Nobel Laureates — Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality

Eliminating rent seeking and toughening enforcement of antitrust laws are “critical” to reducing rising inequality, said two Nobel Laureates, Angus Deaton and Joseph Stiglitz, during a panel of Nobel laureates last Friday. Two fellow laureates, Roger Myerson and Edmund Phelps, echoed their message and warned of a return to 1930s-style corporatism.

“To the very considerable extent that inequality is generated by rent seeking, we could sharply reduce inequality itself if rent seeking were to be somehow reduced,” said Angus Deaton, recipient of the 2015 Nobel Prize in Economics. Deaton described inequality in the U.S. as being primarily driven by industry rents, and rejected proposals to increase taxes on the rich as a way to reduce rent seeking.

“I don’t think that rent seeking, which is incredibly profitable, is very sensitive to taxes at all. I don’t think taxes are a good way of stopping rent seeking. People should deal with rent seeking by stopping rent seeking, not by taxing the rich,” he said.

The panel was part of the annual Allied Social Sciences Associations (ASSA) meeting in Chicago. Fellow Nobel Laureate Joseph Stiglitz, recipient of the 2001 prize, offered a more sympathetic view of higher taxes on the rich as a method to reduce inequality, but stressed the importance of rent-seeking to the rise in inequality in the U.S....

Rent extraction is made possible by asymmetric power. The way to reduce rent-seeking is to level the power. Symmetrical power is an assumption of neoclassical economics as the basis of free markets that are fair.

But markets are not naturally symmetrical because societies are structured on the basis of class and power is distributed asymmetrically as matter of social structure.

The problem in addressing rent this way is that this was a key insight of Marx. So anyone proposing such a solution is bound to be attacked as a 'Marxist," "socialist," or 'communist." Most people capable of making difference don’t' want to go there, at least alone, and no one wants to go first.

Pro-Market
Nobel Laureates: Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality

David F. Ruccio — Markets, power, and the distribution of income

Joseph Stiglitz usefully explains that there’s more than one theory of the distribution of income. One theory, he writes, focuses on competitive markets (according to which “factors of production” receive their marginal contributions to production, the “just deserts” of capitalism); the other, on power (“including the ability to exercise monopoly control or, in labor markets, to assert authority over workers”).…

The only major problem with Stiglitz’s account is he leaves out a third possibility, an approach that combines a focus on market with power, that is, a class analysis of the distribution of income (which the late Stephen Resnick begins to explain in the lecture above).

According to this class or Marxian theory, markets are absolutely central to capitalism—on both the input side (e.g., when workers sell their labor power to capitalists) and the output side (when capitalists sell the finished goods to realize their value). But so is power: workers are forced to have the freedom to sell their labor to capitalists because it has no use-value for them; and capitalists, who have access to the money to purchase the labor power do so because they can productively consume it in order to appropriate the surplus-value the workers create.…

My only point is to point out there’s a third possibility in the debate over the distribution of income—a theory that combines markets and power and is focused on the role of class in making sense of the grotesque levels of inequality we’re seeing in the United States today.

And, of course, that third approach has policy implications very different from the others—not to force workers to increase their productivity in order to receive higher wages through the labor market or to hope that decreasing market concentration will make the distribution of income more equal, but instead to attack the problem at its source. That would mean changing both markets and power and, thus, eliminating class exploitation.

Occasional Links & Commentary
Markets, power, and the distribution of income
David F. Ruccio | Professor of Economics, University of Notre Dame

circuit — Stiglitz on credit creation by banks

For those who think that Joseph Stiglitz doesn't know that banks actually create credit…. 

Fictional Reserve Barking

Stiglitz on credit creation by banks
circuit

Brad DeLong — Future Economists Will Probably Call This Decade the 'Longest Depression'

Economist Joe Stiglitz warned back in 2010 that the world risked sliding into a "Great Malaise." This week, he followed up on that grim prediction, saying, "We didn't do what was needed, and we have ended up precisely where I feared we would."
The problems we face now, Stiglitz points out, include "a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity."

He says the only cure is an increase in aggregate demand, far-reaching redistribution of income and deep reform of our financial system. The obstacles to this cure, he writes, "are not rooted in economics, but in politics and ideology."

Indeed. Joe Stiglitz is right.…

World Post
Future Economists Will Probably Call This Decade the 'Longest Depression'
Brad DeLong

Completely ignores Post Keynesians and MMT economists who were right in advance of the crisis and warning about it and who prescribed addressing the demand issue when the crisis hit. Imputes Hyman Minsky's financial instability theory based on the three stage financial cycle to Martin Wolf.

The disturbing thing is that Brad knows better.

