The One Change That Could Solve Inequality - Nobel Prize Winner

0:03Breaking news. Stock market sell off. Should you buy the dip? Will mortgage rates fall this year? Pensioners targeting fine wine scams. The tactics to watch out for. What are we doing here, teammate? I just got involved because you did your little theme tune at the start, but what's going on? Well, Damo, those are some juicy titles from our partner Money Week magazine. They're a print and online publication that covers the big financial stories of the week. They report on the main aspects of UK personal finance, but also look at the wider picture, global economics. They've just got a really good balance.

0:32Yeah, and they're offering a no-brainer deal to try them out because it's completely free for six issues in print and on the app. Just head to moneyweek.com forward slash money. And there's a link in the description. They've also got their annual wealth summit on November 7th in London. Some of our previous guests like Andrew Craig and Kalpana Fitzpatrick will be speaking there. So you could go check that out. Who owns the equity? Who owns the land? The rich. The free market hasn't made us free. That's the case Nobel Prize winning economist Joseph Stiglitz makes in his latest book, the road to freedom.

1:05Under neoliberalism, banks were given the freedom to exploit others. The economy collapsed. The billionaires live in a fantasy world. If we tax land in the United States, it's not going to get angry with us and move over to Russia. A minimum tax on wealth for the super wealthy. If you haven't paid 2%, something's screwy going on. You join us from America today, and the land of the free but your book is called the road to freedom so i just want to ask you a pretty open question first of all do you feel free professor stiglitz no one is perfectly free part of the thesis of my book is that one person's freedom may impinge on that of another and so we all have to take account of the effects that we could have on others but at this particular moment uh i really do fear for the freedom of americans how how would you define freedom because i believe like people have different definitions of freedom that's a good question so i approach this basically in the book as an economist so what i mean by freedom is what you're free to do.

2:23So somebody who is at the point of starvation doesn't really have freedom. He does what he has to do in order to survive. And then economists talk about increasing your freedom in terms of increasing your opportunity set, what you could do. And so the range of things that you can do is a way, is a metric of the degree of freedom that you have. And you set out in your book that the right side of the political spectrum have basically taken an idea of freedom and used it for political purposes and wrapped it in a definition of their own. Could you explain to us how you think that they've kind of taken freedom?

3:13Well, they made a number of mistakes and in many occasions focused on one aspect of freedom, but not, you might say, another aspect that may be more important. So as an example, I mentioned before how one person's freedom can impinge on the freedom of others. So they focus on the first freedom, but not the adverse effect on the other. So let me give you an example. They would talk about your freedom to not get vaccinated during the pandemic. But they don't talk about the fact that because of that freedom, the disease spreads. sometimes somebody's going to get COVID-19 and somebody's going to die.

4:10Well, let me tell you, taking away somebody's life is a real reduction in that person's freedom. He has no more freedom. So what I say, you have to look at both sides, and which is more important, the freedom not to get vaccinated or the freedom to live. And that's an example of the trade-off. One of the things I also highlight in my book is that going back to America's revolution it sought freedom from the UK it was a kind of political freedom it was a war about revolution about political freedom the right of self-government in the United States But it was a peculiar particular kind of freedom because it was the right of rich white male property owners to rule in America and as transferred from the British monarch and the British ruling class.

5:28but it wasn't really about freedom in many states or there were more people enslaved and the constitution did not change that so if it had been a constitution about freedom it would have ended uh slavery but it didn't do that it actually ensconced slavery so your criticism of say off the back of that would be like the neoliberalism movement like liberal is a is a funny word isn't it because it means freedom and and it's what you're hinting at is we often use freedom and it defines the freedom of a very small subsect of people basically exactly that's the core idea and so under neoliberalism we took away banks were said uh don't regulate banks So banks were given the freedom to exploit others, to undertake excessive risk-taking.

6:28And what did that mean? Well, the banks did exercise that freedom. They did exploit others. They did engage in excessive risk-taking. And the economy collapsed. And so the rest of us lost the freedom to have a job. the freedom to own your home. And we as taxpayers had to bail them out because the alternative was letting the whole economy tank. So in a fundamental sense, we gave the bankers more freedom, but the rest of us lost our freedom. Who gets to define what freedom is the right kind? Well, part of the point of my book, you need a public dialogue over this, a democratic dialogue. And in the examples I gave you earlier, the tradeoffs were fairly clear.

