Nobel Laureate Joseph Stiglitz on Globalization, Inequality and Capitalism

(audience chattering) – Good afternoon. And happy Friday on this gorgeous day in Davidson, North Carolina. On behalf of President Carol Quillen and all of Davidson College, I extend a warm welcome to all of you, and particularLY Dr. Joseph Stiglitz, who's here with us this afternoon for the Cornelison distinguished lecture. As you know, Dr. Stiglitz
is a Nobel laureate and professor of economics
at Columbia University. And he's had a day here with students, faculty, staff, and community. And it's really our
pleasure to welcome you here to Davidson, thanks so much for coming. My name is Wendy Raymond. I'm the vice president
for academic affairs and dean of faculty. And it's really my pleasure to be here with all of you today. I'd also like to extend
a very warm welcome to members of the Cornellson family. We have here Woody Robinson, who's the daughter of
George Cornelison III. Her husband Shep Robinson. Somewhere out there is
John, who's a senior. Where are you, John? There he is in the middle. Thanks so much for your
family's incredible generosity and continued support of us at Davidson through the endowment
of this annual lecture, which is such an important
part of every spring here. So together, yes, thank you. (audience applauds) This room is also filled
with our economics seniors and juniors and other economic students and welcome to all of you
and all of our guests today. Today I look forward to hearing about Dr. Stiglitz's
wisdom about the topics he's gonna address us on, his talk is entitled
Capitalism, Inequality, and Globalization, three
topics that millions of people I think have spent lots of years studying over the millennia. And I'm so appreciative
that Dr. Stiglitz today will distill his ideas
about their intersections and synergies into about an hour. (audience laughs) I would like to welcome my friend and colleague Dr. Clark Ross, who is the Frontis W. Johnson
professor of economics, former chair of the
department of economics, former vice president for academic affairs and dean of faculty to
join me on the podium to introduce the Cornelison Lecture. (audience applauds) – With great pleasure, I reiterate the very warm welcome of Dean Raymond to this our 32nd Cornelison Distinguished Lecture. This is one time, sort of despite my age, when I'm delighted and proud to reveal the actual duration of my relationship with Davidson College. For in the mid-1980s, Charlie Ratliff, who at 33
is still doing quite well, but is in Florida, who
is department chair. Dr. Louise Nelson, Peter
Hess, who is with us today. And I worked with the very
gracious Cornelison family to establish this endowment that supports our senior session. The pinnacle of the senior session of this capstone course is the
annual Distinguished Lecture. We thank particular
George and Ann Cornelison, who with their family, particularly
their Davidson children and Wendy's made mention, for their transforming
gift in the early 1980s. And we are delighted that
their daughter Woody, her alumnus husband Shep, as well as their economics major soon-to-graduate soon
John are all with us. And yesterday marks the 32nd Cornelison Distinguished Lecture. Well older than any of the senior majors. I no longer can devote the time to list all of these
individuals who have spoken. But let me just give you
the briefest of flavors. Juanita Kreps in 1987, formerly of Duke, and
the secretary of commerce in the Carter administration, who was a true and loyal
friend of Davidson College, gave the inaugural Cornelison Lecture, challenging her then unknown successors to show Davidson seniors, as well as the Davidson community, the relevance of their study in economics. Over the years, many have done that. In 1989, we had Jack Coleman, I don't know if you know Jack, former president of Haverford, and a true pioneer for social justice, who used a sabbatical
to live on the streets of New York to advocate for the homeless. For those whose interest lie in modern macroeconomic theory, that evening in 1995 when Nobel laureate James Tobin spoke will forever be remembered. We had William Sandy
Darity in 2000 from Duke, esteemed as a leading economist with respect to issues of disparity, particularly those of race. Greg Mankiw, the respected
Harvard economist and former chair of the
Council of Economic Advisors with President Bush, was here in 2001 with some different reminders. One, one about the power of markets and the risk of ignoring them. Claudia Golden in 2008, whose work on education and inequality has been a standard in that field. Showed us how society, with
effort and expenditure, can become more equal and just. So I think I can say with pride that this department of economics has respected both the wishes and wills of the Cornelison family, and that charge given us by
Dr. Juanita Kreps in 1987 to use this Distinguished Lecture as a means to show our students how important is the work
they have been studying. Let me close again by expressing
the profound gratitude of generations of economic students to the Cornelison family
and to use two in particular representing them in front tonight. And by introducing our very
eminent department chair, Dr. Vikram Kumar, who
will introduce our 32nd truly distinguished lecturer. (audience applauds) – Thank you. I'm Vikram Kumar. As Clark said, I'm chair of
the economics department. And I join Dean Raymond and him in welcoming all of you here. It's just great to have you all here. We are delighted that
Professor Joseph Stiglitz has agreed to deliver
the Cornelison lecture. A very warm welcome to you too. I think we've been working
him too hard to do. (audience laughs) And welcome Woody and Shep and John. As you can see, we are using the Cornelison gift very nicely. I can hardly meaningfully
add to the remarks of my friend Clark Ross here. But what I can do well
is to give a shout out to all the seniors
(audience laughs) who are sitting here. So if you'll raise your
hands and give an applause. (audience applauds) So we'll punish them over
the month of February with multiple tests and oral examinations. And today I think they're going to benefit from some very,
very thoughtful presentation from Professor Stiglitz. For the audience that is not in this hall but seated close by and
watching the simulcast from the floor area, it's
great to have you here, whenever you are. (audience laughs) We're live streaming on
Davidson College's Facebook and YouTube channels. To those of you watching on social media, thank you for joining us live. Please share this live stream and encourage others in your
network to watch as well. After the live stream is over, the stream will remain available online on the Davidson College Facebook and YouTube channels is recording. A program like this would not be possible without the dedication of many people, to whom we are grateful. Named lecturers ambassador Jenny Ingrim. Managed all the details
with poise and style. Thank you, Jenny. Thank you Lasha Bashafeely
and Alex Sizemore. Rachel Murdock, Lisa Patterson, Jay Pfeiffer, Byron Miller
for technical support, Nathan Hunterwater for
social media and live stream, and to the staff of
Davidson Individual Inn for their hospitality. And finally, thank you to Dean Raymond and in absentia to President Quillen, and to my wonderful
colleagues in economics for your constant support. It is a very pleasant
task and honor for me to introduce Professor Stiglitz. Joe Stiglitz earned a Ph.D. from MIT after graduating from Amherst College. Just burst onto field of
economics shortly thereafter, and has gone on to earn multiple honors and accolades as befit someone who has left a large and lasting imprint across the entire discipline. I'm unable to do the justice to his contributions in
this short introduction not only because they are
so seminal and so many, but also because his CV is 125 pages long. (audience laughs) Seriously, seriously. (laughs) So I decided to do some
sampling from the CV and make some inferences
about the population. (audience laughs) (laughs) So I either estimated the
number of publications per page and then multiplied by
the number of pages. (audience laughs) Or I counted the number
of honorary degrees per vertical inch of paper, (audience laughs) and multiplied that by the number of inches of information. Or used some similar sophisticated
statistical technique. So based on that, let me give you, if you
wish, Stiglitz by the number. 650 articles, including
an all thought journals. 35 books, six textbooks, 40 edited books, 450 articles in media,
including all top newspapers, and Vanity Fair, and whatnot. (audience laughs) 150 named, invited lectures, not including this one, 60 fellowships and honors, including fellowships
