Tuesday, September 4, 2012

Rent Seeking Behavior And Inequality

Joe Stiglitz offers his explanation for rising income inequality. He attributes it to a rise in rent seeking behavior.  Rent seeking behavior does not expand the economic pie; it enables some to get a larger share of the pie. Government has contributed to rent seeking behavior in many ways.  It is simply described by the follow quote:

" It is perhaps no accident that rent-seeking and inequality have increased as top tax rates have fallen, regulations have been eviscerated, and enforcement of existing rules has been weakened: the opportunity and returns from rent-seeking have increased."
I like Stiglitz's explanation better than those that blame it on greed. If human beings were angels we would not need government.  Greed is always with us. It is the responsibility of government to create institutions that minimize greedy behavior.  In recent years government has made policy changes which increase the rewards for greedy behavior, and it has made it easier to get away with it.

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