Karl Widerquist — Nobel Laureate, Joseph Stiglitz, Endorses Unconditional Basic Income

Joseph Stiglitz, during the question and answer session after his talk at the World Summit on Technological Unemployment in New York on February 29, 2015, was asked whether he supported an Unconditional Basic Income as a policy response to technological unemployment. He replied, “Yes, that’s part of the solution. He quickly went on to say that Basic Income is not….

Stiglitz joins a long list of Nobel-prize winning economists who have endorsed some form of Basic Income Guarantee, including James Tobin, Milton Friedman, James Buchanan, James Meade, Paul Krugman, F. A. Hayek, Herbert A. Simon, and Robert Solow.

Bien — Basic Income Earth Network
UNITED STATES: Nobel Laureate, Joseph Stiglitz, Endorses Unconditional Basic Income
Karl Widerquist

David F. Ruccio — The fundamental truth about American economic growth

 As James Surowiecki explains in his review of Joseph Stiglitz’s most recent books, “the fundamental truth about American economic growth today is that while the work is done by many, the real rewards largely go to the few.”

Just who are the makers and who are the takers?

Short and worth a read. It's about rent-seeking and the surplus resulting from increased productivity.

Occasional Links & Commentary
The fundamental truth about American economic growth
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

James Surowiecki — Why the Rich Are So Much Richer

James Surowiecki reviews Joseph E. Stiglitz's The Great Divide: Unequal Societies and What We Can Do About Them, Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity, and Creating a Learning Society: A New Approach to Growth, Development, and Social Progress.

New York Review of Books

Why the Rich Are So Much Richer
James Surowiecki

ht Mark Thoma at Economists View

Kanbur and Stiglitz — Rent Seeking as a Major Driver of Wealth and Income Inequality

Yves here. This post is wonky but important. While Stiglitz has written regularly about inequality as problematic from an economic perspective, and has mentioned rent seeking as a contributor, to my knowledge, this is the first time he’s said that old theories need to be tossed and that rent seeking is one of the main factors now driving wealth and income inequality.

Game-changer.

Naked Capitalism
Kanbur/Stiglitz: Rent Seeking as a Major Driver of Wealth and Income Inequality
Ravi Kanbur, T. H. Lee Professor of World Affairs, International Professor of Applied Economics and Management, Professor of Economics at Cornell University and Joseph Stiglitz, University Professor at Columbia University. Originally published at VoxEU

Yanis Varoufakis — A New Approach to Eurozone Sovereign Debt – op-ed in Project Syndicate

The eurozone is unique among currency areas: Its central bank lacks a state to support its decisions, while its member states lack a central bank to support them in difficult times. Europe’s leaders have tried to fill this institutional lacuna with complex, non-credible rules that often fail to bind, and that, despite this failure, end up suffocating member states in need. One such rule is the Maastricht Treaty’s cap on member states’ public debt at 60% of GDP. Another is the treaty’s “no bailout” clause. Most member states, including Germany, have violated the first rule, surreptitiously or not, while for several the second rule has been overwhelmed by expensive financing packages.

The problem with debt restructuring in the eurozone is that it is essential and, at the same time, inconsistent with the implicit constitution underpinning the monetary union. When economics clashes with an institution’s rules, policymakers must either find creative ways to amend the rules or watch their creation collapse.…

Yanis Varoufakis
A New Approach to Eurozone Sovereign Debt – op-ed in Project Syndicate

Also

My question to Christine Lagarde, Eurogroup 25th June 2015 – as narrated by Landon Thomas in the NYT

Greece’s Third MoU (Memorandum of Understading) annotated by Yanis Varoufakis

Letsgetitdone — A Book about Bernie Sanders, Greece, Austerity, and Much More [Free Aug 16 only]

Here's the link to the Kindle e-book at Amazon. There will be a free promo on August 16, and I have no plans to do another. So, if you're at all interested in the book please download it when you see this post.

This book provides a detailed narrative about the proceedings of a panel of well-known economists convened by Senator Sanders at the Hart Senate Office Building on July 30, 2015, on the Greek debt crisis, and its implications for austerity, the Eurozone, the looming crisis in Puerto Rico, and democracy. The panel session included introductory speeches by Senator Sanders, Greece’s Ambassador to the United States, Cristos Panagopoulos, and panel presentations by economists, Joseph E. Stieglitz, Jacob Funk Kirkegaard, and James K. Galbraith. The panel was moderated by Stephanie A. Kelton.…

Also, I'm reminded that not everyone who sees this post will know that even if they don't have a Kindle brand tablet, then can still read Kindle e-books by downloading Kindle software for the Mac, PC, and Android, just below the book cover image at no charge, and then proceeding to download the book and read it. So, please just download the software, and proceed from there. And enjoy! Also, please review the book, that will help!

Daily Kos — Money & Public Purpose
A Book about Bernie Sanders, Greece, Austerity, and Much More
Letsgetitdone (Joe Firestone)
(Cross-posted from New Economic Perspectives.)

