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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: 0) by Anonymous Coward on Sunday July 30 2017, @12:43AM (2 children)
Say goodbye to homeloans then. Nobody would lock their savings away for 30 years just so someone else can borrow it for a mortgage. Credit would come to a grinding halt. You think that's a good thing, but think again when no business can expand, no new idea can be capitalised. I suppose you will tell us insurance is a lie too.
How will ISP's build out their solid gold networks so that every little old lady checking her email can have the same data pipes as the household streaming hd netflicks 24/7 just in case. Evren though it will never be used. How totally ineficient, doubly so when there is no credit and the ISP can only expand via profits, as if there will be any of those left either.
You need banks to manage the different time horizons between buyers and sellers of money. Set a safe margin of reserves and away you go. It's only a problem if the banks get too greedy and bribe politicians into reducing those margins so they can make even more money. That's why we had a big crash. Risk need to be priced correctly, but that price isn't infinity like your claiming.
(Score: 2) by deimtee on Sunday July 30 2017, @01:58AM (1 child)
Back about 40 years ago, the price of an average house and land was about 3 to 5 times the annual average income. People took out 25 year mortgages, but many saved, worked hard and paid them off in 10 or less. You can actually make realistic 10 year plans.
Now a house costs 10 to 15 times the avarage income, it's worse than that even because inequality has increased and the 'average income' is skewed high.
So now it's take out a 30 year mortgage and work really hard and struggle to maybe pay it off in 25. Why is that better? Do you like having all the peasants in debt slavery?
And who can make realistic 30 year plans? When you were 20 did you have your life planned all the way out to 50, with no surprises?
If you cough while drinking cheap red wine it really cleans out your sinuses.
(Score: 0) by Anonymous Coward on Sunday July 30 2017, @03:11AM
Yes back about 40 years ago, we had fractional reserve banking, and people took out 25 year mortgages even though nobody took out 25 year savings accounts in order to loan them the money. Who is going to build all the new houses if no one can borrow any money to pay for them? Rent seeking and double incomes becoming more common is the reasons for the increase, not fractional reserve banking.
If the rent seeking capitalists who buy up all the properties and pay less tax via capital gains were taxed the same as workers earning wages, they would find somewhere more productive to park their money. People who wanted to live in houses could buy them instead.