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Championing the cause of inequality
Australian Financial Review, Australia  21 Nov 2018
Letters - Page 39 - 248 words - ID 1039630189 - Photo: No - Type: Letter - Size: 98.00cm2

You suggest Professor Stiglitz is "one of the world's most-cited critics of capitalism" as if that is a bad thing.

The article tries to suggest the professor's positions have changed over the years. His Sydney Peace Prize was "for leading a global conversation about the crisis caused by economic inequality". That was the subject of Stiglitz's doctoral dissertation in the 1960s - some consistency there.

A serious analysis on Stiglitz might instead point to how his thinking has developed over the years. Very early on the part of his work that earned the Nobel Prize included the economics of asymmetric information - the type of asymmetry we have seen uncovered in the banking royal commission. He showed that small asymmetries can have profound implications for the workings of the economy. That also has implications for our democracy.

But the determination to find inconsistency in his work leads the article to two propositions from Stiglitz separated by 35 years.

1. The textbook in which 'paying unskilled workers too much prices them out of jobs' versus 2. 'He criticised reductions in Sunday penalty rates, and said employees' bargaining power had been "eviscerated".

Following his argument properly shows that proposition 1. is the outcome in a competitive economy at equilibrium. Proposition 2 obtains in the Australian real-world; a monopolist/oligopolistic economy where concepts such as equilibrium are rather meaningless and where heavy regulation of workers' rights have dramatically reduced their relative bargaining strength.

David Richardson Senior Research Fellow The Australia Institute

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