7:34Most rational people would come to the same conclusion. but it's not always the case that people are going to agree. You know, we have a very virulent debate in the United States over, to give you another example, of freedom. The freedom to carry an AK-47, a rifle, a gun. Well, if you have a lot of guns running around our society, I can tell you, you can be pretty sure a lot of people are going to get killed. So what's happening? Which is more important, the right to carry around an AK-47 or the right to live? Again, rational societies, I think, would come to an agreement that freedom to live is more important than freedom to carry an AK-47, but not the view of the Republicans in the United States.

8:31freedom of speech is a more complicated issue and and another example where the american right gets very very confused um we have free speech very important but free speech has always been and circumscribed in one way or another. You can't cry fire in a crowded theater. You can't commit libel or, you know, other forms of, there are restrictions, okay? The question is, where do you define the line? So we've always restricted some forms of speech that are excessively socially destructive. On the other hand, we are in a, today we're in a world with social media, where these boundaries are changing.

9:38So for instance, social media played a very important role in the excitement of the Rohingya massacres in Miramar. And in countries like Germany, there were restrictions on Haig speech for good reasons. And a society living together may decide that certain kinds of extremist language may be excessively socially divisive. One has to really balance this really hard to decide where the boundaries are. On the other hand, some of what is going on in the United States is an attempt to circumscribe speech in a way I think that can't be justified. And remember, why is it that free speech is so important?

10:40And one of the reasons it's so important is to curb an abusive government, a corrupt government, to root out corruption, not only in government, but in the private sector. and obviously those in power don't never liked free speech because they don't want to be exposed i think um if we if we come back to the freedom point i think you're speaking to two two brits right so gun control to us we have gun controls we don't have gun crime these kind of things to us seem like common sense right but what what i want to look at is freedoms that are a little bit more nuanced. So what about, say, the freedom to pursue profit or the freedom to amass wealth and buy assets?

11:31How do you draw lines there? Because I think that speaks to a lot of the issues in the UK at the moment around perceived inequality and, you know, the wealth of people. This feels to me harder to balance. Yeah, those issues are harder than some of the simpler issues. But as you say, In the UK, the issue of guns is obvious, and it's only in America that it's more complicated. The basic first point I would raise, and one I think in the case of questioning you asked is on the more obvious side, is you shouldn't be able to make money by exploiting other people. You know, if you became wealthy by slavery, that shouldn't be acceptable.

12:27Clearly, the wealth that was based on that kind of exploitation is not legitimate wealth. And we ought to do everything to curb that. Now, those are obvious examples, but monopoly power is exploitation. There are many people who take advantage of the ignorance of others. So exploitation today takes many, many forms. And I would say much of capitalism today is exploitive capitalism. But on the other hand, there are aspects of people who are innovative, are making a contribution to society. and you should say, shouldn't they take away the fruits of that innovation? And I would say they need to be rewarded for that innovation.

13:26Yes. But I would say also, they would not have been successful if society had not provided the basics of what they do. so like even in the area of technological innovation Isaac Newton talked about his standing on the shoulders of those who went before him every, all research is based on the research of those who have gone before you you couldn't have done it if others hadn't done it with the earlier work so nothing is created, almost nothing of initio. So everybody has to say, my success is partly as a result of others. Similarly, you can't make money if there's no rule of law, if there's chaos.

14:28That requires government. Government requires taxes. So we as a society have to work together. So, again, there's a kind of interdependence. In the book, I try to go into that in greater detail, but the basic point is that even when you legitimately earn your money from your hard work, from your innovation, you're not exploiting others, your success is in part the result of the contribution of others. how much of your success is a result of theirs, how you share your success with others is a complex societal issue that has to be addressed. But it isn't as if you did everything on your own. Okay, T, talk to me about your attitudes towards risk.

