Stiglitz and Piketty Contributions - Essay Example

Stiglitz and Piketty contributions Joseph Eugene Stiglitz, is a reputable and notable economist, social commentator, academician and a researcher whose acumen and agility seconds none in the field of economics. Currently, he teaches at the Colombia University as a senior professor other than serving in many other economic bodies and organizations. He also won and received some of the most crucial and important accolades and awards that are global in nature. For instance, in the year 2001, he was honored and awarded the Nobel Memorial Prize in Economic Sciences which is a not a mean feat in any aspect or line of thought. Joseph Eugene Stiglitz has been credited with the fact that he helped the globe and the society as a whole to formulate another new branch of economics called the “the economics of knowledge.” He also helped in the notion and concept of helping globalization to work to the benefit and wellbeing of the whole human race (Stiglitz 171: 2007). Thomas Piketty is also an accomplished scholar and research in his own right and stature. He is a French national who has written extensively and exhaustively in the areas of income and wealth inequality in the human society. Currently, Thomas Piketty is a professor at the Paris School of economics other than teaching at the university. He is also an author of best-sellers which majorly touch about economics and wealth distribution in the human society. This paper will thus delve into the specific contributions of these great economic minds whose contributions relatively are unmatched. Contributions of Joseph stiglitz on the economic front To begin with, the outright contribution of Joseph stiglitz was to help establish the economics of information. This is the situation whereby the asymmetries of information within the different governmental agencies could have varied effects and impact. This theorem of information asymmetry has been used by the policy makers and analysts to model econometric principles and issues. On a general scale, the contributions and input of Joseph stiglitz have helped the society as a whole to develop in areas of welfare economics, corporate finance, industrial organisation and societies, trade, wealth and income distribution. It is important to note and mention that the input of Joseph stiglitz were skewed and directed towards monetary theory in the macro-economic considerations. In order for the society as a while to enumerate the fair formula of income and wealth distribution, it would be imperative for the society to invest in research and development. He also helped articulate the issue on how bilateral trade agreements were a hindrance to fair trade environment since they undermined the functioning of the global market economy (Stiglitz and Charlton 31: 2006). In the same respect ad line of thought he mentions that trade facilitation is critical since it borders on the need and urge of increasing trade efficiency by reducing the onerous trade-related costs (Stiglitz and Charlton 109: 2004). Thus, it would be proper to assert that Joseph stiglitz had a considerable impact in reviving the commitment of the economic fraternity towards research and development. He mentioned that to achieve a normal welfare economy, market incentives ought to be juxtaposed with wider concepts of micro and macroeconomics. This phenomenon would only be achieved if there was investment in research and development (Stiglitz and Greenwald 17: 2014). The contributions of Joseph stiglitz have also pointed to the cases and instances where the financial, stock, goods or money market do not clear. This is to imply that they do not meet at equilibrium. The insights and contribution of Joseph stiglitz have in turn advised and given opinion as to how the government intervention and policies can aid the markets to clear and improve on their efficiency. In principle, he also explained the modalities or the use of monetary policy to enhance the overall performance of the economy such as allowing expansion of the economy at least to the point where such expansion does not lead to increase in inflation rate (Stiglitz 2: 2003). Opinion about inequality Joseph stiglitz begins but asserting and confirming that indeed there exists a gap between the rich and the poor whereby the rich who form one percent of the entire population. The wealth of the one percent is equivalent to the wealth of the thirty percent of the population. The presence of the gap on inequality between the rich and the poor cannot be debated on the premises of simple social justice. It would not suffice for the society as a whole to question why few people should have a lot of wealth while the remaining huge population would have less. In retrospect the one percent rich continued to grow their wealth more as the rest were not doing well, thus the gap of inequality became pronounced (Stiglitz 3: 2012). The argument in this line of thought and aspect is that the society operates in a market driven era where the market forces are the objective determinants. For instance he is express that there exists interests groups in the society which wield and control a lot of power in the short run which are selfish and benefit them at the expense of the whole society. The consumption patterns and the progressive tax regimes have also been responsible for the widening gap between the “haves and haves not.” If a lot of resources is concentrated in the hands of the few people at the top of the societal hierarchy and hegemony, a discrepancy and a gap will exist if economic recession occurs (Stiglitz 45: 2012). In retrospect, the purchasing power of the majority at the lower cadres of the pyramid will have their purchasing power and expenditure reduced in a great deal. On markets and inequality The markets in the contemporary society, the tax regimes and policies seem to favor the people who are the top of the societal hegemony and pyramid. The market are determine d to tax the wealthy people in a friendly manner while the burden of economic weight is rested on the poor. It goes without mentioning that capital gain taxes from the markets are levied under the tax rate regime. This makes the wealthy retain a substantial amount of wealth and income. Similarly, the wealthy are able