Tyler Cowen on Inequality and Finance

Have a look at this article if you haven't already: Tyler Cowen on The Inequality That Matters. It is really two essays in one, bringing together discussions on inequality and modern finance that have been mostly separate up to now. I agree with Cowen that this was an error: they need to be merged. Growing inequality is a narrower (and less politically salient) issue than is usually argued, he says, mostly confined to the financial sector and a sliver of the super-rich. Where it is a problem, it is a symptom of something worse than inequality in its own right--something deep and hard to control.

For the time being, we need to accept the possibility that the financial sector has learned how to game the American (and UK-based) system of state capitalism. It's no longer obvious that the system is stable at a macro level, and extreme income inequality at the top has been one result of that imbalance. Income inequality is a symptom, however, rather than a cause of the real problem. The root cause of income inequality, viewed in the most general terms, is extreme human ingenuity, albeit of a perverse kind.

He is at a loss for remedies. No more bail-outs? Try making that stick. Closer supervision? That's naive and impractical, he says. Even higher capital requirements could have the unintended consequence of insulating managers from creditors and shareholders, thus encouraging risk-taking rather than suppressing it. He doesn't discuss taxes...

Is the overall picture a shame? Yes. Is it distorting resource distribution and productivity in the meantime? Yes. Will it again bring our economy to its knees? Probably. Maybe that's simply the price of modern society. Income inequality will likely continue to rise and we will search in vain for the appropriate political remedies for our underlying problems.

Presented by

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In