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 ...
I don’t understand the term “rent seeking.”
I see his point. I want my OxyCotin and I want it cheap. Eliminate the middlemen and sell it on the street with no prescription. The Man is just keeping us down.
/s
James Madison used the term quite a bit. It refers to manipulating government to grant privileges — explicit or implicit — that provide an economic advantage over others. It’s government putting its thumb on the scale.
Like when GE protects its patents on HVAC refrigerant by changing which ones are legal to use just as each patent expires.
It’s used by economists all the time. It is the use of government to rig the market so a favored class can get above market returns. It can take the form of regulations that create high barriers to entry into a market or restrictive licensing to eliminate competitors. Back in the seventies, the Supreme Court ruled that state bar rules that prohibited advertising by attorneys were a violation of antitrust laws. The rules made it more difficult for potential clients to find attorneys and made entry into the local legal market harder allowing established attorneys and law firms to make higher profits.
So a subsidy. I think of it as how farm subsidies prop up the price of grain.
>>I don’t understand the term “rent seeking.”<<
Think Elon Musk. He’s got it down pat.
Wikipedia has a pretty understandable summary on the concept:
But the rate of return on investment isn’t necessarily increased. For farmers receiving subsidies. It increases costs to consumers and increases production, even encourages over production, but doesn’t necessarily increase the rate of return on investment.
Not exactly a subsidy. Some subsidies are both useful and justifiable, and aren’t sought by the recipients. For example, providing a child a free or reduced lunch if his parents are indigent is a subsidy, but probably wouldn’t be considered rent seeking.
Rent-seeking implies that the recipient of the government largesse (in whatever form) goes seeking that largesse, usually via lobbying in this country, but also via bribery, extortion, etc. It could come in the form of a big government contract, or a law that excludes competition.
For example, getting the state to establish licensing requirements for a profession is rent-seeking behavior to the extent it’s not in the interests of the rest of us to add licensing to the requirement to do business.
The health insurance companies and the largest medical providers were rent-seeking like crazy when Obamacare was crafted. Not so much this time around, however, which is a probable plus for TrumpCare.
It comes from a branch of economics called Public Choice Economics, or Constitutional Economics. James Buchanan and Gordon Tullock are the two economists who developed it. They were at George Mason University for many years, the same university where Walter E. Williams has been a professor.
“Rent seeking” means: lobbying or influencing government officials to try and get excessive regulations passed which protects the lobbying industry or firm from competition.
“Rent” is the net gain from successful lobbying to secure artificial monopoly power via economically inefficient, protectionist favors. “Rent seeking” is contrasted with efficient and normal “profit seeking” behavior, where businesses earn a legitimate short-term profit only by providing a lower cost product or a better product that attracts customers in free markets.
An example of “rent seeking” is the gains cab companies enjoyed from government restrictions on new entrants into the taxi cab service market in NYC. Cabs needed a “medallion” on their cars to operate, and the number of them issued was restricted. If you did not have a medallion you could not operate a cab. When Uber started, it killed that protectionist arrangement. Customers benefited from increased competition, more free enterprise, better service and lower prices.
definition: A search for privilege and private gain through governmental process without any investment or reciprocation.
Remember the table game “Monopoly”? When you land on the square for Boardwalk or Electric Company or Water Works and have to pay a rent just to pass through, that is rent seeking. Think of a toll booth where you have to pay a toll fee just to pass through and you have no choice but to pay it.
What about lawyers? They want the most complicated laws possible. Their business is booming.
I prefer Ayn Rand’s terms, moochers and looters.
Someone who seeks to be paid by other persons for their necessities.
Creating value vs Capturing value
rent-seeking has nothing to do with subsidies.
rent-seeking is wanting to be the beneficiary.
your own decision, or that of a government.
to extort money from other people
that are in a certain situation
with that situation having little
or no marginal cost to the rent-seeker
example.
doctors, by themselves, decide that
medical schools need to have a license
from some group of doctors.
by limiting the number of medical school graduates,
doctors can extort more money
from sick people
It’s not a literal term, as in rent my house out. It is sort of a metaphor for parasites who find a way to have government divert a share of the proceeds of a legitimate industry to them.
IE, a requirement that you buy health insurance with coverage “X Y and Z”. Or banks that use government connections to strip mine citizens through things like TARP and bank bailouts and “too big to fail”.
That’s what he terms “rent seeking”. Think of it as we are playing monopoly. They have government create a square for them. When we land on it, they demand “rent”.
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