in the American Academy of Arts and Sciences, the National Academy of Science, the American Philosophical Society, the Royal Society. 50 honorary degrees from institutions and countries across the world, including in Belgium, Romania, Israel, Portugal, the UK, Bulgaria, China, Italy, Bolivia, Australia, Argentina, France, Uruguay, and Madagascar, India, et cetera. At page 109 of the CV, I gave up. (audience laughs) The American Economic Association selected him for the
John Bates Clark Award, made, I quote, "Annually
to the American economist "under the age of 40 who is judged "to have made the most
significant contribution "to economic thought and knowledge." This was in 1979. The AA's website also notes that, and I quote, "The Clark
Medal brings notable "professional benefits and several winners "have gone on to become Nobel laureates." In 2001, Joe Stiglitz was
awarded the Nobel Prize in Economics for his analysis of markets with asymmetric information. Asymmetric information
refers to a situation where agents on one side of the market know more than agents on the other side. So, for instance,
borrowers know more about the capacities to repay
loans than lenders do. And managers know more
about the profitability of firms than shareholders do. Professor Stiglitz showed that
with asymmetric information, markets just don't do a very good job of accomplishing the
desired welfare outcomes. The problem of asymmetric
information is pervasive, with applications ranging
from agricultural markets to financial markets. Indeed, seminal ideas have
launched the entire area of the economics of information, giving us key concepts
such as moral hazard and adverse selection that are not common in textbooks, and to an extent, in the popular lexicon
after the financial crisis. His work has significantly
influenced the fields of development economics, trade theory, public finance, corporate finance, industrial organization,
welfare economics, theories of income distribution, monetary theory, and
macroeconomics broadly. As chairman of the Council
of Economic Advisors for President Clinton, and thereafter as senior vice president
and chief economists for the World Bank,
Joe Stiglitz has helped guide economic policy
that has had real effects on the lives of real people in the U.S. and across the world. He has used his substantial
intellectual capital to speak out against the
prevailing orthodoxies of the day, including the Washington consensus, the role played by certain
multilateral institutions, and the juggernaut of globalization. In his writings, he has repeatedly raised his
voice for social justice. Reading his Nobel blog
tells me a lot about what really motivates Joe Stiglitz, and why he more than others can speak honestly and with
great intellectual authority on the subject of today's
Distinguished Lecture. I will quote selectively from his blog, each one relating to globalization, inequality, and capitalism. So the first in quotes, and this is from his blog. "The the intellectually
most formative experiences "occurred during the
three years, 1960 to '63, "I spent at Amherst College. "Amherst is a liberal arts college "committed to providing
students with broad education. "The notion that every educated person "would have mastery of at
least the basic elements "of humanities, sciences,
and social sciences "is a far cry from the
specialized education "that most students will receive, "particularly in research universities." Well, we agree with that. (audience laughs) "The discussions of the encounters "between different civilizations, "that was a major theme of
our freshman history class "helped shape my thinking
about globalization "more than three decades later. "At first, I was a better position "to think about the current episode "from my historical perspective, "and see it more through the eyes "of the other side." And another quote. "The most important paper to emerge "from my thesis, The
Distribution of Income "and Wealth Among Individuals, "received considerable
attention at the time. "But unfortunately, the
topic has not been one "which has received much attention "from the economics profession. "So it has not generated
as much follow-up research "as I had hoped. "But the subject of the
causes and consequences "of inequality has remained "one of my abiding concerns. "One which I had pursued as I began "to delve into economics of information. And then finally, "The major concern "of my research on
dynamics was the stability "of the market economy. "The subject was central
to the ongoing debate "concerning the efficiency
of the capitalist economy. "If stability and efficiency required "that there existed markets that extended "infinitely far into the future. "And these markets clearly did not exist. "What assurance do we have "of the stability and efficiency
of the capitalist system?" Please welcome our 32nd
Cornelison Distinguished Lecturer, Professor Joseph Stiglitz
speak on the subject of capitalism, inequality,
and globalization. (audience applauds) – Well, that was a wonderful introduction. I think you could have
just continued going and given my
(audience laughs) my talk for me. Maybe I should give you a little bit about my background in how I came to be interested in
some of these subjects. I grew up in Gary, Indiana, which is a, was an industrial town in the southern tip of Lake Michigan. And as you'll see in some
of the slides I'll present, this was a moment of the
golden age of capitalism. But I didn't know that. I thought things were
actually pretty terrible. And when I saw as I was growing up was a lot of poverty, a lot of inequality, a lot of racial discrimination. Episodically, my classmates
didn't have any money because the economy was
in another recession. Or they were on strike
to get decent wages. So, we now look back in the 1950s as this wonderful period, and some people in
Washington would want us to move back 70 years to 1950. That would be a mistake,
it wasn't so great if you were living through it. And it was that experience that as I went to Amherst College kept affecting me. And I was a physics major. And finally I decided I couldn't go on thinking about physics. I always wondered what would have happened to me if I had continued my aspirations to be a theoretical physicists. But I became an economist,
so there you have it. (audience laughs) And as Vikram mentioned, what motivated me to go into economics was inequality, poverty. This was also the period in
the 1960s of the Peace Corp, people were worried about
at that time poverty in developing countries. And that was one of the subjects with which I was very concerned when I went to MIT. As Vikram mentioned, I
wrote the key chapter in my thesis was on the
distribution of income and wealth among individuals. And it was a subject that
was almost not talked at all at the time or
for the next 50 years. But eventually if you're patient, the world will come around
(audience laughs) and that I think is one of the lessons. Maybe I helped move it around. You mentioned Vanity Fair. I wrote an article in 2011 in Vanity Fair called "Of the 1%, for
the 1%, and by the 1%." And that article went viral. So my recommendation to my students is when I had written my original article on my thesis in Conametrica, it didn't get the readership
that Vanity Fair got. (audience laughs) So I don't know what the implications for publications is, but probably Vanity Fair
may be a better place than Conametrica,
(audience laughs) for those of you who have a choice. So I'm going to try to give a few ideas on these very big topics. I'm not gonna be able to give
you the definitive answer. But I hope I'll give you enough of a little clue about each of those that you'll have some understanding of how they are interplaying. So, the outline of my talk is that I'm gonna begin talking
about the multiple ways in which U.S. economy
is not performing well, for at least large parts of the economy. And I'm gonna spend a
disproportionate amount of time on that because I think
the data are so striking. And help understand a
lot about what's going on in American politics today. So I'll go through it. Some of you will be familiar with it. But hopefully it will be graphic enough that it'll grip you even
if you've seen it before. Then I'm gonna try give a little bit of the
macroeconomic perspective that most of you probably
won't be familiar with. And then I'm going to try to argue that one, not the only one, but one of the important explanations for what is going on is an
increase in market power, monopoly power in our economy. A very big deviation
from the standard model that all of you were taught in your standard economics course and maybe even taught in
your micro and macro course. And I apologize for your
having wasted so much time learning the wrong model.
