MS. DIANE REHMThanks for joining us. I'm Diane Rehm. When Joseph Stiglitz was growing up in industrial city of Gary, Indiana, he saw inequality firsthand. His upbringing was central to why he chose to focus on income disparity in his profession as an economist. His new book is a collection of his essays and articles on the topic from the past few years. A recurring theme throughout, he says, is that inequality is not inevitable.

MS. DIANE REHMJoseph Stiglitz new book is titled "The Great Divide: Unequal Societies and What We Can Do About Them." He is a Nobel Prizewinning economist who teaches at Columbia University. He joins me here in the studio. You are welcome, as always, to be part of the conversation. Give us a call at 800-433-8850. Send an email to drshow@wamu.org. Follow us on Facebook or send us a tweet. Professor Stiglitz, it's good to see you again.

DR. JOSEPH STIGLITZNice to be here.

REHMThank you so much. It seems to me that the central theme of this book, "The Great Divide" is that policies and politics create the divide and it's not sort of a natural event of economics.

STIGLITZYou're absolutely right. And there's a hopeful note in that. Because inequality is not inevitable, it's not the result of an exorable economic forces, but a result of our policies, if we change those policies, we might be able to get a lower level of economic inequality. And one of the other themes of the book is we'll also be able to have better economic performance.

REHMYou trace the beginning of the economic divide back to the presidency of Ronald Reagan. Why?

STIGLITZWell, it was that period where we began to deregulate, but it was more than just the deregulation. You know, in the period from the end of World War II to 1980, it was a period of our most rapid economic growth and it was a kind of shared prosperity. Every part of our economy grew. The people at the bottom actually grew faster than the people at the top so we were coming together, but the interesting thing, it was also our fastest period of economic growth.

STIGLITZThen, curiously, we decided that if we changed our economic order, we deregulated, we lowered taxes at the top, we weakened unions, we would grow faster and the idea was that because we were growing faster, everybody would benefit from the faster economic growth. Well, unfortunately, things haven't worked out that way. We grew more slowly and all the benefits of the growth went to the very top so that today, and this is really quite remarkable, people in the middle, you know, median income, half above, half below, adjusted for inflation, median income adjusted for inflation is lower in the United States than it was a quarter of a century ago.

STIGLITZIn terms of a full time male worker, median income is lower than it was four decades ago. And at the bottom, things are even worse.

REHMSo how did we reach a point where this extraordinary 1 percent glean so much of the wealth and the other 99 percent has been hit so hard?

STIGLITZThere's no single thing. It's sort of an accumulation of things one after the other, you know. And I try to go through in the various essays some of these various factors that have contributed. So for instance, one of the things, big things, was CEO pay, the pay of the top executives. It used to be 30 to 1. That was high. But then, over the years, it moved to 300 to 1.

REHMWhy?

STIGLITZAnd there was no increase in productivity of the CEOs that could justify that increase. American CEOs were not that much better than CEOs in Japan and in Europe and they had kept their balance -- their pay and better balance. Now, why this is so important is that if you're paying more to your CEO and they're not more productive, it has to come out of something else. And it came out of two things. It came out of the wages of workers and it came out of investment.

STIGLITZSo the result of that is we were investing less in creating new jobs in the country and then that becomes a vicious circle. If you're not creating new jobs, if the Federal Reserve has policies that worries more about inflation than employment, which it did before 2008, it really was focused on inflation, then you have a world in which the bargaining power of workers is weaker. After all, everybody's worried about just getting a job and they'll take a lower wage. And then, you have compounding effects, globalization.

STIGLITZYou know, when you write rules of the game that allow and almost encourage American firms to invest abroad, and then bring their goods back to the United States more easily, naturally jobs are going to move abroad, particularly when if they do that, there are tax advantages to moving abroad. So, again, you weaken the bargaining power of workers. Their wages go down, profits go up. The hard reality is that the equity, the wealth of our country is owned disproportionately by those at the top, even more inequality in wealth than in income.

