is foreign i must say that since the first uh time we had the festival we had tried to invite you at the festival at last after 10 years we managed and i would like to uh thank uh personally rob johnson and aina who really made uh this dream true and so we are happy to have you here i i don't think uh there is a need to introduce our guest well maybe statistics do not tell the truth but they say that uh joe stiglitz is the fourth ever influential economist in the history there is something which i can quantify during my studies of economics i can tell you that our guest has given very important contributions in many fields and let me tell you that on sunday at 7 00 p.m together with tony uh atkinson uh lecture in public economics will be uh presented so that will be a great opportunity to listen to joe's stiglitz together with uh tony hatkinson he contributed a lot uh industrial organization and also to corporate finance also in the field of macro economics with the theories and multiple equilibrium and he also was very active with a very important contribution in the field of environmental economics but last but indeed not least another important thing is the contribution to the economics of labor such as shapiro stiglitz model on the opportunistic behaviour of workers and unemployment as a form of discipline a common feature in this work and the one for which he received the nobel prize together with the akebok and spencer who were guests in the past in trento festival they have always stressed the issue of information asymmetry in the model i mentioned before there are workers whose commitment cannot can only be partially controlled by the boss there are models of corporate financing where the the boss indeed is the one knowing the conditions of profitability of a company and this is also asymmetric a special care in all the models was given to the issue of distribution and the effects of these models and the imperfections of markets in the uh distribution of wage the russia between capital and work and uh wage uh distribution behind that uh indeed uh there should be a passion as he states in his uh uh autobiography that comes from being born in the midwest of the us a part of the uh us which had a lot of uh social uh conflicts with uh strikes and uh problems of jobs in the heavy industry he is very well known for being maybe the only economist who for 30 years online published at least five articles in the top five journals which is uh indeed very difficult uh but he complains and states well writing scientific articles is thorny because you have to concentrate on very specific issues on the contrary i like to establish links recently he indeed published a the great divide i think he will mention that but there are many many books which are known to a wide audience besides that he also could establish these links and connections as a chief economist at the world bank and indeed in his role of chairman of council of economic advisers of president obama well the issue of distribution uh is a key point in his studies he also explained the great recession based on inequalities there was another author explaining uh that crisis based uh on inequalities that was given by raghu rajan who is the uh chief of the uh central bank of india he has a different point of view so without further ado and my apologies for or we are a bit late he was here on time but what we just had to wait for the audience so without further ado uh i give the floor to you and thank you very much again for being with us is the powerpoint working yeah the presentation is new a powerpoint presentation well while they're getting into work let me say it's a real pleasure to be here uh and uh also to thank uh inept for helping arrange it um as as was mentioned uh my own interest in inequality uh developed partly because uh i grew up in gary indiana which is an industrial town on the southern uh shores of lake michigan uh it the history of gary very much reflects the history of industrialization and de-industrialization in the united states it was started founded in 1906 as the largest integrated steel mill in the world it was a company town illustrated by the fact that the name gary it was named after the chairman of the board of u.s deal so you can't be more corporate than that when i was growing up uh i saw around me enormous amount of inequality large amounts of racial discrimination uh the the parents of my classmates epi you know every every few years were unemployed as the economy went into a recession or as they went on strike but what i didn't know when i was growing up that that was the golden age of capitalism that was as good as it ever got i didn't really realize that uh in a way until i i read piketty's book where he has these graphs which i'll show again some of them where you see inequality was at the lowest level in the history of capitalism in this period in the 50s and 60s but it was because i was so interested in inequality and what i thought was not working well that i went into economics i had planned to major in physics but i kept the the issue of why was there such inequality in a rich country like america why was it in the united in gary growing up there were people large numbers of people i knew who whose parents had not even graduate had only gotten six years of education who were living in poverty how could that be in this richest country in the world and so that question really drove me into economics my thesis was written under bob solo who's one of the great economists uh ever and it was written on inequality at the time and even until quite recently to many economists uh it was simply wrong to talk about inequality in fact bob lucas who who is another nobel prize winner teaching at university of chicago once not very long ago said the the most poisonous subject for any economist to talk about the the worst subject was to talk about inequality and unfortunately too many economists listened to him and inequality was not part of the subject taught in any graduate course almost in the united states and unfortunately many countries follow the united states and so also in europe uh also in other countries around the world well the the main chapter of my thesis uh was uh called the distribution of income and wealth among individuals uh it was published in econometrica uh in 1969 uh i recently reread it uh i still think it's a great article and i encourage uh all of you to read it it really frames the whole subject but it did not get as many readers as a couple years about four years ago i wrote an article in vanity fair on the same subject and i discovered that if you write in vanity fair you get more readers than if you write an econometrica but the title of my the the title of the article in vanity fair uh also told a story the title of the article was of the one percent for the one percent and by the one percent and it really summarized a lot of