Must-Read: Chris Dillow: Cronyism, & the demand for redistribution

Must-Read: Very important, I believe:

Chris Dillow: Cronyism, & the demand for redistribution: “Is actually-existing capitalism a fair or a rigged game?… http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2017/07/cronyism-the-demand-for-redistribution.html

…The answer matters a lot for attitudes towards redistribution, as some recent experiments by Matthias Sutter and colleagues show. They got people to choose between a safe investment and a risky one. After the pay-off to the risky investment was seen, they asked third parties whether they wanted to redistribute. When the pay-off to the risky asset was determined fairly–by the toss of a coin–few people were complete egalitarians. However, they then tweaked the experiment so that subjects who chose the risky asset could toss the coin themselves and report the result without anybody checking it. In this experiment, the number of third parties who were egalitarians tripled. Even the suspicion of cheating–let alone the reality–creates a big increase in demand for equality….

Luigi Zingales argues (pdf) that corporate and political power are becoming increasingly intertwined, and this is a threat to the free market, prosperity and democracy. Graeme Archer calls on the government to fight the “crony corporatism” which has seen bosses’ pay soar without any increase in economic efficiency. What we have here are mainstream and rightist writers acknowledging that the game is rigged, at least partly. Rhetoric about capitalism is changing. Even outside the left, the rich are no longer seen (only) as talented public beneficiaries whose rewards are the product of free markets, but also as thieves who exploit power for their own ends. Sutter’s experiments suggest this should cause a big rise in demand for redistribution. We don’t need to prove that theft and rent-seeking are widespread; the mere suspicion of it creates many more egalitarians. But there’s a quirk here…. Professor Sutter and colleagues infer from this that the suspicion of cheating creates political polarization. I draw another inference. It’s that we need much more than redistributive taxation to tackle cronyism. We need to change institutions to prevent rent-seeking. Whether Archer’s relatively mild suggestions–more transparency and shareholder power–are sufficient is something I very much doubt.