A myopic economist is taken to task

Joseph Stiglitz's 1% Fallacy, and Why We Can't Trust 99% of Economists

By John Tamny

The economics profession has suffered myriad black eyes in modern times, and with good reason. With its PhDs having been late on, wrong about, or authors of nearly every unfortunate economic malady to hit the globe in recent years, it's fair to say that economists rival the only class of people who actually listen to them anymore - politicians - when it comes to public scorn.

Economist Joseph Stiglitz apparently didn't get the memo. Possessed of hubris in abundance, along with an impressive lack of self-awareness, Stiglitz recently wasted ink and paper on a Vanity Fair rant about income inequality that was so full of falsehoods and misunderstandings that books could be written correcting his naïve droolings.

But since Stiglitz is doubtless green, and since this writer isn't interested in any association with him beyond a few corrections in online form, what's ahead will be somewhat brief.

To begin, Stiglitz makes the tired argument that over the last 25 years the rich have grown richer, with their income accounting for 25% of the U.S.'s total in concert with "control" over 40% of total wealth. He notes that 25 years ago, the top 1% could only lay claim to 12% of total income, and 33% of total wealth.

Of course it's what he left out that really informs such a discussion. Indeed, had he bothered to ask one of his research assistants to pull up a Forbes 400 issue from 25 years ago, he would find that the team picture is vastly different. Our top earners certainly are rich, but as a cursory glance at the most recent Forbes 400 reveals, most weren't members in 1986, thus exposing Stiglitz's suggestion of a stratified top 1% as stupendously false.

Not content to be wrong just once, Stiglitz continues to embarrass his profession with the absurd suggestion that the rich, for being rich, "become more distant from ordinary people." That's a nice thought, and probably true insofar as they usually live in nicer neighborhoods, but it's also a misread of how they got there.

As opposed to distant, the top 1% of today had a tendency to get there by virtue of having a very keen and close understanding of what the middle classes and poor desire. Whereas the other 99% doubtless looked on in awe 25 years ago as the top 1% enjoyed wireless cellular communication ($3,995 for a Motorola phone in 1983, not to mention roaming charges), personal computers (top end models in the ‘90s retailed for $9,000+ - and they didn't work very well), and cable access to the best television channels and movies the world over, members of today's top 1% achieved such status by making all three available at low prices to all Americans. Stiglitz complains that the lifestyles of the top 1% cause those "outside the top 1 percent" to "increasingly live beyond their means," but if he ever bothered to understand how fortunes are made, he'd know that a great deal of them are the result of making former top 1% luxuries quite common.

Stiglitz says the rich don't invest in the common good; as in things like education, healthcare and parks, but as a Columbia professor working in Manhattan, he surely knows that what he supposes to be true, isn't. To walk Columbia's campus is to see countless buildings donated, professorships endowed, and scholarships funded by the very people he says are heartless and distant. Farther away from Columbia, New York's advanced hospitals and well-appointed parks are a monument to just how generous the rich are. Notably, a great deal of wealth in the U.S. is the direct result of major healthcare innovations that improve and elongate our lives.

Considering those outside the top 1%, Stiglitz attempts to revive the similarly tired argument that "those in the middle have seen their incomes fall". What he leaves out is that the individuals in the middle today are not the same individuals as 25 years ago.

A good example would be Vanity Fair's grasping, social-climbing editor, Graydon Carter. A former railroad hand from Canada, and the living, breathing definition of the provincial suburbanite whose common hands he wouldn't lower himself to touch today, Carter, thanks to the very upward mobility that the U.S. offers, and which Stiglitz says is non-existent, now gets to live and pretend as though his origins were of the type that clearly impress him, and that his magazine worships. One would think that based on Carter's proud, and very American rise from humble beginnings that he might be more celebratory of the kind of mobility that he and countless other U.S. citizens continue to enjoy, but apparently desperate to be embraced by the dying fortunes that are largely absent from the Forbes 400, but that Vanity Fair elevates, Carter pays Stiglitz to trash one of the few economic systems in the world that someone of his background could have risen up in.

As for politics, Stiglitz views the political class as bought and paid for by the top 1% such that "big tax cuts are put in place for the wealthy", but if that were remotely true, why do so many of the richest 1% continue to financially support a president and party that are explicit in their desire to increase tax rates on the rich? This in particular should concern Stiglitz given the tautological reality that entrepreneurs can't be entrepreneurs without capital. Inequality bothers Stiglitz, the rich by virtue of being rich have the ability to grow wealthier by investing in tomorrow's entrepreneurs who are decidedly not in the top 1%, yet Stiglitz wants to tax away the very capital that would allow the poor and middle classes to knock the richest from their perches.

And not content to let markets decide winners and losers, Stiglitz seeks "collective action" from government to fix what he thinks ails us. An interesting idea, but one tried in the 20th century with disastrous effects.

Perhaps most comically, and horrifying at the same time given that Stiglitz is paid top 1% money to instruct college students, he notes that "Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few." His point there, if it can be believed, is that the alleged concentration of wealth stateside is akin to how wealth is distributed in the Middle East.

In truth, the stratified societies of the Middle East are exactly what will take shape here if governments, rather than markets, decide who gets what. Indeed, in the convulsing countries overseas the citizenry is to some degree up in arms because wealth has been achieved at gunpoint, as opposed to how it's achieved in the U.S. whereby consumers and investors choose who gets to be rich.

Stiglitz concludes his comical rant with the contention that the top 1% don't realize "that their fate is bound up with how the other 99% live." In truth, the top 1% knows what the other 99% wants intimately, as their brilliant fortunes reveal in living color.