NOT A REWARD FOR DOING BETTER WORK

“One oft-heard justification of this phenomenon [income inequality] is that the rich get paid so much more because they are creating so much more value than they once did. Globalization and technology have increased the size of the markets that successful companies and individuals (like pop singers or athletes) can reach, so that being a superstar is more valuable than ever. And as companies have gotten bigger, the potential value that CEOs can add has increased as well, driving their pay higher.

“[Joseph] Stiglitz will have none of this. He sees the boom in the incomes of the one percent as largely the result of what economists call ‘rent-seeking.’ Most of us think of rent as the payment a landlord gets in exchange for the use of his property. But economists use the word in a broader sense: it’s any excess payment a company or an individual receives because something is keeping competitive forces from driving returns down. So the extra profit a monopolist earns because he faces no competition is a rent. The extra profits that big banks earn because they have the implicit backing of the government, which will bail them out if things go wrong, are a rent. And the extra profits that pharmaceutical companies make because their products are protected by patents are rents as well.”

James Surowiecki, “Why the Rich Are So Much Richer,” in the New York Review, September 24, 2015, pp: 32-36.