What Stiglitz and Stockman have in common.

• Author: Holcombe, Randall G.

The role of government in the economy has been a major public policy issue for more than two centuries. Critics of capitalism, at least since Karl Marx, have argued that the system is skewed to benefit the political and economic elite at the expense of the masses: the proletariat over the bourgeoisie, as Marx put it, or the 1 percent over the 99 percent, as the Occupy Movement that began in 2011 put it. Two recent books have looked at these issues, one from the vantage point of the political left and the other from the political right. Joseph Stiglitz, a Nobel laureate economist and frequent commentator on the political left, discusses the way the system is skewed to support the 1 percent over the 99 percent in his book The Price of Inequality (2012), while conservative writer and former Michigan congressman and budget director in the Reagan administration David Stockman addresses these same issues from the political right in The Great Deformation (2013). Considering their political leanings, it is worth emphasizing how much their books have in common when describing the causes of the major economic and political problems they perceive in the United States.

Both Stiglitz and Stockman argue that corruption of the U.S. political system is damaging both the economic system and democracy. This article documents the commonality of ideas in their two books while recognizing the significant differences in their policy recommendations.

Views on Crony Capitalism, Rent Seeking, the Fed, and Democracy

In Chapter 1 Stiglitz outlines the problem he sees, which, as the title suggests, is inequality, and he offers some data to back up his claims. (1) Chapter 2, titled "Rent Seeking and the Making of an Unequal Society," places much of the blame for inequality on government policy. Stiglitz (2012: 39-40) argues: "We have a political system that gives inordinate power to those at the top, and they have used that power not only to limit the extent of redistribution but also to shape the rules of the game in their favor." Stockman (2013: 169) agrees, saying that public policies to try to regulate the market "fail to recognize that the state bears an inherent flaw that dwarfs the imperfections purported to afflict the free market; namely, that policies undertaken in the name of the public good inexorably become captured by special interests and crony capitalists who appropriate resources from society's commons for their own private ends."

Discussing the lawyers and accountants hired by the elite, Stiglitz (p. 53) says, "They help write the complex tax laws in which loopholes are put, so their clients can avoid taxes, and they then design the complex deals to take advantage of these loopholes." (2) Regarding the market power that the elite use to enhance its income, Stiglitz (p. 54) writes, "The simplest way to a sustainable monopoly is getting the government to give you one." Stockman (p. 181) says, "Like in all instances of crony capitalism, economic outcomes are as much a gift of the state as they are the fruits of capitalist virtue." Stiglitz (p. 40) agrees, saying capitalists write the rules in their favor "to extract from the public what can only be called large 'gifts.'"

Stiglitz (p. 59) argues that the rules are being written by the 1 percent for their benefit. "It's one thing to win a 'fair' game. It's quite another to be able to write the rules of the game--and to write them in ways that enhance one's prospects of winning. And it's even worse if you can choose your own referees." Discussing government regulation in various sectors of the economy, Stiglitz contends, "The problem is that leaders in these sectors use their political influence to get people appointed to the regulatory agencies who are sympathetic to their perspectives." (3)

Stiglitz (p. 62) says, "It doesn't have to be this way, but powerful interests ensure that it is." Stockman (p. 560) agrees, saying, "We have a rigged system--a regime of crony capitalism--where the tax code heavily favors debt and capital gains, and the central bank purposefully enables rampant speculation by propping up the price of financial assets and battering down the cost of leveraged finance." Stockman's (p. 606) dismal view is that "In truth, the historic boundary between the free market and the state has been eradicated, and therefore anything that can be peddled by crony capitalists ... is fair game."

Stiglitz (pp. 104-T5) argues that "When one interest group holds too much power, it succeeds in getting policies that benefit itself, rather than policies that would benefit society as a whole. When the wealthiest use their political power to benefit excessively the corporations they control, much-needed revenues are diverted into the pockets of a few instead of benefiting society at large." Why does this happen? Stiglitz tells us that interest groups hold too much power and use it to get policies that benefit the wealthiest.

Echoing Stiglitz's message, Stockman (p. 672) says our government "is no longer a system of democratic choice and governance: it is a tyranny of incumbency and money politics." He argues (p. 692) that "the gangs of crony capitalism will fight tooth...