For my money, The Economist is the best news magazine in the world. However, it has a clear agenda supporting limited government, free trade, and technological change, so it is suspiciously convenient that a lengthy article in this week’s edition finds that the principal driver of US inequality is not globalization, technological change, and the demise of unions, but increased rent-seeking that should be addressed by a blast of pure capitalism. If you dig further and ask the right questions, the argument pretty well dissolves into vapor.
The position taken in the article essentially is that the rent-seeking is the product of several phenomena: too much protection to intellectual property; effective lobbying beyond the resources of most companies; barriers to the entry of professions; and inadequate enforcement of antitrust law, leading to oligopolies. I don’t exactly disagree with the analysis, but it doesn’t explain either stagnant wages or increased inequality, for the following reasons:
1. Inequality, while a problem, is not the major issue facing the American workforce–the real concern is stagnant wages. I addressed this in a series of posts last year.
2. Stagnant wages and increased inequality are issues throughout the West, not just in America. Are we to believe that substantially different cultures and political systems have all suffered from the same rent-seeking problem? Isn’t it more plausible to say that the problem is caused by common experiences with globalization and technological change?
3. Rent-seeking has nothing to do with lost manufacturing jobs and lower wages. The percentage of manufactured goods made in America, relative to the entire world, is about the same as it was 20 years ago, but the number of jobs supported by those goods is far smaller. Increases in productivity since the 1970’s have not in any way been matched by increases in wages. These are undisputed facts. What do they have to do with rent-seeking?
4. Where are the higher wages in the protected industries? In the ordinary course of business, you would expect wages in the businesses protected by “moats” to rise steadily if the problem is rent-seeking. In the case of tech businesses, they have, but that is due to the structure of those businesses, which employ a relatively small number of highly skilled workers. Otherwise, the article does not address this issue, and I am not aware of any evidence which suggests that wages for rail and airline workers, for example, are skyrocketing.
5. Let them be hairdressers! Removing the barriers to entry in a variety of occupations is probably a good idea, but increasing competition among hairdressers is not going to make much of a dent in either inequality or the stagnant wage problem. At best, it provides an entrepreneurial opportunity for the unemployed and underemployed; it won’t help the soon-to-be-unemployed Carrier workers very much.
6. Where is the right-wing “revolution?” The agenda that is implicit in the article would involve lots of deregulation at the state and local levels, amendments to and more enforcement of existing antitrust statutes, changes to federal intellectual property law, and limits on lobbying that go far beyond overturning Citizens United. The last is completely impractical, and the rest are not significant parts of the platform of any of the remaining candidates–Cruz would be the closest.
Again, I’m not saying I disagree with this agenda; I would just say that the real sources of the problem are globalization, technological change, and the demise of unions, and nothing proposed in the article is going to help very much.