Wednesday, April 2, 2014

Mark Thoma — How economic "rents" affect inequality


Thomas Piketty and economic rent-seeking.
Economist Thomas Piketty's book, "Capital in the Twenty-First Century," highlights the dangers of an economy dominated by inherited wealth -- an economy in which birth is more important than effort and ability. He provides evidence that the U.S. is headed in this direction -- toward what he calls "patrimonial capitalism" -- and Piketty recommends taking measures such as imposing high wealth and inheritance taxes to offset the accumulation of wealth that appears inherent to capitalist systems.
One of his explanations for rising inequality in the U.S. and elsewhere around the world is what economists call "rent-seeking behavior." That refers to the ability of the wealthy and powerful to influence the political process, keep top tax rates low and increase their income at the expense of everyone else. 
The central question: Can the capture of "economic rents" by those at the top of the income distribution explain the rising inequality that fuels patrimonial capitalism? 
MoneyWatch
Explainer: How economic "rents" affect inequality
Mark Thoma | Professor of Economics, University of Oregon

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