The Price of Inequality, Essay Example

Introduction

This book was written by Joseph Stiglitz. He is a Nobel Prize winning writer, economist as well as a former chief economist placed at the World Bank. In the book, he explicitly offers an accessible and a readable explanation of the way in which people have become exploited by powerful and greedy elites. According to him, the ones at the top have learned ways of sucking out money from other people in ways that people are unaware. This is the innovation of these people who suck money from other people. Politics shapes and plays a role in the market as well as despite the fact that it has been hijacked by financial elites that feather their own nets. Despite the fact that neo liberalism has occurred people are still at the cartel’s mercy. Reading this book exposes one to the various reviews of inequality and rent seeking. This essay discusses what in terms of society and commerce regards rent seeking in Joseph’s Stiglitz’ book The Price of Inequality.

Analysis

There are two inequality facets that are discussed in the book. These are the aspects that lead to rent seeking. They also cause inadequacy in the financial institutions. These two make up Stiglitz case. He is right in showing the two concepts since there are important culprits that cause inequality. Rent seeking stands out as an own chapter in the book. According to Stiglitz, it plays very important roles in the determination of income misallocation as well as inequality, which is the result. Rent seeking in the book is defined as a collusion that occurs between the government and private actors. The outcome often involves the government granting the private actors privileges that are otherwise inaccessible. Other alternatives that can be used in describing rent seeking encompass loopholes of several sorts in institutional frameworks that guide choices while in the market places. There are certain institutions that aid in aligning social interests and private interests. This is done by restricting the choices made. Seeking rent represents restrictions that are circumvented by the use of a special role of the state. This is as a violence monopoly mainly as a means to be used in securing benefits (Stiglitz 67).

There are numerous examples of rent seeking as well as the sought benefits. These include corporate welfare, government subsidies, patent rights and monopoly rents. Rent seeking results in adverse regulations. These regulations target specific firms, but not others although they do not target rent seekers. They aim at eroding competition. The author mentions that rent seeking that takes place mainly in the market entails things including fraud as well as using market power for extracting rents. Rent seeking aid firms and individuals to circumvent the law. This is part of the previously mentioned institutional framework (Friedman 23)

The benefits are secured mainly at other people’s expense. Rent seeking acts as a response to any imposed constraints. These constraints are often imposed through legislation. The product that comes out from decision making or rent seeking is not in a similar institutional framework. In other instances rent seeking acts as a defense mechanism. Firms use it as defense mechanisms in order to oppose the regulations. Sometimes regulations that are set in commerce are not ideal and therefore following it is not necessary. This is when rent seeking is applied according to Joseph Stiglitz. This means that rent seeking looks into seeking legitimacy. It can be used as a way of distorting markets. It can be used to protect markets and commerce from the state’s predation. The problem either way is with the government. This is because it uses its power when enforcing rules that cannot develop through private institutional change means (Noah 32).

Rent-seeking is costly to any form of economic growth. It is mainly because when rent-seeking activities are high they lead to the making of more rent seeking. It creates attraction. This is because of the growing and natural returns that one sees due to rent-seeking. Rent-seeking is therefore valued more over productivity. There are high rent-seeking levels in this case whereas the output levels are low. According to the author of the book, rent-seeking is more likely to grow at economic growth’s cost. When the state undertakes public rent-seeking it easily hurts innovation. Eventually, public rent-seeking will hurt the economy since innovations mainly drives and leads to economic growth (Stiglitz 96).

Joseph Stiglitz is an economist who has constantly argued that in the United States of America, rent-seeking is the main component of income inequality. This is mainly through lobbying for several government policies. These policies let the powerful and wealthy people get income. The reward income is not due to creating wealth. However, it is done by grabbing large wealth shares. Inequality cannot be reduced mainly for the sake of inequality reduction. This is for or the main sake of improving institutions that decides and influence resource allocation. When it is seen in this light, inequality signifies large problems. Assessing inequality enables people to view problems and understand the consequences and nature as well. It is important to always access and analyze economic inequality. Inequality is not good and most markets in the world have inequality degrees (Noah 43). The magnitude of the entire rent seeking activities in the economy is enormous.

Corporations and individuals are continually being handsomely rewarded. This has affected the financial industry. The financial industry greatly functions as a speculative market. It no longer functions as a tool used in promoting positive economic productivity. It is currently the rent-seeking sector. This goes beyond speculation. The financial sector gathers rents through many ways. This is through the exorbitant credit, debit card fees and merchant charged fees. It siphons money from poor people as well as middle class people in America. This according to Stiglitz is done by means of predatory lending means. The financial sector has even in the previous years accounted for more than 40% of several corporate profits. Rents in the financial sector are redistributions that are given out from one societal part to the rent seekers. There are several views of this book; however, it is a great book that enhances people’s knowledge in rent seeking practices (Stiglitz 116).

Work Cited

Friedman, Howard Steven. Measure of a Nation, The: How to Regain America’s Competitive Edge and Boost Our Global Standing. Kent: Prometheus Books, 2012.

Noah, Timothy. The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It. New York: Bloomsbury Press, 2012.

Stiglitz, Joseph. The Price of Inequality. Westminster: Penguin Books Limited, 2012.