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Rent-seeking economics

Posted by david52 z5CO (My Page) on
Sat, Aug 4, 12 at 9:32

Begin quote

By Joseph E. Stiglitz

Despite what the debt and deficit hawks would have you believe, we can't cut our way back to prosperity. No large economy has ever recovered from serious recession through austerity. But there is another factor holding our economy back: inequality.

Any solution to today's problems requires addressing the economy's underlying weakness: a deficiency in aggregate demand. Firms won't invest if there is no demand for their products. And one of the key reasons for lack of demand is America's level of inequality - the highest in the advanced countries.

Because those at the top spend a much smaller portion of their income than those in the bottom and middle, when money moves from the bottom and middle to the top (as has been happening in America in the last dozen years), demand drops. The best way to promote employment today and sustained economic growth for the future, therefore, is to focus on the underlying problem of inequality. And this better economic performance in turn will generate more tax revenue, improving the country's fiscal position.

Even supply-side economists, who emphasize the importance of increasing productivity, should understand the benefits of attacking inequality. America's inequality does not come solely from market forces; those are at play in all advanced countries. Rather, much of the growth of income and wealth at the top in recent decades has come from what economists call rent-seeking activities directed more at increasing the share of the pie they get rather than increasing the size of the pie itself.

Some examples: Corporate executives in the U.S. take advantage of deficiencies in our corporate governance laws to seize an increasing share of corporate revenue, enriching themselves at the expense of other stakeholders. Pharmaceutical companies successfully lobbied to prohibit the federal government - the largest buyer of drugs - from bargaining over drug prices, resulting in taxpayers overpaying by an estimated half a trillion dollars in about a decade.

Mineral companies get resources at below competitive prices. Oil companies and other corporations get "gifts" in the hundreds of billions of dollars a year in corporate welfare, through special benefits hidden in the tax code. Some of this rent-seeking is very subtle - our bankruptcy laws give derivatives (such as those risky products that led to the $150 billion AIG bailout) priority but say that student debt can't be discharged, even in bankruptcy.

Rent-seeking distorts the economy and makes it less efficient.

If we curbed these abuses by the financial sector, more resources (especially the scarce talent of some of our brightest young people) might be devoted to making a stronger economy rather than to exploiting the financially unsophisticated. And the banks might actually go back to the boring business of lending rather than high-risk and often opaque speculation.

Curbing rent-seeking is not that complicated (aside from the politics). It would take better financial regulations, fairer and better-designed bankruptcy laws, stronger and better-enforced antitrust laws, corporate governance laws that limit the power of CEOs to effectively set their own pay, and, in all of these areas, more transparency. Because so much of the income at the top is from rent-seeking, more progressive taxation (and in particular, taxation of capital gains) is necessary to discourage it. And if the additional revenue is used by the government for high-return public investments, there are double benefits.

Countries with high inequality tend to underinvest in their collective well-being, spending too little on such things as education, technology and infrastructure. The wealthy don't need public schools and parks. That's another reason economies with high inequality grow more slowly. Indeed, the United States has grown much more slowly since the 1980s, while inequality has been growing more rapidly than it did in the decades after World War II, when the country grew together.

Public investments are of particular importance today; they increase demand in the short run and productivity in the medium to long term. Increasing public investment would help make up for continued weakness in the private sector. Investments in training for new jobs could facilitate the economy's structural transformation, helping it move from sectors with declining employment (like manufacturing) to more dynamic sectors. Strengthening education would help restore the American dream and help make the country once again a land of opportunity where the talents of our young people are fully utilized.

The right says that we can achieve greater equality only by belt-tightening. But that vision would result in a slowdown of the economy from which all would suffer. Because so much of America's inequality arises from rent-seeking and other activities that distort the economy, curtailing inequality would actually strengthen the economy. Investing public money in the collective good rather than allowing it to be captured by rent-seekers would enhance growth at the same time it reduced inequality.

By giving priority to the austerity/deficit cutting agenda, we'll fail to achieve any of our goals. But by putting the equality agenda first, we can achieve all of them: We can have both more equality and more growth. And if we get better growth, our deficit will be reduced - it was weak growth that caused the deficit, not the other way around. We can achieve the kind of shared prosperity that was the hallmark of the country in the decades after World War II.

Joseph E. Stiglitz, recipient of the Nobel Prize in economics, was chief economist of the World Bank. He wrote this for the Los Angeles Times.

End quote

Well, yea, or we can vote to transfer ever more wealth and resources up the food chain, giving tax free status to "Job Creators".

Here is a link that might be useful: link

Follow-Up Postings:

RE: Rent-seeking economics

If the facts and answers are so clear, why won't our elected employees... because that's who they essentially are... actually use those workable solutions to re-grow our nation?

