Emailed in by Sackerson, from salon.com
What’s new in your recent work on the distribution of income and wealth among individuals?
JS: There are several things. There’s some debate about this, but I think most readers of Thomas Piketty’s book (Capital in the Twenty-First Century) get the impression that the accumulation of wealth — savings —is responsible for the rise in inequality and that there is, therefore, in a way, a link between the growth of the economy — the accumulation of capital— on the one hand and inequality and wealth.
My paper begins with the observation that in fact, you cannot explain what has happened to the wealth/income ratio by that analysis. A closer look at what has gone on suggests that a large fraction of the increase in wealth is an increase in the value of land, not in the amount of capital goods.
When you say “land,” you’re not talking about land in the Jane Austen sense, that is, agricultural land under the ownership of the lord of the manor, right?
JS: It’s not agricultural land, it’s the value of urban land. I would include in that, broadly, rents associated with natural resources (“rent” is an economic term for unearned revenue). It’s the value of existing assets.
As a footnote, some of what has gone on, in addition to an increase in the wealth/income ratio, is a capitalization of the increase in other kinds of rents, like monopoly rents. If monopoly rents get increased, if the market power of firms relative to workers gets increased, as when you have the ability of a few, like the banks, to get government guarantees — the value of that is increased and gets capitalized. That increases wealth but it doesn’t increase capital. So it’s that distinction between wealth and capital that turns out to be critical. That’s the first idea.
The reason that’s important is that you then begin an inquiry into the explanations of why the value of the land or other sources of the value of rents would have gone up. A lot of my book (The Price of Inequality) is about why there has been an increase in rent-seeking. But the other part is more external in terms of the value of land or the value of assets. That, I suggest, is very closely linked with the credit system….
Stiglitz is a bit of a leftie, but apart from that, amen brother!
Put On Your Big Boy Pants, Maybe?
1 hour ago
21 comments:
I see one of the comments in your link is this.
"I wish Stiglitz would work up the courage to publicly say what mainly needs to be done: land value "tax"."
Thankfully there are plenty of people both left and right who are arguing for a land value tax. It is about economic efficiency. We should discourage easy profit from unproductive activities. It also is impossible to dodge.
AKH, I concur. Econmists usually chicken out when it comes to drawing obvious conclusions.
NH, amen to all of that!
Reading the article Stiglitz seems a latent interventionist, so he would not welcome the one stop shop of LVT
Can't see him actually mentioning LVT in his section on things to do about preventing further inequality.
Apart from that he's stealing our act.He's about two thirds of the way to being almost as clever as what we are.
L, DBC, for once, you are saying the same thing, just from different directions :-)
I'm a Stiglitz fan. Here's one of the top 10 economists in the world basically making our case. Sure he may not be pointing out the solution but he's absolutely pointing to the root cause. And once people see the cause, they start thinking about possible solutions. So it makes it way easier for people like us to get others to consider the LVT/CI solution.
I'm not going to quibble about whether he's doing it right or not or whether he could do more. I'm just glad that he's doing it.
MW. Ho Ho. We'll have to kiss and make up.
@MW
I have always rather admired L for proposing LVT on staunch Conservative lines.(Not that I understand him though: he decries interventionism though LVT is currently the biggest intervention of the lot; Conservative audiences on telly discussion programmes will even support proposals for renationalising the railways but get nasty at any disrespectful reference to house price inflation which they worship.
@DBCR. LVT isn't strictly speaking an 'intervention'. It's just the least bad way of raising revenue for the 'state'.
And I am not a 'conservative'. But, I do believe that certain tried and tested institutions are worth preserving; the common law for example.
I can't quite square Stiglitz' circle in the article. He makes the point very well that what we have is 'rent' inequality and then in the last paragraph he starts on all the other things that he thinks 'need to be done' to sort out 'income inequality'.
My personal problem is that I just cannot see what is wrong with income inequality, as long as we can get rid of all the cronyism and rent seeking which seems to drive the worst of it.
@L
I think you have cracked the Stiglitz enigma. He seems to be confusing earned income with unearned income (from land etc).
I have never seen LVT as "just" the least bad way of raising revenue BTW.It is nowhere near as politically neutral as that.
@dBCR. I don't really care if LVT is 'politically' neutral. I care that, economically, it is the least bad tax, probably.
To summarise: Picketty has come up with the right solution to the wrong problem; Stiglitz has identified the right problem but has no solution.
Maybe they ought to get in touch with each other and thrash it out?
MW. Remind me. What was Picketty's solution?
L, P misdiagnosed the problem as accumulation of capital or savings, but gave the correct solution i.e. wealth tax. S diagnosed the problem correctly (private collection of rents) but fails to offer a solution.
MW, Erm, I don't see LVT as a 'wealth tax'. It's a tax on rents. 'Wealth' must include 'capital' (which isn't land/rents) which you don't really want to tax. Do you?
L, let's not get all semantic.
I'm saying, if "accumulation of savings and capital" were the problem (which it isn't), then "wealth tax" would be the solution.
LVT is not a wealth tax (income tax, NIC, VAT and corporation tax are wealth taxes).
LVT is merely preventing private collection of rents. LVT is not even a tax or redistribution - it is pre-distribution of rents.
My theory (for nearly all the last month)is that most taxes, even the Pigouvian ones ,are taxes of wealth accumulation. The Conservatives are going in for a long term scheme of social engineering by taxing wealth accumulation by those providing goods and services through honest endeavour and steering people into accepting instead untaxed unearned wealth from inflated land values.They are the party of the Landed Interest after all; their modern voters are more dependent on land values than the landowners of Corn Law England.
@DBCR. True. But strictly speaking that's Tory'ism, not conservatism.
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