my views about inequality for those of you who who don't know american history it was echoing a very famous speech made by president abraham lincoln in the middle of the civil war of the united states it was called the gettysburg address and we all every young american had to memorize this speech and the critical line he was trying to explain to america why we were fighting and so many people were dying and he said it was so that government of the people and for the people of the people by the people and for the people will not perish from this earth and uh what i was saying well it actually has disappeared we now have government of the one percent for the one percent and by the one percent uh what i want to to uh do this evening is to try to describe some of the ways in which inequality has grown try to explain some of the reasons some of the consequences and uh what we can do about it uh obviously i'm gonna have to go very fast because you can't do all that in uh uh 40 minutes and i'm going to use a few slides just to enable me to go uh faster and hopefully it'll work they got the title right yeah it doesn't work i don't think so oh yeah it is oh there oh there's a lag yeah okay so uh there's been an enormous uh increase in inequality especially in the united states and just so the united states has the highest level of inequality of any of the advanced countries but unfortunately many countries are trying to imitate the united states and the countries that have done the best job in imitating the united states have succeeded in getting almost as much inequality as the united states and i have to say that at the top of the list uh is the united kingdom but italy is not far behind so it's doing a good job good job you'll see it in some of the charts that i'll come to there are many dimensions of inequality you can't summarize something as complex of a whole society in just one number there's more money at the top there are more people in poverty and there's been an evisceration will be something a hollowing out of the middle there are also many aspects of the inequality there are inequalities in wealth exceed those in income there are inequalities in health and especially in a country like the united states where we don't have a national health service and you see it the life expectancy of a poor american is years shorter than the life expectancy of a rich person so they're just huge gaps in inequality and the life expectancy of poor americans is actually decreasing in a world in which there's better health and life expectancy in general is going up there are also inequalities in access to justice young americans every day when they go to school we have a ritual where you pledge allegiance to the flag of the united states of america at the end they say with justice for all and now we have to change that so now we have to say with justice for all who can afford it because if you're poor you can't get justice in the united states well let me try to show in a few charts uh some of the uh numbers uh here is one that uh many of you may have seen that just reflects the fact that inequality uh historically reached this is the top one percent a very high level right before the great depression came down very markedly in the 40s 50s and 60s and then increased again to very high levels right before the great recession that the top 1 gets about 20 to 25 of all the income that's a ratio that's twice as much as it was the ratio the percent the share of the top one tenth of one percent has increased in the last 30 years by three to four-fold uh there are more charts but given the speed of changing the charts i'm going to skip them but this is a a chart that that i like a lot um one of the uh ideas that many people who tried to justify inequality put forward is that oh don't worry about the top the top may do well but that will help everybody else the top are the job creators uh it's an idea i'll come back and talk about trickle-down economics uh mitt romney who was one of the one percent and was a candidate for president in the united states uh interestingly kept his money in the cayman islands because money grows faster in the sunshine there uh any of you want to know where does money grow fast it's the cayman islands um but uh this chart shows that that's not true while the top one percent saw their incomes increasing enormously those in the middle median half above half below have an income today in the united states that's lower than it was a quarter of a century ago and this is an average of various groups median household is that you know is an average of of um men women various groups one group that i feel some empathy for uh are males and uh median income of a full-time male worker in the united states is lower than it was 40 years ago so if you want to understand why there's such anger in american politics in some parts of america i think nothing tells that more strongly than this chart which points out for more than four decades uh incomes have stagnated in the middle but even worse than that is if you look at the bottom the real wages the minimum wage uh adjusted for inflation at the bottom uh in the united states is lower than it was 60 years ago so can you imagine somebody for 60 years getting no pay raise but if you're at the bottom that's uh what's happened another way of putting this uh is that all the fruits of the growth in the united states have gone to the very top i don't know if i'm not strong enough or something anyway um you can see you can see here how the minimum wage of the united states has been going adjusted for inflation has been going down and down uh it's a little higher than it was under the first bush and the second bush administration but it is lower than it was in 1955. uh you can also understand why there's a strong political movement today to increase wages minimum wage and this just uh for those of you couldn't see it quickly enough uh that was the chart that you just missed showing inequality across households and there you see number one was the united states number two was the united kingdom but number three was italy so oh the area back again okay so there you see uh those are the highest and then it goes way down and at the the most equal societies as you would have expected are the scandinavian countries like denmark well the most invidious aspect of inequality in my mind is inequality of opportunity many of you may know that you know united states talks about the american dream but when we look at the data it's a myth now what does that mean well the of course there are some people who make it from the bottom to the middle or the bottom to the top what a social scientist or economist means is what are the life prospects what are the probabilities and in those terms the prospects of a young american are more dependent on the income and education of his parents than in almost any other country now that really