STIGLITZAnd so these changes in the rules of the game, these changes in the rules and regulations by which our economy works have advantaged the top, disadvantaged everybody else. And we're talking about, you know, not the bottom. We're talking about the 99 percent and the result of that is the kind of inequality that makes us number one in the world in inequality among the advanced countries.

REHMWhat role did Alan Greenspan play?

STIGLITZWell, I think he played two very negative roles in this. The first was before the crisis, there was deregulation. The deregulation allowed the financial system to engage in all kinds of exploitation. We now know about that because we've seen, you know, after the crisis in 2008, we got -- there were a huge number of suits. We got a discovery, as we call it, and we could actually see what was going on inside the banks in secret. So we saw that they were engaged in predatory lending. We saw they were engaged in discriminatory lending. We saw that they were engaged in abusive credit card practices and market manipulation.

REHMAll because of deregulation.

STIGLITZAll because -- and as he, himself, said, he trusted that the banks would manage their risks better and he didn't pay any attention to this kind of exploitation that was, you might say, the cornerstone of our financial system. So that was the first thing. But then, because he allowed this excessive risk-taking, which he now -- he, himself, now recognizes it was a mistake -- we had the crisis of 2008. And that crisis was particularly hard on the bottom 99 percent of Americans. And you see that in a way even from the recovery, you know, and officially the administration and the Fed say the recession was over in 2009.

STIGLITZThe reality was that that was not true. The 95 percent of the gains that accrued in our economy after the official end of the recession, in three years, 2009 to 2012, went to the top 1 percent. And that meant the bottom 99 percent saw things just as bad as they were before and they, you know, they were losing their homes, losing their jobs, losing their retirement accounts, all because of the way the system works.

REHMSo how would you evaluate where we are today, eight years after?

STIGLITZWell, this is the remarkable thing. Eight years after the crisis began, actually almost nine years after the bubble broke and all the froth got taken out of the economy, we are beginning to get back on the road to recovery, but our inequality is larger than it's been for decades and decades and decades. So it is still the case that the big winners have been those at the top who were largely responsible for the crisis and the big losers are the rest of us.

REHMOne wonders whether, given what you've just said, members of Congress would begin to recognize that they've got to step back from that path of deregulation and terrible processes of taxation and begin to rethink the whole economic system. We've got to take a short break here. When we come back, I see the lines are already filled and we'll take your calls, your email, stay with us.

REHMWelcome back. If you've just joined us, Joseph Stiglitz is with me. He's a Nobel Prizewinning economist. His new book is titled, "The Great Divide: Unequal Societies and What We Can Do About Them." He's a columnist for The New York Times and he teaches at Columbia University. Just before the break, we were talking about the Fed and what is happening there. Janet Yellen, whom you favored over Larry Summers is now at the head of the Fed. And one wonders, Professor Stiglitz, how much she can really do.

STIGLITZYeah, that's the real problem. You know, she's been very forceful at pointing out the importance of inequality. She has highlighted the fact that monetary policy can have a very big effect on inequality. If you have too high unemployment, you get more inequality. But there is a new dimension to inequality that is opening up. When you have very low interest rates, retired people who were prudent, put their money in government bonds, don't have any income. And that's a real -- should be a real concern in our society. Now, her hands are tied because she knows that what we really need is more demand. We need to stimulate the economy.

STIGLITZThe way it should be done is through fiscal policy. That is to say, government spending, investment, we can -- the government can borrow now at a negative real interest rate. And we have investment projects that would pay off: railroads, roads, infrastructure, technology, education, that has very high real returns. But we're not doing that. And because we're not doing that, the thing that the Fed is focusing on is what can we do to stimulate the economy. And unfortunately they have one main tool, which is low interest rates.

STIGLITZAnd that has not only a negative effect on the retirees, it also has another secondary effect. Because corporations can often borrow very cheaply -- big corporations especially -- what they're doing is replacing unskilled workers with robots, with, you know, you go into your grocery store or your drug store and you have an automatic checkout clerk.

REHM(word?) Yeah.

