|Peter Boettke|

Joe Stiglitz argues in NYT that inequality is not inevitable. Violent extremes in wealth and income are not inherent in the operation of capitalism. They result, instead Stiglitz argues, from policies and policy. This is a major step forward in the analysis.

While there remains many statements by Stiglitz that a free market thinker would find problematic, his basic thrust in this article actually gets stronger and culminates with his claim that:

Solutions to these problems do not have to be newfangled. Far from it. Making markets act like markets would be a good place to start. We must end the rent-seeking society we have gravitated toward, in which the wealthy obtain profits by manipulating the system. The problem of inequality is not so much a matter of technical economics. It’s really a problem of practical politics.

But what follows is not a consistent narrative, but an appeal to wishful thinking as the very same governmental institutions that have resulted in the rent-seeking society are now going to be relied upon to curtail rent-seeking and engage in wise public investment to aid the poor and follow binding rules that protect the middle class from confiscatory policies.

In a fundamental sense, the problem is that Stiglitz is thinking in terms of ordinary politics when he must make the move that Buchanan and Tullock made, and look at fundamental changes to the rules of the game (the constitutional level of analysis). Buchanan thought more about this than even Tullock, though of course the classic place to begin this analysis is The Calculus of Consent followed by the edited volume, Toward a Theory of the Rent-Seeking Society.

But those moved by Stiglitz's plea --- as they should be --- should look to Buchanan's (and Congleton) Politics By Principle Not Interests and the development of the "generality norm" from Hayek's The Constitution of Liberty. This is a vision on non-discriminatory politics. The rent-seeking society is fundamentally at odds with liberal notions of the "rule of law" and equality before the law. The sort of policies that provide "welfare for the well-to-do" are the problem, not the solution, but they emerge from the political rules of the game that provide access to political privileges to interest groups. As Buchanan liked to say, "Same Players, Different Game: How Better Rules Make Better Politics."



If, as Stiglitz argues, the source of our problems is that democracy has been corrupted by special interest groups, the solution is not higher taxes on the rich, and greater public spending on the poor. The solution is more fundamental than that, and it requires a shift in the rules of the economic, political, and social game that envision an order that exhibits neither discrimination nor dominion. It is only within such a rule setting that we will be able to live better together, and realize the gains from social cooperation among free and responsible individuals.