relates to the theme of this conference which is social mobility uh and uh even old europe most of old europe has much more mobility social mobility than the united states in a way this is not a surprise because what we've understood in recent research in the last 10 years is that there's a high correlation between inequality of income and inequality of opportunity if you have a lot of inequality of income and wealth then those at the top manage to give advantages to their children and you wind up with a lot of inequality of opportunity you can undo that sometimes with good public education but in a country like the united states where we have locally based education that means if you are poor you live in a local area and your likelihood is that you will get a poor education and therefore your life prospects will not be very great and one of the concerns is that economic segregation has been increasing in the united states that is to say rich people live increasingly with rich people and poor people with poor people and that has meant the country has become even more divided so the count there's an increase in economic uh uh uh division so this is a little chart that shows the relationship between income inequality and earnings mobility opportunity and there you see at the bottom uh right hand denmark the country with the lowest level of inequality and the highest level of mobility and at the very top you see united states italy and uk the three countries with the most inequality and by a long measure the lowest level of mobility so that should be of concern the what i want to do now if i can get the slide to change is to talk about some of our change the some of the major changes in understanding of inequality over the last 10 years the first i've already hinted at which is that trickle-down economics doesn't work sometimes i say a wisher did because we've thrown so much money at the top that if trickle-down economics worked ordinary americans would be very well-off and that would be true in most of the european countries as well in spite of the fact that trichodomine economics has never worked there's no evidence no theory the obama administration and the fed have been trying uh trickle down economics and i want to correct i don't know if it was the translation uh i think it said that uh i was chairman of the council economic advisers under obama and i just want to make sure it was unclipped okay i want to make sure it was clinton because because uh clinton last year no no okay because uh uh obama tried this clint at this trickle down economics and i want to make sure that that you understand i was trying to stop him uh from doing that and i don't want to be blamed uh for for his uh mistaken policies so um what they did is their idea was throw enough money at the banks and everybody in our economy would do well what i told him he should be doing was helping the ordinary americans who were being millions of them were thrown out of their homes lost their homes the massive foreclosures i said rather than spending all this billion on the banks hundreds of billions why don't you help ordinary americans that's what you were elected on but they decided not to do that the fed has tried the same thing it's quantitative easing policy one of the main mechanisms is the lower interest rates to get the stock market bubble up and the idea was if you get stock prices up everybody will do well well if you get stock prices up the one percent who owns all the stocks does very well and it did help a little bit but very little and i don't know if you saw the gdp number for this first quarter of uh for the u.s um it was minus percent so the u.s is going back down again um i anticipated this and uh it shows that the u.s i don't want to read too much in one quarter but what it shows is the u.s is really not back health and part of the reason they try trickle down economics the second important idea is a repeal kuznets law simon kuznick was another one of the great economists of the middle of the night 20th century and he didn't call it uh kuznick's law but everybody else did and his idea was there's good theoretical reason that in as economies develop in the initial stages of development there would be a growth of inequality as some parks take advantage of new opportunities and grow it faster but then as countries grow more the lagging parts catch up and inequality goes down and if you remember the chart i showed at the beginning there was some evidence for that back in the 20s 30s back in the 30s 40s and 50s when he was writing unfortunately since 1980 that hasn't been true and there's a big debate about why that is one explanation is one if i have time i'll talk about a little bit more is that of piketty who argues effectively that inequality a high level of inequality is the natural state of capitalism and that the period this golden age of capitalism between say the end of world war ii and 1980 was unusual was an aberration it was the result of the social solidarity that the war brought that people that fought together that that made them want to it created a kind of solidarity in even in the united states where there's never been a high level of solidarity but in europe and that kind of solidarity led to shared prosperity so that's one thesis the other one is that the increase in inequality after 1980 is a result of a change in policies one way of thinking about this from an american point of view but there are similar ideas in europe the thatcher was that ronald reagan said i have a deal for you what i'm going to do is lower the tax rates at the top and they had been at 91 and he brought them down to around 30 percent i'm going to take away all the regulations free up the economy and the stronger incentives and the freeing up would lead to faster economic growth it would lead to more inequality but the faster economic growth would mean that even though those in the middle and the bottom got a smaller share the size of their pie their the size of their slice of their pie would be larger well he was right about one thing he did increase inequality even more than he hoped but every one of the other predictions was wrong growth actually slowed the period after world war ii was the fastest period of growth in europe and in america and it was a period of shared prosperity where every group in our society grew but those at the bottom grew more a statistic that really captures what went on was that the bottom 90 percent have seen essentially no growth in their income since 1980. it's another way of saying this is if reagan and those people who would advocate their policies had come come to the american people and said i have a deal for you i have a new set of policies that is going to result in 90 percent of americans seeing no increase in their income for a third of a century but the top 10 percent is going to see an increase in their income how many votes