The Captured Economy: Berkeley Blum Center Event Notes
I’m Brad Delong I’m chief economist here at the Blum Center and a professor in the Economics Department. I’m incredibly happy here to have Brink Lindsey and Steve Teles, authors of The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality https://tinyurl.com/dl20180402b.
How this will work: I’m going to give a short introduction. Then Brink and Steve are going to present their show for fifteen or twenty minutes. Then we have three discussants who will take another twenty minutes.
We have Tom Mann, who was a long time fell senior fellow at the Brookings Institution, and is now a refugee out here in California, sitting at the Institute of Governmental Studies. He is the author of books with titles like:
- The Broken Branch: How Congress is Failing America and How to Get It Back on Track
- It’s Even Worse Than It Looks: How the American Constitutional System Collided With the New Politics of Extremism
- One Nation After Trump: A Guide for the Perplexed, the Disillusioned, the Desperate, and the Not-Yet-Deported
- and the forthcoming Run for Your Lives!
We have Joseph Lough, who teaches history of economic thought and other things in the Economics Department, who is the author of Weber and the Persistence of Religion: Social Theory, Capitalism and the Sublime.
We have Rakesh Bhandari, who runs ISF, and the works of his I value most are “The Disguises of Wage Labour”, “Historical Materialism: On Luxury Spending in Science and Society”; and “On the Critique of Marcuse's One-Dimensional Man”.
Following that the authors will attack the discussants for misrepresenting their argument, and the discussants will attack the authors for misrepresenting their book.
Following that we will have questions—via Twitter. Hashtag #CapturedEconomyBlum. This is an innovation of the very sharp Josh Barro. Taking questions via Twitter and screening them means that (a) questions are asked, and (b) the questions asked are less than 280 characters.
Following that we will have our reception.
https://www.icloud.com/keynote/09fA1MJLSvCgJyJcfTttg3KXw
On Twitter: At @Blum_Center, Plaza Level for a presentation by Brink Lindsey and Steve Teles on their book, The Captured Economy. What factors have led to the high level of inequality that characterizes the American economy today? Speakers include Thomas Mann, Joseph Lough, and Rakesh Bhandari from Berkeley in addition to Lindsey and Teles.
Brink: The double malaise of slow growth and high inequality. Declining upward mobility: men born in 1940: 90% doing better than parents; now only 30% expect that; problem for American democracy.
Lots of structural forces. One piece of the puzzle. Powerful insiders throwing sand in the gears to make growth and inequality worse. The story of bad regressive capture: finance, IP, NIMBY. What is wrong with America:
- Slow growth + High levels of inequality = Low levels of social mobility
- Plenty of structural problems that have led to where we stand.
- But the main focus is on government's role in exacerbating the issue
From 30k feet. Emerging chokepoints in US economy squeezed by powerful rich insiders.
IP monopolies; coastal concentration of economic activity & NIMBYism; occupational licensing in services; financial hypertrophy; opportunistic rent-seeking squeezing growth, advancing the rich. Population misallocation. First generation of migration inversion ever. The regulatory burdens that have resulted in a misallocation of resources:
- Misallocation of capital due to a bloated financial sector enabled by home-ownership oriented policies.
- Excessive healthcare spending.
- Restrictive zoning laws
Get Manhattan, SF, & San Jose down to medium land use restriction: +10% US national income.
But how are we to reform? Tell us, Steve.
Steve Teles: 40 years—massive use of state to extract resources upward. Democracy: rule by the organized. Politicians attend to those who attend to them. Creation of classes of people who are in it for themselves. The organized able to invest in persuasive fictions. Fool others. Fool themselves. Generate fear in minds of risk averse political officials. The rich only have to play defense. Upper class are organized. Others not. Stand in way of creative destruction. What got us here and how has the state generated inequality: Democracy is ruled by those hyper-focused on specific issues who convince policymakers that their interests are aligned with the public. There exists a massive upper-class bias on such organization.
There has been a collapse of democratic creative deliberation—of the public sphere. The solution is to structure democratic deliberation in a useful way.
Tom Mann: Brink & Steve modest, examining only sins of commission. Book is a noble undertaking, but one I find unconvincing. Financialization: can it be blamed on government regulation. Licensing increase not a big factor. Read Mike Konczal... The final chapter isvery thought provoking... Conclusion: We have the ability to institute policies that reduce the influence of special interests so as to reintroduce high levels of growth and low levels of inequality.
Joseph Lough: As a post-Marxist economic historian trained at Chicago, I say: neoclassical economics all rests on a canon of shared models. Misregulation. Always regulated: by whom, & to whose benefit? What PhrMA wanted: PhrMA got from GWB. Models in urban economics are confirmed by zoning laws imposed in Portland and Berkeley. Low-income individuals are hurt the most and costs tend to rise.
Rakesh: a private ruling class a lumpenbourgeoisie. A public sphere that is a lumpenintelligentsia. Many structural barriers to participation. The essence of the state is corruption. Kleptocracy... Key question surrounding lack of investment despite high profits and low-interest rates.