to influence the market forces of demand and supply by creating artificial shortages or hoarding and at the long end still retain colossal profits. Specifically, the one percent of the population had their share of national income increase two hundred and twenty times more than average income of the majority ninety percent at the bottom. In principle, as much as most academicians may seems to articulate and speculate, most countries seem to be moving towards market economy (Stiglitz 3: 1994) Political system on markets and inequality In this respect and line of thought, Joseph stiglitz raises a very valid point which questions the ability and veracity of democracy to solve the economic problems. The politicians are aware of the fact that economic Joseph stiglitz challenges cannot be won on political euphoria without considering the reality of economic realms. In principle, it implies that the political measures to clear market conditions of demand and supply would weaken the economy. He offers a valid point that to stabilize the economy for instance, the multiplier concept would be beneficial and critical. If for instance a political party pledges to reduce taxes on the people, it must also reduce its expenditure in a corresponding manner so as to maintain the economy. However, if by any chance, the complexities and complications of the political systems get the better of the day such as reducing taxes charged on people, without reducing expenditure, it would follow that the economy would collapse and fail. In brief, he mentions that it is challenging for a political system to offer remedies and solutions to an economic challenge. In brief, he mentioned that the free fall in the markets was occasioned by poor or bad political practices or decisions (Stiglitz 8: 2010). Thomas Piketty and his contributions on the economy From the outset Thomas Piketty posits that the aspect of wealth inequality is determined by institutional changes and dynamics, political aspect and economic development. The political landscape and environment is occasioned by labour income which is also determined and dictated by the policies available.in brief, he mentions that chaotic political hapenings and changes affect distribution of wealth and income (Piketty 35). In specific, he posited that the demand and supply of education or skills ought to be relevant. However the principle argument and line of reasoning that was adopted by the Thomas Piketty is support for an adjustable tax regime. This is whereby wealth accumulated is subjected to a tax rate based on that level of income. It is also important to note and mention that the logic and arguments of Thomas Piketty encourage a system of cooperative global movement where people move in a singular form and trail. He also mentions that there must be an understanding and appreciation of the fact that wealth is scarce (Piketty 6). For instance, he fronts the idea that for a progressive society, there must be cooperative global tax system, which may not be tenable in the real world. It is also important to note and mention that Thomas Piketty argues and reasons that governments or the society as a whole should embrace policies which would establish long term plans to cover income tax rates of the high-end earners of the society (Atkinson, Anthony, Piketty and Saez 19). The long term plans by the governments should be global in nature otherwise the rich people who would be charged higher taxes would move and migrate to other countries which have lower tax rates. Thomas Piketty argues and posits in the conventional manner and respect by purposing to explain the origin of income that the wealthy earn. In belief, he is express that the money that the wealthy people in the society earn must be as a result of suppressing others. This calls for the question on how income ought to be divided or distributed between capital and labour (Piketty 39). This is to imply that wealth earned by the rich comes at behest of the other people through suppressive wages and salaries given to the poor. Analytically, he is articulate to mention that the wealth and total worth of the extremely wealthy in the society who form the one percent has increased in the recent past. Categorically, Thomas Piketty fronts that some percentage of the national income has been moved and transferred to coffers of the one percent who are the wealthy people in the society. There is another amorphous suggestion fronted by Thomas Piketty that cannot escape attention when considering his contributions. He contributes that the high-end earners and entrepreneurs occurred due to globalization. This is to say that if an inventor and entrepreneur such as Steve Jobs or Bill Gates introduces a new product into the market, then they would make exorbitant profits not because of their sole efforts. Globalization would contribute to their profit because their products would have an easy access to reach other areas of the world. The underlying lie of thought and argument is that there was some level of luck that the global market was receptive to the products and services given by the richest of the one percent in the world. This is to mention that the distribution of income and wealth is proportionally skewed in line with the distribution of population in previous years, where Europe controlled more of the world population (Piketty 59). Thomas Piketty has also made some valuable contributions and assertions beneficial to the political realm and environment. He is quick to mention that the society as it is cannot have peace and harmony unless the top one percent are exposed to a relatively fair tax rates to what the rest of the people. If the rich are not exposed to tax rates of eighty percent, then the rest of the society who are the majority poor are likely to revolt against the system. The society and the voters specifically would be coerced to demand anti-market policies and regulations so as to feel even with the wealthy (Atkinson, Anthony, Piketty and Saez 14). In brief, he say that if the government does not find ways and means of regulating tax in punitive approach to the extra rich then the rest of the society would revolt and demand anti-market rules and laws. The tax would then be used to buy or obtain goods and services that would benefit the