Saturday, January 16, 2016

A muscular progressive realism that pushes outward the politics of the possible

I found a review of economists' recent contributions to the debate on inequality. The title of this post is at the end of the review article, and I though it reflects very well what many (or just some?) of us would like to see. I would like to select these few pieces, but please read the whole thing: "In the usual economic model, markets are mostly efficient. Power is not relevant, because competition will generally thwart attempts to place a thumb on the market scale. Thus if the society is becoming more unequal it must be (a favorite verb form) because skills are receiving greater rewards, and the less-skilled are necessarily left behind; or because technology is appropriately displacing workers; or because in a global market, lower-wage nations can out-compete Americans; or because deregulation makes markets more efficient, with greater rewards to winners; or because new financial instruments add such efficiency to the economy that they justify billion-dollar paydays for their inventors.
Increasingly, however, influential orthodox economists are having serious second thoughts. What if market outcomes and the very rules of the market game reflect political power, not market efficiency? Indeed, what if gross inequality is not efficient, and there is a broad zone of indeterminate income distributions consistent with strong economic performance? What if greater liberalization of financial markets produced tens of trillions of costs to the economy, benefits that are hard to discern, and billion-dollar paydays for traders that don’t comport with their contributions to general economic welfare? Evidence like this is piling up, and hard to ignore. (...) I suppose you might say we need both. The AEI-Brookings effort seems more rooted in the near-term politics of the possible, though, as noted, the several members whom I interviewed don’t believe that the current Republican Congress will touch even these toned-down ideas. The Atkinson analysis reflects a deeper understanding of the economic realities. Possibly, the AEI-Brookings effort will serve as a role model to a post–Tea Party generation of Republicans picking up the pieces from what could be a 2016 blowout, though if Trump self-destructs and Marco Rubio is the nominee, it’s a whole other story. One must also hope that the work of Atkinson, Reich, Stiglitz, Solow, and others will energize a muscular progressive realism that pushes outward the politics of the possible."

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