The Price of Inequality: How Today's Divided Society Endangers Our Future

by Joseph E. Stiglitz

In this new version of an old myth, the rich are the job creators; give more money to the rich, and there will be more jobs. The irony was that the author of this book, like the presidential candidate whom he supported, was from a private-equity firm with a well-established business model that involved taking over companies, piling on debt, “restructuring” by firing large number of workers, and selling out one’s stake (it was hoped) before the firm subsequently went bankrupt. There were, of course, real innovators in the economy, and they did create jobs; but even the firm that had become iconic of America’s success, Apple, whose market value in 2012 was larger than that of General Motors at its peak, had only 47,000 employees in the United States.

Individuals can take on more high-return, high-risk activities if they know there is a safety net that will protect them if things don’t work out. It’s one of the reasons that some economies with better social protection have been growing much more rapidly than that of the United States, even during the recent recession.

A corporate CEO will not exert less effort to make the company work well simply because his take-home pay is $10 million a year rather than $12 million. In any case, the possible loss of effort in socially productive activities from taxing the few in the top 1 percent—which, because of the huge inequality in our society, raises large amounts of money—pales in comparison with the effects on the many more numerous who would have to face higher tax rates to raise the same amount of money.