STIGLITZNow what kind of rational society would spend so much money to replace unskilled workers who will then wind up in the unemployment pool? It makes no economic sense. Our real needs are to deal with global warming, the environment. You were talking about the environment in the previous program. You know, those are our real needs. But the way our incentive structures are working in the United States, they're actually creating more unemployment.

REHMAll right. Help me to understand what would happen -- and of course this assumes a great deal of agreement on the part of the Fed -- what would happen if suddenly the Fed raised interest rates to 2 percent?

STIGLITZWell, I think the worry is that, under our current economic environment, two things would happen. First, firms that, you know, the limited investment that is going on would be dampened. Because usually what happens when they raise interest rates, banks are going to be less willing to lend. And when they lend, they charge higher interest rates.

REHMBut they're not lending now.

STIGLITZYeah. You're -- they're -- you're absolutely right. One of the mistakes that the Fed made, I think, was not focusing enough on the channels of lending or the channels of credit to make sure that there is greater access to small and medium size enterprises, to new enterprises. And one of the things that I found so striking was, years and years after the crisis began, lending to small and medium size enterprise was still 20 percent below the crisis. And how could you expect a robust recovery when that was true. So that was a failure of the Fed. They didn't focus enough on that issue. But when you raise the interest rate, there -- the fact is that the limited investment that we have would probably go down somewhat, you know.

STIGLITZAnd people would find their mortgage rates higher, that that would discourage the limited amount of new investment in housing. And finally, our exchange rate would go up. And that would mean it would be more difficult for us to export. We would have more imports flooding our economy. And that would again hurt our economy. So the point is that the Fed is really caught in a bind. What we really need now is more investment to stimulate our economy and from the federal government. Because the private sector isn't going to be able to do it.

STIGLITZAnd the only way they can do it is with the Fed, at limited extent, encouraging it with this low interest rate, which unfortunately hurts the elderly so much and is actually making a problem with the jobless recovery into more of a reality.

REHMSo you've got the political side. You've got the monetary side. You've got the -- I'm frustrated, as I'm sure many who are listening now, to see that this 99 percent is stuck. The Fed is stuck. Our political system is stuck. Where do we go from here?

STIGLITZWell, we have an opportunity and that's the election of 2016. Maybe, maybe, we can get unstuck. And what that is going to entail is we have to go back to, you might say, the fundamentals. Go back to the question, why have we created so -- why is America the country with the highest level of inequality among the advanced countries and among the countries with the lowest level of equality of opportunity, so contrary to our basic values. The answer is the way we've structured our economy. You know, the rules, the regulations, which favor the 99 percent -- favor the 1 percent against the 99 percent.

STIGLITZOnce we understand that, that it's not an accident, it was a deliberately structured -- as a result of deliberate decisions, of how to change those rules, like deregulation of the financial sector, weak enforcement of the rules and regulations, weak enforcement of the antitrust laws. All these things compound together to lead to the result. We have a chance to begin to debate this in the coming election -- electoral campaign. And hopefully that we'll arrive at a consensus is, you know, we're at a crisis point and we need to do something.

STIGLITZYou know, if we don't change where we're going, we're going to become more and more unequal, more and more like, you know, the countries in Latin America, where there are such great divides. People living behind gated communities., you know? This is the direction in which our society is heading.

REHMWhat I totally understand is why you won the Nobel Prize in economics. What I don't understand is who out there is listening to you?

STIGLITZWell, I think, there is a beginning of a number of people listening. You know, the change in inequality has been so large. You know, I think it is interesting on both the left and the right, Republican, Democrats, they are finally beginning to talk about inequality. And it's not just inequality in the sense of the divide between the top and the bottom, it's also the fact that the middle America -- America used to think of its middle class as a middle-class society -- the middle is struggling and can't get the basic ingredients of what used to be called a middle-class society. They can't afford to send their kids to college. They can't afford decent housing. They can't afford public transport. They can't afford childcare for their children.

STIGLITZYou know, we are, I think, fast approaching a crisis of the -- in the middle, because it is now, at last, beginning to be recognized for the crisis that we are.

