Monday, January 23, 2017

Angus Deaton: “A lot of the inequality in the U.S. comes from rent seeking. It comes from firms and industry seeking special protection or special favors from the government.”

See Nobel Laureates: Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality by Asher Schechter of "Pro Market," the blog of the Stigler Center at the University of Chicago Booth School of Business. Excerpt: 
"Eliminating rent seeking and toughening enforcement of antitrust laws are “critical” to reducing rising inequality, said two Nobel Laureates, Angus Deaton and Joseph Stiglitz, during a panel of Nobel laureates last Friday. Two fellow laureates, Roger Myerson and Edmund Phelps, echoed their message and warned of a return to 1930s-style corporatism.

“To the very considerable extent that inequality is generated by rent seeking, we could sharply reduce inequality itself if rent seeking were to be somehow reduced,” said Angus Deaton, recipient of the 2015 Nobel Prize in Economics. Deaton described inequality in the U.S. as being primarily driven by industry rents, and rejected proposals to increase taxes on the rich as a way to reduce rent seeking.

“I don’t think that rent seeking, which is incredibly profitable, is very sensitive to taxes at all. I don’t think taxes are a good way of stopping rent seeking. People should deal with rent seeking by stopping rent seeking, not by taxing the rich,” he said.

The panel was part of the annual Allied Social Sciences Associations (ASSA) meeting in Chicago. Fellow Nobel Laureate Joseph Stiglitz, recipient of the 2001 prize, offered a more sympathetic view of higher taxes on the rich as a method to reduce inequality, but stressed the importance of rent-seeking to the rise in inequality in the U.S.

“In all areas of economics, the rules of the game are critical—that is emphasized by the fact that similar economics exhibit markedly different patterns of distribution, market income, and after tax and transfers income. This is especially so in an innovation economy, because innovation gives rise to rents—both from IPR and monopoly power. Who receives those rents is a matter of policy, and changes in the IPR regime have led to greater rents without having any effects on the pace of innovation,” said Stigltz.

Both Stiglitz and Deaton agreed that tougher antitrust enforcement is “incredibly important” in reducing inequality (an argument that was explored at length in ProMarket as well), rejecting claims that diminishing the role of government and regulation is the key.

The panel included five Nobel laureates: Deaton, Stiglitz, Myerson, Phelps, and Robert Shiller. All expressed deep concerns over the rise of inequality, both within the U.S. and around the world, as well as recent political turmoil associated with the resultant public outrage, such as the election of Donald Trump. The panel, moderated by Fordham professor Dominick Salvatore, was characterized by a general agreement that a decline in innovation and competition and an increase in rent seeking are contributing to the rise in inequality, as well as a general agreement over a number of policies to reduce it.

While the panel dealt with a wide array of topics related to inequality, such as globalization, the decline of innovation, and the dangers of a secular stagnation, much of the panel focused on the issue of rent seeking and its impact on the U.S. economy.

While some forms of inequality could be linked to progress and innovation, said Deaton, inequality in the U.S. does not stem from creative destruction. “A lot of the inequality in the U.S. is not like this. It comes from rent seeking. It comes from firms and industry seeking special protection or special favors from the government,” he said.

Deaton highlighted a particularly salient example of rent seeking: the American health care system which, he said, “seems optimally designed for rent seeking and very poorly designed to improve people’s health.”

In his remarks, Deaton referred to a 2015 study that he and his wife, Princeton professor Anne Case, published in 2015. In the paper, Deaton and Case analyzed health and mortality records and showed a troubling rise in the death rates of middle-aged white Americans. This rise in mortality was unique to white non-Hispanic Americans, they concluded, and was driven primarily by an epidemic of suicides and diseases related to substance abuse among poorly-educated whites, particularly heroin and prescription opioids such as oxycodone.

“There are around 200 thousand people who have died from the opioid epidemic, were victims of iatrogenic medicine and disease caused by the medical profession, or from drugs that should not have been prescribed for chronic pain but were pushed by pharmaceutical companies, whose owners have become enormously rich from these opioids,” said Deaton"

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