New rents economy – U.S. inequality in the 21st Century

Abstract

Rents in the U.S. economy now constitute a significant and growing fraction of national income. In effect, the post-industrial U.S. is becoming more like Saudi Arabia as these new rents arise in very concentrated form. Thus, policy is now obliged to focus more on distribution rather than the traditional emphasis on production and efficiency. The expanding impacts of trade and technology now combine with the increased production of ‘knowledge goods’ to sharply increase income inequality. The paper argues that the root cause of the inequality surge is the proliferation of new rents in sharp contrast to the Piketty’s focus on capital accumulation in a neoclassical context. Once rents exceed a certain threshold (share of national income), then it is no longer permissible to maintain the neoclassical presumption that it can be neglected. Then the policy implications are completely revered – even revolutionary – with regard to the stance on redistributions, higher education, incentives and capital taxation, etc.