That Used to Be Us_ How America Fell Behind in thted and How We Can Come Back - Friedman, Thomas L. & Mandelbaum, Michael [129]
The result, as the Columbia University economist Jagdish Bhagwati observed, was that a financial industry built to finance “creative destruction” (the formation of new companies and industries to replace old ones) ended up promoting “destructive creation” (the buying and selling of financial instruments with little intrinsic value), the collective implosion of which threatened the whole economy.
The fact that virtually none of the main culprits in bringing about this huge destruction of wealth has suffered any legal penalties suggests that our regulations need some updating. At the very least, we should heed what Warren Buffett told the Berkshire Hathaway annual shareholders meeting (April 30, 2010): “Any institution that requires society to come in and bail it out for society’s sake should have a system in place that leaves its CEO and his spouse dead broke.”
Striking the proper balance between the under- and overregulation of financial markets will be difficult. There is no magic formula for this, and we surely do not wish to stifle all innovation in this area. But finding that balance is crucial because, as we saw in 2008 and thereafter, a major failure in this sector of the economy can inflict massive and long-lasting damage on the economy as a whole.
Income Inequality
A critical reason that America has failed to update its formula by reinvesting in education, infrastructure, and research and development, and hasn’t adjusted our immigration policy to promote economic growth or implemented appropriate economic regulations, is that all these require collective action—America as a whole has to act—and lately we have lost our capacity for collective action. One reason for this damaging form of paralysis is the growth of inequality in America, itself the product, among other things, of the further flattening of the world. That flattening has created a global market for the goods and services of people skilled enough to take advantage of it. The earnings in this huge global market can be staggering for the “winners.” Consider what a basketball player such as LeBron James can earn in this era when the National Basketball Association sells its branded products from Stockholm to Shanghai—we are talking tens of millions of dollars—compared to the biggest star of the early 1950s, George Mikan of the then Minneapolis Lakers, whose earnings were limited to the United States and were measured in the tens of thousands of dollars.
It is harder to generate collective action when people are living in different worlds within the same country, argues the Nobel Prize–winning economist and Columbia University professor Joseph E. Stiglitz. Historically, Americans have tended to be less troubled by inequality than citizens of other countries. Both the myth and the reality of individual opportunity and upward mobility in America have been so powerful and so deeply ingrained that the socialist narrative of government-sponsored redistribution has never taken root. But the income gaps during the Terrible Twos grew so large, and could well grow larger still, that inequality now threatens to fracture the body politic in ways that could undermine our ability to do big hard things together.
According to Stiglitz, the top 1 percent of Americans now takes in roughly one-fourth of America’s total income every year. In terms of wealth rather than income, says Stiglitz, the top 1 percent now controls 40 percent of the total. This is new. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent, he noted. Meanwhile, people in the top 1 percent have seen their incomes rise 18 percent over the past decade, while the incomes of those in the middle have actually fallen. For men with only high school degrees, the decline has been especially pronounced: 12 percent in the last twenty-five years alone, said Stiglitz.
The more divided a society