15:31I mean, I like a bit of risk in my investments, but I definitely would say since the podcast, I've toned it down a little bit, not quite as gung-ho and carefree as I was in risk. Yeah, shooting from the hip all the time, weren't you? Yeah. I think personally that you should take risks, but it should always be in areas where you have a unique skill set, an edge, expertise, like your job, things like this. One area that I wouldn't take any risks is compliance. Yeah, the risk changes you grow in business, and you need to be on top of it, which is why we partner with Vanta. Vanta automates a lot of risk processes and helps you see your risks in a centralized platform so you know what really needs your attention.

16:08Besides risk, the main thing Vanta does is automate compliance with security protocols you need to scale, like GDPR, HIPAA, ISO 27001 and SOC 2. The beauty of Vanta is they make it easy to prove you're compliant with these standards, saving you up to 90 % of the time it takes, and on average half a million dollars. If you know what these acronyms like SOC 2 are, you probably need Vanta. You can book in a demo at vanta.com forward slash making money. There's a link in the description. Yeah, we wouldn't be having this conversation if someone hadn't laid down the phone lines and the internet and all the technology, you know, I didn't make the cameras.

16:46How do you convince people that firmly believe that a smaller government is freedom when you're basically saying that there needs to be that government input of redistribution and a bit of coercion almost to give people freedom? Well, first, I think the United States is learning chaotically smaller government isn't working very well. Americans rely on Social Security for their retirement. Hard to get a phone call to your Social Security Administration if you have a problem. You know, you take for granted certain things until you don't have them. And Trump, in a few short months, has taken away a lot of things that we took for granted.

17:39And we now realize how important things are. If you don't have air controllers, planes crash into each other. You don't feel very safe. so so much of what we do in a modern society requires collective action a simple thing stoplikes we didn't have stoplikes we'd have gridlock stoplikes are government government puts in those stoplikes but if you don't take turns you can no one can go okay So if we take away, just imagine, take away all those things like stoplights, like government retirement programs, unemployment insurance. Our society grinds to a halt and our well-being plummets.

18:48public education is absolutely essential for poor people to get an adequate education. If we don't have good public health, diseases will spread. So I think the problem is we've been so successful that we take for granted all the things that government does. Now, if you're a multibillionaire You don't need government To

19:24Educate your children You don't need You can have your private airplane You still need the air traffic controllers, by the way But you can do Without a lot of the things You don't need a public park Because you have your own park the billionaires live in a fantasy world because if they took away the essential services from everybody else their life is not going to be very pleasant so their problem is they can't project what a real society with small government would look like but let me be a little frank most of the small government people are hypocrites You know, a lot of the Silicon Valley people who say I want small government are making their money off of the government.

20:21Elon Musk, Tesla survived because it got almost a half a billion dollar loan from the government when it needed it. SpaceX has billions of dollars of government contracts. So when they say small government, what they mean is I want government to help me, but not poor people. The carbon, was it carbon credits as well for Tesla? I think we're a big part of their profitability for a long time, which was these kind of government schemes as well. So the overall idea of freedom, I think, is really compelling because I think most people in America and in England will say, my life feels a little bit worse today than it probably should and i think if you frame it through freedom you get you get an answer a clear answer for that but if we zoom out on a global perspective hasn't like the systems that you criticize led to millions of people in china lifting out of poverty say aren't we as a globe more free than we've ever been Well, you're right that economic growth in the last 50 years has raised some 800 million people out of poverty in China.

21:44Many people out of poverty in other countries. There have been some setbacks in the last five years. But overall, it's been a big success in those terms. Still, a lot of people have been left out. And in that narrow sense, they've gotten more freedom. But the question we're facing today is a question about the encroachment of the authoritarian governments, imperfectly democratic governments around the world, and taking away political freedom. and my view is that that in turn will undermine economic freedom in many, many ways. And that we today in the West particularly are rich enough that we can have political and economic freedom.

23:02And so what's going on in the United States, you know, what I see is we're losing our political freedom. But at the same time, the policies are hurting those at the bottom, taking away their economic freedom and overall are going to lead to slower growth for the country as a whole. And so on average, Americans are actually going to be losing their economic freedom. But when you say some equality is always to be expected, I was watching your podcast and you said the wolves and the sheep and like the freedom of the... Freedom for the wolf is death for the sheep. Exactly. So isn't inequality to be expected?

