Ricardo was Surely Right : The abundance of “easy” rents leads to greedy and lazy elites José Gabriel Palma

Abstract

Paul Krugman once said that two of the greatest analytical challenges of economic theory today (comparable to those faced by Keynes in the 1930s) were the huge deterioration of market inequality in high-income countries, and Latin America’s under performance. The main aim of this paper is to tackle simultaneously both challenges, while adding a third: the post-1980 under performance of advanced Western economies. This article tries to answer these three puzzles returning to the classics, especially Ricardo. For him, the original sin of capitalism is that it will always have rentiers lurking around in search of “easy” rents; and that under certain conditions, in a laissez-faire economy they are bound to get the upper hand. If so, they would transform capitalism into a self-destructing rentier paradise. In other words, what has happened in the West (North and South of the Equator) since their 1980s neo-liberal reforms are basically facets of one and the same phenomenon: the inequality augmenting, investment weakening and productivity-growth retarding impact of a specific type of rentier-based accumulation. And the key link between them is the negative impact that a rentierbased increased in inequality can have on investment. If so, Krugman’s puzzle would not really be much of a mystery after all! So, perhaps what’s needed now is to develop a “post”-Ricardian perspective, where the “post” is about devising mechanisms that could “compel” rentiers to use their rents productively something unthinkable in Ricardo’s time! Otherwise, the current process of “rentierisation” of which financialisation is just one (although leading) aspect is bound to continue being as toxic for inequality, investment and productivity growth as for our democracy

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(This paper has been published on the website of University of Cambridge as Cambridge Working Papers in Economics (CWPE))