"He Wasn't Keeping Money in the Cayman Islands Because Sunshine Was Making It Grow Faster"

I interviewed Nobel Prize-winning economist Joseph Stiglitz earlier this month.

In this clip, Stiglitz discusses how our tax code and regulatory structure provide an unfair advantage to some, but not others, exacerbating inequality in America. Have a look. (A transcript follows.)

Joseph Stiglitz: Well, there are a whole set of things that help explain what's happened to increase the inequality. Some of this has to do with tax laws. The fact is that the people at the top can take advantage of a whole set of special provisions, exceptions, exemptions.

Mitt Romney, when he was running for the president, openly said that he was paying only 14% of his reported income, and that he was keeping his income, his wealth, in the Cayman Islands. Now, it's very difficult for most of us to keep our income in the Cayman Islands, and he wasn't keeping the money in the Cayman Islands because the sunshine there was making the money grow faster. It was something else. It was the lack of sunshine that allows for people to avoid taxes, not necessarily illegally, but to take advantage of the loopholes that they have succeeded in putting into the tax law.

The most egregious example of this is the carried interest provision that allows those working Wall Street to treat their income, ordinary income, as if it were capital gains. So rather than paying 35 or now 39.6, they get paid the capital gains, takes the tax rate 15 to 20%. So that's one example.

Second important example is the way our financial system works, that the underregulated financial system, provides more opportunity for money to move toward the top. There's a more general point -- when markets are competitive, incomes get driven down. When markets are not competitive, there are locks of rents, and the financial sector has been very successful in weakening competition. One example is provided by the way the secretive LIBOR market worked that allowed them to manipulate the LIBOR rate to take advantage of the rest of the society.

Another example is more broadly the CDSes, over the counter, non-transparent. I understand fully why they want those markets to be non-transparent. When markets get transparent, they get competitive. When they get competitive, profits get eroded, and so as an economist, let me say I totally understand what they're trying to do, but from a public policy point of view, it's outrageous.


Comments from our Foolish Readers


  • Report this Comment On April 26, 2013, at 9:20 PM, FredPiott wrote:

    Seriously? You start with an article that tells us nothing that we don't already know and then follow it up with leads on "The Death of the PC" and "Obama Has a Trick up His Sleeve" . . . Now I fully understand why it's called The Motley Fool . . . I will not be back!

  • Report this Comment On April 26, 2013, at 10:40 PM, docfjs wrote:

    Why is Motely Fool giving this fool, Mr Stiglitz a forum for socialist propaganda.

    If our capitalistic system is so efficient at moving "money to the top" why is it that nine out of ten of the top income counties in the US are in Washington DC. Is this where all those unregulated capitalists live? Of course not.

    Poverty comes from poor education, family chaos, lack of discipline and drug use. It does not come from rich people stealing money from poor people.

  • Report this Comment On April 26, 2013, at 11:08 PM, SkepikI wrote:

    ^ but maybe it also comes from powerful connected people stealing or diverting money from poor people.... like all those top income counties in DC, the residents of which largely work in or depend upon the rackets inside the beltway. Every American should work and live just outside the beltway for 2 years and no more. The observation would wipe out the con for oh a decade or so... then we could start over. Seems it has to happen at least once a generation.....

  • Report this Comment On April 27, 2013, at 2:37 AM, docfjs wrote:

    Yes but my point is that the Beltway is not a product of our "unregulated financial system". It is just the opposite. It is a product of regulation by big government and false crony pseudo-capitalism.

    I will say it again. Wealthy capitalists do not get that way by making people poor and the poor do not get wealthy by taking other people's income.

  • Report this Comment On April 27, 2013, at 9:41 AM, wolfman225 wrote:

    Mitt Romney openly admitted he paid "only" 14% in income taxes. So? He followed the law, this is something to be ashamed of? Hell, I only paid 7.3%, and I'm most definitely not one of the "1%".

    And as for the problem of the "underregulated financial market".....please. Our financial markets are anything BUT under-regulated. You couldn't sit down and read (and comprehend) all of the rules and regulations governing banking and finance if that's all you did for a solid year! Not to mention that the regulations change so often it's like playing financial "whack-a-mole" trying to stay current. I believe the financial collapse of 2008 (as well as others throughout American history) was brought about in large part as a result of government getting involved in the economy and attempting to choose winners and losers.

    Government isn't any better at financial and economic forecasting than the average investor, yet insists on imposing rules and regulations designed to encourage the next big thing and simultaneously discourage "excesses of the market". It can do neither.

  • Report this Comment On April 27, 2013, at 2:42 PM, Scarredbylife wrote:


    This is so not true.

    I mean really, how many middle class jobs need to get shipped off to a country that pays 5 bucks a hour for some "rich capitalists" profit margins before you wake up? How's your benefits? they been shrinking? Got to keep those profit margins! Your pay? That been shrinking?

    Your post is so outrageous it makes me feel like you are not paying attention to reality. Lets not even talk about Walmart. You seem clueless when you say stuff like that.

    And the second part? I wonder, don't you think people could do better with a decent education? Worthwhile healthcare? The poor can't pay for those things, but if the rich pony up I'd be willing to bet we'd see a lot more upward mobility for the poor.

    Your post seems like trash in that you didn't automatically see these points.

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