rest of the society. According to Thomas Piketty, he mentions that the goods or services obtained from funds levied to the one percent to a proportion of eighty percent is necessary to achieve a phenomenon known as “social peace.” It goes without saying that the high taxes would serve as a distortion or interference on the wealthy thus reduce the gap of inequality. In practice if the high end one percent is charged a tax of eighty percent then the income and wealth gap would be minimized because the poor would be improved on their welfare by feeling even on the disturbance caused by tax variations (Piketty 63). Thomas Piketty opinion about inequality and capital As far as inequality is concerned, Piketty reasons that it was the elevated incomes earned due to labour of people that ensured separation of the top managers from the rest of population (Piketty 24). This is to mention and imply that the rich or the wealthy earned comparatively higher wages than the rest of workers which acted as a contributing factor to the growing gap of inequality. In the same line of thought and reasoning, he records that the top management had the incentives and ability to set their own pay or remuneration, logically, they set it high. Inequality was then encouraged by the earnings that the top management set for itself at the expense of the rest of the workers (Piketty 24). In this respect and line of thought, Thomas Piketty reasons that the amount of wealth and income of the one percent who stand are extremely wealthy in this generation saw their net worth increase. This is so because the value of net worth of the rich was forty percent lesser than what it is today. The value of capital has in the recent past increased from the state that it was in to the current opulence due to the fact that the capital property appreciates in value. The definition of capital is explained as homogenous pool of resources and funds (Atkinson, Anthony, Piketty and Saez 8). The argument and approach of Thomas Piketty focuses on the amount and quantity and the exact and specific rate of return that the capital attract. This happens because capital goods owned by the one percent are combined, deployed and acquired as the rich anticipate future profits and subsequent rise in value. Capital as a form of investment reproduces itself over and over and in the end capital earns a positive net return (Alvaredo, Facundo et al 11). The arguments and notion of Thomas Piketty are valid and logic since it shows the existing relationship between the capital profits or gain with economic growth and development. A practical example and instance, is the economic curve from the period of the First World War and the immediate period after it. When the great depression of 1928 hit the economy, the value of the capital property did deteriorate in equal proportion (Piketty 11). Over the successive and subsequent years, the economy has experienced an immense increase and growth. In an equal proportion the net value and worth of the one percent has also seen a proportional increase. It goes without saying that the people who did not have property or capital at the period of the early nineties have not experienced any massive increase in their value and worth. In principle, the gap introduced by inequality due to capital possession has increased in same proportion (Alvaredo, Facundo, et al 6). The rich who had capital during First World War are now richer because the economy has also grown. On the other hand, the majority poor who did not have property during that same period have remained relatively poor. Conclusion The above essay has compared and articulated the stances and positions fronted by the two great economists in the world. It goes without saying and mentioning that each and every one of them has made immense contribution to the field of economics. According to Joseph stiglitz, the societal hierarchical structure pre-disposes that the rich who sit at the top of the pyramid are at an advantaged position to interfere with the markets patterns ensuring that the markets do not clear. In principle, it means that the rich control resources and wield power thus they may make the free forces of demand and supply do not clear. Thomas Piketty on the other hand has fronted that the presence of capital is a boost of economic power to the one percent who are extremely rich (Alvaredo, Facundo et al 7). He also mention that the gap of wealthy and rich or inequality in income is encouraged through globalization. As a remedy, he suggests that it would be proper if there was global vigilance and action aimed at curtailing the wealthy through balancing income with tax. That is the wealthy are charged higher taxes commensurate with their worth. Work Cited Alvaredo, Facundo, et al. The top 1 percent in international and historical perspective. No. w19075. National Bureau of Economic Research, 2013. Atkinson, Anthony B., Thomas Piketty, and Emmanuel Saez. Top incomes in the long run of history. No. w15408. National Bureau of Economic Research, 2009. Stiglitz, Joseph. "The Price of Inequality: How Todays Divided Society Endangers Our Future. (2012). Stiglitz, Joseph. "Freefall: America, Free Markets, and the Sinking of the World Economy"(2010). Stiglitz, Joseph and Bruce Greenwald." Creating a learning Society: A new approach to Growth, Development, and Social Progress. (2014). Stiglitz, Joseph E. Making globalization work. WW Norton & Company, 2007. Stiglitz, Joseph, and Bruce Greenwald. Towards a new paradigm in monetary economics. Cambridge University Press, 2003. Stiglitz, Joseph, and Bruce Greenwald. Towards a new paradigm in monetary economics. Cambridge University Press, 2003. Stiglitz, Joseph E. Whither socialism? Cambridge, Massachusetts, USA: MIT Press. ISBN 9780262691826. (1994). Stiglitz, Joseph E., and Andrew Charlton. "Aid for trade." International Journal of Development Issues 5.2 (2006): 1-41. Stiglitz, Joseph E., and Andrew Charlton. Agenda for the Development Round of Trade Negotiations in the Aftermath of Cancún. Commonwealth secretariat, 2004 Piketty, Thomas "Capital in the Twenty-First Century" Harvard University Press, Cambridge 2014 Piketty, Thomas. "The information-aggregation approach to political institutions." European Economic Review 43.4 (1999): 791-800. Read More