REHMDo you...

STIGLITZThe issue will be, what are the solutions? And here, I am afraid, that there will be a divide. That there are some people who will be talking about minimalist solutions. There'll be some people who will go...

REHMSuch as?

STIGLITZWell, there will be some people who will say, just grow the economy. We've tried that. And that, you know, they believe in trickle-down economics, that you let the rich get richer, everybody gets, you know, benefits. We know that is wrong. There will be other people who'll say, well, if we only fix the minimum wage, you know, our minimum wage is lower than it's been in almost a half a century, adjusted for inflation. That is very, very important. But that's treating a symptom. You know, it shouldn't be the case that productivity of workers doubles and wages remain unchanged. You know, that's not the way a normal economy behaves.

STIGLITZAnd we have to go back and say, we aren't talking just about the bottom. We're talking about everybody, the 99 percent.

REHMAre you talking to both sides of the political spectrum?

STIGLITZWell, unfortunately, I think the Republicans have not reached out. The Democratic candidates have. Hillary has talked to me and I think she's genuinely concerned about these issues. And I think a lot of people in the Senate side, House representative side, you know, I think there's a growing recognition this is a national problem.

REHMIt's the...

STIGLITZAnd there are people who are seriously looking for solutions.

REHMIt's a national problem because what was the American dream, so fiercely held, has become a myth.

STIGLITZExactly right. The notion of equal opportunity is a myth. The life chances of a young American are more dependent on the income and education of his parents than virtually any of the other advanced countries. But even the middle-class lifestyle that we had in the '50s, '60s, '70s, you know, I don't want to say that was an ideal period, but we were striving to create the first middle-class society in the world. And we almost succeeded in a way. But now, in the last 35 years, 45 years, we've lost that.

REHMHow has this country's involvement in various wars affected our ability to grow the middle class?

STIGLITZOh, I think it's had a very serious effect. You know, even the -- one of the richest countries in the world has limited resources. Money that we're spending to fight a, I think, a misconceived war in Iraq, is money that can't be spent on education and infrastructure, on technology. You know, I wrote a book called the "The Three Trillion Dollar War: The True Cost of the Iraq Conflict." Three trillion dollars is a lot, a lot of money. And if we had spent that money in America, we -- our economy would be a lot stronger.

STIGLITZAt the time I wrote the book, some people said, oh, you're exaggerating the cost. We said we were conservative. Now we have the data. We were forecasting. And we were very conservative. Just to take one number, the cost of disability and health care for those who are returning from Iraq and Afghanistan with disabilities, almost 50 percent are returning with multiple disabilities. We now estimate the cost of that -- of those disabilities, you know, and...

REHMAlone.

STIGLITZ...alone, is over a trillion dollars.

REHMAnd you're listening to "The Diane Rehm Show." We have a great many callers. We'll open the phones, 800-433-8850. First to Larry in Chapel Hill, N.C. You're on the air.

LARRYGood afternoon. I'll make this succinct. I was an entrepreneur. I had a restaurant for 14 years. It's still there, but I had to sell it. For the first 10 years that I was in business, my insurance was raised 10 percent a year forever, they said. The insurance company said, I see no end in sight. So I was growing about 10 percent a year from 1993 to 2003, so I was able to tread water. But, you know, I was giving eight people full coverage -- my full-time people -- and I had a total of 20 waiters and things like that working. But I couldn't -- I could no longer -- I had, my partner and the insurance company was killing me.

LARRYAnd eventually I said, I can't get -- I can't add value to my product, which chefs do -- it's a value added. That's how you make your living. And just to quote Ed Kennedy, he said, when does the greed stop?

STIGLITZWell, I think, the health insurance companies and the financial sector, more generally, are one of the sources of the problem. One of the things that I emphasize is the role of monopoly, the role of market power. And the health insurance industry is one area where there is very limited competition. In most places in the country there may be two, maybe three at most major health insurance companies. And with that kind of market power, they're able to raise prices, take large amounts of profits. The doctors are not doing that well. And I don't -- I'm not crying for them -- but they feel squeezed. The point is that everybody is squeezed except these -- those with market power.

