Tag: John Quiggin

Must-read: John Quiggin: Predistribution and Profits

Posted on by Brad DeLong

Must-Read: John Quiggin on the exorbitant privilege of the corporate form:

John Quiggin: Predistribution and Profits: “The social constructions of property rights and institutions surrounding employment makes a big difference…

…to the determination of wages and working conditions. These social constructions affect ‘predistribution’, the distribution of income and wealth that arises before the effects of taxes and public expenditure are taken into account. Predistribution is equally relevant to… profit derived from private businesses and corporations…. The risks of running a business in the 18th century, and well into the 19th, were substantial and personal. There was no such thing as bankruptcy: a business failure meant debtors prison, where debtors could be held until they had worked off their debt via labor or secured outside funds to pay the balance….

[In] the middle of the 19th century… personal bankruptcy laws put an end to debtors prison, greatly reducing the risks of running a business. The creation of the limited liability company was an even more radical change. These changes faced vigorous resistance from advocates of the free market…. In Economics in One Lesson, Hazlitt doesn’t mention limited liability or personal bankruptcy and seems to assume (like most defenders of the market) that these are a natural feature of market societies. More theoretically inclined propertarians have continued to debate the legitimacy of bankruptcy and limited liability laws, without reaching a conclusion….

The distribution of income and wealth is radically changed both by the existence of these institutions and by the details of their design. In particular, the massive accumulations of personal wealth made possible by capital gains from share ownership would simply not exist. Perhaps there would be comparable accumulations of wealth derived in some other way, but the owners of that wealth would be different people. A crucial policy question, therefore, is whether current laws and policies relating to corporate bankruptcy and limited liability have promoted the growth of inequality and contributed to the weak and crisis-ridden economy….

What can be done to redress the balance that has been tipped so blatantly in favor of corporations? The obvious starting point is transparency…. More generally, though, the idea that corporations are a natural part of the economic order, with all the human rights of individuals, and none of the obligations needs to be challenged. Limited liability corporations are creations of public policy, useful to the extent that they promote the efficient use of capital but dangerous to the extent that they facilitate gross inequalities of income and opportunity.

Must-read: John Quiggin: “Education: An Investment, Not a Filter”

Posted on by Brad DeLong

Must-Read:John Quiggin: Education: An Investment, Not a Filter: “Implicit in this statement is the ‘screening’ theory of education…

…The idea that doing a degree might equip you with useful specific knowledge, or with general skills in reasoning, writing and so on, doesn’t get mentioned…. However, the long-term evidence is clear: in Australia, as everywhere else in the world, the wage premium for graduates has remained large enough to make going to university a very good decision, even as the proportion of young people undertaking university education has risen from a tiny minority in the mid-20th century to around 40 per cent today. One interpretation of this is that, over the past century or more, the entire world has been engaged in more and more elaborate screening for no good reason. A more plausible explanation is that technological change has eliminated the kinds of jobs that used to employ kids with a Year 10 education (the median level of achievement when I was young), and replaced them with jobs that need the skills (specific and general) of a university graduate. There’s every reason to think that these trends will continue in the future, so we are going to need more education not less…

Morning Must-Read: John Quiggin: Wealth: Earned or Inherited?

Posted on by Brad DeLong

John Quiggin: Wealth: earned or inherited?: “The efforts of the right to discredit Piketty’s Capital…

…have so far ranged from unconvincing to risible…. One point raised in this four-para summary by the Economist is that ‘today’s super-rich mostly come by their wealth through work, rather than via inheritance.’… For those who haven’t… got around to reading [the book]….

Wealth inequality is also high, though it has not increased as much as income inequality…. Rattner [says]… ‘those at the top were more likely to earn than inherit their riches’. Since I’m already noticing that point popping up in the places you might expect… let me point out that Rattner’s explanation… is wrong, and that there is every reason to expect a boom in inherited wealth. The fact that currently wealthy Americans have not, in general, inherited their wealth follows logically from the fact that, in their parents’ generation, there weren’t comparable accumulations of wealth to be bequeathed… growing inequality of income must precede growing inequality of wealth, since wealth is simply the cumulative excess of income over consumption…. So, given highly unequal incomes, and social immobility, we can expect inheritance to play a much bigger role in explaining inequality for the generations now entering adulthood than for the current recipients of high incomes…