(audience laughs) But that's part of the learning experience to realize that what you were taught was probably wrong. (audience laughs) And then I'm going to spend a few minutes on a discussion of some
alternative theories of trying to interpret what is going on. So, here is some of the basic statistics. While income at the top has been rising, the average income at the bottom 90%, we're not talking about the bottom, the bottom 90% has been
basically stagnant. Men have been having a
particularly hard time. I should remind, it is still the case that there is massive
discrimination against women. And so, women of any education level get a much lower wage. But they've been doing relatively better. And the change in the
structure of the economy going forward is very pro-women. And men are going to
have an even harder time. The inequality in the United States is greater than an any
other advanced country and has been increasing
dramatically since 1980 over the last third of the century. So here are just some data
that illustrate these points. The line that looks like
it's the horizontal access is not the original access. (audience laughs) It is the average income of
the bottom 90% of America. I didn't play any games here of scaling. These are natural numbers. Is that clear? One of the things that
you should have learned is how to lie with statistics. (audience laughs) But these are just the
numbers as they come out. And are striking that if you look at the numbers with a microscope, you can see that the bottom 90% have had some increase in income. But you need a microscope to see it. You don't need a microscope to see what's happened to the average income of the top 1%. You can see that that's gone very well. And I'm sure all of you in this room aspire to be in that top 1%. And most of you probably will. But you should remember
about that other 90%. It's not always been quite like this. This is data from called the World Wealth
and Income Database that Piketty and his
associated have put together. It's a real feat using what
they call administrative data. We didn't have these kind of data before. But we now do. And what you see there is that inequality reached a peak right before the Great Depression. Then came down, and then
you see that the low period was that golden age
that I didn't know about that I was living through
in the '50s, '60s, and then it went on 'til around 1980. Then you see it soar very rapidly. What this graph helps illustrate is that the United States has now achieved the highest level of inequality among any, I know I
shouldn't put it this way, but any civilized country. The purple line is Russia. And these are oil petrol companies. And these natural resource countries often have very high levels of inequality, developing countries for other reasons have high levels of inequality. But among the advanced countries, the United States has the highest level. And this focuses on the
developed countries. And you can see there is a trend in most of the countries, but United States leads that trend. Highest level, highest pace of increase. And there are some countries like France that have not had this kind of increase. I'll come back to that. Because with access, it's
not just economic forces. Laws of supply and demand are applying to all the countries. It's not like they passed a law and said the economic laws
don't apply in our country. They've shaped economies in different ways than the United States. And they got different outcomes. When you start looking at a microscope, you start realizing that no
matter how fine you look at it, there are more and more inequalities. So this looks at the top 0.1%, again, something I hope you all aspire to. What it shows is that while the wages of the top 0.1%, these are the top bankers and have done very well going up since 1980, 1978, by over 300%. So that's a large tripling. The CEO compensation has gone up almost 1,000%. And this is a distinctly
American phenomena, unrelated to productivity of the managers, unrelated to anything
other than market power within a board room in the United States being different from other countries, different systems and norms, different systems of
what their governance is. Now, there was an idea that trickle-down economics at one time. You give enough money at the top and everybody will benefit. So don't worry about
distribution of income. And some economists like Bob Lucas have argued very forcefully that of all the topics
that are most invidious, poisonous to talk about,
inequality is one. And I think that's wrong. But the idea of trickle-down economics is that the economy grows, if the people at the top
grow, everybody will benefit. I wish it were true because
the top has done so well, and if it were true, everybody else would be doing very well. But the figure I began with showing what happened to the bottom, the average come come at the bottom 90% shows it's not true. Now, if you watched some of
the Trump rallies last year, they were characterized
disproportionately by men, and often were angry men. And one of the reasons for that is that the median income of
a full-time male worker is at the same level that it was more than 40 years ago. Median means half above, half below. And remember, these are
the full-time male workers. So these are the lucky ones. These are the ones that are lucky enough to get a full-time job. A lot of the people have been displaced by deindustrialization
can't get a full-time job. So of the lucky ones,
if you're lucky enough to get a full-time job, your income today is median, is the same as it was 42 years ago. Meanwhile, of course,
you turn on the TV set. And you see a picture
that is very different of people doing much better. At the bottom in the United States, and this is again distinctly American, at the bottom things are even worse. Real wages, that is to say
wages adjusted for inflation, at the bottom are at the level that they were 60 years ago. And when I give these
kinds of talk in China, they can't believe it. Because 40 years ago, their per capita income was $150. And they would have been, everything has happened
in the last 40 years. Their income, on average,
has gone up a tenfold. And here we are 60 years, and no increase in real incomes. Now, this is the optimistic
part of the talk. (audience laughs) I want to give you some
of the bad news now. There are many dimensions of inequality. Inequality in wealth,
health, and opportunity. And all of these are
greater than in income. So to begin with, in wealth, there are eight Americans who inherited their wealth,
so they didn't work hard to get their wealth. They inherited their wealth. And they have, these eight Americans have as much wealth as the net worth of 150 million Americans, so the bottom 35%. That's really testimony to not only how much wealth there is at the top, but how little wealth
there is at the bottom. There is even more dramatic statistics. Three of the Silicon Valley, three of our high-tech entrepreneurs that actually did create their own wealth have as much wealth at the
bottom 50% of Americans. I said there are many other dimensions. Health is one of the other dimensions. And there are just huge disparities in health in the United States, much larger than other countries. Because we are the only advanced country that does not recognize the right of access to healthcare as a basic human right. And when you don't recognize that, you're going to have a lot more people without access to healthcare, without access to health insurance. And the tax bill that has just passed meant that an additional
13 million Americans will be without health insurance. So I'm gonna show you what's
the consequence of this. One of the consequences
is that we have now one of the few, probably
the only advanced country for which the average life expectancy is going down. And that's striking
because we're doing great research in America. Our great universities are discovering how to live longer. We're making advances. We know how to live longer. But we are not delivering that knowledge to a majority of Americans. And so, the majority of
Americans are dying younger. There's some other
reasons that I'll go into and explain in a minute. Now, what is striking about this is it's not all groups. It's particular groups for which this is true. This graph, which is
from very important work that Anne Case and Angus Deaton did. Angus Deaton got the Nobel prize in 2015. Use, looks at mortality. These are the probabilities
of dying per year. So it looks like the probability of dying, so if you have a higher
probability of dying, you have a lower life expectancy. So, what you see in this graph is that, for instance,
for black non-Hispanics, life expectancy is going up, mortality rates are going down. But what you see is for
white non-Hispanics overall, mortality is going up. But the striking one is that orange curve, which is the white non-Hispanic which have a high school or less. So you can think of this as a surrogate for lower income Americans. Their mortality rate
increasing dramatically. And what is striking
