What has the Covid-19 crisis revealed about American society and the economy?
Joseph Stiglitz: First of all, this revealed the great inequalities in our society, especially in health. It is not a virus that treats everyone the same. It threatens individuals with more fragile health. However, in the United States, the only developed country that does not recognize access to health as a basic human right, many people suffer from medical vulnerabilities. These are correlated with access to good nutrition and health care, which in turn is linked to income, in turn linked to race and ethnicity.
The weaknesses of our social protection systems have also come to light. A large part of Americans live from hand to mouth. And when they get sick, they don’t get paid sick leave. They therefore go to work sick, contributing to the spread of the virus. This is one of the reasons the United States is performing so poorly in dealing with this health crisis. More generally, it revealed what I call “The Great Divide”.
What do you mean ?
JS: The average savings rate has never been higher in the United States. On the one hand, the richest people continue to earn income and save their money. On the other hand, people at the bottom and middle of the ladder live precarious lives. The number of Americans who go to bed hungry at night has skyrocketed.
There are many factors explaining this shift. First of all, the income disparities are very large. The inflation-adjusted minimum wage has not increased for fifty to sixty years. Imagine: the workers at the bottom of the ladder have not had a raise in half a century!
There is also no public health coverage. This causes a lot of people to go into debt when they get sick. Moreover, unlike France, going to university is very expensive. The average college graduate has $ 30,000 (€ 25,300) in loans to repay, excluding interest. And you have to pay back all that, work or not. In short, this system is not “soft”. In the event of a shock like the Covid, a large number of people are plunged into situations of great distress. Our system is not resilient.
What do you think of Donald Trump’s response to this economic crisis?
JS: The outgoing president had said that everything would return to normal at the end of June at the latest, after a short shutdown of the economy. It is October, and it is clear that the virus has not gone away and will continue. Many people were temporarily unemployed at the start of the crisis. These workers are being made redundant today. The unemployment rate is around 8%, but if we look at the category of workers who work part-time involuntarily, the real unemployment rate is much higher. Because Donald Trump has not handled this pandemic well, we are in an even more precarious economic situation. In addition, its corporate tax cuts at the end of 2017 made us less ready to respond to any crisis because our deficit has increased sharply.
What are the domino effects of this crisis on other sectors, such as the housing market? Between 30 and 40 million tenants are threatened with eviction …
JS: Housing is one of the sectors affected in the medium term, after airlines and catering in particular. There are currently moratoriums against evictions, but they are temporary and do not solve the basic problem: tenant debts are increasing, putting landlords in difficulty.
Another fragile sector: municipalities and federated states. They are very affected, because tax revenues are in free fall. In 2008-2009, revenues had also fallen and States had to proceed with layoffs. In 2019, we still had not returned to the employment level of 2008! Before the Covid, we were therefore on the verge of a precipice. We depend on local and state governments for social programs, education and health. While we need them most, we can no longer keep these officials!
During the Democratic Party primaries, Bernie Sanders and Elizabeth Warren, figures from the left wing of the party, put forward proposals for taxes on very large fortunes (“Wealth Tax”) to fight against inequalities. What do you think ?
JS: Polls show the vast majority of Americans support it, including many Republican Party voters. The country realizes that this great division, accentuated by the pandemic, exists and that it must be resolved. There is no consensus on how. A wealth tax is a good solution, but before we get there there are many other more achievable steps we can take, starting with changing our regressive tax system: the people at the top pay lower taxes as a fraction of their income than people below. It’s scandalous. Plumbers shouldn’t pay more taxes than real estate moguls like Donald Trump.