Eating the Potato Stops the Game

Jun 29, 2012

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“We could have lower inequality, a more balanced financial system, and higher economic growth. But if we allow things to carry on the way they are, we are going to have not only an unbalanced economy, but unbalanced politics, with the financial sector really distorting both our economy and our democracy,” he said. Stiglitz is a former chief economist of the World Bank, and won the Nobel Prize in 2001. He has recently written a new book, ‘The Price of Inequality’.

Editor’s Notes:

The principle is so simple that it is hard to imagine why our national leaders and even the top 1% don’t get it. They continue to bully and intimidate the other 99% into near poverty in a form of economic slavery — and then expect the same people to support an economy that is 70% driven by consumer spending. This proves the assertion that you don’t have to be smart to have money and the corollary that even if you have money, it doesn’t make you smart.

There is simply no doubt amongst any historians or economists or even anthropologists that when income and wealth inequality gets too large, the society converts from being a world of opportunity to a world of slavery and crashes because while there is plenty of capital around to build and make things, nobody has any money left to buy what the Holders of capital want to sell.

All ideological misrepresentations aside, there is an inescapable fact of history that the economy and the stock market tend to do better under the anti-business pro union administrations than they do under the pro-business anti union administrations. Look it up yourself. You can rationalize the facts but you can’t change them.

And again, the principle is so simple that even a young child gets it. It’s like the old game “Hot Potato.” It keeps going as long as the potato is hot and it gets passed around. The game abruptly ends if someone eats the potato. The 1% ate the potato and have closed their eyes to the consequences of their own actions. If you want money circulating making money for lots of people then make sure the people at the bottom get a fair share of it by whatever means are necessary to get money into their hands. They spend every cent they get and they spend it with people, stores and companies that spend most of the money they get from the consumers. This makes rich people richer while at the same time maintaining a society is that is stable. Pushing money into the lower strata of the society is simply good business and good politics.

The United States and other countries have turned these simple principles and facts on their head. The result is stalled economies, crashing societies and arguments over ideology that is classically rearranging chairs on the deck of the Titanic. The ship is going down and all this needed is a little more air at the bottom so it won’t sink.

The massive theft of wealth from the middle class pushed those families down from middle class to lower classes. Debt was substituted for income which has been flat for more than 30 years. Exactly why is anyone surprised that the economy crashed when the borrowers couldn’t borrow any more money because they simply didn’t have the income to even make the first payment on the debt. The Banks answer we need more debt. It isn’t enough that their debt derivative instruments amount to ten times all the actual money in the world, they want more. Who do they think is going to pay this debt?

And where are the referees in this “game.” Why were they pulled of the playing field and why are they not swarming all over all the players making sure the play is fair? Oh right, that would be government regulation and everyone knows government regulation is a bad thing. So let’s get rid of all government regulation. Start with murder and work your way down. See where that gets you.

Banks Risk Distorting Our Democracy: Stiglitz

By Kathy Barnato

Under-regulated and over-powerful banks weaken the global economy and lead to higher inequality, Nobel prize-winning economist Joseph Stiglitz told CNBC.

Franco Origlia | Getty Images

Joseph Stiglitz, the Nobel prize-winning economist and former chief economist at the World Bank.

Highlighting the Libor -fixingscandal that has hit UK banks Barclays[BARC-GB 162.85 -2.75 (-1.66%) ] and Royal Bank of Scotland [RBS 6.771 0.171 (+2.59%) ], Stiglitz said reforming financial markets was the single most pressing issue facing the global economy.

“A lot of inequality, especially at the top, does not come from people really making the size of the pie bigger, making our economy work better, it comes from what we call rent seeking, trying to seize a bigger slice of that pie through things that actually make our economy weaker,” Stiglitz told CNBC’s ‘Worldwide Exchange‘ on Friday.

Stiglitz said he supported a “much stronger version” of current financial market regulation, with the sector forced to focus on its core purpose of providing credit. He said banks [.DJUSBK 194.95 3.81 (+1.99%) ] should be told: “You can’t engage in these kinds of speculative activities, these non-transparent CDSs , these gambles on the market — they are not your business.”

He added that over-mighty banks not only distort the economy, but also distort politics. He said the 1999 repeal of the U.S. Glass–Steagall Act, which enforced the separation of investment bank activity from commercial bank activity, was due to lobbying by the financial sector.

“That was the influence of the banks again… They lost money on a lot of their real financial investments, but their political investments really paid off! Not for shareholders and bondholders, but for the bank managers, who have done very well in the last few years,” he said.

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Without reform, both Europe and the global economy will be “weak” in five to 10 years’ time, said Stiglitz.

“If we continue on the current course, the financial system will not be serving the rest of our economy, the economy will be weak. Inequality will be greater, and we are paying a very high price for this inequality.

“We could have lower inequality, a more balanced financial system, and higher economic growth. But if we allow things to carry on the way they are, we are going to have not only an unbalanced economy, but unbalanced politics, with the financial sector really distorting both our economy and our democracy,” he said.

Stiglitz is a former chief economist of the World Bank, and won the Nobel Prize in 2001. He has recently written a new book, ‘The price of inequality’.

To view Joseph Stiglitz’s appearance on CNBC, click here

— By CNBC.com’s Katy Barnato