STIGLITZAnd this illustrates very much the kind of problem of how the structure of our economy is squeezing everybody except those who have market power.

REHMHere's a tweet from John. Why do voters tolerate increasing inequality? Do they blame themselves?

STIGLITZI think they -- it has not -- the country has been very slow to recognize the extent to which this inequality is there. Secondly, the first explanation and the one that many, many on the right have said is it's just market forces. And that's one of the reasons I wrote this book is to point out, it's not market forces. Other countries, same market forces, have come out with very different outcomes. We are distinctive in creating the most inequality of any of the other countries. And we don't gain, in terms of faster economic growth.

REHMJoseph Stiglitz, Nobel Prizewinning economist. His new book is titled, "The Great Divide." More of your calls, comments, when we come back. Stay with us.

REHMAnd we're back with Nobel Prizewinning economist, Joseph Stiglitz, talking about his new book, "The Great Divide: Unequal Societies and What We Can Do About Them." Let's go right back to the phone to Eva, in Mystic, Conn. You're on the air.

EVAGood morning, Diane.

REHMHi.

EVAHi. I have such respect for your guest. Mr. Stiglitz, I would love your opinion about my economic analysis since Reagan. Before when we had -- before Reagan we had a balance of capitalism that was tempered by socialism, but we didn't call it socialism because that was so unpopular and we've demonized it. But capitalists were beginning to feel burdened and therefore wanted to free up capitalism. And I think that's why it became popular.

EVABut instead of rebalancing, we got step-by-step reduction of social justice issues. Trickle-down was the only honest thing corporate America espoused. Only a trickle went down, and everything else up. So that I just feel that we need to reregulate, we need to stop mergers, we need unions to balance the power of the corporations. And if we don't, I think it's a balance because I don't think either system is good alone. Capitalism becomes toxic, socialism becomes too burdensome.

STIGLITZYou're absolutely right. You know, John Kenneth Galbraith described it with somewhat different words. He talked about countervailing forces. And that we -- you -- any society needs a balance. And we lost that balance and we haven't been able to restore it. I guess I -- one minor disagreement, you said that there was trickle down, all I see is trickle up. That, in fact, it's not even a trickle going down from the top to the bottom.

STIGLITZThat's why income in the middle is lower today than it was a quarter of century ago. I think the big lesson that we learned from the crisis is that an unregulated or an under-regulated financial sector, for instance, can harm all of us. And even the financial sector itself can't function. We had to save the financial sector from its own misdeeds. If the financial sector had been left on its own, it would be in shambles. So not even the private sector is able to function on its own without the government. And I think that's a big insight.

REHMHere's an email from John, in Kentucky, with another view. He says, "Professor Stiglitz is implying that before Ronald Reagan there was economic equality and his policies caused the inequality. It's hard to take such misinformation seriously. First of all, when Regan took office the U.S. had almost 20 percent inflation, mass unemployment and gas shortages to name a few of our problems. Also, is Professor Stiglitz trying to say we did not have economic inequality at the time? Of course we did. Every economy in the world had inequalities and any serious economist knows this is inevitable."

STIGLITZFirst, to the point, I'm not advocating the elimination of inequality and no society is ever gonna be able to do that. That's not what we're talking about. What we're talking about is the extremes of inequality that have been attained in the United States.

REHMToday.

STIGLITZToday. And there is unambiguous evidence that the level of inequality today in the United States is much, much higher than in 1980. Things have gotten much worse. Yes, there were lots of problems in our economy in 1980. There have -- economic volatility has marked capitalism since the beginning. The question is, how do you run an economy. What we had discovered back in the 1930s, was that if you put in the place the right regulations, you can prevent the worst kinds of crises.

STIGLITZAnd for 50 years after the Great Depression that worked. Then we lost sight of what was really important. We started to deregulate. And we didn't get more stability. We didn't get more growth. And what growth we went, went overwhelmingly to the top. So, yes. I'm not claiming that things were perfect in 1980. That's not the point. The point was that the so-called reforms that were supposed to make the things work better, actually things went the other way.

