Stiglitz on the break down of marginal productivity theory

7 Jan, 2015 at 17:51 | Posted in Economics | Comments Off on Stiglitz on the break down of marginal productivity theory

Lynn Parramore: Many neoclassical economists have argued that when people contribute to the economy, they get rewarded proportionally. Is this model breaking down?

Joseph Stiglitz: Yes. I think that the thrust of my book, The Price of Inequality, and a lot of other work has been to question the margin of productivity theory, which is a theory that has been prevalent for 200 years. A lot of people have questioned it, but my work is a renewal of questioning. And I think that some of the very interesting work that Piketty and his associates have done is providing some empirical basis for doing it. Not only the example that I just gave that if you look at the people at the top, monopolists actually constrain output.

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It’s also true that people who make the most productive contributions, the ones who make lasers or transistors, or the inventor of the computer, DNA researchers — none of these are the top wealthiest people in the country. So if you look at the people who contributed the most, and the people who are there at the top, they’re not the same. That’s the second piece.

A very interesting study that Piketty and his associates did was on the effect of an increase in taxes on the top 1 percent. If you had the hypothesis that these were people who were working hard and contributing more, you might say, OK, that’s going to significantly slow down the economy. But if you say it’s rent-seeking, then you’re just capturing for the government some of the rents.

SALON

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