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!
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