Are people truly that greed filled and morally, ethically bankrupt?

RE: Rent-seeking economics

The best way to promote employment today and sustained economic growth for the future, therefore, is to focus on the underlying problem of inequality. And this better economic performance in turn will generate more tax revenue, improving the country's fiscal position.

This too will be ignored - both at HT and in the larger political discourse circus that accompanies a presidential election.

RE: Rent-seeking economics

We can write reams of text decrying these inequalities; and those at the top, including a preponderance of congresscritters, will continue to ignore the rest of us loosing ground and pinching pennies.

RE: Rent-seeking economics

  • Posted by ohiomom 3rdrockfromthesun (My Page) on
    Sat, Aug 4, 12 at 13:42

....the day will come when the middle class has no pennies left to pinch.

RE: Rent-seeking economics

Perhaps this is why all empires fall-there is no way for an economy to keep growing indefinitly in a definite world. When empires fall the resources get redistributed-eventually-populations take a huge hit, infrastruture crumbles and has to be replaced when growth restarts. It has always been that way. It is a pity we cant learn from the past and learn to share our group resources in some other way. That is going to take some new and improved humans.

RE: Rent-seeking economics

Jodik wrote: "Are people truly that greed filled and morally, ethically bankrupt?"

Yes, and it's getting to the point when we don't even go through the pretense that the Emperor is wearing new clothes. When it comes to the "big lie" that wealth and income distribution inequality is good for America, that the wealthy are the "job creators" that it will all "trickle down", the 1% barely even bother's uttering the lie that the Emperor has new clothes. It is more or less acknowledged that he is buck naked and stark raving mad, but it doesn't matter any more. They are at the point, for example with Romney's tax proposal, that is can be openly acknowledged that the 99% are slaves to them, we work harder and longer for less and less, we pay higher taxes so they get larger tax cuts, we suffer through economic insecurity so they can get larger returns on their portfolios.

We've crossed the point of no return, IMHO. I keep reading frightening reports about this drought, about the melt in the arctic, about methane and CO2 release in the arctic, various such things each more frightening than the last. This country is toast. The entire planet and all of Homo sapiens is probably toast if some of the predictions of the more extreme of the climate change community are correct. I honestly don't know if any of this will matter in a few years, money will not matter if there is no food, water, or energy.

On that cheery note, I really need to get off the computer and go harvest the rest of my sweet corn crop and get it in the freezer. Who knows, it may be my last one. Oh well, 2000-0-0, Party Over, Oops, Out of Time ...

RE: Rent-seeking economics

I wish we could be assured that the 1% will suffer along with the rest of us; they won't, short of a revolution and overthrow of the existing plutrocracies. As resources diminish, the 1% and their supporting lackies will continue on as before with minimum fuss. The rest of us get to share what is left and to fight among ourselves. Why else have the world's most powerful military and largest security apparatus and plans for perpetual war? Against Islamists? Drug Lords, Maoist bands? No.

RE: Rent-seeking economics

When the north-american power grid begins to generally be unreliable then there will be widespread unrest and the top 10% of the population that currently enjoys a very comfortable existence will be impacted by that unrest in some way or another.

Quasi-military rule will be the likely outcome. After while military rule takes on a life of its own and sometimes even the rich are not protected.

RE: Rent-seeking economics

  • Posted by ohiomom 3rdrockfromthesun (My Page) on
    Sun, Aug 5, 12 at 8:07

After while military rule takes on a life of its own and sometimes even the rich are not protected.

....especially considering they are not "fortunate sons"

Creedence Clearwater Revival Fortunate Son Lyrics
Songwriters: JOHN C. FOGERTY

Some folks are born to wave the flag,
Ooh, they're red, white and blue.
And when the band plays "Hail to the chief",
Ooh, they point the cannon at you, Lord,

It ain't me, it ain't me, I ain't no senator's son, son.
It ain't me, it ain't me; I ain't no fortunate one, no,

Some folks are born silver spoon in hand,
Lord, don't they help themselves, oh.
But when the taxman comes to the door,
Lord, the house looks like a rummage sale, yes,
It ain't me, it ain't me, I ain't no millionaire's son, no.
It ain't me, it ain't me; I ain't no fortunate one, no.

Some folks inherit star spangled eyes,
Ooh, they send you down to war, Lord,
And when you ask them, "How much should we give?"
Ooh, they only answer More! more! more! yoh,

It ain't me, it ain't me, I ain't no military son, son.
It ain't me, it ain't me; I ain't no fortunate one, one.
It ain't me, it ain't me, I ain't no fortunate one, no no no,
It ain't me, it ain't me, I ain't no fortunate son, no no no,

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