Type: Economics
Pages: 4 | Words: 1128
Reading Time: 5 Minutes

Economic inequality has been eminent in the United States, and according to Joseph Stiglitz, the inequality has been created by the market forces, which are protected by the government policies. Stiglitz blames the government for the inequality that exists in America today. He asserts that the inequality emanates from what the government does, or what it fails to do. The government has the power to distribute resources from the top class across the middle and low income earners. He cites various causes of inequality in the United States, but points out rent seeking as a key cause of the rising inequality in America. He argues that America as a country is occupied by rent seeking people. By renting seeking, he refers to the tendency of people in power to using their political and economic power to embezzle or acquire a large share of the national cake, instead of growing the cake. He continues to assert that rent seekers try to accumulate income, not by creating value, but by forcefully taking away wealth from others.

Stiglitz cites a number of examples to show how rent seeking works in the United States. He cites the bonuses and high salaries, which are paid to CEOs of failing companies as a rent seeking adventure. These executives are paid, not because they have created value, but because of the advantage of their position. This is different from an entrepreneur, who works hard to create value, by introducing new products to earn money. People in political power have access to purchase of public resources at extremely cheap prices. The right to oil, timber and gas in America is a prerogative of the rich and the powerful. They exploit their positions, in order to get income at the expense of the poor Americans, who have no power to resist. Rent seeking takes a variety of forms in America. The prominent Wall Street companies, which are considered to be significant contributors to the economy, are bailed out by the government using public funds. They are given access to bail out at extremely low rates, which cannot be given to other entities. Such favors are attributed to the influence these companies have in the political system and their economic powers.

Rent seeking takes the form of the rich and powerful people redistributing wealth upwards. The policies in place allow the powerful people, aided by the political system, to get wealth from the poor, and add to the wealth of the rich. The powerful people in the financial sector prey on the poor, uninformed people through dubious lending and credit card practices. The financial power houses lend money to people whom they are convinced have a possibility of repaying. Banks lend money to people whom they well know that they cannot pay the money, and securitize these loans and resell them to people who do not understand the risk. The people entrusted for these loans are rent seekers, since they did not create value, but used their positions to their advantage.

The government has adopted laws and policies that make the market place less competitive. This gives undue advantage to some businesses over others. The laws encourage monopolistic behavior, where market forces do not determine the prices. These monopolistic businesses do not care about the welfare of the ordinary people, but seek to make profits out of them. This is an open form of rent seeking, which the federal government has the power to curb, but sits back and watches. Although there might be laws to enhance competition in the market, the government is reluctant to enforce them. In addition, there are statutes that allow some corporations to pass over costs to other people within the society unfairly. Such statutes place these corporations at an advantage over others, and this only works to enhance inequality in America.

Lastly, rent seeking may take the form of subsidies, which are awarded to some powerful individuals from the federal kitty. This gives them undue advantage of getting wealth, at the expense of the members of the entire American society. They use their powerful positions to award themselves without creating any value. Such subsidies are meant to benefit the entire population, but they are gained unfairly by some few individuals. This is a form of rent seeking, which enhances economic inequality in America. On the flipside, there are individuals or corporations, which sell goods to the government at extremely high prices, above the market prices. These include companies, which sell military equipments and drugs to the government. This is an extremely disguised form of getting rent from the public.

The political system and government policies in United States encourage monopolistic power, which exploits the low income earners. The monopolists are protected by the policies put in place by the government, and have access to low rate bail outs when they fail. People with political powers enjoy monopolistic favors. The government creates monopolistic corporations, by ensuring laws, which would enhance competition are not enacted (Stiglitz, 2012). Lack of competition in the market is a recipe for monopoly in the market. These monopolistic entities construct entry barriers that hinder smaller entities from advancing. They have massive production levels and can offer their products at extremely low prices to scare away new entrants. Additionally, they benefit government’s protection, which does not implement laws, to ensure fair competition. This monopolistic behavior is a key cause of economic inequality in America today.

Political and economic processes role in income distribution

According to Stiglitz, disparities in income distribution, in America, are both as a result of political and economic systems. The political system is responsible for enacting laws that would enable equal distribution and growth of the national pie. However, the government does not bother to enact rules, which would protect the low income earners from exploitation. The economic processes favor the large companies, which control the market. The government watches when these corporations pass over costs to consumers unfairly. Lack of fair competition in the market affects the distribution of income. The political processes favor some corporations, by observing those controlling the market, and deterring fair competition. The regulatory agencies are led by people with political influence, who favor some sectors at the expense of others. Such agencies include the Securities and Exchange Commission (SEC), Federal and Communications Commission (FCC), and the Federal Reserve. According to Stiglitz, the political processes have failed to protect the ordinary citizens against the exploitation by monopolistic individuals and people in power.

The distribution of income in America can, therefore, not be viewed as a prerogative of the economic processes, but also as a responsibility of the political system. The political processes should ensure there are policies, which ensure that there is downward distribution of income. This would ensure that low income earners get a share of the national pie.

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