23:48And how do you know when freedom is too much freedom? Every society is going to have some freedom, some inequality. And so the notion that you're going to get rid of all inequality is just not realistic. And economists will say you need some incentives and different people will be motivated in different ways. And so even a well-functioning society is going to have some inequality.

24:21but what has happened in the United States and some other countries but particularly in the United States is the inequality has been generated I would say in the wrong way and has become excessive when I say the wrong way what I mean is a lot of the inequality is a result of exploitation I mentioned a lot of the forms of that exploitation but like the monopolies taking advantage of other people. Drug companies, I haven't listed them. You know, tobacco companies who increase the addiction of their cigarettes. You know, there's so many examples of companies that have made their profits by exploiting others.

25:15So for me, that kind of inequality is illegitimate. Is this human nature, though? It's the nature of some people, but not of most people. I think most people are decent. I think most people have empathy for others. And they think about the consequences. And we work hard to make our children that way, to make our children socialized, to be sensitive to what the consequences of their actions on others. But, you know, history is on your side. There are always some people, always some people who are willing to make money for themselves, to give themselves power at the expense of the well-being of others.

26:06Absolutely. And that's why society as a whole has to get together and say, no, you can't do that. You know, and you might say, this goes back to the Ten Commandments. You know, some people stole money from other people. You say, well, isn't that always the case? No. Yes, there may be a few people who do that. But you write a regulation and you say, no, you can't do that. That's not the way you can get wealthy. Now, stealing takes a more sophisticated form in a modern economy. It may be monopoly power. It may be some other abusive practice. And so it's not just you can write down in a short Ten Commandments.

26:52But what we have to do is to say regulate and say you can't do that. That's antisocial. Our society can't function. If you engage in that and by doing that, you make it for your society. You stop the bad guys, but you free up everybody else. Last time we recorded, Tomei, and you were having some real dramas with your accountant. So how's that been going, mate? They're sacked. So drama sorted. They're a big corporate firm. They didn't really reply to my emails very quickly, like took a week or two at times. And they charged me way too much. I mean, I've got pretty simple taxes and they were charging me thousands.

27:33They saved me some money, but yeah, I had to move on. Slow and expensive. Pretty much, yeah. This is one of the reasons that we're really happy to be partnering with TaxApp. It's a tech platform that makes self-assessment simple. Whether you're self-employed like me, a freelancer, or a director like Damo, big dog. Instead of sending endless emails, bills, and spreadsheets to your accountant, you just connect your bank, answer a few questions that are only relevant to you, and your tax return can be ready in as little as 15 minutes. TaxApp is really easy to use, and it's HMRC-recognized software.

28:01So it's safe, secure, and legit. The price is also decent. So if you're self-employed with one income stream, it's just£89 as a one-off fee. No big accountancy fees. And we also have a discount code, of course. If you need to file a self-assessment this year, give TaxApp a try. We've left a link in the description and use the code MONEY10 for 10 % off your first tax filing. I would say that freedom is definitely heading in the right direction, despite all the things you say about political issues. But as a proud member of the black community, I feel that I guess like 50 years ago, it probably was a lot harder to be a black person in UK or America than it is today.

28:39However, I still don't feel like I have the same freedoms as Damien. Like, I don't think he's ever been pulled over in his life, but I've been pulled over like 10 times. Like, why are you driving a Mercedes? Because you look dodgy, mate. Because I bought it, it's my car. So it seems like even though there is a lot more freedom for black people generally, and I'm sure other people feel like this, maybe like homosexuals or, you know, marginalized people, there's more freedom, but it still doesn't feel like, no matter how much money you have or like how successful you get, you have the same freedom.