Greg Palast — The Globalizer Who Came In From the Cold

2001 post by Greg Palast on Joseph Stiglitz on the neoliberal rape and looting of Russia.

Raging Bull-Shit
The Globalizer Who Came In From the Cold
Don Quijones

Conference on the Greek Debt Crisis led by Sen Bernie Sanders

Conference on the Greek Debt Crisis

Rm 902 Hart Senate Office Building

Sen. Bernie Sanders will convene a panel of three nationally-known economists to discuss the debt crisis in Greece and throughout the world. The panel will be moderated by Stephanie Kelton, the chief economist of the Senate Budget Committee minority staff.


Participants:

U.S. Sen. Bernie Sanders

Joseph Stiglitz, Senior fellow and chief economist at Roosevelt Institute

James Galbraith, University of Texas

Jacob Funk Kirkegaard, Peterson Institute for International Economics

Stephanie Kelton, University of Missouri – Kansas City


When:

2:30 PM, Thursday July 30th

Where:

Hart Senate Office Building, Room 902

RSVP: gmatthews@rooseveltinstitute.org

Marc Lee — Climate Justice and the Good Life, for Everyone

If there is one phrase that sums up what's wrong with economics, it is "specious assumptions." The most specious assumption is that science is an independent disciple that investigates reality in order to discover natural invariances that can be modeled formally, similar to physics.

This involves denial that economics is a social science with emphasis on social. The social aspect of economics implies, first, that the subject matter is different from natural science, which also implies the need to employ different methodology in approaching it. 

Secondly, as an implication of the assumption that economics is natural science, it is also assumed that outcomes are "natural" as long as natural processes, here market forces, are not interfered with artificially. 

This is based on a concept of human being, called homo economicus, that does not accord with the findings of other disciplines about human being as homo socialis. It also puts economics at odds with widely accepted norms of social justice based on liberal principles grounded in equality of persons and the fairness this implies as the basis for rights.

There are good argument against government imposing any particular moral code in a liberal society. But to conclude from this that society is therefore immoral would be a violation of the fundamental principles of liberalism, which include egality and solidarity along with freedom.

Morality and ethics are imposed socially by political decisions taken democratically in a liberal society and promulaged through positive law and rights based on a concept of justice that is founded on the liberal principles of equality of persons before the law and due process. This implies lack of privilege and social fairness.

A growing body of research into well-being and happiness tells us to look beyond money and consumption. While income matters a great deal at lower levels – when one is poor, a little money makes a big difference – but once basic needs are met, higher income does not necessarily translate into gains in happiness. Research points to substantial benefits to be had from a more equitable distribution of wealth – inequality manifests in weaker performance on a range of social and health indicators. Social fairness in terms of income and employment distribution may, in fact, be vital for achieving the changes required for a transition to a sustainable economy. 

Some key insights into well-being relevant to a new conception of “the good life” include (key references at end): 

• Full employment and decent work....
• Time use and work-life balance....
• Community and social cohesion.... 

One major report to the French government from two Nobel laureates [Joseph Stiglitz and Amartya Sen] in economics argues that progress should be understood by assessing a diverse array of well-being indicators to capture a more comprehensive understanding of people’s lives, spanning key areas of: health, education, environment, employment, material comfort, interpersonal connectedness and political engagement. 

The Canadian Index for Wellbeing (CIW) was launched only recently in 2010 as a counterweight to the gross domestic product numbers. It aims to measure and track the quality of life of Canadians and is comprised of 64 indicators. The CIW has demonstrated that Canadians’ quality of life has not kept pace with the country’s economic growth from 1994 to 2008, where although GDP grew 31%, CIW rose only 11% in the same period. A key reason is that Canadians are spending less and less time on healthy social and leisure activities, and the state of the environment has declined.
This growing body of research is broadly consistent with the notion of climate action and climate justice....

The Progressive Economics Forum

Climate Justice and the Good Life, for Everyone
Marc Lee

Sandwichman — Denial, Then and Now: "Is the End of the World at Hand?" "Is the Economic System Self-Adjusting?"

Of course the economic system is self-adjusting if you model on assumptions that yield this result. The question is the degree to which the model corresponds with reality. This is what distinguishes science from formal disciplines like logic and mathematics on one hand, and the creation of fictional worlds on the other. If a model's assumptions are not sufficiently realistic, the likelihood of that is low that the model will be very representational other than as a caricature.

The problem with what generally passes for economics is based on assumptions of classical liberalism that don't hold in the real world and likely never could be instituted with the necessary rigor to make the world conform to the model. But that doesn't stop economists from using policy arguments based these assumptions to make the world match the model. That's engineering and not science. Moreover, it is bad engineering because engineering is based on science rather than science on engineering. Time to 'fess up and get real.

