« Fed Watch: What Is The Fed's Expectation For Financial Markets? | Main | Links for 12-22-15 »

Monday, December 21, 2015

'What are the Factors Behind High Economic Rents?'

Nick Bunker:

What are the factors behind high economic rents?: In research and debates about economic inequality in the United States, there’s been a resurgence this year in explanations for rising inequality that emphasize market power and market imperfections. In a recent piece for the New York Review of Books, Paul Krugman details how increasing market power seems to be a more attractive story of how inequality became so large in the United States. A paper that Krugman cites—by Jason Furman, Chairman of the Council of Economic Advisers, and Peter Orszag of Citigroup—emphasizes the role of “rents” in contributing to inequality and suggests increasing market power could be the reason for this trend. But an interesting new paper from Dean Baker, economist and co-director of the Center for Economic and Policy Research, proposes a very different reason for why those rents came about. ...
First, let’s define economic rents. ...
Baker points to four areas where rents are pervasive in the U.S. economy: patents and copyrights, the financial sector, high pay for CEOs and executives, and high pay for professionals more broadly. What brings these areas together is that the institutional arrangements in these portions of the economy have not only created rents, but that these rents disproportionately go to those at the top of the income ladder. Getting rid of these rents would stop the “upward redistribution of income.” ...
Altogether, these factors could have a big impact on the level of inequality. According to Baker’s calculations, the combined amount of rents from these four areas would be equal to between 6 percent and 8.5 percent of U.S. gross domestic product in 2014. That’s about the same size as the increase in the share of income going to the top 1 percent of income earners in the United States from 1979 to 2012.
What differentiates Baker’s argument from similar ones is that he is less persuaded that decreased competition among firms and firm consolidation is a major factor. Furman and Orszag mention patents as a potential cause of excess returns, but the emphasis seems to be more on market power...
In short, Baker sees the story of rents less as capital versus labor and more about a fight within labor. ...[W]hile rents might have broken through as a compelling story for why inequality has risen in the United States, the reason for high rents is still very much up for debate.

    Posted by on Monday, December 21, 2015 at 09:43 AM Permalink  Comments (57)


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.