Sunday, October 07, 2012
Rent-seeking and the growth of inequality in the USJoe Stiglitz in Mitt Romney's tax avoidance weakens bonds of American society Guardian 09/03/2012 discusses the concept economists call "rent-seeking", which is an important concept in understanding the dynamics of inequality in the US today:
[Romney] evidently does not recognise that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie.Robert Kuttner talks about an aspect of the problem of rent-seeking in the US economy today in Debtors' Prison The American Prospect Online 06/06/2011. Paul Krugman picks up the discussion in The Rentier Regime 06/06/2011:
What explains this opposition to any and all attempts to mitigate the economic disaster? I can think of a number of causes, but Kuttner makes a very good point: everything we’re seeing makes sense if you think of the right as representing the interests of rentiers, of creditors who have claims from the past — bonds, loans, cash — as opposed to people actually trying to make a living through producing stuff. Deflation is hell for workers and business owners, but it’s heaven for creditors.Andrew Button at eHow provides a very simple definition of rent-seeking as "any economic activity dedicated to expanding your share of existing value rather than creating value." The term itself as an economic concept has a pejorative edge and is not identical with credit. Credit is necessary for the economy to function. Even the Mitt Romney/Bain Capital leveraged-buyout ("private equity") brand of rent-seeking can be constructive, though the business model for a firm like Bain Capital is focused around extracting fees whatever it may do to the profitability of the acquired company. And not infrequently, that turns into "rent-seeking" in the sense of an "economic activity dedicated to expanding your share of existing value rather than creating value." The Economist calls rent-seeking: "Cutting yourself a bigger slice of the cake rather than making the cake bigger. Trying to make more money without producing more for customers." Since they include unions negotiating for better wages and working conditions, but don't specifically include companies paying workes less than they are worth, as part of "rent-seeking", it makes me wonder if the concept isn't largely a term to stigmatize unions.
But attempting "to make more money without producing more for customers" sounds an awful lot like Bain Capital's main business to me.
It's worth noting that lobbying for government benefits is also considered rent-seeking. And lobbying for permissive laws and favorable tax treatment is also part of what creates the particular conditions for a Bain Capital to thrive. Yes, public policy helped build that, too.
Tags: joseph stiglitz, paul krugman, robert kuttner, rent-seeking
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No subject for immortal verse
That we who lived by honest dreams
Defend the bad against the worse."
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