do you think he would have gotten probably some of the top 10 percent but clearly the 90 percent would not have supported these ideas but he never said that he promised the opposite and then in a series of policies things got worse and worse and i'll come back and talk about that a little bit more how do i believe why do i believe so strongly it's not the an inherent feature of capitalism but really a result of the policies well one of the reasons there are many reasons and one i want to emphasize is that the underlying forces are global in nature there are forces of technology forces of globalization those affect all the advanced countries in basically a similar way but the outcomes both in terms of income inequalities wealth inequalities and inequalities and opportunity are very different remember the charge i can't go back to it because it would be too difficult but remember the chart where you saw how different the countries were in inequalities of income inequalities you see oh it happened okay okay you see the huge differences in inequality in income and inequalities in mobility their countries are facing basically the same economic situation but how do we account for the differences mostly it's differences in policy of course that means we have a real challenge to try to understand what it is that leads to these differences in outcomes what are the uh and an opportunity what are the changes uh in in those policies well the most important point i want to make is oops back one um uh is that it it means that inequality is a result of our policies it's not a result of the inextricable economic forces that are at play inequality is a choice it's a result of how we structure the economy through tax and expenditure policies through our legal framework through our institutions inc even the conduct of monetary policy even institutions like the european central bank all of these affect market power they affect the bargaining power of different groups they affect the extent to which there's full employment if you have high levels of unemployment obviously the bargaining power of workers is going to be reduced if you have a central bank like the european central bank which is given a wrong mandate based on a flawed set of economic doctrines that was fashionable in the 1990s and 80s when the ecb was founded but is now totally discredited when you have a central bank that focuses on inflation but not on jobs not on growth not on financial stability you get more unemployment and that's one of the reasons why europe has an average unemployment rate of 12 and america's unemployment is less than half that well uh there is a rich agenda of trying to rewrite the rules to figure out how we can create different institutions different legal frameworks different policy frameworks that will create more equality and in washington a couple weeks ago the roosevelt institute of wichita and uh chief economist uh issued this report which you can get on their web uh called rewriting the rules um excess of the american economy but it's equally true for the uh italian economy the european economies the eurozone uh it's uh co uh it says an agenda for growth and shared prosperity and we had a a a very big meeting in washington uh with the senate with the house of representatives where we try to politically push this kind of agenda with a lot of support uh from people like elizabeth warren and for people who are trying to create a a an economy an american economy with more equality another another major change in our economic framework uh in our understanding is what's sometimes called the repeal art of oakland's law arthur oaken was a great economist chairman of the council of economic advisers under president johnson and he said he talked about there being a trade-off between equality and growth that and it's the kind of idea that has continued to be taught in many economic departments that view says if we want to have less eq inequality we will have to sacrifice economic performance and we now know that oaken was wrong and that was the central message of my book the price of inequality which is available in italian um the the the idea of the price of inequality was that actually the the result of more inequality is that the economy performs more poorly it grows more slowly there's more instability and this is not just a you might call left wing view this has now become a mainstream view the imf has talked about how excessive inequality like that in the united states and many other countries inequality that arises are the result as a result of monopoly power and other market distortions that actually leaks to poor economic performance there are many reasons for this one of the most important is that the lack of opportunity means that we are wasting our most valuable resource it means that if you are not born to well-off parents you're not likely to live up to your potential so i i tell my students the most important decision the most important choice that you have to make in your entire life is choosing the right parents and if you make that choice wrong everything else goes bad so there are some other changes in our understanding of inequality one of the implications of this price of an equality is that we can afford to have more equality in fact i'd argue it would help our economy and in fact in my book the great divide i give some illustrations of economies that are much poorer than the united states but have been growing more strongly partly because they've made a choice a choice of having more egalitarian policies unfortunately because inequality is a result of policy it is shaped by politics and economic inequality especially the magnitude that you see in the united states and many the other advanced countries inevitably gets translated into political inequality and then that political inequality leaks to still more economic inequality there is a vicious circle there are many other broader consequences to this growth in inequality and reduction in equality of opportunity i believe it undermines our democracy divides our society especially when inequalities are racial and ethnic lines which is particularly the case in the united states which you've seen in the graphic pictures in baltimore uh and ferguson but but is true in many other uh even in european societies uh one of the real concerns in the united states today is that we've come to realize that the basic necessities of what we felt think of as a middle class society are increasingly out of reach of large proportions of our population the united states used to pride itself of having created the first middle class society in the world and we are now becoming the first country to lose being a middle-class society uh we are increasingly not a middle-class society uh that we can't uh even have the kind of retirement security of ensuring you can send your kills to college even the ability to own a home well