'Three decades of neoliberal policies have decimated the middle class, our economy, and our democracy,' writes Nobel winner Joseph E. Stiglitz:
NEW YORK – Three years ago, President Donald Trump’s election and the United Kingdom’s Brexit referendum confirmed what those of us who have long studied income statistics already knew: in most advanced countries, the market economy has been failing large swaths of society.
The U.S. may have been the first country to create a middle-class society, but Europe was never far behind. After World War II, in many ways it outperformed the U.S. in creating opportunities for its citizens. Through a variety of policies, European countries created the modern welfare state to provide social protection and pursue important investments in areas where the market on its own would underspend.
We can thank former President Ronald Reagan and former British Prime Minister Margaret Thatcher for our current state of affairs. The neoliberal reforms of the 1980s were based on the idea that unfettered markets would bring shared prosperity through a mystical trickle-down process. Invasion of the wealth snatchers Unlike neoliberalism, progressive capitalism is based on a proper understanding of how value is created today. The true and sustainable wealth of nations comes not from exploiting countries, natural resources, and people, but from human ingenuity and cooperation, often facilitated by governments and civil-society institutions.
On brief reflection, it should be obvious that these are the sources of material prosperity. And yet wealth creation is often confused with wealth extraction. Individuals and corporations can become rich by relying on market power, price discrimination, and other forms of exploitation. But that does not mean they have made any contribution to the wealth of society.
At the same time, U.S. corporations have used the threat of offshoring to drive down domestic wages. And when that hasn’t sufficed, they have lobbied pliant politicians to weaken workers’ bargaining power further. Likewise, where financial deregulation has gone the furthest, so have financial-sector abuses such as market manipulation, predatory lending, and excessive credit-card fees.Insofar as U.S. workers have been ill-served by policy makers, it is not because trade negotiators from developing countries outsmarted U.S. negotiators. In fact, the U.S. usually gets almost everything it asks for.
Still, there is hope in the fact that our economic dysfunction is the result of our own policies. Some countries facing these same global forces have adopted policies that have led to dynamic economies in which ordinary citizens have prospered. The private sector would never take it upon itself to curb pollution. Just ask Volkswagen VW, -3.17% .
So, too, the antitrust regulations implemented to ensure that markets work like they are supposed to — competitively — have been stripped back. By curbing rent-seeking, anticompetitive practices, and other abuses, we would improve efficiency, increase production, and spur more investment. Government has a central role to play not just in restraining the private sector from doing what it shouldn’t, but in encouraging it to do what it should. And through collective action — through government — we can do things that we couldn’t do alone and which the market on its own won’t.
Our only option The kind of common sense regulations and reforms I have described are necessary to restore growth and to bring a middle-class life back into reach for most Americans and Europeans. With 21% of American children growing up in poverty, persistent underinvestment in public education will undoubtedly weigh on future productivity.
In the case of retirement, this could mean that individuals who want more income during retirement would have the option to contribute more to Social Security during their years in the labor force, with commensurate increases in retirement benefits. The government could start offering a conventional 20% down 30-year mortgage to anyone who has paid taxes for five years, at a rate just a little above the rate at which it borrows money. And, unlike private mortgages, which were virtually designed to ensure that millions would lose their homes in the financial crisis, a public option could be devised to enable workers to stay in their homes when they faced a temporary hardship.
The Trump presidency has reminded us that such checks are indispensable for the proper functioning of democracy. But it has also exposed the limits of existing institutions , underscoring the need for structural political reform.
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