Sheldon Whitehouse Presses Witnesses About The Economic Consequences Of Economic Inequality

5 months ago

During a Senate Budget Committee hearing last week, Sen. Sheldon Whitehouse (D-RI) questioned witnesses about economic inequality.

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Transcript

00:00Thank you, Dr. Stiglitz. Let me begin with a few more broad and general questions for

00:10you. First, does economic inequality itself have economic consequences? And what happens

00:23to those economic consequences as economic inequality worsens?

00:33That's a great question. It used to be thought that there was a trade-off. Arthur Okun, who

00:40was chairman of the Council of Economic Advisers under President Johnson, wrote a book called

00:45The Big Trade-Off. And the argument then was that if you want to reduce inequality, you

00:52would have to accept lower growth. But that thinking has totally changed. And now we know

00:59that countries face a high price for inequality. The IMF studies – and the IMF is not a left-wing

01:07institution – has shown that that is the case. It was a central piece of my book called

01:13The Price of Inequality. One of the reasons for that is that as you get more inequality,

01:21the adverse effects get worse, and we've had an increase in inequality. And the manner,

01:27the ways in which inequality has increased related to monopolization, financialization,

01:33also have adverse effects on the economy.

01:40In the context of the harms that are driven by economic inequality, could you elaborate

01:48a bit on the extent to which our tax code actually contributes to economic inequality,

01:55and hence to the economic evils that follow?

02:01It contributes in several different ways that have already been highlighted. One of them

02:07is that it leads to increased financialization of the economy. The financial sector, in turn,

02:19has engaged in activities like predatory lending. But even apart from that, just increased debt

02:30leads to greater instability, and that instability, the brunt of that is borne by ordinary Americans.

02:37So it increases inequality. Our tax code encourages real estate speculation, provides preferential

02:48benefits for CEOs. We've already had a discussion of that. It taxes the very, very rich at a

02:55lower rate than it does working Americans. So these are just a few of the ways in which

03:02our tax code actually exacerbates the inequalities and creates structures which promote inequality.

03:14And if we were to look at efforts to take advantage of those tax code failings, and

03:22perhaps consider tax avoidance as an industry, how would you rank the size of the tax avoidance

03:36industry and its positive or negative contributions to society and the economy?

03:47The tax avoidance industry has become a major global industry. It's partly a consequence of globalization.

03:55Globalization has expanded the scope for tax avoidance activities and given an advantage

04:03to individuals and multinationals who operate in many countries because they can take advantage

04:11of these tax avoidance activities. They can afford the best tax lawyers who excel at tax

04:20avoidance. But one of the central points of my remarks, my initial remarks, was that those

04:26tax avoidance activities not only are taking away directly, that is to say those tax lawyers

04:35are bright people, they could have been doing, contributing to our economy, and instead they're

04:39trying to take money away from government. But they distort our economy. We have investments

04:51in real estate, we have investments in fossil fuel, we have investments in the financial

04:57sector that would not be there if our tax system hadn't actually encouraged those kinds

05:04of investments.

Sheldon Whitehouse Presses Witnesses About The Economic Consequences Of Economic Inequality

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