let me spend uh just a few minutes uh before we open up for questions uh talking a little bit about uh the other theory that has gotten a lot of attention nada piketty uh who's done an enormous service in highlighting the the magnitude of the inequality the fact that there was this period the golden age of capitalism but as i mentioned before he emphasizes some innate properties of capitalism and i've argued it really is not capitalism it's really the set of policies and i think my message is a much more hopeful one because we can change those policies if we can manage the politics we can change change those policies within a market economy and achieve more uh much more equality so he's emphasized uh the real the fact that if if uh capitalists save all their income and the rate of growth exceeds the rate uh uh the rate of uh return on capital exceeds the rate of growth uh then the wealth income ratio increases but of course what matters is the the fact of them uh is that the even the rich don't save all of their income in fact uh the saving rate even at the very top is only around 35 percent and what matters is the savings rate times the rate of return on capital and that typically is significantly less than the rate of growth but more importantly from a theoretical point of view the rate of return on capital is an endogenous variable but probably the most important uh issue is that wealth and capital are very different concepts most of the increase in wealth is not a result of accumulation of savings in the usual sense if that were the case as capital stock increased wages would increase you have capital deepening there'll be more capital working with every worker but that's not been what's happening what's been happening is what you see is that productivity of workers has been increasing in the united states it's been going up steadily but wages have been stagnating and that suggests something else is going on and what's going on are changes of the rules that allow allow the capitalists to allow those in the one percent to seize a larger and larger fraction of the nation's income one of the things that's also been going on is that much of the increase of the wealth is as i said not capital but an increase in the value of land in fact if you look at the actual savings physical savings in the national income accounts you can only explain something between one half to three-fourths of the growth in the wealth income ratio the rest is really explained by an increase in ranks and the capitalized value of rents land ranks exploitation ranks which include monopoly power ranks associated with political power intellectual property let me just give you uh an example besides land ranks which is an obvious one uh and the increase in land values are an important component but think about one of the one of the things that happened before the crisis in 2008 the share value of banks was going up as a result of banking deregulation the banks had bought favors from the government you might say they were buying bailout rents the value of what they would receive from government bailouts which were in the hundreds of billions of dollars now the value of the shares of the banks go up when there's a bigger bailout but the wealth of the economy goes down what is going on the fact that the wealth of taxpayers is being going going down because their taxes are going to go up to pay for the bailouts of the banks is not recorded in the wealth that is being measured by piketty and by the other national income statistics so wealth is going up as we measure it but the real wealth of the economy is actually going down and the same thing is true if the if the russian oligarchs buy more land in the riviera and the price of land in the riviera goes up is france more productive is there more land in the riviera in fact it's more difficult for people who are not in the russian oligarchs obviously one of the russian oligarchs didn't want me to say that so anyway the the point i want to make is that the concept of wealth and the concept of capital are very different concepts and while wealth has been going up the real productive capacity of the economy has not been going up commensurately uh what we need of course is to explain the growth in these various kinds of ranks monopoly power land ranks financial and monetary policies like quantitative easing can give rise to an increase in can rise to an asset price bubble can give rise to the share prices going up can give rise to land prices going up but that doesn't mean the economy is really wealthier so let me finally make a few concluding uh remarks the first has to do with with uh quantitative easing in a modern economy the key distinction is not so much between debtors and creditors but between life cycle savers and inherited wealth these different groups in our society have very large differences in portfolio composition the equity the value the shares are held by the people who have largely inherited wealth but the life cycle savers those who are saving for their retirement tend to hold their wealth in more prudent forms like in government bonds so you can see how a policy like quantitative easing can increase inequality you lower interest rates stock market prices go up the very wealthy do very very well but those who were saving prudently in government bonds have no income anymore and so the retirees who depend on income from government bonds are being devastated it doesn't mean you shouldn't do quantitative easing but you have to understand quantitative easing like every other aspect of policy has very significant distribution effects and to his credit draghi pointed out that these adverse distribution cr effects uh let me go on to the final slide if i can let me conclude with uh three comments given the magnitude of the increase in inequality that has happened in the last third of a century incremental changes little perturbations little changes will not suffice that what you hear from a lot of politicians are tweaking the system a little bit of a little bit more education a little bit more of this a little bit more of that what i've argued is we really need to a much more fundamental understanding of the sources of inequality a much more fundamental change in our legal policy tax expenditure policies we really need to rewrite the rules and institutions of the capitalist economy the second point is a note of urgency the level of inequality that we have today is the result of decisions made over the last several decades the last third of a century brick by brick step by step we've created this highly unequal society if we continue business as usual if we don't change it will mean that inequality will continue to grow as it has been growing and it means that 25 years from now 30 years from now we will have an even more unequal society and a society with much less opportunity much less mobility so unless we begin the