REHMWhy should the 1 percent care about this inequality?

STIGLITZWell, I think they should care about it for several reasons. First, societies that are more unequal actually don't perform as well. They don't perform as well, they don't grow as fast. And they are -- their growth is more unstable. The IMF, you know, which is not a left-wing organization, has actually pointed that out in their own research. And they've been playing a very constructive role, going around the world and telling countries, look it, you have to address the problem of inequality because if you don't, you won't grow as well and your growth will be more unstable.

REHMAre they saying that to the United States?

STIGLITZThey're saying that everywhere, including to the United States. So this has become really the mainstream message today. And, you know, I think there's a broad consensus among economists about this.

REHMAll right. And let's go to Diane, in Pottsville, Pa. You're on the air.

DIANEHi. Thank you so much. Hey, I have had this idea for quite some time about how to raise minimum wage without harming small businesses. As we know, that a small business can only make so much money per year. And if the owner is making less money than his workers because of minimum wage, it's not gonna help the business grow. So my thought was to tie the top-end, non-commissioned wage earners income straight to the bottom-end wage amounts at 2.25 or 2.5 percent.

DIANEThat would mean that at $630,000 per year annual income for the top earner would be equivalent to the current minimum wage. Anything above that would raise the minimum wage. It would do several things. The first of which it would put notice on the boards that want to pay $3, $4, $5 million to their CEOs that are no more productive than a $200,000 CEO. Secondly, if low-end wage earners were -- had more money to spend, they'd be spending it and they would be raising the economy. What do you think?

STIGLITZWell, first I think the problem with the minimum wage is a real problem. That is to say that the minimum wage in the United States, lower than it's been in 40 -- more than 40 years, adjusted for inflation, is a problem. Not only for those workers, increasingly the people receiving the minimum wage are the main breadwinner in the family. So these are not teenagers anymore. These are breadwinners for the family.

STIGLITZBut the fact that they don't have money means that they can't spend money. And that contributes to the weakness of the economy, as you rightly pointed out. There are a number of proposals of how to tie the top with the bottom. And yours is a variant of several that I've -- I think are actually very good ideas. Within the corporation, if you tied the pay at the top to the pay at the bottom, it would both temper the excesses at the top and help bring up the wages at the bottom.

STIGLITZInterestingly, under the Dodd-Frank law there was a provision that said we ought to know what's going on. We ought to know about that ratio, the top pay to the bottom. And so far the corporations have been successful in blocking the regulations just for disclosure. We're talking about not doing anything more than letting people know what's going on. And yet, the corporations are fighting that kind of transparency, which I find very upsetting.

REHMTell me about your views on the Affordable Care Act.

STIGLITZWell, the Affordable Care Act was intended to do two things. One, make care more available, accessible, to make sure that everybody had access to basic medical care. United States was unique among the advance countries in not recognizing the right to health care as a basic human right. And this, again, has economic consequences. Because if young people grow up without adequate medical care, malnutrition, they're not gonna perform well in school, they're not gonna live up to their potential.

STIGLITZAnd that means our economy won't be living up to its potential. It lowers our potential growth rate. So this is an economic issue, as well as a moral issue. So that was a first intent. The second was to bend the cost curve of health care overall. Now, the good news is it appears as if the cost curve is bending down. It isn't growing as fast and that has very positive implications for the overall budgetary situation. It has increased access to health care. It's done even better than a lot of people had anticipated.

STIGLITZThe sad thing is that in some states where the need is the most, the Republican governors have basically turned their back and they have not made access to health care through expanded Medicaid available to their poor people. To me this is really unconscionable, where the federal government says we'll pay almost all the costs and the state says we don't care about our poor people. Even if the federal government is paying all the costs, we refuse to give access to our people to health care, even though the nation as a whole believes this is of a major concern.

REHMTell us about your growing up in Gary, Ind., and your own beginnings.