is that these patterns of death, mortality differ very markedly across the country. And some parts of the country have a much higher mortality than other. It's not like we're different people. It's the same genetic pool. It's economics that is driving this and access to healthcare and other aspects of our society that are causing this. But what I also want, again, this is from Case and Deaton, what this also illustrates, having a chart for 2000 and 2014 where they have it color coded by county. And the darker colors are the bad ones. Those are higher death rates,
higher mortality rates. What you see is how darker
the country has grown in just 14 years. And what you see is that
parts of the country, in particular towards the south, are performing much worse than
other parts of the country. One of the reasons for
the higher death rate, but only one of the reasons, is again what Case and Deaton
call depths of despair. People have given up on life. The only time I ever
saw anything like this was when I was chief of
commerce of the World Bank. And this was in the period after the end of communism in Soviet Union, and their society completely fell apart. Social Services fill apart, everything. It was total disorganization. We had data that GDP was falling rapidly. We had data that it was down by a third. But we couldn't believe it. I mean, this was unbelievable data. So, when we got data on life expectancy, which
the demographic data tends to be more accurate,
different sources. And show that life expectancy was down by two years among males in Russia. We had a sense that our economic
data was in fact correct. What we saw as a dissolution of society was actually occurring. And was having real life effects. And this is what we see, what is apparent, this is data from 2017, but the data already by 2015. It was already apparent
that this was going on. And so, what this orange curve shows you, the rapid increase in mortality from drug, alcohol, and suicide for both men and women, and disproportionately men in ages 50 to 54. And it contrasts so markedly with what's going on
everywhere else in the world. And you can see from that
it takes a sharp turn up in the year 2000. Again, what you see here is the march across the country of this
getting worse year by year. The final aspect I want to
talk about is opportunity. America likes to think of itself as the land of opportunity. everybody can make it from
the bottom to the top. Well, that's a myth. It's a defining myth,
one that's very important for our identity. But it happens to be not true. That is to say, the life chances of a young American are more dependent on the income and education of his parents than in almost any other advanced country. So I tell my students, there's really one and
only one important decision that you have in your lifetime, (audience laughs) choosing your right parents. (audience laughs) And if you mess up on
that, the game is over. It's not quite that bad, so I don't want, but what I want, the point is that we are not the country of equality and opportunity
that we would like to be, or we would like to believe that we are. And this graph from the OECD, the Organization of Economic
Cooperation and Development, a think tank in Paris, uses flags to just sort
of make it more vivid among these are the advanced countries. And what you see there
is on the vertical axis, on the vertical axis
is the standard measure of inequality, Gini coefficient. And the horizontal axis is a measure of equality of opportunity, which is the cross
generational earnings mobility. The relationship between your income and that of our parents. And what you see up there, two things are striking about that. Countries with higher inequality have less equality of opportunity. And it's almost obvious. When you have a lot of inequality, people are going to give more advantage to their children. And that's going to translate then into less equality of opportunity. I mean, it's natural. But it has profound
implications for society. The second thing that you can see is that there are very big
differences across countries. Reinforcing the point that I made before that inequality and
equality of opportunity are not a consequence of economic laws. They're not the result
of the laws of nature. They are the result of the laws of man. It's how we shape our society. And some countries have succeeded in shaping their societies in ways that lead to low levels of inequality and high levels of
equality of opportunity. And I should also point
out that these countries have high growth rates, the countries with low inequality have just as high or high growth rates as the United States, and
higher living standards. In the standard ways of
measuring these living standards. So up on the left-hand side, you see U.S. and the U.K. The AngloAmerican model. The high levels of inequality and low levels of opportunity. And down at the other side, you have Norway, Finland, the Scandinavian
countries and Canada. Canada's an important
example because it shows on the same continent people
are really very similar to us, have organized their society in a slightly different way, still a market economy. But they've changed some
of the rules of the game. They've changed some of
the healthcare system. They've changed some
of the things in ways, in fact, and you should know, in a way that leads to much more equality and equality of opportunity. And just to, in talking about
how different leadership does in leading to more growth, Trudeau has increased, in 2016, United States
and Canada had roughly the same growth rate. And the increase in growth
under Trudeau in Canada was three times, two to three times that in the United States. So some people would say if you want to think about
the difference of leadership, you can see it in comparing
Canada and the United States. You can see the same pattern that we saw in the problems of health, the problems of depths of despair. And in the patterns of
intergenerational mobility across countries in the United States. And so, again, you see
parts of the country which have the lowest life expectancy and also the highest mortality are also the counties in the United States with the least equality of opportunity. Just to spend a few moments
of global perspectives, I mentioned before that
U.S. has more inequalities than other advanced countries. But one thing is that not all countries have been experiencing an
increase in inequality. Some have actually maintained, have avoided an increase in inequality. And some have actually decreased the level of inequality. So this looks across countries, all the advanced countries. And the blue shows the level of inequality in the mid '80s, and the orange in 2015. And what's very striking is United States has had the highest level of inequality back in the mid '80s, but now has had the largest increase and is now unabiguously the champion. So America does things bigger and better than other countries, including inequality. This is a really interesting study that was done by Braco Moanavitch. Who used to work with
me at the World Bank. And it arrays everybody in the world from the poorest to the richest. It uses a log scale, so it's not quite, it
stretches things out. The point is that there
are two groups in the world that have done very well. The upper 1%, the upper
1/10 and upper 1/100 of 1%, a lot of billionaires
and America and India and China, they've all done very well. And the other group that's done very well are the rising emerging market, middle class in the emerging markets, India, in China, even in Africa. Two groups that have done very poorly are subsistence countries,
Africa in particular. Our agricultural policies have really hurt these countries which depend very heavily on agriculture. And the other group that
has done very, very badly are the middle classes
in Europe in America. So that's the group you
see way down at the bottom. These are the percentage increase over the period from 1980 to 2016. They've done very badly. So these are the people
that you would natural think of as disgruntled. Just a couple more statistics, then I want to go on to try to explain what's going on. The Oxfam does an interesting report on global inequality every year. And they try to use a little metaphor to help explain what's going on. They ask how big of a bus would it take to have as much wealth as the bottom 50%, the bottom 3.8 billion people. So in 2010, when they first came out with the report, you needed
actually a couple buses. 388 people had as much wealth as the bottom 3.8 billion. But we've gotten, the world
has gotten much more efficient in inequality. (audience laughs) And so, now in 2017 when I was there, most of these, it was just 42, almost all men had as much wealth as the
bottom 3.8 billion people. So it just gives you a picture of the nature of global inequality. So, now we try to understand what's going on. First I want to talk
about the macro picture. For macro economics, what we do is we look at the various, the capital, labor, and everything else, which are rents. And so, we want to know, if a share of labor goes down, it's almost inevitable that
inequality is gonna go up. Because most people just have labor. Wealth is very concentrated, as you just said, 42
people have as much wealth as the bottom 3.8 billion. So if the share of labor goes down, there's going to be more inequality, and if the share of rents goes up, that is to say the market power, monopoly power, there's almost inevitably going to be more inequality. And that's basically the