Brink: Financial regulation—basic model of the financial sector. Debt. Crisis. Danger of insolvency. Governments regularly prop it up...
@postdiscipline: Thanks to Brad for inviting me to discuss Lindsey and Telles The Captured Economy. I also raised questions abt how to square record profits with low investment and long term interest rates
Questions:
#CapturedEconomyBlum Re: increase in licensure of jobs causing misallocation. What do you think about the rapid rise of software engineering as a profession (basically non-regulated) in the last 40 or so years? Seems to buck the trend.
#capturedeconomyblum How do questions of regulatory capture apply to issues like Net Neutrality or mega-mergers (AT&T-Time Warner, etc) in the world of technology and business?
#capturedeconomyblum If organized wealthy interests can influence the economy and public policy to enrich themselves, how does campaign finance reform play a role in curbing the influence of these powerful few in the political process? What would effective reform policies be?
#CapturedEconomyBlum Which forces are capturing the financial system with its bailouts of banks and how to un-capture it?
#capturedeconomyblum With regards to "boosting countervailing power", would policies to strengthen labor unions serve as an effective way of giving workers a way of balancing out organized corporate interests?
#CapturedEconomyBlumAre there any Trump policies made or in making that you would approve of?
https://www.icloud.com/pages/0o9LLDvrhW-xkx2N_NL7x-hVw | 2018-04-10
“The best attempt so far at a social democratic–libertarian synthesis of the origins and cure of our current political-economic ills…”—Brad DeLong
The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality
Brink Lindsey and Steve Teles
Niskanen Center: https://niskanencenter.org
"A compelling and original argument about one of the most pressing issues of our time, The Captured Economy challenges readers to break out of traditional ideological and partisan silos and confront the hidden forces that are strangling opportunity in the contemporary United States."—Matthew Yglesias http://vox.com
"Are you looking for how to get out of our current mess? The Captured Economy is perhaps the very best place to start."—Tyler Cowen, Professor of Economics, George Mason University
"American politics is mired in endless arguments about how much downward redistribution we want and how to provide it. But as Brink Lindsey and Steven Teles point out in this engaging, powerfully argued book, the reality of our political economy often looks much more like upward redistribution. In one arena after another, public policy enriches the already rich and advantages the already advantaged."—Yuval Levin, editor of National Affairs
"Steven Teles and Brink Lindsey ask one of the most important questions of our times: What are the political reforms we need to reduce the ability of the wealthy to maintain their capture of our government? Combining the analytic forces of liberalism and libertarianism, they provide a much-needed investigation into why the U.S. government works on behalf of the powerful and the steps we can take to address rising inequality and regressive regulation so that it instead acts in the public interest."—Heather Boushey, Democratic Economic Policy Director, 2016
Available at Powell’s: https://tinyurl.com/dl20180402a
Available at Google Books: https://tinyurl.com/dl20180402b
Takeaways:
- Today: a stagnating economy and sky-high inequality
- Breakdowns in democratic governance: wealthy special interests capture the policymaking process
- Regressive regulations that redistribute wealth and income up the economic scale
- Stifling entrepreneurship and innovation
- New regulatory barriers shield the powerful from competition inflating their incomes extravagantly:
- Subsidies for finance’s excessive risk taking
- Overprotection of copyrights and patents
- Favoritism toward incumbents through occupational licensing schemes
- The NIMBY-led escalation of land use controls that drive up rents for everyone else.
- Needed: improve democratic deliberation to open pathways for meaningful change
Synopsis
For years, America has been plagued by slow economic growth and increasing inequality. Yet economists have long taught that there is a tradeoff between equity and efficiency-that is, between making a bigger pie and dividing it more fairly. That is why our current predicament is so puzzling: today, we are faced with both a stagnating economy and sky-high inequality.
In The Captured Economy , Brink Lindsey and Steven M. Teles identify a common factor behind these twin ills: breakdowns in democratic governance that allow wealthy special interests to capture the policymaking process for their own benefit. They document the proliferation of regressive regulations that redistribute wealth and income up the economic scale while stifling entrepreneurship and innovation. When the state entrenches privilege by subverting market competition, the tradeoff between equity and efficiency no longer holds.
Over the past four decades, new regulatory barriers have worked to shield the powerful from the rigors of competition, thereby inflating their incomes-sometimes to an extravagant degree. Lindsey and Teles detail four of the most important cases: subsidies for the financial sector's excessive risk taking, overprotection of copyrights and patents, favoritism toward incumbent businesses through occupational licensing schemes, and the NIMBY-led escalation of land use controls that drive up rents for everyone else.
Freeing the economy from regressive regulatory capture will be difficult. Lindsey and Teles are realistic about the chances for reform, but they offer a set of promising strategies to improve democratic deliberation and open pathways for meaningful policy change. An original and counterintuitive interpretation of the forces driving inequality and stagnation, The Captured Economy will be necessary reading for anyone concerned about America's mounting economic problems and the social tensions they are sparking.
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