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THE ECONOMIC PIE ISSUE

August 24, 2015

THE ECONOMIC PIE ISSUE

I recently wrote in a note to followers that the rich and corporate class is not interested in increasing the size of the economic pie these days. One of my followers disagreed, holding that the superrich were in favor of such an increase and that they would be sure to get theirs from such an increase in the size of the “pie.” I sent him a short note in which I defended my position that nowadays the superrich are (by hook or crook) little interested in increasing the size of the pie because they were doing well with carving up our present economic pie. The following expands on that short note.

A further note to your view that the rich and corporate class is in favor of increasing the size of the “economic pie” so as to claim an outsize portion of such increase – I do not recant my assertion that the superrich have little interest in increasing the pie’s size these days because if such were true they would not favor policies such as coolie wages etc. that constrict demand, which in turn limits the size of the growth factor and the pie’s dimensions. Thus with a pie that stays the same or is shrinking the superrich (who have quit investing in America, its people and its infrastructure) have no alternative but to go for tax cuts, underregulation of their businesses and austerity programs for the rest of us via their political toadies and co-conspirators in Congress in order to have more to take from the existing pie.

They are rentiers as described by Piketty and Stiglitz. The best example of what Stiglitz calls “rent-seeking” is the financial industry, which Stiglitz writes now largely functions as a market in speculation rather than as a tool for promoting true economic productivity. He notes further that “rent-seeking makes nothing grow, that efforts are directed toward getting a larger share of the pie than increasing the size of the pie.” He goes beyond that. He writes that “rent-seeking” distorts resource allocations and makes the economy weaker.”

Rent seekers play the hands they have been dealt, and if they are in an unexpanding economy where there is no new growth to exploit (due in part to their failure to invest in the real economy for lack of demand occasioned by wage inequality), you can bet they will work to get a bigger share of the income and new wealth (if any) from the existing economy, stagnant or not.

Stiglitz finally notes in this connection as follows: “In a rent-seeking economy such as ours has become, private returns and social returns are badly out of whack.” Amen! There apparently is more profit to be made (and far less risk) by rentiers in working the existing market than investing in its expansion in real economic activities (which would be of benefit to all of us with such resource allocations), so why should they invest in an expanding economy? I rest my case.

In passing, I recommend (if you haven’t done so already) that you buy (or go to the library) and peruse Stiglitz’s latest book (from which some of the above quotes were taken). It is loaded with brilliant and succinct insights, published just this year (though he includes bygone articles of interest) and is called The Great Divide, Unequal Societies And What We Can Do About Them. It’s worth the money, and then some.

Feel free to continue critiquing what I write; debate refines issues and I make no claim to perfection.   GERALD    E

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