story that I'm gonna tell in a few diagrams I'm gonna put. And one of the odd things about what's been going on is that the share of investment
in the United States has been going down, that is to say the percentage of GDP going into investment is going down, while the profit rate is going up. And that's a mystery because normally you would
say if it's more profitable to invest, shouldn't there
be more investment going on? And that's not true in America today. And it's not true actually in a number of other countries. And so, let me just look
at some of these pictures. So this looks at the share of labor. But what they do is take
out the top 1% of labor. And this is just a lesson
about the gathering of data. When you gather data on labor, it includes anybody that fills out a W2. So a CEO of a company, or a banker, is going to be treated as labor in the data that we use. 'Cause that's just how
to data gets collected. But those aren't laborers in the sense of somebody working, they're working, but they aren't working in the way that we mean labor. Is that correct? That's not the ordinary use of the word labor. So if you take out that 1%, what you see is, focus
on the 99% of labor. The share of GDP that labor gets is going down from 75% to 60%. That is a huge change in a period basically since around 1978, 1980. That's a kind of change
that normally you don't see in a short span of time. It used to be said that watching
income distribution change was like watching grass grow. It just didn't happen very quickly. But now we're seeing it happen. Another way of seeing what's going on is the productivity of American workers has continued to grow pretty steadily, but something happened around, again, around 1978, 1980. Because before that, when
productivity went up, compensation went up in tandem. But suddenly, that link
between productivity and compensation broke. And workers got a very small percentage of in the increase in productivity. Now, what is striking is actually the share of capital is going down. Now, there's no real data to where you can look
up the share of capital. You have to make an imputation to do this. But the way we do this is we have data on the capital stock. We know how much firms invest every year. We know depreciation. So we can calculate what
is the capital stock. We have data on that. And we know what the return on capital is. So we know what the return on T-bills are. We know what the risk premium are. So we know what a return on capital, not including monopoly profits, just the normal return on capital. And if you look at the capital stock and you multiply it by the
normal return in capital, that number is going down. So two things, if the share
of labor is going down and the share of capital is going down, something must be going up. And that is rents. I'll be talking about
what do we mean by that. But first I want to talk
about the couple graphs showing some of the anomalous aspects of the U.S. economy. This shows that since the late 1980s until roughly today, the return, corporate
profits have gone from roughly 4% of GDP to around 10% of GDP. That's a 2 1/2 times increase
in the share of profits. That's a huge increase. But what's happened to investment? Basically nothing. Down a little bit. So the question is, why? And the answer, I think, is again, rents, monopoly profits, monopoly profits are a form of rents. And when you have monopoly, you are reluctant to invest, because when you invest, you're cannibalizing your own market, you depress your prices, and the margin return is lower
than your average return. So that you don't want
to increase too much because that will kill your own market. So that provides a very
convincing explanation. Now, you can see this disparity, what is going on is that in the last 15, 20 years, there's
been an enormous increase in capital gains. So, this measures, this is data from Piketty stuff where you look at what
happened to wealth income, which is mostly capital. The capital income ratio of the
United States is going down. We're not investing enough to keep up with our growth of our income. So our wealth income ratio is going down. But if we include capital
gains, it's going up. Well, what's the difference? Well, if you own land, the value of your land is going up. You're wealthier, you get a capital gain. But is the country wealthier? Do we have more land when the value of land goes up? Obviously not. So wealth is going up,
but capital is going down. And what that means is there's rents. And the rents take a number of forms. Land rents, knowledge rents, appropriation of public resources, a whole other form of exploitation. But the most important and one that I want to focus
on are monopoly rents. And when you take those monopoly rents and you capitalize them, that is the capital gain that
you see on the stock market. And so, the value of these corporations is much higher than the
value of the capital stock. There's a gap between the
value of the corporation and the value of the capital stock. And what's that difference? It's the value of the monopoly power. What they can extract from their position of having market domination. So, what is of concern is that that kind of increase in wealth that we saw in the previous graph doesn't lead to an increase in well-being. It doesn't lead to an
increase in productivity in the economy. In fact, as you saw, the capital stock is actually going down. More monopoly power means the economy is less efficient. It's distorting the economy. And so, what we have is that the result of this
increase in monopoly power is that we have a, the owners of the
corporations are better off, you get more inequality. But we actually get an overall more poorly performing economy. There are many pieces of evidence of this increase in monopoly power. There are a lot of econometric studies that have been trying to get at this. So this is not just my work. It's a whole research
agenda of many scholars. And it shows up in
increased concentrations in many sectors of the economy. If you start thinking
about sector after sector, you realize we're getting
concentration in airlines, in health insurance,
in sector after sector that there have been, in banking. There's been increased
market concentration really in sector after sector. And that increased market power gets reflected in high rates
of return, high markets, and it's consistent with
the pattern I said of high rates of return with
levels of investment. So, one of the consequences of this is that there is a weaker overall economy. One of the things when you have more inequality, you are redistributing income from the bottom to the top. People at the bottom spend more than the people at the top. That reduces overall demand. And if you're going to keep demand high, you have to have some
countervailing measures. One of the things that we have resorted to on a number of occasions
is creating a bubble. We created a tech bubble,
we created a houses bubble. Who knows what's the next bubble we're going to create. It works in supporting
the economy for a while. And we know that it's only temporary until it leads to a crisis. It also distorts the economy. It discourages investment, it creates barriers for entry leading to a less dynamic economy. One of the striking things, I don't think I've
included the figure here. One of the striking things is if you look across different countries, there are data now in what
percentage of the firms are new firms and firms
run by young people? So, we think of startups, and they attract our mind. But statistically, the question is, what fraction of firms
are actually new firms? Turns out, the U.S. is much poorer than many other advanced countries. Including, for instance, Korea. So we think of ourself
as a dynamic economy. The statistics say,
actually, we used to be. But we no longer are. And one of the other
things that happens is if you can hold rent
capital, as I call it, whether it's land rents or monopoly rents, you don't have to create
more real capital. And so, the decline in
real capital that I showed relative to income is a consequence. It's not an artifact, it's a consequence of this increase in
monopoly power, in rents. So, the picture that I'm
trying to get across today is that the 21st century capitalism is not the competitive economy that is the center of textbook models we've become very different, and it showed up in many, many ways. In inequality, in all the statistics, or macro picture of our economy. And one of the implications
of this is that curbing monopoly power would lead to a more efficient and
more dynamic economy with less inequality. And this is a one aspect, but an important one, of a fundamental change in the way today economists look at inequality. 50 years ago, Arthur Okun, who was share of the Council of Economic Advisors under president Johnson,
wrote a very famous book called The Big Tradeoff. And he said, if you want
to get rid of inequality, you're going to have
to accept lower growth or lower income. And the reason he was thinking about that is the only way to do it was to have more progressive tax. And that would have disincentive effects. That was what he was going
on about in his mind. But now we understand