"I would like to say why I think that the Doomsday Models are bad science and therefore bad guides to public policy," -- Robert M. Solow, 1973

 1973 was 42 years ago and 42 just happens to be the answer "to Life, the Universe and Everything," according to Deep Thought in Douglas Adams's Hitchhiker's Guide to the Universe. When challenged, the computer replied that he had "checked it very thoroughly and that quite definitely is the answer. I think the problem, to be quite honest with you, is that you’ve never actually known what the question is."

Econospeak
Denial, Then and Now: "Is the End of the World at Hand?" "Is the Economic System Self-Adjusting?"
Sandwichman

Stephen Rosenfeld — 37 Ways to Reform the Economy So It’s Not Rigged for the Rich, According to Progressive Economists

Unpacking "Rewriting the Rules."

AlterNet
37 Ways to Reform the Economy So It’s Not Rigged for the Rich, According to Progressive Economists
Stephen Rosenfeld

Mike Konczal — The Rules are What Matter for Inequality: Our New Report

I’m very excited to announce the release of “Rewriting the Rules of the American Economy” (pdf report), Roosevelt Institute’s new inequality agenda report by Joe Stiglitz....

Rorty Bomb
The Rules are What Matter for Inequality: Our New Report

Mike Konczal

Carola Binder — Release of "Rewriting the Rules"

I have been working with the Roosevelt Institute and Joseph Stiglitz on report called "Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity":

In this new report, the Roosevelt Institute exposes the link between the rapidly rising fortunes of America’s wealthiest citizens and increasing economic insecurity for everyone else. The conclusion is clear: piecemeal policy change will not do. To improve economic performance and create shared prosperity, we must rewrite the rules of our economy.

The report will be released tomorrow morning in DC, with remarks by Senator Elizabeth Warren and Mayor Bill de Blasio. You can watch the livestream beginning at 9 a.m. Eastern tomorrow (May 12). There will be an excellent panel of speakers including Rana Foroohar, Heather Boushey, Stan Greenberg, Simon Johnson, Bob Solow, and Lynn Stout. You can also follow along on Twitter with the hashtag #RewriteTheRules.

Quantitative Ease

Release of "Rewriting the Rules"

Carola Binder

Joseph E. Stiglitz — Europe’s Lapse of Reason

A voice of reason on a ship of fools.

Yes, America mismanaged its economy; but, no, the US did not somehow manage to impose the brunt of the global fallout on Europe. The EU’s malaise is self-inflicted, owing to an unprecedented succession of bad economic decisions, beginning with the creation of the euro. Though intended to unite Europe, in the end the euro has divided it; and, in the absence of the political will to create the institutions that would enable a single currency to work, the damage is not being undone.

The current mess stems partly from adherence to a long-discredited belief in well-functioning markets without imperfections of information and competition. Hubris has also played a role. How else to explain the fact that, year after year, European officials’ forecasts of their policies’ consequences have been consistently wrong? 

These forecasts have been wrong not because EU countries failed to implement the prescribed policies, but because the models upon which those policies relied were so badly flawed.…

Project Syndicate
Europe’s Lapse of Reason
Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, was Chairman of President Bill Clinton’s Council of Economic Advisers and served as Senior Vice President and Chief Economist of the World Bank

Branko Milakovic — Some prefer land: Stiglitz on income and wealth inequality

A couple of days ago I was invited to give comments on Joe Stiglitz’s presentation of a new paper on theoretical models of evolution of wealth and income inequality. The other two commentators were Duncan Foley and Paul Krugman. Stiglitz’s paper is not, as far as I know, on the Internet yet, so I cannot give the link. (I also had my own slides, but I do not know how to upload them here, so I cannot include the link to them either.) 

Stiglitz’s is a long paper (some 60 pages) and is in reality composed of two independent papers. The first one, on which I mostly commented, is a continuation of the discussion started by Piketty’s “Le Capital…”. Stiglitz points out to several very important puzzles that cannot be easily accommodated in the current neoclassical framework: broadly constant rate of return despite massive capital deepening, rising share of capital incomes even if the production function studies tend to find elasticity of substitution between capital and labor of less than 1, and stagnant wages despite the increase in K/Y ratio. The second paper is the extension od Stiglitz’s 1969 paper on the theory of wealth and income inequality whose objective is to model the long-run distributions among households that differ in terms of labor and capital incomes they receive and savings behavior.…

Milanovic on Stiglitz on Piketty.

global inequality
Some prefer land: Stiglitz on income and wealth inequality
Branko Milakovic

Lars P. Syll — Rational expectations — the triumph of ideology over science

Excellent quote by Joseph Stiglitz that you may want to bookmark for future use.

Lars P. Syll’s Blog
Rational expectations — the triumph of ideology over science
Lars P. Syll | Professor, Malmo University