Wikipedia notes:
"A better explainer of growing inequality, according to Stiglitz, is the use of political power generated by wealth by certain groups to shape government policies financially beneficial to them. This process, known to economists as rent-seeking, brings income not from creation of wealth but from 'grabbing a larger share of the wealth that would otherwise have been produced without their effort."Rent seeking is often thought to be the province of societies with weak institutions and weak rule of law, but Stiglitz believes there is no shortage of it in developed societies such as the United States. Examples of rent seeking leading to inequality include...
- the obtaining of public resources by "rent-collectors" at below market prices (such as granting public land to railroads, or selling mineral resources for a nominal price in the US),
- selling services and products to the public at above market prices (medicare drug benefit in the US that prohibits government from negotiating prices of drugs with the drug companies, costing the US government an estimated $50 billion or more per year),
- securing government tolerance of monopoly power (The richest person in the world in 2011, Carlos Slim, controlled Mexico's newly privatized telecommunication industry)."
(Background here, here and here.)
Stiglitz says:
"One big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy ". Monopolies and near monopolies have always been a source of economic power -- from John D. Rockefeller at the beginning of the last century to Bill Gates at the end."
Government creates monopolies even in the U.S. (and see below regarding government creation of the too big to fail banks.)
War Makes Us Poor ... But Makes Fatcats Richer QuickerWar makes the bankers and executives in defense companies rich. But -- contrary to a long-standing myth -- it makes the rest of us poor. As such, war is a major cause of inequality.
Over-FinancializationWhen a country's finance sector becomes too large finance, inequality rises. As Wikipedia notes: "[Economics professor] Jamie Galbraith argues that countries with larger financial sectors have greater inequality, and the link is not an accident."
Government policy has been encouraging the growth of the financial sector for decades:
And see this.
Economist Steve Keen has also shown that "a sustainable level of bank profits appears to be about 1% of GDP," and that higher bank profits leads to a ponzi economy and a depression."
The government is largely responsible for this over-financialization. For example, MIT economics professor and former IMF chief economist Simon Johnson points out that the government created the giant banks, and they were not the product of free market competition.
Money Being Sucked Out of the U.S. Economy ... But Big Bucks Are Being Made AbroadPart of the widening gap is due to the fact that most American companies' profits are driven by foreign sales and foreign workers. As AP noted in 2010:
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