What Goes Up Must Come Down*

Dr. Tom P. Abeles, editor

Navigating the Future

Lindsey, Brink and Steven M Teles, The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth and Increase Inequity, Oxford University Press, New York, 2017

“The Captured Economy” is an amazingly balanced perspective by two authors whose views from the left and right of the economic spectrum have been focused on the increasing spread of wealth in the United States society today, but the lessons have relevance, globally. There are two main issues, today. First, there is an increasing probability that many of the children of the current generation may fail to realize an income that is greater than their parents. Additionally, many who have risen into the ranks of the middle class may find that mitigating conditions may result in their slipping down the economic ladder. Secondly, there is growing evidence that those in the upper economic strata have increasing influence on government that favors their growing ability to increase that economic status, often at the expense of those lower in the economic hierarchy.

The former issue is more fully explored by Richard Reeves’ Dream Hoarders (1) which focuses on those who have achieved middle income status, most of today’s professionals, whose concerns are that changing economics could result in their sliding down that economic ladder. As Kahneman and Tversky’s Prospect Theory shows, given an equal chance for an economic gain or loss, individuals have greater concern for the latter. The other issue here is that those in the middle brackets, along with the upper 10% in income, have surplus capital to invest in income producing rent seeking vehicles whereas those in the lower income brackets are largely tied to work producing revenue that mostly is used to meet ongoing and extraordinary expenses.

While the issues around personal incomes/benefits are critical, this volume has a larger ax to grind, the impact of this “regulatory capture” on the overall economy and welfare of all citizens. Those who have elected the present administration and legislature see the highly visible spending by government for those “safety nets” while not taking into account that benefits filtering down in the form of tax cuts, for example, disproportionately benefit those already enjoying a fiscal sinecure that has increasingly solidified their rent-seeking leverage, often at the expense of country economic growth. The volume tackles four critical areas: Land Use Regulations, Professional Licensing (Health, Education, Law), Financial Arbitrage and Copyrights and Patents. The area of land use regulation maybe the least well understood.

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