changes now it's going to take a lot of effort uh but unless we begin now we are baking in inequality for the next generation and the final point is the real question is not economics if you left it to me i could solve this problem there are you know uh a few things that we have to do this is just the outline but we could we could write down an agenda we could write down the legal frameworks we know pretty well what has to be done to create a more equal society a society with more mobility a society with shared prosperity where we would grow more rapidly the real problem is that the problem is not so much capital capitalism in the 21st century the real problem is our politics the problems is democracy in the 21st century thank you so thank you so much for taking us to rio to the real core issues that will be dealt with during this festival you know this great gatsby curve you know showing that larger inequality involves less social mobility contrary to many myths about the u.s economy and the social mobility variant i think we can take position a demand i think we can entertain some questions provided they use the microphone you criticize piketty and i guess piket is going to give a lecture given that you consider that there is nothing unavoidable so there is not this natural law capitalism to which extent your recipe your agenda clearly you can't go through the entire thing differs from the because pkt is very much on taxation capital taxation and so on you are more about uh real estate taxes given land use if you can say a few words about that would be great so that yeah can lead us into being sure that that's a a very good point um my agenda about his economic agenda is is much more comprehensive it's not just taxation taxes are important but it's monetary policy as i was exam court for governance uh the rules of the game that have resulted say in the united states the ceo pay going from 20 times that of the average worker to on average 300 times the average pay so it's corporate governance it's uh the weakening of labor institutions uh it's ineffective enforcement of uh competition laws anti-trust laws um so in that sense it's uh it's the rules governing globalization for instance right now you know what i said we have to rewrite the rules one of the really important things is we shouldn't make them even worse and president obama has proposed making things even worse uh he didn't say it that way um what he said was he's proposed a trade agreement with pacific and with europe that would make workers worse off and increase corporate power make it more difficult to regulate the environment protect workers uh protect the economy so um uh you know and there will be a big debate obviously in europe uh we are having that debate now but that's an example of rewriting the rules in ways that will lead to more inequality so that would is where i put you know the first emphasis now when it comes to this specific issue of taxes uh because uh so much of the you might say phony increase in wealth is from land and for monopoly rents i would have very high taxes on land and other forms of rents and one of the benefits of that is actually it will lead to more real investment people who save rather than have that savings go into increase in the price of land will put it into capital goods so it'll increase the productivity of the economy one of the difficulties of any theory of taxation any now is the theory of incidents how taxes get shifted and you have to be very careful in the design of tax policy that's one of the things that in my book with tony atkinson we emphasized and we're talking about in a couple days uh here that if you don't design the tax in the right way it can be shifted so that before tax income of capitalists goes up and wages can actually go down so you have to be sure that some of the revenue that you get is reinvested in public investment you have to uh i think inheritance taxes are are really much more important than just capital taxes in general because that stops the creation of an inherited uh plutocracy so you know overall our frameworks are very very similar but it's these these are some of the differences between the way we approach the problem very good and we level us a lecture on on inheritance taxes in a few days let me take the questions i i decide who is uh if you don't mind i mean i decide who is i i will give you the floor in a minute but pretty much you have two questions you say that there is a difference between wealth and capital can you stand up does it mean that wealth is based only upon rents or is there another explanation then i have another question you say that inequality in the united states goes according to racial and ethnic lines you said that inequality can go according rational and ethnic lines um what are the reasons why are some some racial and ethnic groups perform less well sure both good questions the the wealth is a measure of control over resources and it includes the value of your you know uh financial capital land but also machines physical capital but when we talk about productive capital the magnitude of ca of of land has not been increasing the magnitude of monopoly ranks may have increased but that's not productive capital but you can buy and sell monopoly rents the right to receive monopoly rents if you get a monopoly your share the shares in microsoft for instance can be bought and sold so that's a monopoly rent and that's part of wealth but if you increase monopoly power wealth goes up but that's not it's actually taking away uh well-being if you want to think from ordinary workers because it leads to higher prices and that lowers their real wages so that's a part of the concept a big difference between this concept of wealth and capital land is part of wealth uh and i mean capital and productive capital goods are part of wealth but there's this other part that is not growing and unfortunately most or a very large proportion of the increase in the measured wealth of our economy is the increase in the value of land and other rents and that's been uh pointed out now by several people but i used in my paper some oecd data that uh look at national accounts and you can see that very very clearly the issue of um the origins of racial and ethnic divisions it highlights two points that really are central to my message the first is that a lot of inequality is a result of market power not of what would occur in a competitive equilibrium that is been the basis of economic analysis for the last uh decades so in the united states there is very strong evidence of racial and ethnic discrimination and even people with the same human capital there's also gender discrimination as well and there's a long history of this discrimination and it shows up in the statistics the wealth and income of african americans the poverty is just enormous it continues for instance in the lead up to the crisis in 2008 