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.
Nowhere is this truer than in the United States. Long regarded as a poster child for the promise of free-market individualism, America today has higher inequality and less upward social mobility than most other developed countries.
After rising for a century, average life expectancy in the U.S. is now declining. And for those in the bottom 90% of the income distribution, real (inflation-adjusted) wages have stagnated: the income of a typical male worker today is around where it was 40 years ago.
Meanwhile, many European countries have sought to emulate America, and those that succeeded, particularly the U.K., are now suffering similar political and social consequences.
Contrary to what many in the financial sector would like to think, the problem was not too much state involvement in the economy, but too little. Both crises were the direct result of an under-regulated financial sector.
Now, the middle class is being hollowed out on both sides of the Atlantic.
...Reversing this malaise requires that we figure out what went wrong and chart a new course forward, by embracing progressive capitalism, which, while acknowledging the virtues of the market, also recognizes its limitations and ensures that the economy works for the benefit of everyone.
We cannot simply return to the golden age of Western capitalism in the decades after World War II, when a middle-class lifestyle seemed within reach of a majority of citizens. Nor would we necessarily want to. After all, the “American dream” during this period was mostly reserved for a privileged minority: white males.
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.
...We were told that lowering tax rates on the rich, financialization, and globalization would result in higher standards of living for everybody.
Instead, the U.S. growth rate fell to around two-thirds of its level in the post-war era — a period of tight financial regulations and a top marginal tax rate consistently above 70% — and a greater share of the wealth and income from this limited growth was funneled to the top 1%.
Instead of the promised prosperity, we got deindustrialization, polarization, and a shrinking middle class. Unless we change the script, these patterns will continue — or worsen.
Fortunately, there is an alternative to market fundamentalism.
Through a pragmatic rebalancing of power between government, markets, and civil society, we can move toward a freer, fairer, and more productive system. Progressive capitalism means forging a new social contract between voters and elected officials, workers and corporations, rich and poor.Stiglitz spared Mulroney, as much a champion of the "new economy" as Thatcher or Reagan. Those three genuinely did drink the KoolAid of von Mises, Hayek and Friedman. They drove us into the ditch and none of their successors has had the vision, the courage and the strength to pull us back out.
Today we have Team Trudeau/Morneau and they're avowed disciples of market fundamentalism. Neither has shown the inclination much less the vision to pry us loose from neoliberalism's grip. After all, that's been the source of their considerable riches.