29:10And it's like, it's a level playing field, essentially. Oh, you're absolutely right. And that's one of the things that society should be trying to address. And, you know, you can't change people's mindsets overnight might, but over time you can. And, you know, those of us who were in the Civil Rights Movement, like I did, you know, marched with Martin Luther King. I was down there in Washington when he gave a I Have a Dream speech. You saw that in person? Yeah, I was there. I was one of the people marching with Martin Luther King. So, you know, that was our dream and we have a long way to go but some of the policies that we were putting in place like affirmative action are trying to to change people's mindsets and and you know what makes me so so sad right now is how Trump is trying to reverse all that progress, that he's trying to get rid of what we call DEI, diversity, equity, inclusion.

30:32It's been a long struggle. And for me, I might say I was so hopeful back then in 1963 it's been a real disappointment that we haven't made more progress but the real disappointment is what's happening right now which is the reversal of what progress we have do you not think martin luther king will be pretty proud of kind of where it has got to in a lot of ways i mean like you say like more more should be done but do you think he would look at the progress and say it's you know we did a good job there uh i think he would have been more hopeful that we would have done more i i think um no matter how you look at it you look at the statistics um you know economics you know uh even the imprisonment rate like shocks me like the level at which black men get into the prison system in america is yeah yeah i mean and you gave a very good example we in america uh we call the crime that you got or stopped for driving while black heard that one many times driving while black driving yeah that's your that's your crime that's why you got stopped yeah that's crazy i heard that since i was like 13 i first heard that phrase which is crazy yeah you're obviously you're obviously critical of the trump regime and and and your perceived undoing of freedoms but you touched on monopolies and i just want to kind of point out that those the modern day monopolies existed before trump right the google fake like facebook these kind of companies that dominate and no one's done anything about it so well that's what we we we were on a campaign that's one of the things that president biden was very good at he appointed somebody a class a colleague of mine at columbia lena khan was the head of the FTC.

32:33Another colleague of mine at Columbia, Tim Wu, was in the White House, and they were really taking a concerted effort to restrain the power of the big tech giants. Europe is also trying to do that with what's called the Digital Marketing Act, the DMA. But now what worries me again is going back, unleashing the power of the monopolies. And it's even worse than that. Trump is going to Europe and says, if you don't change your DMA, we will impose tariffs on you. He says competition policy is an unfair trade practice. I view competition policy as a basic prerequisite for good economic policy. And it just is another illustration of the badness of the economic policy, Donald Trump.

33:50And what about AI and that then and the policies around that? Because we had an economist here before, and he said he was concerned because he feels that technology has a tendency to worsen inequality, exacerbate problems if it's not structured in the right way or regulated properly. Do you share that opinion? Yes, I share that worry that AI has the risk. We don't know exactly where AI is going to go, but it has the risk of causing unemployment among workers who are engaged in routine jobs because it can do those routine jobs better. and that will increase the labor, the wage inequality. So it is a real risk.

34:49We're not yet seeing in the data, partly because AI is still small in the economy and its impact has so far been limited. But there's one more aspect of AI that is actually more worrisome, and that is the ability of AI to undermine aspects of our society. So, you know, we've all been worried about, for instance, the way social media does targeting. It figures out how to get more engagement through enragement, how it polarizes. Okay? And those are just examples of some of the adverse effects of AI, of social media. AI puts all of that on steroids. It has the power to make things much worse. So to me, having safe and ethical AI is absolutely imperative.

36:06And that means you have to have regulation. And Europe has tried imperfectly, but moved in the right direction with the Digital Services Act. UK has moved in the right direction. The United States has done nothing. And I think that's part of the problems that we're having in our society today. I want to talk about wealth inequality a bit as well, because this is a big topic in the UK, very big. I think the two political movements in the UK are immigration or tax to rich, basically, is like the left and right sides of it. You advise President Clinton, another cool thing that you've done in your life.

36:48But he lowered capital gains tax, didn't he? I oppose that. We had an intense debate inside the administration. I said, who's going to get the benefits of lowering the capital gains taxes? Who owns the equity? Who owns the land? the rich. And by lowering the tax on capital gains, you are reducing the progressivity of the tax and you're creating more inequality in our society for no benefit. Let me give the extreme example. Take capital gains on land. Do you think lowering the tax on land is going to make land more? Obviously not. The land is there. The land really is part of the national heritage.