Ex-World Bank top economist talks unaffordability, the TPP, and being a fiscal 'black sheep.'
Joseph Stiglitz, winner of the Nobel Memorial Prize in Economic Sciences, is the third-most cited economist in the world, according to Research Papers in Economics. Photo by David P. Ball.
Skyrocketing housing prices in Canada's cities, most dramatically in Vancouver, threaten the cohesion of our society, argues Nobel laureate and former World Bank chief economist Joseph Stiglitz.
The Columbia University professor sat down with The Tyee on Friday at the University of British Columbia for a wide-ranging interview, touching on foreign real estate speculation, the changing field of economics, and how the new Liberal government might soon find its promises to the middle class derailed by trade deals such as the Trans-Pacific Partnership.
That trade deal, billed as "the largest, most ambitious free trade initiative in history," would allow foreign corporations to challenge participating governments using investor-state dispute settlement hearings -- and potentially force taxpayers to reimburse them for any national policies and laws that hurt future profits or don't grant a company "fair and equal treatment."
The 72-year-old American author of The Great Divide: Unequal Societies and What We Can Do About Them hasn't previously discussed Canada's housing crisis. But the harm and social strife caused by property speculation and empty condos is something Stiglitz knows well.
"It's the same phenomenon happening in New York," he said. "We attributed it maybe to Russian oligarchs buying multimillion-dollar apartments in huge buildings... driving up rents, making it unaffordable to live in the city."
Figuring out the crisis is just one of many inequality-related challenges now facing Justin Trudeau's government. But if addressed, Stiglitz noted, the rewards will be great.
"There are very significant benefits to creating communities with diversity, diverse incomes and other forms, that cannot exist if we price ordinary people out of our cities," he said.
Read on to hear what Stiglitz had to say about Canada's place on the inequality spectrum, how the TPP could make it even worse, and why the next generation of economists gives him hope.
The Tyee: What do you know about Canada's situation when it comes to inequality? A lot of people look to the United States or European countries. How do we compare?
Joseph Stiglitz: You're not as bad as the United States, but you're not as good as Scandinavia. You're in the middle of the pack. It is the trend in most OECD countries of increasing inequality, as measured by the Gini coefficient [a measure of income distribution]. These are disturbing trends that are present in most advanced countries. We're trying to understand the causes, and what to do about it.
What would you say is the dominant cause?
The weak economy, partly associated with austerity, has led to a weak labour market. The official unemployment rates don't indicate the real weaknesses. In the U.S. there's a huge amount of disguised unemployment -- people who have dropped out of the labour force or are working part time. That's why wages have stagnated.
You saw that so vividly in the three years at the beginning of our so-called "recovery," from 2009 to 2012, when 91 per cent of all the gains went to the top one per cent. That's obviously a huge increase in inequality... African-Americans, Hispanics, low-income Americans, and high school graduates have not recovered. You might say it's been a lopsided recovery.
The recession was really bad for the poor. They lost their jobs and lost their homes. But even before that, you saw really significant increases in inequality in an economy that was supposedly performing very well. So [the cause of inequality] is beyond just austerity.
In Vancouver, we have a huge amount of capital flowing into the city, buying up housing units that are then left empty. There's a debate over where the money's coming from -- some say China or Hong Kong, others say L.A. or Toronto -- but do you think that contributes to inequality here, in terms of who can live in the city?
It's very disturbing, and it's the same phenomenon happening in New York. We attributed it maybe to Russian oligarchs buying multimillion-dollar apartments in huge buildings that are cutting out the sunshine from Central Park and driving up rents, making it unaffordable to live in the city.
There are very significant benefits to creating communities with diversity, diverse incomes and other forms, that cannot exist if we price ordinary people out of our cities.
I would [suggest] a very progressive tax on property. If you have a $50-million apartment, the property tax on it should be very large. Some of the revenues could go to help subsidize lower-income people to live in the city. We use zoning as one of the tools to try to shape the environment in which we live.
But I think we ought to also complement that with market tools that make those who want to benefit from living in these cities we've created -- these jewels of our society -- they ought to pay a price if they can afford it.
Few can afford to buy a home or condo anymore in Vancouver. Experts predict people my age will be priced out in 25 years. There's no way I could conceive of building equity for my retirement through the means of having a home. Is this creating a greater inequality gap?
