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.

It is this rent seeking practice that is the focus of “The Captured Economy”. It becomes even more relevant in the current economy in the US where congress is about to pass one of the largest tax reform legislation for many decades. What is more problematic is that this legislation seeks to offset benefits for the upper income brackets and corporations by reducing benefits to the lower economic strata. And, there is discussion of balancing the cost through changes in safety nets such as Social Security, Medicare and similar programs put in place years ago.

In all of these the authors clearly show that the regulatory thumb on the scale tends to favor those with the greatest influence on legislation and interpretation/enforcement of these actions. While fiscal conservatives tend to see government largess such as social security and other entitlements favoring the lower income citizens, they tend to ignore the public access to broad services which benefits all and seem almost righteous in their defense of the largess in tax breaks, for example, which favor the upper income brackets directly or through sheltering of rents such as in stock and retirement portfolios, including corporate investments. Additionally, there seems to be a sense of validation of governmental actions that control access to professions, often in the financial markets or predatory use of patents and protection of similar assets.

The regulatory oversight, as noted, is not singularly with federal legislative and administrative actions. Real estate oversight is in the hands of local municipalities and some state regulations. Professional licensing from cosmetologists to medical professionals has been under the jurisdiction of states. In fact, there has been an explosion of professional licensing, unevenly applied at the state level. The current and paradigmatic example, which has gone international, is the recent circumvention of taxi licensing which has provided consumers lower cost and higher quality access and which has also seen the current monopolistic companies rapidly adopt these newer practices.

In fact, the core message that Lindsey and Teles bring to the table is that current practices in just these four areas have and will continue to have a negative impact not just to the personal economic wellbeing across the income spectrum but to the overall growth of the national economy. While the authors carefully document the historic and currently increasing fiscal disparity that economically and politically connected leverage promulgates, they do not propose alternatives from chopping off the fist on the scale to a more balanced set of policies.

Interestingly, in England, Tony Blair’s Institute for Global Change, https://institute.global/, has proposed a variety of property tax reforms around the core idea of Henry George, the Land Value Tax, LVT. The idea of such a tax has had a varied history of interest and there are several municipalities that have adopted the practice. Blair’s Institute and Martin Adams’ well argued volume, “Land: A New Paradigm for a Thriving World” (2) point out that the corrective action of an LVT needs to promulgated with complementary opportunities such as a Universal Basic Income (http://basicincome.org/).

In all four areas covered in this volume, there are moves, some tepid, for change, such as in the financial arena resulting from the recent international meltdown. Some have received global attention such as the rise of the rideshare movement by Uber and others.

Separating these areas is an academic approach, though the authors do build an over arching frame and identify these as examples without providing other areas of significance. Blair’s Institute’s frame around the LVT does give, by example, a clearer picture for the need to consider a more integrative approach.

The other issue is not acknowledging the future. While dissecting the past is informative, times are changing and becoming problematic. Alex Williams and Nick Srnicek’s “Inventing the Future” (3) comes out of an edge thinking “Accelerationist” perspective and while their predictions may not materialize as forecast, their sense of what needs to be addressed:

• We will see an increasing ability for artificial intelligence and robotics accomplishing an increasing amount of the work now done by humans
• Humans need to embrace the idea that their time will not be concerned with what is defined today as work
• Echoing Blair’s Institute, there will need to be a global adoption of a form of Universal Basic Income
• Importantly, humans will have to separate their identity from their occupation

When carefully examined, these broad elements point to a very different perspective to those areas identified by Lindsey and Teles and to come to solutions that don’t address these as they are being approached today.

What one is waiting for is the other shoes to drop. Lindsey and Teles have provided the academic approach that comes from a critical perspective. What would hope is that there is a sequel that offers a positive set of alternatives.

References:

• Reeves, Richard, Dream Hoarders, Brookings Institution Press, Washington, D.C., 2017
• Adams, Martin, Land: A New Paradigm for a Thriving World, New Atlantic Books, London, 2015
• Williams, Alex, and Nick Srnicek, Inventing the Future: Post Capitalism and a World Without Work, Verso, New York, 2016