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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.]
(Score: 1, Interesting) by Anonymous Coward on Saturday July 29 2017, @06:07PM
OK, how about I dismiss him because he's not even giving an adequate reflection of the current understanding of neoclassical economics.
I'm not even a neoclassicist, and I can tell he's building a strawman. Nary an investigation of friction in the market and the causes of those frictions - at best some rather hand-waving discussion of artificially created monopolies.
If I were his editor, here are some of the remarks I would have added:
1) inadequate investigation of counterarguments. Neoclassicists have spoken about friction in the market and money illusion for a long time now; address those points or you're building a strawman.
2) You're not adequately examining the reshaping of the market in terms of higher productivity coming at the expense of employability of the broad population owing to ancillary expenses of retaining labour. This is a perfect example of a more interventionist policy reducing employment and prompting arguably inefficient capital investment. If you can't investigate and dispense with this, you're missing a key countervailing proposition.
3) While you call out things like rising housing stock values, you don't quantify those or differentiate the condition of productive capital stock, nor invested/uninvested financial resources.
4) You don't account for rising standards of living, or lowering costs of parity in standard of living compared with 1950. This has been a massive boon to a wide range of the population, and you don't cover it when considering relative or absolute standing.
There is more, but that alone is enough to render it pretty bad.