Stiglitz: Much of What Goes on in the Financial Sector is Rent-Seeking

"An interview with Joe Stiglitz:

Why does growing inequality matter? ...

We care about inequality partly because we pay a high price in terms of our economic performance. We care about it also because of the impact that it has in every other aspect of our society -- our democracy, our rule of law, our sense of identity or a land of opportunity -- because we aren't anymore.

The people at the top are not the people who made the most contributions to our society. Some of them are. But a very large proportion (is) simply people I describe as rent-seekers -- people who have been successful in getting a larger share of the pie rather than increasing the size of the pie. ...[W]e don't understand the extent to which our economy has really become a rent-seeking economy.

How has the financial sector contributed to the growing inequality?

Much of what goes on in the financial sector is this kind of rent-seeking.

The most dramatic example was the predatory lending and the abusive credit card practices, which took money from people on the bottom and the middle often in a very deceptive way, sometimes in a fraudulent way, and moved it to the top....

There is another example where the financial sector has been particularly bad. They pushed for laws like our bankruptcy laws that gave priority to derivatives. In bankruptcy, derivatives got protected and workers and everybody else has to swallow their losses. That encourages more risk-taking.

At the same time, they pushed for laws that made it more difficult for ordinary Americans to discharge their debt and (were) particularly bad for students who can't discharge their debt no matter what happens, no matter how they have been deceived by the schools, even in the event of bankruptcy. ..."

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