that when inequality gets as extreme as it is now
in the United States. Remember, when he was writing, we didn't have that extreme inequality. Today we do. When inequality gets in
the extreme that it does, it has really profound
effects on our society. And those profound effects
mean that our economy actually performs more poorly. And that was why the book I
wrote a number of years ago was called The Price of Inequality. What I wanted to say
is it's not a tradeoff. We are paying a very high price for the inequality that we have. We have to pay a high price, I argue, there for our democracy, for our society, but also for our economy. And I want to make clear that this is not a left-wing view. Some people say I'm a left-wing economist. I don't think so. I call myself a center economist. Everybody else is over on the right. (audience laughs) But the point I want to make is that this particular view is a view now that is espoused by the IMF, the International Monetary Fund. And those of you who know the
International Monetary Fund know it is not a left-wing organization. It is the center of the finance and the establishment. And the evidence is just so
strong that you can't ignore it. And the IMF has really made this idea that if you want, I asked
the head of the IMF. Why are you making such
a big deal of this? And he said, well, our
mandate is to promote economic growth and stability. And we know the evidence is overwhelming, you have promoting economic growth and stability means you have to have a more equal society, more equal economy. So it's an important idea to try to keep in mind. Let me just very quickly talk
about some general comments and some alternative theories. Some of these are complementary. When I say monopoly power
is an important ingredient. I want to emphasize it's not the only one. But there are some theories that I think do not carry much weight. They have a little
weight, but not very much. There are a number of theories that try to work within the
standard competitive paradigm and say, use the competitive model to understand the growth of inequality. One of them was skill-biased
technical change. The technical change has
occurred in such a way as to increase the demand
for skilled workers at the expense of unskilled workers. Some truth to that. But remember the figure
that I showed before here, that is the average of workers. Skilled and unskilled mixed together. So what has happened is not the relative of skilled versus unskilled. Which happened to all workers. And even skilled workers are finding their wages stagnating since 2000. So that theory isn't very good. Globalization does play an important role. And one of the important misrepresentations were those who said that globalization would
make everybody better off. By itself, without
countervailing measures. So there were good arguments
that globalization, allowing countries to take advantage of comparative advantage
and specialization, would lead to a higher GDP for the country as a whole. But there's a very big difference between trade with Europe and trade with a developing country. When we're trading with Europe, we're trading with a country that's roughly the same
standard of living. And the benefits for that trade is greater specialization. They produce some kinds of cars. We produce other kinds of cars. And you can go across it. You broaden the spectrum of products. When you're trading with a
less developed countries, what happens is they have
a comparative advantage in unskilled intensive goods. And what that means is they produce more
unskilled intensive goods and we produce fewer
unskilled intensive goods. And what does that mean? That means the demand for
unskilled labor goes down. And that means wages of
unskilled wages goes up. And this has been well-known
for 50 years, 60 years. So how one could argue that
free trade, with China, for instance, would benefit everybody in the absence of actions to offset the lower wages was a lie. It was part of a corporate agenda that liked getting lower wages. And one of the problems was that that would have been bad enough. But then we had investment agreements inside our trade agreements. And what these investment agreements did in a very peculiar way, gave more property
rights to American firms if they invested abroad than if they invested in health. And so, we effectively
through our trade agreements were encouraging firms to move abroad. And they had a further effect. It meant that workers realized their bargaining power was lower. Because if they said I want a higher wage. They said, oh, too bad. I can get better property
rights in Mexico, or somewhere else, and lower wages. And then I can bring the goods in free. So the distributive effects were not really taken on board. And so, globalization did play a very important role. The societies I showed before that have had more equality and less, and more equality of opportunity, they understood all this. They understood this perfectly. And they were committed to real democracy. And they said, if we're
gonna keep an open economy, if we're gonna keep an economy which is open to technical change and to globalization, we have to make sure that
most of our citizens benefit. And that was why they instituted the policies that worked. It was their commitment as a democracy and say if we don't do this, we will get an
anti-globalization backlash. And somehow America
didn't understand this. And that's why we are where we are today. Let me just include,
because I know we want to have time for questions, so one of the thrusts of
what I'm trying to say is inequality is the
result of our policies. Different countries
took different policies. They wrote the rules of
globalization differently. They had different competition laws, corporate governance laws, bankruptcy laws, labor laws. What happened is we
restructured the market economy, beginning in the late '70s, 1980, in ways which disadvantaged workers, advantaged CEOs, and the result is the
dysfunctional economy that we have today. So, there's a clear policy agenda, which is you can't go back to the past. Let me make that clear. You can't rerun history. And you can't say we're gonna go back to the 1950s, even if you could, you wouldn't want to. But you can't do that. But what you can do is understand where the laws that got us where we are, let's rewrite those. And, for instance, market power, we could have better enforcement. We need new standards. Those of you involved in anti-trust. We have very Supreme Court decisions about predatory pricing
that were just wrong based on Chicago School of Economics that markets are naturally competitive. Europe has a different standard, what they call it, abuse of market power. In the United States, if you acquire monopoly
power legitimately, you can do anything. So that's why the company,
I don't remember, Valeant, raised the price of a drug 1,000%. That was not against the law. We allow that. In Europe, it would be against the law. It should have been against the law. And if you look, there are
dozens of cases like that. But our competition laws, as they have evolved since they were first put in, allow that to occur. So, we need to remember why
we had competition laws. They were enacted more for protecting our democracy than for protecting our economy. Because they realize that if you have too unequal an economy, you are not gonna have
an effective democracy. And unfortunately over the
succeeding hundred years, the competition laws got
taken over by economists. And rather than put the scientists or people who are worried about
broader societal concerns, and they got taken over
by Chicago economists, and they got narrower and narrower until we have the laws today
that don't work at all. So America is unusual
among advanced countries in the high level of inequality and low level of equality of opportunity. And I believe our economy and our society is paying a high cost for this. And what I try to do is to say there are actually multiple explanations. Monopoly power is one
of the important ones. Globalization is another one. The way we shaped it, not inevitable. Scandinavian countries are very open, very globalized, but
they manage globalization in a different way. And the final point I want to leave you is that we can achieve a
better performing economy with greater equality if we once again rewrite the rules of the American economy, including the rules for globalization. Thank you. (audience applauds) – [Vikram] Well, thank you, Dr. Stiglitz for the insightful lecture
on important topics. We have some time here for questions. And I know that you have many. Could we have the first couple
of questions from students? You've never been this
shy when I'm teaching you. (audience laughs) – I've been so clear. (laughs)
(audience laughs) – [Student] Thank you for your speech. It was very, very good. You brought up the comparison with Scandinavian countries, and I know in the popular press, a lot of the conservative media doesn't like the comparison with the U.S. against the Scandinavian countries. And what do you think about that? – Yeah, I think that's wrong. I mean, obviously, let
me put it like this, the question is, could
we do the same thing that Scandinavia does? Is there any reason that we couldn't do, what are the policies that they've done and the kind of policies
