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The New Economics of Inequality and Redistribution (Federico Caffè Lectures) Paperback – July 12, 2012
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'Over the past forty years, the gap between rich and poor has widened dramatically in many industrialised countries, and what Americans call the 'middle class' has shrunk. Samuel Bowles argues that, quite apart from its moral dimension, such inequality is economically inefficient. It leads to excessive expenditure on the enforcement of property rights and on crime prevention. It also reduces labour productivity. He argues that a redistribution of income and wealth would increase productivity and encourage entrepreneurship amongst social strata that are currently locked out of credit markets. These stimulating essays are a valuable contribution to the current debate about equality.' Robert Rowthorn, Emeritus Professor of Economics, University of Cambridge
'Bowles and his collaborators show how, in a globalized world economy, independent democratic national states can implement programs of egalitarian redistribution and social insurance. Included are better educational opportunities, employee ownership of workplaces, land reform, stimulus to the formation of cooperatives, support of home ownership, expansion of subsidies designed to promote employment and increase earnings among the poor. But even better, Bowles also considers the Unconditional Basic Income proposed by Van Parijs and van der Veen, which would truly be a step in the direction of a society of real freedom for all. The book is especially relevant for all of us who would like to use the instruments of economic policy to advance the main principles of justice.' Eduardo Suplicy, Fundação Getúlio Vargas, Member of the Brazilian Senate, and Founder of the Workers' Party of Brazil
'Samuel Bowles offers both the world of science and the world of politics an extremely valuable synthesis of new thinking about inequality, integrating innovative analyses of fundamental causes, sustainable solutions, human behaviour and normative conceptions. Both unjustified 'equality pessimism' and traditional redistributive approaches are put to the test of rigorous analysis and empirical research. The outcome is an inspiring account of ways and means to create more just societies in today's global world.' Frank Vandenbroucke, University of Leuven, and former Minister, Belgian Government
Incorporating the latest results from behavioral economics and microeconomic theory, Samuel Bowles argues that conventional economics has mistakenly presented inequality as the price of progress. In place of this view, he offers a novel and optimistic account of the possibility of a more just economy.
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The book does have more technical passages, but these are fairly easily skimmed by those who prefer a less technical approach. My own view is that it is extremely important that it be clear to as many as possible that rigorous treatment of economic issues is possible from a progressive point of view. Few do this as well as Samuel Bowles. Moreover, I would suggest that Bowles and like-minded progressive economists (like John Roemer) are significantly more fair to their opponents on the right than conservatives are to progressives. (That, of course, is strictly my own sense of things.)
Bowles is one of a handful of progressive economists who has brought real rigor to progressive economic thinking. His frequent co-author, Herbert Gintis, is another as are John Roemer and Pranab Bardhan. There are several more, but they are the three who come immediately to mind. Amartya Sen is nearer the mainstream, but is also a great, rigorous thinker. Kenneth Arrow and George Akerlof are still nearer the center, but also outstanding and rigorous. Sen, Arrow, and Akerlof have all won the Nobel Prize (though I have my doubts about the value of that prize).
The Kindle edition is priced far less than the paperback cost for a reason. Charts and graphs in the print edition are hideously rendered for the Kindle. Many charts are nearly illegible. They look like badly compressed JPEGs from 1993. I strongly recommend against getting the Kindle edition.
Bowles has been at the forefront of innovative economics for decades (he name-drops Dr. King and Bobby Kennedy), during which time inequality has migrated from the margins of Marxist theory into the journalistic mainstream. The attention paid to massive inequity in the Presidential campaign just past makes Bowles' theories, which have incubated for decades, all the more timely. And to his credit, he resists the desire for an ordinary partisan screed.
The debate, up to now, has turned on two contrasting points. Traditional conservatism holds that markets have a balancing effect, distributing rewards according to just principles of merit and reward. Progressives have countered that by saying that those who start out with more will receive greater rewards. Conservatives want the state to defend property rights and ownership, while progressives want government to redress injustices stemming from poverty and lack.
But Bowles asserts both these models omit important information. Market libertarianism and statist interventionism both assume a utopian system free from coordination failures. Yeah, right; we should live so long. Laissez faire only works if everyone plays by the same rules, which measurably happens too infrequently, while strict Keynesianism has been long-since overtaken by global technology. The old ways don't work anymore.
The problems arise from a perverse incentive structure. Consider the example of a factory, one Bowles explicates often and well. Owners have every incentive to resist modernization and demand workers do more, because they want to maximize profit on existing capital investments. Workers, by contrast, have no ownership stake in outcomes, and thus little incentive to obey owners' expectations. Without governance structures, the two talk past each other.
Nor could they do otherwise. Because they have asymmetrical power (bosses have many reprimand mechanisms, while workers can only work or quit), no discussion can be truly frank and fair. Inequality therefore stretches beyond the realm of wealth, into distributions of power: the rich have many options, the poor have few. No wonder the poor stop participating in economic and political advancement. Diligence produces small, or no, reward.
Ownership, that conservative shibboleth, provides some answer. People work harder when they own the means of production. They care more for outcomes when they own the product of their work. But breaking into the world of ownership requires massive capital, which only the elites have. Bowles backs this up with graphs and charts, which make his math-rich narrative much more comprehensible, but it boils down to that old working-class proverb: Them that has, gets.
Credit markets compound this problem by limiting lending practices. Those already imbued with wealth need not borrow to finance new ventures, but the poor must borrow to finance anything new. And lenders, especially post-Great Recession, are notoriously averse to loaning money to those without a proven track record. Business loan interviews are more dreaded than dental exams. This creates material disincentive for innovators to try anything new, risky, and visionary.
The answer lies in redistribution, though not the methods traditionally arrayed. Conventional socialism and central planning have failed spectacularly. Direct capital transfers, as Bowles documents them, have not imploded with Kremlin-like flair, but have tended to die quietly, because giving the poor money and goods does not give them power, authority, or knowledge. We will only redress Twenty-First Century inequality with Twenty-First Century remedies.
This book is not for everybody. Bowles writes for fellow economists and political leaders, and his prose is dense with terminology. He provides definitions for some idioms, but not others. He's particularly fond of the term "Nash equilibrium," perhaps assuming we've all seen "A Beautiful Mind." Alongside frequent allusions to other economists, Bowles' jargon-rich prose makes for slow reading. This book could really use a glossary.
But for those eager to participate in the important discussions that will dominate economics in the coming years, Bowles does well. Not only does he lay out the terms that have defined the debate until now, he creates a persuasive third-way approach that defies doctrinaire thinking. His proactive proposals give activists something to speak for, and his charts offer ways to make it comprehensible. This slim, powerful book will help set the tone for years to come.