there was a lot of predatory lending the banks engaged a lot of lending uh to try to take advantage of poorly educated americans financially uneducated americans but our biggest banks actually engaged in discriminatory lending they targeted african-americans and hispanics gave them uh different loans relative to white people because blatant discrimination for which they paid large fines but can't undo the damage to our society and what's so amazing is our banks it was like wells fargo major american banks years after you know four decades after we passed legislation saying it's illegal to engage in discrimination we're doing it there's a kind of moral turpitude in our financial system now all this is part of a long history in the united states of jim crow of of some of this is is built into our legal system uh i don't know if you know about you know i mentioned inequalities of justice uh the united states has 25 of all the world's prisoners even though we have only five percent of the population and disproportionately we send african-american young men to prison we spend more on prisons in many states than we spend on universities and it's targeted at african americans so i mean there's a whole literature about what's called the gym the new jim crow uh it's a very nice book from the new press that describes uh this but this is a legacy of some of this is a legacy of american slavery that went on for you know we didn't pass you know slavery ended officially in 1865 but we didn't pass our civil rights bills until 1960s after a very vigorous fight and our banks continued to discriminate in into the 21st century so that's part of the issue of how you can see such uh racial and ethnic discrimination today in america so another hint about topics that will be dealt with at the festival at mass mayor will be talking about returns to capital and showing and documenting how these are related to the housing stock so that is important well i'm a priest i would like to thank you because you really put the finger in i would like to wish you all the best and the crisis has made rich even richer and we hope that we can read what has happened with the responsibility and hopefully pope francis will teach us how to remove privileges and i wish mr boheri all the best in his new role we hope that you will be able to change the culture of politicians and hopefully we will be able to decrease the level of youth unemployment there was nothing not a question down there grazie miller please see that i got something for you um you talk about the economic growth which has to increase again but what about the environmental crisis and the ecological limits to growth and also the um social limits to growth uh um about which freddie start so thank you you want to take more questions yeah i can yeah i wanted to take a couple more others yeah okay let's take another couple uh down there foreign well i'm very shy sorry for that i have a diagram before my eyes it is a diagram which is circular in nature i don't know from where to start you spoke about access to vote and about reagan and his uh proposal but we know that the american voters are limited in number so the real number of people who go to the vote uh are mainly wealthy people hispanics for example tend not to go to vote well this was explained to me by a canadian sociologist there is a political scientist who says that americans are responsible for their situation please uh can you tell what you want to ask well so it's an american dream can you hear me which has turned upside down so my question is so the many working hours and the very little free time leisure time that an american has available may have an impact on this situation perhaps these people do not have the opportunity to be informed and be aware of what really happens in the country because this has an impact on democratic decisions i'll finish off with a proposal now perhaps you may ask for asylum in a cuba for example in europe in your opinion what we can do what is the first path to the the first step to change the world as you talk about the urgency of the the decision that today we have to take about this topic not an easy question okay okay okay i think you you can take votes right okay okay well uh those were small questions let me begin by um one important aspect of inequality that i didn't uh have a chance to um yeah so what one one aspect of inequality that i didn't get a chance to talk about was environmental inequality uh and actually it is a very important aspect that uh and it has many dimensions you know poor people are more exposed to environmental hazards it has lifelong effects uh there there there was a um an interesting uh you might say experiment that was done uh in the united states where where uh the toll roads in new jersey that um they went from toll booths to to automatic uh electronic payment and the result of that was that uh the cars didn't have to pile wait so long and it had a significant effect on the carbon monoxide in the area and in the area around the toe boots a lot of poor people live because people don't want to live next door to a a to a major highway and they were able to show that the result of this unintended experiment natural experiment was that the birth weight of the children went up significantly and that the result we we know that when there's an increase in birth weight the life prospects of the children uh are much greater so that's just one example but the point is that that the way we restructure our we structure our society does mean that poor peo children of poor families are exposed to significantly worse environmental hazards and that's why when we talk about environmental policy we also ought to be very aware of the distribution consequences of those environmental policies i talked about in discussing the economy how the rules of the game affect the way the economic system works and the same thing is true about politics the rules of the game affect how the political system works and not surprisingly the rich in particularly in in some parts of the united states have been trying to structure the political system in ways that make sure that poor people can't vote or don't vote so a lot of the battles in the united states have been precisely over the terms on at which uh the ease with which people can vote so for instance in the more in in those parts in the united states who still believe in democracy they've introduced mail ballots you can vote by mail so that means even if you have to work you can vote you don't have to give up work in order to vote in those places in the united states they care about democracy they make it easy for you to register to vote in those places that do not want poor people to vote they make it very difficult to register to vote they make it very difficult for you to prove that you are a u.s citizen so you can get the right to vote so they do lots of things to in effect