that they've done? First of all, they've recognized the issue that I said is at the core. That if you want to have
a democratic society, that is open. That globalization will
lead to greater inequality. And with not only inequality, with large fractions of the
population being worse off. And no democratic society,
really democratic society, will sustain that. So if you want to sustain an open and innovative society, you have to do something. Now, we didn't do anything. They did something that
worked for Scandinavia. That's clear. So their model, they succeeded. Then the question is can
you replicate what they do? Not identically. But is there anything
particular about them? One argument about them is, well, they're very homogeneous societies. That's actually not true anymore. They were at one time. But 17% of Sweden is immigrants. So I don't know what the number
is for the United States, but it's not that much different. That's a large percentage
of their society. They've become very open
to even immigration. They accepted a larger number, let alone percentage,
larger number of refugees from Iraq from a war that we created. They took more responsibility
for the refugees and the people who were
being killed, or displaced, than we did for that war. And Norway is the same thing. It's been much more open
relative to their population. If we go through the policies that work, one of them is strong macro policy to try to keep their
economy at full employment. We didn't do that very well. We needed fiscal stimulation in 2009. We should have had a bigger
deficit in 2009 than '10. But we couldn't get it through Congress. We don't need it in 2018. So the timing of that tax bill was fundamentally flawed. And if we had done that, we would have had, arguably might not have
been in the position we are today. Secondly, they have active
labor market policies. And what that means is
that if you lose a job, they give you training
for jobs that exist. And they've been very successful. If you get training for
jobs and they don't exist, obviously programs won't work. So they've really linked
that active labor market. They have industrial policies. They try to think about
what are the sectors that are going to have to be growing as sectors decline. So those have been, and other countries have been very successful
in those policies. We have some of those, but
not as much as we should. Both Norway and Sweden
have what are called place-based policies as well, regional policies where they say there's some parts of the country where people are not moving easily, for one reason or another. And wages get depressed. If mobility were perfect, wages would be the same
everywhere in the country. We know that's not true. And the standard model
that Congress works with is perfect mobility. But we know, as I say, we don't. And sociologists have actually
done really good studies of why that's not true. It's been more of a subject of sociology than of economics, but we now know. And so, recognizing
that people can't move, you need very carefully structured place-based policies. And so they did that too. And other countries have
not done it perfectly, but they've done a lot better job than we did with Detroit or with my hometown, Gary, Indiana. If you go there, it's a disaster. I did a movie of about
globalization in Gary. You can see what a
disaster globalization did to my city. – [Student] Hello, I'd first like to say thank you for coming to speak. I really appreciated your talk. My name is Levasalu Tanjon. And I just had a question concerning exactly what type of economic education should we be receiving if the one that we're currently learning might not just be (laughs) (Dr. Stiglitz and audience laugh) in line with the way a well-performing economy
would actually work. – Well, I think the most important thing is making sure you have an open mind to different models. That realizing that a lot, unfortunately, a
lot of what economics, economics is not like physics, where we know the laws of gravity, and we can all agree
about the laws of gravity. Not everybody agrees
with me on everything. And so, I would even
encourage my university that people hear other
views of the economy. But I think that, so what I think, you have to learn about supply and demand. You have to learn about
asymmetric information, moral hazard, adverse action. But you should be suspect
when you have a model that says the economy is efficient. And you look around and you say, all the these inefficiencies. Why were we building shoddy homes in the middle of the Nevada desert in the years before the 2008 crisis? We know that was massive
waste of resources that we did. If you look at a growth path of the U.S., where we would have been and where we are as a result of that crisis, the loss is in the trillions of dollars. Yet you have to say something, the market is not efficient. So any teacher that says
the market is efficient, you should be suspect. If they say the market is stable, that it recovers very quickly, it took us 10 years to get
out of the the 2008 crisis. We're finally getting back
to normal unemployment rates. But our labor participation rate is still not back to normal, at least in most studies of the topic. But it's taken us say eight, 10 years to get back to normal. That's not a quickly
recovering, stable economy. So I think the most important thing is when you see a conclusion and theory that seems so out of sync with what you see, you
want to question it. And unfortunately, when I was, glad to be just to go
on to write my papers on economics and information. I was taught when I went to school that the markets were efficient. And I was around that, so obviously that's wrong. And I once got into an argument with James Tobin about it. Because he thought they were inefficient. But I thought they were more inefficient. (audience laughs) But we had a long discussion about what were the major
sources of inefficiencies. What were the rigidities. After a lot of thinking, I came to view that it was one of the key problems
that was left out of the standard theory since Adam Smith, or before Adam Smith was information. All the models that assume
perfect information, that was left out. – [Man] (mumbles). – [Student] So you were talking about how in some way globalization has reduced the bargaining power of laborers in a way. So I guess my question is, and since we were talking about how in order to kind of reduce inequality, we have to rewrite the laws of America. So my question I guess
is what's your opinion on labor unions? And kind of bringing back how labor unions were a big thing. – I think you need stronger unions. One of the things that happened was we've weakened collective
bargaining greatly. And the, inside the firm, there are many imbalances of power. And corporate governance laws have given the CEOs the ability to extract more of the revenue of a corporation. You saw those numbers going up. But the labor laws have weakened the ability of workers
to collective bargain. Globalization is also affected because unions couldn't bargain if the company said we're gonna move. So you have no power. But if they were here and then you would have some discussions about what is a reasonable wage, what the company could afford. And you get a little bit
of a bargain going on. And the evidence is overwhelming that labor markets are
far from competitive. So that bargain matters. And you see that in some very clear ways in the retail sector where companies like
Walmart, for instance, have split shifts, I
don't know if you know, where you work from like 10 to 12, and then you work from four to eight. You ask, what are you supposed to do in the middle of the day? Especially if you're poor you have to commute
for an hour and a half, basically they make
you work an 11 hour day and pay you for seven hours. Some states have now outlawed that. Another one that they do is demand scheduling, they call it. You don't know what
hours you're gonna work until the Friday of the week before. Can you imagine if you have
to arrange babysitters? You have no control over your life. And what studies have shown is that these kind of things, the cost to the individual's well-being is just enormous. It wouldn't occur if they
had bargaining power. The company may get a
little profit out of that. But the cost to the worker
is disproportionate. And their actually have been studies that say you can explain a very significant part of the growth of inequality to the weakening of bargaining power of workers. – [Man] I'm not a student, in
case you hadn't guessed that. (audience laughs) I was a little puzzled by the data on, excuse me, the bottom 90% of the U.S. population. Because if you look at the Census Bureau's household incomes, they
do it by quintiles. And if you look from 1980 until 2016, the last I have, each quintile has gone up in average, and how much it's gone up much faster at the top. But they've all increased. Is the data set substantially different or what am I missing? – Well, these are, I
understand the question. It may be partly different price equators. But this is 90%. It's the– – [Man] No, I was referring to
