot more taxes because they do make this money and why they shouldnt be able to keep as much as they have, are keeping after they paid their share. Well, thats the problem. They havent paid their share. The point is that theyre getting, say, the top one percent gets 22. 5 percent of the income. That doesnt really fully include all these unrealized capital gains. So, it really doesnt really capture the full degree of inequality. The question is because they are so wealthy, they have the ability to pay an even larger share of the taxes to our country. But instead theyre using their money to avoid paying taxes. You know, these offshore tax havens are not something that we need to make our economy grow. We have a wonderful Financial Center in new york. Its wonderful both at what it does and what it doesnt do. But it certainly has the capacity of doing what any Financial Center offshore in the Cayman Islands. Ive never heard anybody say, oh, you know, the Cayman Islands really has a capability of managing money much better than new york. You know, those people in new york just dont know how to do those things. You say that we could stop these tax havens overnight. How . Well, you know, we did that, something almost, very similar after 9 11. We realized that these tax havens were also being used for funneling money to terrorists and we started figuring out what they were doing and we put the pressure on them and that stopped almost overnight. Now i was giving a talk on one occasion to, in one of these tax havens, and i dont know why, but they sometimes invite me to give a lecture. Maybe they think that its a penance for their sins. So i was telling them how bad it was for the global economy, especially bad for developing countries because these tax havens are also used for corruption, money laundering, narcotics, you know, all of these kinds of things. And after my talk a couple of the bankers came up to me and said, you know, you got us wrong. We dont do money laundering. We dont do corruption, we dont do narcotics. We just do tax avoidance. And that was their business model. And it gives a mindset of what this is about. And totally unnecessary. These offshore tax havens exist to avoid taxes and to avoid regulations and the other things so its avoiding responsibility. I want to put it in a broader context. Corporations are corporations. People, should we treat corp you know, the point is that what the Supreme Court decision of saying corporations have the right to contribute to campaigns as if they were people. But the interesting thing is while we give them those rights, we havent made them, given them those responsibilities. If when corporations do misdeeds, we typically dont hold them accountable. Look what the corporations, the banks did to our economy in 2008. Have they been held responsible . Not really. So what were saying is, oh they ought to have free speech, they ought to have the right to contribute unlimited amounts to distort our politics. But, by the way, once they do something wrong like create a financial, Global Financial crisis, well just give them more money. We wont make them accountable or their officers accountable for what they did. There was a remarkable moment in an interview that jon stewart did with Timothy Geithner about geithners new book and theres a moment in which geithner says we had to save them from their mistakes. They didnt pay for their mistakes. The country did. Exactly and, you know, he makes a very big point about saying they paid back all the money. Well, first of all, there was a shell game. The Federal Reserve lends the money at close to zero interest rates. They lend the money back to the government at much higher interest rates. Look it, if the government lent me hundreds of billions of dollars at a zero interest rate, i, too, could become a wealthy person by just investing in government bonds. This doesnt take a genius, a 12 year old could do it. And yet, they walked off with bonuses for doing that. And they used that money to help pay back the government. So this is a kind of shell game that would do any con artist proud. But when somebody brought, you know, makes an accident, somebody gets injured, what we did was analogous to we take the perpetrator, the guy who was the drunk driver to the hospital, but we leave the guy that has been hit on the street. And then we say, oh, by the way, you dont have to pay for any damage that youve done. So even after they paid back the government, the real question is whos responsible for all the damage thats been done to our economy . The people have lost their job, that lost their home . The banks havent paid back a cent of that liability and thats a real corporate responsibility. So how did you come to bring this sense of moral responsibility to the study of economics, this notion of a social contract . Was there a defining fork in the road . Probably was no defining fork in the road. I had the good fortune, you might say, of growing up in gary, indiana. An industrial town. Most people would say thats not good fortune. But it was good fortune in that it exposed me to the real america. My mother was a Primary School teacher. Dedicated. They were both very both dedicated. And but gary was an industrial city, marked by a lot of poverty, discrimination, episodic unemployment, Business Cycle going up and down. You couldnt help but feel that the market economy, capitalism, wasnt working quite the way that some of the people who say its this wonder of wonders. When i was an undergraduate at Amherst College i had thought i was going to be a physics major, theoretical physics. I really loved mathematics, loved trying to understand how the world worked. In my junior year i said, you know, what really motivates me is trying to understand our social problems, our economic problems, i want