Tag Archives: reality bubbles

A Different Kind of Economic “Bubble”

In my Media and Public Policy class last week we were discussing the ways in which the Internet has given us the ability to live in “reality bubbles” of our own choosing, when an older student made a perceptive observation. She pointed out that when she grew up in Martinsville, she’d been surrounded by a “bubble” of bigotry–she’d lived in a small community of homogeneous people who all thought alike. In her case, the Internet had provided an escape from the bubble.

We all live in bubbles of one kind or another, and that ability to isolate ourselves from those with whom we do not share geography, religion, common interests and experiences can stunt our human empathy. When our distance from each other becomes too great, civility and self-government suffer.

Joseph Stiglitz is a Nobel-winning economist, and he has just written a book called The Price of Inequality, examining the effects of  the currently huge divide between the rich and everyone else on our ability to sustain a democratic government.

He isn’t sanguine.

According to Stiglitz, the vaunted American market is broken. It has been overwhelmed by politically engineered market advantages—special deals that economists call “rent-seeking.” The term refers to politically-achieved “exemptions” from the market that allow certain individuals to reap economic returns above normal market levels– profits derived from favorable political treatment rather than competitive success.

In The Price of Inequality, Stiglitz chronicles these blatant tax and spending giveaways–the special deals and corporate welfare enjoyed by big agriculture, big energy, and many, many others.

Stiglitz also argues that much of the rent-seeking that plagues our economy takes a more subtle form. In many cases, the production of a product produces what economists call “negative externalities.” These are costs that are incurred during the manufacturing or development process that end up being imposed on society rather than paid for by the producer and included in the price of the goods or services involved. The most commonly cited example would be a manufacturer who discharges his waste into a nearby waterway rather than properly disposing of it, shifting the costs of cleanup and disposal to others. Society pays for the pollution, and that cost is not included in the market price of the manufactured goods.

The bottom line is that markets don’t operate properly when some participants are in a position to game the system, and societies don’t operate properly when markets are rigged.

As he points out, one of the consequences to society is that when those at the top–the 1%–enjoy the best health care, education, and other benefits that come with greater wealth, they fail to realize that “their fate is bound up with how the other 99 percent live.”

They live in a bubble.