the flatine that you had up. – Yeah, that's the flat line. – [Man] Oh, right there. – Yeah, that's the chart. (audience laughs) – [Man] I thought it was an axis. (audience laughs) – No, that's the point. It looks like the axis. And it does go up. Let me say, I did say if
you look with a microscope, you can see it going up. – [Man] Yeah, but if you look at the, the data sets must be different, because if you look at the Census Bureau, for example, the top
quintile obviously grows the most rapidly, but even the lower two, or the bottom two, or the second or third quintiles grow about 15% to 20% by their data. By the Census Bureau's data
is what I'm talking about. – The median income adjusted for inflation of household income is
actually been stagnant for the last 25 years. – [Man] Well, I'm sorry, we're
from different data sets. – Yeah, maybe that's, and I don't want to make a very big deal about this. What I want is even if you
use the other data sets, I've looked at lots of data sets, they all have a picture of, so, the bottom line might have
been going up a little bit, but you have to scale it down. The reason that that's so low is that disparity of
income between the top and the average is so low that you can't see it move. So there is, as I said,
there is an increase there. Just relative to the
scale that I've used here, which is the natural numbers, that is hard to detect. – [Man] I see that in the graph. What I'm saying is I think
it's a different data set. – Well, that may be, yeah. – [Man] Just a quick note
about that exact axis, I think what's happening
is that the axis there is in euros, not in percent. And the numbers you're
talking about are in percent. So the idea is that the
number that's on the axis is very close to zero (mumbles) euros. And even if there's a substantial increase in percent terms because
it's starting at zero. It's gonna be a very small (mumbles). So I think the census
that you're talking about is going to have percentage
on the vertical axis. – [Man] (mumbles). – [Vikram] I'd hate to
interrupt a lively exchange. There is another question here. In the interest of full disclosure, lest you accuse me of nepotism, this is my wife who wants
to ask you something. (audience laughs) – Yeah, but can I just say one more thing? This other data, the basic pattern that we're talking about shows up in every one of these data sets. And this is from the census– – [Man] The 90% one (mumbles). – So this is like from the Census Bureau. And that shows that the median income of male workers is the same
as it was 42 years ago. – [Man] Which should be different
from households (mumbles). – Yeah, and this is the income, the Gini
coefficient from the OECD shows again this huge inequality and that it's getting larger. So the basic pattern is just almost every data set
is consistent with this from every source. – [Man] I don't question that. I'm just saying that I think
there's in some (mumbles). – Yeah. – [Woman] Hi, thanks. – Hi. – [Woman] Hi, Dr. Stiglitz. So as a practicing neurologist, I feel like a major stumbling block of providing healthcare
as a right in this country is the expectations of
the American people. So I have this perception
of the American psyche as a group that want
everything done at all costs. And, for example, an MS patient in Canada only has a choice of one drug to start on. In this country, there's no less than 10. And every one that comes
out costs more and more. In Britain, there's a common
Alzheimer's generic medication that is not given because
the data doesn't really show that it affects outcomes. And in this country, not
only do we give that. But we give another drug. And today I saw a patient with advanced severe Alzheimer's, so severe that he can't speak and walk, and he in the last four months has had two MRI scans and a PET scan. So with this American psyche, and I see it across incomes, this isn't something in my practice where I see that well-to-do people demand, they demand it faster, that's true. People of lower incomes are more patient. But everybody wants everything done, and they cannot believe that
everything can't be done. How can we affect change? – Yeah, so first, on the drug issue, it would make a big difference in cost if we went to what's called a formulary. So Australia and some
other countries have these where what you do is
you have a list of drugs that are cost effective. And doctors can prescribe other drugs, but they have to give an argument that there is a reason that the other drug is better than the one in the formulary. Why this works as effective as it does is that companies then compete to be on the formulary, to be the most cost effective. And that brings the cost down enormously. And the drug companies are dead set against having a formulary. Because they don't want competition. They are one of the sources of market power, monopoly
power in our country, because they have a patent that gives them a real market power. So the formulary is one of the ways of inducing, squeezing out some of the rents. I think that, I understand your argument about, is it possible to get Americans to accept? I think what one could do is, the system in Canada
and in the United States and in the U.K., and many other countries, where the national health system provides a basic level,
at a very high level, and people can buy BUPA, which is British United
Provident Association, they can buy private insurance if they want to get that extra. So you don't take away their rights. But what you do is you you have the right to choose a more expensive. But everybody has a right to a basic level of healthcare. And so, that's the way
you get a compromise between those two different values, you might say. And I think that can work. But to make it work from
an economic perspective is we have to break some
of those monopoly powers. There are other things that we could do to make the healthcare
system more efficient. This is a whole other topic. So, for instance, they make a big deal, the drug companies make a big deal about the cost of, well, one of the things that actually Trump has raised is that we have a provision in the Medicare Part D law
that government can't negotiate on drug prices. And, of course, if you can't negotiate, the prices get high. And these provisions, not instructing a competitive drug are estimated, at one time were estimated
to cost 100 billion a year. And I don't know what it is now, but they were significant. But one of the problems, they keep saying so expensive to test. The fact is they do testing in a very inefficient way. And the way we do our testing is rife with the conflict of interest, which came out very clearly in the case of Merck testing Vioxx. 'Cause the company doing the testing has an incentive to make sure that it passes the test. So they look the other way when there's information that is questionable. And sometimes they get caught. And that was what happened
with Merck and Vioxx. And unfortunately some
people died because of that. But it would make much more sense to have an independent tester. And that would bring down the cost of bringing drugs to market. So there are lots of changes in the way we organize
our healthcare sector that I think would make it
economically more viable. And what's striking about
our healthcare sector is we spend 17% of GDP on health,
and our health outcomes, and France spends 11%. France's GDP per capita
is lower than ours. So we're spending
enormously more than France. And health outcomes in the United States are much worse than France. You can't but believe that there's a better way of delivery. – [Man] But I think another
one of the market failures that you really should concentrate on is in the healthcare things. And it deals with a lot of the processes more than the drugs. Because the incentive system is so misaligned with the payments. Because Andrea has every incentive to prescribe a process or a test that's asked by these
patients or their families to avoid the possibility
of any illegality. Those families not in general,
particularly Medicare, paying have every incentive to ask for it. And so, it's not the drug issue that is killing Medicare
as much as the processes. You have Medicaid really
paying for that much drugs. – Well, as I say, I think it's a whole combination of things. I think it is the drug that's taken about 1% of GDP. But it's also, as I say, the processes. Each of these contributes to a very inefficient healthcare system. One of the things is we also
don't do preventative care because of the way we structure it. And when you don't do preventative care, you wind up with much
higher cost in the end. – [Vikram] So we'll continue to look for the right medicine for
capitalism, inequality, and globalization.
(audience laughs) Thank you very much, Dr. Stiglitz. And thank you everyone for coming. (audience applauds) – [Woman] 2,000.
(violin music) We're 2,000 who take shots
on the national stage and then to those in need and build education system
and bracket algorithms and drench the food deserts, flip the lectures, save the swamps, and study black birds beating with a 3D x-ray. And biomechanics, autonomechanics, borders, bulbs, and beads, and inspire better ways, stronger people and new ideas relentlessly. Because at Davidson College, we don't just prepare for the world. We prepare to make it better.

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