to become an economist. Then i went to mit, and never lost that original motivation for being an economist even as i was working on some very abstract, abstruse, mathematical economics issues about the consequences of asymmetry of information. It was all partly to try to understand why do we have so much unemployment . Why do we have discrimination . Why is the world that some economists depict, something that works like a clock, beautifully, why is that not right . Why is that so inconsistent with the world that i see . And so, that was always in the back of my mind as i was working on these more abstruse theories. And so, is that the heart of what you call, or is called asymmetrical information, that contributed to your receiving your work in, that brought about the noble prize . Thats right. Asymmetrical information. What is that . Its that some people know something that other people dont know. Very simple idea. But the whole theory of perfect markets that the devotees of adam smith and milton friedman, and all these people who think that markets work perfect, totally ignored. So the idea was that markets where people have different information, where some people know more than others, where markets work imperfectly, are fundamentally different from this world that they had described, where there was perfect information. You know, if worlds were perfect information, there wouldnt be any discrimination, there wouldnt be any of this monopolies and all, you know, those kinds of perfections are not part of the world that we live in. And so what my research did is to help clarify, and with other peoples research, help clarify why our economy doesnt work quite so smoothly as the advocates of free markets have claimed. Why we had a crisis in 2008. You know, thats not the way market economies are supposed to operate. Why it is, you know, the basic law of economics is you have supply and demand. With supply, the law of supply and demand, theres not supposed to be unemployment. You know, we have 20 million americans who would like a fulltime job but cant get one. We have an economy where, you know, in 2009, 10 we were throwing people out of houses. We had Homeless People and empty homes. Thats not the way a market economy is supposed to operate. Theres so many aspects that are so central to our economy that seem out of sync with that theory of perfect markets. And the evidence is so overwhelming that our markets dont work perfectly, that markets can and are an important force. But we have to shape markets. Come back to our theme of taxes, taxes are one of the ways we shape markets. If our tax system says speculation is going to be taxed at a lower rate, youre going to get more speculation. If our tax system says if you keep your money abroad, you dont have to pay taxes, youre going to get more money abroad and youre going to get less job creation inside america. If your taxes say we want to encourage Real Investments in america, then you can get more investment in america. So im an economist who believes that incentives matter. But i also believe that you have to shape incentives and that markets on their own dont necessarily shape them the right way. And that when we have a distorted tax system, distorted by a distorted political system that has given a huge amount of weight to the upper one percent, to the corporations, then that kind of distorted political system leads to a distorted tax system, which leads to a distorted Economic System, which leads to an economy that is not performing as well for most americans. Theres a quiet urgency in this white paper. I also read an excerpt of your speech when you received the Daniel Moynihan prize for social science research. And you said in that speech that this country is at another Pivotal Moment in history. What do you mean by that . Well, what i was referring to at that moment was there had been two periods in our history where inequality had risen to what i thought was an unconscionable level. The gilded age, the end the 19th century and the roaring 20s, right before the great depression. In both of those instances we stepped back from the brink. We realized where we were going as a country. We said, thats not where we want to go. And the gilded age was followed by the progressive era, antitrust policies trying to get at the monopolies, getting at some of the sources of this inequality that was undermining our society. The roaring 20s was followed by the legislation creating social security, created labor legislation that, minimum wages, maximum hours. Lots of things that we take for granted now but are a part of our social fabric. The question i asked was inequality has now gotten back to the level, that peak that it had back in 1928 before the great depression. Got back to that same level back 2008. So the question i posed at that point was will we, again, pull back from the brink like we did at the end of the 19th century, like we did in the roaring 20s . Im hopeful. But theres one note of caution. And that is, have our politics changed . Have decisions like Citizens United changed the power of money so that the inequalities in income and wealth that are so great today translate into more political inequality than they did . Thats an open question. And in my mind thats what this battle is about. Joseph stiglitz, theres a lot more in these 27 pages than we have touched on in our time together. We have posted your paper, reforming taxation to promote growth and equity on our website and urge people to download it and read it whole. Meanwhile, thank you for joining me and sharing your time and your ideas. Thank you very much. Theres much more about tax reform and Joseph Stiglitz at our website, billmoyers. Com. Ill see you there, and ill see you here, next time. 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