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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) by Prune on Sunday July 30 2017, @04:13AM (2 children)
Here's something your precious Mises didn't know: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1773169 [ssrn.com]
(Score: 2) by jmorris on Sunday July 30 2017, @04:58AM
According to Mises, bringing advanced math to the subject of economics means you don't understand the problem. When was the last time you saw someone using so much as a calculator when making an buying decision? Yes it happens, but not enough to matter. Most economic decisions are "Do I want THIS more than THAT" and it isn't usually something that can be quantified with advanced math. Even billion dollar decisions more often than not end up turning on things that math can't accurately capture. Math is a tool, nothing more; some humans will use it in their decision making and some won't and if no two tax accountants can agree on what you owe the tax collector, good luck applying math to determine which house you should buy. That is why his book is called Human Action and not Economic Calculus or How to Model Economic Behavior. It helps if you actually read the books before burning (if only rhetorically) them, it works a lot better that way.
Humans are well adapted to operate in an environment where perfect information isn't possible. In fact, even if such information were possible and made available to them, many wouldn't use it. A system of economics for humans must account for these things.
(Score: 2) by jmorris on Sunday July 30 2017, @05:02AM
Damn, forgot the zinger. I'm pretty sure that is the paper that does put finished to Socialism / Communism since those ARE dependent on a single central authority being able to possess complete knowledge. But no, not even with a super computer beyond our current tech is such knowledge possible in real time. Any intellect or group of them short of divine must fail. So when somebody proposes Socialism as the answer, the critical question from Ghostbusters should be used, "Are you a God?"