Posted on 03/13/2017 4:06:53 PM PDT by Lorianne
Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might, said Nobel-winning economist Angus Deaton on Monday.
If an entrepreneur invents something on the order of another Facebook, Deaton said he has no problem with that person becoming wealthy.
“What is not OK is for rent-seekers to get rich,” Deaton said in a luncheon speech to the National Association for Business Economics.
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Rent seekers lobby and persuade governments to give them special favors.
Bankers during the financial crisis, and much of the health-care system, are two prime examples, Deaton said.
Rent-seeking is not only does not generate new product, it actually slows down economic growth, Deaton said.
“All that talent is devoted to stealing things, instead of making things,” he said.
Another prime example of rent-seeking is that the Medicaid is funding opioid prescriptions for low-income workers, Deaton said. The results are workers who are becoming addicted and overdosing while profits are going to the Sacker family which owns Purdue Pharma that makes OxyContin.
Raising taxes on the wealthy is not a good way to combat rent-seeking because it taxes the legitimate profits of entrepreneurs along with rent-seekers.
“The key is to somehow find a way of tackling rent-seeking, crony capitalism, and corruption legal and illegal and build fairer, more equal society without compromising innovation or entrepreneurship,” he said.
(Excerpt) Read more at marketwatch.com ...
"Rent seeking behavior" refers to the use of the power of government to create economic rents not supported by a free market, e.g. complicated tax regulations forcing you to pay a tax prepare for an otherwise simple tax return. Or forcing you to get expensive environmental inspections of a car to register the car. Every time you pay someone for service that you would not of your own free will pay for rent seeking is involved.
There are basically two distinct meanings; one for the most part benign, the other objectionable.
The more benign meaning is simply looking to rent out property or equipment or machinery or intellectual property for income. Now, the very 2 dimensional view is that the owner “already has” this thing, this building, so trying to collect rent on it is not really producing something new. That’s a somewhat dimwitted view, IMO, because the owner of an item that is in demand but many people cannot buy themselves usually entails the owner/buyer taking on some risk. So a landlord who buys a building to rent out has to deal with repairs, and taxes and bunko tenants and etc; etc.
“Rent seeking” in this context refers to a line of activity, a directional motivation designed to get as close to the government money spigot as possible. Not to create the best product possible, not to create the most competitive product or service, but to be first in the ear of the person who controls the valves of the government monies. This way, the rent-seeker gets his word into the ear of the disburser before anyone else. And as far as government disbursements, there is essentially never a profit motive, nor is there much concern as to conserving funds, indeed, many times there is motivation to blow as much money as possible so that your budget gets cranked next year. There are few controls and there is generally no kind of clawback mechanism nor is there any responsibility for the funds unless and until clear fraud is revealed. And even then. There is a routine expansion of the expenditures past what is budgeted in the form of overruns and there are infinite excuses for spending more and more money. Nothing you and I have not seen a hundred times.
It’s basically a matter of getting next to the biggest pipe.
rent-seeking is when companies try to secure profits in excess of what free market competition would enable them to earn. Usually, rentseekers employ a market-dominance (trust building) type approach....always trying to prevent new entrant competitors while striving to undermine and destroy any existing ones (often by both legal and illegal means).
Very often nowadays (as contrasted with a century ago when this approach was very much more difficult to use, if only due to the then-limited size and powers of government).... today’s rent (or excess profits) seekers will make use of governmental powers (buying laws they need thru sold-out congresscritters....laws such as may limit new entrants in various ways, laws that may impose greater operating costs on existing competitors, laws that may “rig” the trading system or the tax code to differentially advantage the market-dominant companies, also of course sweetheart contract deals with the government itself, and so forth).
In other words, manipulating government and the “use” or purchase of governmentally-mandated differential advantages by the dominant firms... is just nowadays a “business strategy”...indeed it is taught as such in MBA school...
(with of course the obvious caveats about how not to get caught breaking the laws, etc.... but why break the laws when you can buy the laws or buy what you want from corrupted “regulatory commmissions and boards and agencies”? this is the new paridyne and it works beautifully...)
Let me give you two examples of rent seeking:
Someone buys a piece of land that is zoned for a single family dwelling. They get the city council through some means to give them a variance that previous owners were denied. And they can now build a six flat condo.
The owner paid for a single but was able to make far more money than others because the government changed the rules. Previous owners sold the property for less than they could if the government had allowed a larger building. And neighbors land value goes down as the neighborhood gets busier.
A second example of rent seeking: The Gershwin family owns the rights to several songs by George Gershwin. George had no children. But his heirs have been making money off his songs ever since he died in 1937. Rhapsody in Blue which was written in 1924 is still under copyright because the Gershwin family lobbies congress to keep lengthening the copyright. When written the copyright would have expired in 1974. Fifty years after it was produced.
George’s heirs were not skilled in any way musically. They were skilled at lobbying congress. And congress increased the value of their copyrights by hundreds of millions of dollars.
The govt picking winners and losers. It’s the little guy always loses. We’ve talked about this a lot on FR with Obama.
Does the economist include lawyers? If he doesn’t, he’s not worth a dang. The ultimate rent seekers—lawyers make the laws that benefit lawyers.
Kind of like ambulance chasing.
Single payer won’t do a damn thing except relegate us to long waits, substandard care and denial of service. If you want to get rid of lobbyists, get rid of government intrusion into these sectors altogether. Then they’d have nothing to lobby for.
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