Stiglitz on Rent-Seeking

Stiglitz: http://www.politico.com/news/stories/0612/77280.html

Some on the right also assert that those at the top deserve their higher incomes. They earned it, conservatives say. Their riches were due to their greater contribution to society, from which all benefit. I wish that were true — but it’s not. Those at the top aren’t the true innovators — people who provided the intellectual foundations of the computer, for example, or the Internet. Or those who invented the transistor or the laser; or, like James Watson and Francis Crick, who unraveled the genetic code laying the foundations of so much of modern medicine. Much of the top-most wealth instead comes because of successful “rent seeking.” Economists use the term “rents” for income derived from owning an asset, rather than from effort. “Rent seeking” refers to attempts to garner a larger share of the economic pie, rather than making the pie larger. Monopolists, for example, gain their wealth through restricting production — which makes the size of the pie smaller. When we look at divided societies abroad, like so many of the dysfunctional oil-rich countries, we diagnose their problem as an infliction of excessive rent seeking — too much of society’s resources go to attempts to grab a larger share of the oil wealth, too little to expanding the economy. What we don’t realize is the extent to which the United States, too, has become a rent-seeking society.