disenfranchise but there is something else that's going on which is because of the inequalities in political power that i mentioned because you have a political system that seems so often like ex of the one percent for the one percent by the one percent because we had a president who said change that you can believe in when he was running for office but then once he got elected poi appointed the same people who had led to the financial crisis as his economic advisers there's a lot of people who have a disillusionment with the political process and the result the view is that it won't doesn't make any difference how you vote and the consequence is that voter turnout in the united states is abysmal the voter turnout in the last election 2014 was the lowest since world war ii and world war ii a lot of people all the young people were all fighting the war so they couldn't all vote but our voter turnout has been going down in 2010 the voter turnout among youth in the united states was about 20 percent and we talked about democracy and fighting for democracy and yet there is such disillusionment among young people that their view is what difference does it make and that's why i think it's really important to have this agenda of rewriting the rules so to to feel for them to realize that that there is an alternative uh uh there are things that that can be done now uh the hardest uh probably the most important question was the last one what should europe do and i don't know where to begin so the first thing i would do is change the structure of the eurozone nothing is as bad for inequality as high levels of unemployment and nothing is as bad for economic mobility social mobility as high levels of youth unemployment and as most of you know the average level of unemployment in europe now is 12 the average level of youth unemployment is 25 percent but the youth unemployment in spain is over 50 and it would be even higher if so many young spanish people hadn't left and the same thing of course uh not the statistics in italy are not quite as bad but they're not very good either so the problem and let me is not the structure of the economic structure in italy or in spain or in france you know france was growing very rapidly until 2008 and 10. did something happen to the structure of france suddenly in 2008 or 10 its productivity was actually growing faster and a higher level than per hour than in the united states they happen to enjoy more leisure uh but we envy their long vocations uh but the the the point is their productivity per hour was actually higher than the united states so there's not you know every country needs to improve reform the structure but that's not the cause of the problem and the prop the the the analysis it says that the problem is the structure in each of the individual countries is absolutely wrong that most of the structural reforms that are being advocated for italy and france and the other countries would actually make the problem of unemployment worse because the problem in europe is lack of demand and most of these reforms are supply side measures that actually would reduce the demand for labor so what is really required is a reform in the structure of the eurozone it's the structure of the euro that is at fault and the policies of of of the eurozone so what are those the you there there is a need for a single a banking union euro bonds more fiscal federation changing the mandate of the european central bank to focus on employment growth financial stability and not just inflation industrial policies that allow countries that are behind to catch up and that can promote economic growth ideas like the internet which are part of u.s government uh helped foster that and and european governments helped foster that through government spending that have transformed uh the economies um the uh they're just a a host of reforms in the structure of the eurozone that would lead to faster growth and lower unemployment high unemployment hurts the poor or increases inequality in three ways it increases it directly because people who are unemployed are hurt it increases it indirectly because if the unemployment is high wages get bid down and thirdly the lower incomes mean that government spending gets caught cut back and that particularly hurts those in the middle and the bottom so to me the most important uh issues are these reforms in the euro zone but then the policies of austerity which have never worked um have uh had uh brought down growth in europe uh even uh more the reason why the united states is doing better than europe you know crisis began in the united states why should u.s be better off than europe after all we are the source of the problem originally but we had a much smaller dose of austerity and if you look across europe the countries with the biggest doses of austerity have done the worst so austerity is the cause of the problem it caught you know spain and ireland had a surplus before the crisis the crisis caused the deficits and the debt it wasn't the other way around so the first the is is to change the structure of the eurozone change these policies which are killing europe and killing europe today but killing the future potential growth of europe as well um the you know you you talk about the most important part of capital it's human capital the most important human capital is on-the-job training learning and if you don't have jobs you don't have on the job training and that is what is being destroyed all over europe today finally i think one of the real sources of the strength of europe is the european social model the system of social protections uh the the the system uh that i think has worked so well in at least many of the countries some economists have said that is the cause of the crisis that's absolutely wrong draghi in one interview at the financial times said that i think that's absolutely wrong if you look what are some of the countries that are doing west the best right now in europe uh sweden and norway where the european social model is the strongest so it is the european social model the social protection which has prevented the economic crisis in europe from being much worse than it already is so the most important thing uh in in some ways to at this juncture is to do no harm make sure you don't make things worse by getting rid of what is already one of the real strengths of europe so european model is not dead it's not that well thank you very much thank you very much i think we can uh conclude uh we just browsed some of the subjects of the festival of economics uh the school of law will have a discussion on the future of europe and uh whether europe will or will not be able to learn from the mistakes so thank you very much joe stiglitz you will be with us again and uh with tony atkinson on sunday at 7 00 pm uh and we'll speak about lecture and public economics thank you and good night foreign you