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posted by martyb on Saturday July 29 2017, @02:17PM   Printer-friendly
from the adding-it-all-up dept.

Today the trend to greater equality of incomes which characterised the postwar period has been reversed. Inequality is now rising rapidly. Contrary to the rising-tide hypothesis, the rising tide has only lifted the large yachts, and many of the smaller boats have been left dashed on the rocks. This is partly because the extraordinary growth in top incomes has coincided with an economic slowdown.

The trickle-down notion— along with its theoretical justification, marginal productivity theory— needs urgent rethinking. That theory attempts both to explain inequality— why it occurs— and to justify it— why it would be beneficial for the economy as a whole. This essay looks critically at both claims. It argues in favour of alternative explanations of inequality, with particular reference to the theory of rent-seeking and to the influence of institutional and political factors, which have shaped labour markets and patterns of remuneration. And it shows that, far from being either necessary or good for economic growth, excessive inequality tends to lead to weaker economic performance. In light of this, it argues for a range of policies that would increase both equity and economic well-being.

Five minutes to midnight, marginal productivity theory "needs urgent rethinking."

[Wikipedia: Joseph Eugene Stiglitz is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences and the John Bates Clark Medal. He is a former senior vice president and chief economist of the World Bank and is a former member and chairman of the Council of Economic Advisers. --Ed.]


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  • (Score: 3, Interesting) by HiThere on Saturday July 29 2017, @04:53PM

    by HiThere (866) Subscriber Badge on Saturday July 29 2017, @04:53PM (#546329) Journal

    The reason economics is so bad is that models are always based on what will benefit some particular collection of people. Experimentation in this area is difficult, and generally requires lots of political support...so it needs to be designed to please the people who authorize it...and it results are usually ignored.

    The only way to do real economics is to test your models of past events...but even doing that rigorously is quite difficult. Even getting the data to validate against uncontaminated by political bias (at the time the data was generated) is quite difficult. And every government figures the results they collect differently....e.g., how do you measure unemployment? There isn't even a consistent measure from decade to decade.

    The economists deserve a lot of the blame heaped on them, but an equal amount should go to the politicians who intentionally tamper with the data.

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