Joe Stiglitz, "New Theoretical Perspectives on the Distribution of Income and Wealth"

Tax Prof Blog offers a link to new work by Joe Stiglitz that is potentially significant, and that tax law profs who are interested in high-end inequality should certainly give a look.  For now I've just seen the abstracts, but I will be reading the four (I suspect short) papers when I get the chance.

It overlaps with things that I've heard Stiglitz say, e.g., at NTA last year, relating to his rejection of Piketty's theoretical explanation for rising inequality.  Piketty, of course, attributes it to r > g, whereas I am more inclined (as a U.S. observer) to think in terms of rising wage inequality, and also to say that you have to decompose r, as well as to distinguish between life cycle saving and inheritance (see here).  Stiglitz says some related things, and also has been pushing the importance of land values vs. productive capital, and of rents, both of which he thinks Piketty gives too little weight.

A few of Stiglitz's main points / claims / arguments here:

1) One needs to distinguish "wealth" from "capital."  The former I presume he defines as things with value to the holders, the latter as limited to inputs to economic production.  Stiglitz sees the run-up in land values, especially housing stock, as wealth but not capital, and hence in recent practice as increasing inequality without creating capital gluts that would be expected, from normal supply and demand, to drive down r.

2) Rents, not ordinary r, are at the heart of rising inequality in recent decades.  Land rents, intellectual property, etc., are the key elements here.

3) In his model, taxing capital, i.e., ordinary r, may get shifted entirely back to labor, and hence do nothing to address inequality (leaving aside the question of how the tax revenues are spent, which could make a difference at the low end of the wealth and income distribution).

4) Focusing on r versus g also misses the point that r is endogenous - it's part of what needs to be explained, not a cause of what happens.

5) A Henry George land tax would have the desired distributional effects - not getting passed on because the supply is close enough to fixed, and under the empirics can make a large practical difference in high-end inequality, without adversely affecting incentives.

6) Given life cycle saving, we shouldn't distinguish between labor and capital (David Bradford would definitely agree with this part), but rather between capitalists and workers.  He uses the term "capitalist" to mean people who make bequests, whereas workers just do life cycle saving.  So it's actually bequesters vs. life cycle savers that we need to think about.  (Though without the benefit of his model, Joe Bankman and I said something similar here.)

7) Stiglitz also draws a big distinction between what he calls debt and equity.  In a simple version of his model, workers just hold debt, capitalists hold equity.  (When I see the actual paper, I'll be looking to see if buying a diversified stock portfolio through your mutual fund is really what he means by "equity," or if it's special opportunities, start-ups, etc., as opposed to what they sell on the market once the extraordinary profit has been realized and only normal returns remain.)  Anyway, this has the result in his model that lowering interest rates enriches the capitalists at the expense of the workers, raising them goes the other way.  Thus, if we think of r as the Federal bond rate and all the other bank, etc., rates that travel with it, then raising r, not lowering it, reduces inequality.

Anyway, however all this plays out in intellectual debate among economists, it's important and I would urge tax law profs to take notice, and in particular to start thinking about how they might assess it and what its implications might be.  I may take that tack myself, but there's plenty of room in the water, and anyway my dance card is a bit full at present.