The global financial crisis has demonstrated a deep systemic failure of the prevailing economic paradigm. So far, efforts to remedy the situation have failed to address the root causes of the meltdown and are digging the American people deeper into the hole of public debt.
In an op-ed titled “Obama’s Ersatz Capitalism” earlier this year, Joseph Stiglitz wrote that the bailout of banks by taxpayers is a “partnership in which one partner robs the other.” Considering that in 2004 the top 1 percent of the population of the United States owned more than $2.5 trillion more wealth than the bottom 90 percent, and that even in 1996 about 350 billionaires held more wealth than nearly half of humanity, we have surely arrived at the end of the capitalist monopoly game.
Rent-Seeking and Economic Restructuring
Alternative economic analysts have traced the severe wealth gap problem to the ability of the so-called FIRE sector—finance, insurance, and real estate—to concentrate large amounts of money, resources, and power into ever fewer hands via a variety of rent-seeking behaviors. “Rent” connotes unearned income. Alternative analysis considers economic rent to be a socially generated surplus that is being privately captured.
As an economy generates wealth, the price of land and other natural resources increases. Because the gifts of nature cannot be produced by human effort and supply cannot be increased to meet demand, holders of land and natural resources are in a position to capture the surplus—economic rent—generated by labor and capital.
While economic rent is essentially a measure of the social surplus it is not regarded as such under neoliberal economics, which treats this value as a market commodity for private profiteering. This fundamental flaw in market economics has created a highly inequitable global economic system. Lack of knowledge as to how to correct this flaw, and retain the benefits, efficiencies, and individual freedoms of the market, was the impetus for the emergence of centrally managed and controlled state socialism. An economic restructuring based on a full understanding of the role of economic rent is needed for a new economic framework beyond both the old right and the old left.