There are theories that have won wide acceptance, even acclaim, yet were just wrong even from the beginning of their use including domino, trickle down, and most long lasting, market efficiency and theories regarding inequality today. These theories were not only wrong in their portrayal of macro events but in micro effects as they proved catastrophic to huge classes of people. The most recently discredited of these cold and inefficient theories is of course that of inequality which was discussed so often during the most threateningly brilliant moments of the Sanders campaign yet has been quieted along with the Senator’s worthwhile yet Quixotic campaign.
Most economists and financial thinkers got it wrong (and some still do) about inequality today. This wrongness not only caused major economic upheaval as economies tried to accommodate the wrong system but they also led to massive suffering by individuals who found their lives unimproved by the application of theories on inequality.
The quality scholarship of Thomas Piketty and the publication of his seminal work on inequality today continues to call attention to this vital subject.
Another of the economists who got it right is Joseph Stiglitz. Readers of this site know the high regard I hold Mr. Stiglitz not only for his economic vision but also for the humanity displayed in his applications. A portion of an interview with Mr. Stiglitz about inequality today follows.
“Stiglitz: The prevalent ideology—when I say prevalent it’s not all economists— held that markets were basically efficient, that they were stable. You had people like Greenspan and Bernanke saying things like “markets don’t generate bubbles.” They had precise models that were precisely wrong and gave them confidence in theories that led to the policies that were responsible for the crisis, and responsible for the growth in inequality. Alternative theories would have led to very different policies. For instance, the tax cut in 2001 and 2003 under President Bush. Economists that are very widely respected were cutting taxes at the top, increasing inequality in our society when what we needed was just the opposite. Most of the models used by economists ignored inequality. They pretended that macroeconomy was unaffected by inequality. I think that was totally wrong. The strange thing about the economics profession over the last 35 year is that there has been two strands: One very strongly focusing on the limitations of the market, and then another saying how wonderful markets were. Unfortunately too much attention was being paid to that second strand.”
“What can we do about it? We’ve had this very strong strand that is focused on the limitations and market imperfections. A very large fraction of the younger people, this is what they want to work on. It’s very hard to persuade a young person who has seen the Great Recession, who has seen all the problems with inequality, to tell them inequality is not important and that markets are always efficient. They’d think you’re crazy.”
“White: If you had to pick the biggest area of concern when it comes to inequality. What would it be and what would be the first step for fixing it?”
“Stiglitz: I think the change in labor law that has weakened bargaining rights of workers obviously has a very adverse effect. But there are two major things I would focus on: one is education. When you don’t have equality of opportunity because you don’t have equal access to education, it just seems so outrageous. It weakens our economy and leads to more inequality. We have a locale-based education system, we have increasing economic segregation, we clearly need a larger federal program to try to help disadvantaged districts.”
“The second major issue: 50 years after the march on Washington, 150 years after the end of slavery, we still are suffering from the legacy of that, and we have problems of inclusion. Racial inclusion, gender inclusion, and that dimension of inequality is so undermining of our society. That’s something we could do something about quite clearly in terms of affirmative action, the discrimination that the banks engaged in before 2008, the agenda of Black Lives Matter, the mass incarceration. On gender issues, we are one of the only countries that doesn’t have family leave policies. We’re so far out of line with the other advantaged countries. Those are two things that I think are the most striking in the sense that they are inconsistent with deeply held values and are leading to both more inefficiency and more inequality”. http://www.theatlantic.com/business/archive/2016/04/stiglitz-inequality/479952/