STIGLITZWell, first, I hadn't realized that at that the time I was growing up it was the golden age of capitalism. When I grew -- was growing up, I saw a lot of inequality. I saw business cycles where every three or four years a lot of my classmates would be out of -- their parents would be laid off. You know, and they'd be struggling to get along. I saw a lot of discrimination. I saw slums. I mean -- and I hadn't realized until long after I left Gary that this was the best period in American capitalism, that as bad as inequality was then, it's much, much worse today.

STIGLITZAnd that the, you know, and I've gone back to Gary. Things have gotten much, much worse since then. But that was a period where we had very good public schools. So I went to public schools. They gave me educational opportunities I would never have…

REHMMe, too. Me, too.

STIGLITZExactly. And unfortunately, we've gone the other way. And kids growing up there today don't have that kind of opportunity that I had.

REHMDid you know you were poor?

STIGLITZOh, we weren't poor. We were, you know, you might say part of…

REHMMiddle class.

STIGLITZ…middle class America, at that time. We, you know, we got by. We didn't have a lot of luxuries. But, at the time, my parents felt very strongly that their children would have a better life than they. And they were right.

REHMAnd they saved for it. And they made sure you had it.

STIGLITZThat's right. But now I look at the statistics, and that kind of world where each generation does better than last is no longer the America of today.

REHMAnd you're listening to "The Diane Rehm Show." Let's see if we can go to Mike, in St. Louis, Mo. You're on the air.

MIKEHi, Diane. And thank you so much. And thank you, Dr. Stiglitz. To me, I've been following this, becoming economically aware since about the '80s, when we had that really big recession. And what I have just followed over the years is the insidious nature of what the Federal Reserve does. It prefers the big entities, the too-big-to-fail, and it taxes, essentially, the average person by inflating the currency or depreciating the currency. So that the average person really cannot save, as we were told when we were younger, by the normal means.

MIKEIt has to save by playing the inflation game. And for 40 years we speculate in real estate and won if we were in real estate, and we lost if weren't. And now the consequence of that was that 2007 recession, which left everybody holding the bag. And then, of course, the Federal Reserve came in again and saved the big guys. And so the stock market is up three-fold, while the average person is struggling just to try to eke out a living.

MIKEAnd I think that the fact that the Federal Reserve is a group of people who talk to the big guys, and I don't blame them for that, that's what they do. But the mission is always to save the too-biggest-to-fail and it's not a free economy. And that's -- I think that's the ultimate problems, in my mind.

STIGLITZWell, I think you're right to point out a number of the problems in monetary policy over the last several decades. The too-big-to-fail problem is a serious problem. And, unfortunately, it was not a problem that was addressed in Dodd-Frank, in the financial reform bill of 2010. We didn't even touch that issue. And I've testified before Congress with a spectrum of economists from the left and the right. They all agree that the too-big-to-fail problem is a serious problem. The only person on the panel that didn't agree with that was somebody from the bankers.

STIGLITZNot a surprise. One of the, you know, representing the big bankers. They like being too big to fail because it's a heads, I win, tails, you lose. We gamble. When things go well we walk off with huge bonuses. And when things go bad, the government bails us out. I think the issue of credit bubbles also is a serious problem. And that's related to inequality. And let me explain the connection.

STIGLITZWhen the economy has enormous amount of inequality of the kind that the United States has, the people at the top don't spend the same amount that the people at the bottom do. And so you get a weak demand, a weak total aggregate demand. The result of that is the Fed feels it has to somehow stimulate the economy. The way it did it in the era of Greenspan and Bernanke was to strip away the regulations, lower interest rates, let a credit bubble develop.

STIGLITZAnd that helped for a while. It was a temporary palliative. But obviously, not the basis of long-term economic growth. And, unfortunately, the result of that kind of mismanagement was not only more instability, poor economic performance, but more inequality.

REHMJoseph Stiglitz, Nobel Prizewinning economist. His new book is titled, "The Great Divide," the clearest, most-concise book I've ever read. Thank you, sir. And thanks all for listening. I'm Diane Rehm.