Yes. In some cases, people can live a little further out than the centre of the city -- there are ways some people can get access to real estate. How you create diversified cities, though, is one problem. The other problem is that we've helped fuel housing bubbles, creating more inequality. Those who get access to credit, usually those who already have wealth, get more and more wealth. This is one of the main sources of wealth inequality creation.
The excessive growth of credit supply... increases the price of assets like real estate, and [central banks] say, 'Now we can lend more, because there's more collateral.' But who has that collateral? The rich people who previously owned the assets. So you get this spiral of credit creation that fuels the growth of inequality.
A number of trade deals passed by Canada -- the TPP and the Foreign Investment Promotion and Protection Agreement (FIPA) with China that we're locked into for 31 years, for example -- are seen in traditional economics as the gold standard.
The TPP is a very bad agreement that will increase inequality. Inequality isn't just about income -- it's also about standards of living. There are several [worrying] provisions. The worst is the investment agreement provision, which effectively restricts the ability [of states] to regulate and protect health, safety, the environment, even economic regulations important for stability. These are things that are particularly important to ordinary citizens. The regulations are meant to protect our society.
Some people argue, 'We already have these agreements.' Well, that's exactly the point -- Canada should have learned these are bad ideas. If you signed a bad agreement, that's not an argument to sign an even worse agreement! It's really an argument for revising the previous agreements. Let's try to contain the damage, not amplify it.
Our new federal government says it wants to address inequality. Does anything in the TPP constrain what it could do?
Oh, everything in it. If you change a regulation -- for instance, to prohibit excessive interest rates -- you could be sued by an American bank that made an investment and says, 'You've deprived us of our expected profits.'
When it comes to environmental protection, we know that adverse environmental impacts are worse for the poor. They're exposed to toxic waste and all kinds of things. We know from NAFTA that you can be sued if you say, 'You're not allowed to have a toxic waste dump next to where people will live.' The company will say, 'Sorry, but we bought the property and expected to make profits.'
[The TPP contains] complicated language that says there's an exception for health and safety. But there are exceptions to the exceptions. One clause may dominate over another. And you have to go to this arbitration panel dominated by private arbitrators paid for by the corporations, and you expect justice? I think you're crazy. There's no appeal, no precedents, no public interest as an overriding concern.
French economist Thomas Piketty argues that, as equality increases, the desire to over-consume as we do decreases. Do you agree with him? Because some argue that a "rising tide" of increasing wealth would also lead to an unsustainable level of consumption around the world.
People at the top do save more than those at the bottom, who have to spend all of their income to survive. The people at the very top are able to save one-third of their income. So consumption doesn't increase in tandem with income.
The other side of the story is that the demand of upper-income people in advanced countries on the environment is very large and not sustainable. So if everybody consumes in the way Americans consume, particularly material goods, which are very resource and energy-intensive, the world won't be able to survive.
If we want to ensure a modicum of global social justice -- where people in developing countries have income growing -- then the pattern of consumption in the U.S. and other advanced countries will have to change. It's so important that we change the way we live. A lot of it is about how we organize our cities, our transport systems, our housing. It's much deeper than just the consumption of goods; it's how we organize our lives.
Given that you're a bit of a black sheep pushing against neoliberal economics, along with a few others like Thomas Piketty and Jeff Rubin, what gives you hope?
We may be in the minority, but among young economists our voice is much louder. There's a generational change. It's not how many voices, but the power of the argument. And the arguments are fairly compelling.
You see that in the presidential election in the U.S. There is no one defending neoliberalism in the Democratic Party. Hillary [Clinton] and [Bernie] Sanders are both taking a more progressive line. They've come out against the TPP. The Republicans are a little different, but anybody listening to them knows they're outside the sphere of even neoliberal economics. They're undisciplined. (Laughs.)
But among people thinking seriously about the issues, I think neoliberalism is in retreat. In the Senate, we have voices like Elizabeth Warren... and also we have movements like the Fight for $15 [minimum wage campaign] in Seattle.
Even many people in the one per cent have realized that it's not in their interests to have a divided society. They're making huge contributions to these social causes. All that gives me some hope.
This interview was edited for clarity and length. The Tyee's Andrew MacLeod, author of A Better Place on Earth: The Search for Fairness in Super Unequal British Columbia, contributed several questions.