Running head: THE PRICE OF INEQUALITY

The Price of Inequality

Bouchra Mrabeti
Foundations of Real-World Economics, Econ S-1005 An Internet based Web conference Course
Harvard Extension School

THE PRICE OF INEQUALITY

The Price of Inequality

In the past, the US was a nation with an upward mobility and was different from other
European societies with rigid class divisions, the young could anticipate to lead better lives than
the older people. Joseph Stiglitz in his book, The Price of Inequality: How Today's Divided
Society Endangers Our Future observes that the industrialization that is present in the Western
world paves the way for better intergenerational mobility (Krupa, 2013). The author of the book
has made various achievements during his life in the economic sector. He is an economist that
won the Nobel Prize, served as a chairman of the Council of Economic Advisors during the
Clinton era, headed the World Bank, and presently is a professor at the University of Columbia.
He asserts that there has been a worrying trend in economic inequality in the US and
deterioration in the intergenerational mobility (Carter, 2013). He notes that the level of inequality
in wealth and income in America has reached the highest levels historically and is higher while
compared to that of other industrialized countries. Indeed, the mission of the author in the text is
to make clear how the economy reached here. Since the situation is detrimental, measures should
be taken to change the situation.
The greater inequality is linked to a slowdown in the economic growth, the risk of
political instability, and greater economic instability. It is clear that he assigns the blame of some
political institutions and financial institutions as well as the contact between the two
organizations. Well-established companies misuse their economic power and hold back the
valuable information from consumers to help them to make better economic choices. What is
more, the market structure and rules are established through a political process that is often

THE PRICE OF INEQUALITY

destabilized by the capacity of large corporations to impact on legislation through political

contributions and lobbying (Carter, 2013). Altering the rules of the game has been observed to
have adverse economic outcomes, and it paves the way for political influence. The increase in
inequality and the decline in the intergenerational mobility are the predictable consequences of
this toxic interaction.
The book answers the question of what could be wrong with the US economy. He
believes that the situation is only getting worse and at an alarming rate (Carter, 2013). It is
important as it explains just how much the American society has become, asserts that inequality
is a major setback to the economic growth in the country, and shows the link between the
growing levels of inequality to changes in the political and economic institutions.
Most of the American citizens are aware of the high levels of inequality and I was
shocked by the statistics that Stiglitz cited in the text (Carter, 2013). The example that caught my
eye was about the six inheritors to the Walmart wealth that have more wealth than thirty percent
of the individuals that are considered to be poor in the economy. The statistics are more alarming
when observed in examples that are closer home. For instance, only nine percent of the students
in the specialized colleges come from the population considered poor. On the other hand,
seventy-four percent of the population is deemed to be well off. It is clear social mobility is no
longer the solution in the long-run (Krupa, 2014). Stiglitz refers to the studies that demonstrate
that there is likely to be social mobility in America than in other industrialized nations. I believe
that all these citizens should be informed about these facts.
There are those that argue that inequality is an adverse effect of the economic success
experienced in the US. Stiglitz makes a strong argument against the statement (Joseph, 2012). He
goes ahead to explain how regulatory and political processes have been controlled by the wealthy

THE PRICE OF INEQUALITY

and influential in a move to maintain their status in society. He cites the 2003 legislation that
touched on Medicare drug benefits that barred the government from negotiating the prices of
goods. This move only helped the companies that earned almost $50 billion annually (Woglom,
2013). It follows that this strategy is a significant wastage of government funds and it seen to
have a negative impact on the economy. Presently, major companies have more influence on the
laws and regulations and pay less attention to developing new products and markets.
These negative incentives are argued to be the starting point for the author's argument
that an improvement of fairness within the society would lead to the establishment of a more
dynamic and efficient economy (Woglom, 2013). First, the elites influence over the government
leads to the establishment of monopolies. As a result, greater inefficiencies are realized as
monopolies produce fewer goods and services in a move to overprice them and justify their
actions. Secondly, it is believed that the elite and monopolies have a firm belief in the status quo
(Joseph, 2012). Thereby, they make use of their political and economic power to impede on
change and innovation that could negatively affect their position as a monopoly or dislodge their
elite status.
The author's condemnation of the American economy fits together with the message in
other book titled Why Nations Fail: The Origins of Power, Prosperity, and Poverty that was
authored by James Robinson and Daron Acemoglu. They give a comprehensive historical
evaluation of the role that economic and political institutions play in promoting sustained
economic growth in different nations across the globe. In addition, a common aspect with stable
economies is that they encourage dynamism, innovation, and change (Joseph, 2012). In essence,
Stiglitz's assertions are a documentation of the lack of these inclusive organizations in America.

THE PRICE OF INEQUALITY

Despite the fact that the book has been well written and the author supported his
arguments through fact and statistics, I believe that some controversial statements are expressed.
For instance, Stiglitz states that the evaluation shows that the government spending that is known
as the simulative effect is significantly higher than the contraction impact that is also known as
higher taxes (Joseph, 2012). Despite the fact that I am sensitive to the argument, I have read
widely and there are some facts that prove otherwise.
The primary argument presented in the text is that the economic and political institutions
have become less involved and supportive of social mobility and dynamic growth. For this
reason, there is a need for change that calls for more inclusion in the establishment of the
monetary policies (Joseph, 2012). The elite should acknowledge that the status quo that is
maintained by the elite is harmful and does more harm than good as it results in the
establishment of an unfair and less dynamic economy.
The author observes that economic inequality affects the economy at large in the end.
Indeed, societies that experience high levels of inequality are financial underperformers and are
more prone to high crime levels (Krupa, 2013). A strong middle class leads to the establishment
of a sustainable demand for the goods produced by companies. In addition, it pays taxes used to
sustain the health care and infrastructure sectors and contribute towards the stabilization of the
pension funds and equity markets (Joseph, 2012). The American economy is in need of these
aspects that will adequately address inequality issues.
The text is clearly though out and the assertions have been supported by figures and facts.
The author paints inequality in US as it is and proposes some of the solutions that can address
this situation such as higher taxes imposition on the wealthy. I feel that the text is a good read
that could allow readers to get a comprehensive understanding of inequality in the US.

THE PRICE OF INEQUALITY

References
Carter, C. C. (2013). The Price of Inequality: How Today's Divided Society Endangers Our
Future. Journal of Real Estate Literature, 21(1), 141.
Joseph, S. E. (2012). The price of inequality: How todays divided society endangers our future.

New York: W.W. Norton & Company.

Krupa, J. (2013). Book review: The price of inequality: How todays divided society endangers
our future by Joseph Stiglitz. Retrieved from
http://blogs.lse.ac.uk/lsereviewofbooks/2013/06/04/book-review-the-price-of-inequalitystiglitz/
Woglom, G. (2014). The price of inequality: How todays divided society endangers our future.
Retrieved from
https://www.amherst.edu/aboutamherst/magazine/issues/fall2012/amherstcreates/stiglitz/
node/443402