Rent Seeking as a Major Driver of Wealth and Income Inequality

[marmar]

Kanbur/Stiglitz: Rent Seeking as a Major Driver of Wealth and Income Inequality
Posted on August 18, 2015 by Yves Smith

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.

By 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

Six decades ago, Nicholas Kaldor (1957) put forward a set of stylised facts on growth and distribution for mature industrial economies. The first and most prominent of these was the constancy of the share of capital relative to that of wealth in national income. At about the same time, Simon Kuznets (1955) put forward a second set of stylised facts — that while the interpersonal inequality of income distribution might increase in the early stages of development, it declines as industrialised economies mature.

These empirical formulations brought forth a generation of growth and development theories whose object was to explain the stylised facts. Kaldor himself presented a growth model which claimed to produce outcomes consistent with constancy of factor shares, as did Robert Solow. Kuznets also developed a model of rural-urban transition consistent with his prediction, as did many others (Kanbur 2012).

Kaldor-Kuznets Facts No Longer Hold

However, the Kaldor-Kuznets stylised facts no longer hold for advanced economies. The share of capital as conventionally measured has been on the rise, as has interpersonal inequality of income and wealth. Of course, there are variations and subtleties of data and interpretation, and the pattern is not uniform. But these are the stylised facts of our time. Bringing these facts centre stage has been the achievement of research leading up to Piketty (2014).

It stands to reason that theories developed to explain constancy of factor shares cannot explain a rising share of capital. The theories developed to explain the earlier stylised facts cannot very easily explain the new trends, or the turnaround. At the same time, rising inequality has opened once again a set of questions on the normative significance of inequality of outcomes versus inequality of opportunity. New theoretical developments are needed for positive and normative analysis in this new era. ..........................(more)

http://www.nakedcapitalism.com/2015/08/kanburstiglitz-rent-seeking-as-a-major-driver-of-wealth-and-income-inequality.html

[msongs]

1. after some scumbag trashes your rental to the tune of $30,000 in damages there's not much

profit in owning a rental. the nakedcapitalism elitists wouldn't know about that because it doesn't jibe with their landlords are all evil mantra

[Wilms]

2. A couple of problems with that idea of yours.

1. How often do damages to a rental unit that are not covered by security deposits and insurance REALLY happen?

2. Rent Seeking isn't about apartment rentals.

https://en.wikipedia.org/wiki/Rent-seeking

I'm not sure elitists say that "landlords are all evil", but that's a different subject.