Gulzar in ‘Urbanomics’ cites approvingly Mark Thoma’s comments on the distribution weakness of the present-day political economy. Then, he goes on to analyse the causes of such an anti-re-distribution bias that the system has come to feature now. I have no particular quarrel with Gulzar’s analysis but I do have difficulty in accepting that production is not the problem and that only distribution is. The distribution problem has been compounded by the fact that production has become more difficult, more resource-intensive and hence, less efficient.
Output has slowed in the US and in Europe – as they should. Even if productivity is rising and can rise further in the developing world, the demand side too over there is a lot bigger. Agricultural yields are declining. Air and water are polluted and the reserves of all kinds of under-ground assets are declining. OR, at best, we have no idea of how much we have and how long will they last. The latter depends on the growth in demand too.
This declining output is one of the reasons why job creation has become an issue in the West. The elites, sensing the production problems, have begun to garner the remaining output for themselves, making the distribution problem more acute. There is both absolute and relative inequality in many parts of the West now.
For a time, policymakers and elites sought to fool the rest of the public with leverage and low interest rates. The public got suckered into it and the result is the global financial crisis for which the bill is being presented to the same innocent public by the elite.
This is a social time-bomb and it would explode and soon.