3 ms·

Don't we call this 'rent-seeking'?

by niftich 10y ago

dredmorbius 10y ago
Not necessarily, though I'd have to think about that. Economic rent is essentially payment for time-based access to some capability which isn't (generally) consumed in use. Agricultural rents are the nominal case, though others apply. One characteristic of rents, as opposed to raw material inputs, is that while high material costs lead to high general price levels, that is, a supply-shock inflation, high price levels lead to high rents. (If you're living in the San Francisco Bay Area, that check you're cutting every month is due, at least in significant part, to the high local labour pay rate. Though yes, a constrained housing supply has a great deal to do with this.) The landlord (or rentier) can successfully extract liquidity, but she isn't imposing costs elsewhere. There's a difference if you, say, have one part of a region which offers employment, and another which offers housing, but they're unconnected. The externalities of employment (congestion, traffic, pollution, crime, infrastructure provision) aren't borne by the housing provider. Though the employment region may also be spared other expenses, e.g., residential sewerage and education costs, though those are often much lower. Here you've got a situation where arbitrary division lines of cost burden vs. profits accrual. This is distinct from the typical case of rent-seeking, in which a landlord's privileged position allows them to extract the benefits of increased demand. Your question goes deep into the questions of cost, value, and price theory, and it's a very common element of much economic theory, which treats the behaviors of prices for wages, stocks, capital, rents, and goods fairly distinctly. Particularly in the 18th and 19th century discussion, but also in much 20th century literature.
- spangry 10y ago
  Interesting definition of economic rents. Much more constrained than the generalised rents == unearned profits. It's definitely given me something to think about. However, I have to disagree with a number of your points. The assertion that rentiers and more generally, the existence of private economic rents, do not impose costs elsewhere is not correct. In a direct sense, they reduce the general wealth level around them because that is precisely what they are extracting from others. In addition, privatised rents distort the allocation of capital and labour towards the direction of wherever that rent exists. This is bad for a number of reasons: productive inputs are not being put to their most productive use, often large proportions of a community's or country's productive capacity is being employed to enrich a relatively small rentier class, other non-rentier businesses are either hobbled or destroyed by higher input prices and if the rent is attached to an exportable commodity (e.g. iron ore, coal, oil), export facing businesses suffer due to relative appreciations of their domestic currency. It's interesting you bring up raw materials: I assume you mean natural commodities like iron, coal, gas, oil etc. These are the classic example of rent-generating commodities that make a small number of people very rich, while severely distorting the capital structure of an economy. For example, take a look at: https://en.wikipedia.org/wiki/Dutch_disease https://en.wikipedia.org/wiki/Dutch_disease. Ironically the Netherlands has probably some of the world's best policy in this regard, mainly focussed on their successful oil export industry. They ameliorate the effect by a combination of high rent-recovery taxes ~%60, a significant degree of nationalised production and a very well-funded sovereign wealth fund. And it may be true that retiers may, in some circumstances, be the main beneficiaries of increased demand. However, this could be said of many businesses. I don't think this is the primary issue. Although it sounds a bit trite, the primary issue is that rentiers enjoy unearned private profits. So when a local council builds a nice park somewhere (with public money), nearby private landholders get to privatise a significant share of the benefit economic via increased land-rents (capitalised as higher private land prices). Although it doesn't sound 'so bad', this kind of system can fuel very damaging economic behaviours: notably it can encourage speculative investment, lead to inter-generational wealth concentration, and it can severely distort the political economy. For instance, a land developer, fortunate to inherit the lucrative family business, can suggest to one of his long-time family friends, an influential member of government, where the government should locate that new train station they're planning to build (co-incidentally near some land he has been 'banking'). He might also provide his views that the government should tighten up on zoning laws (you know, to ensure family friendly suburbs), and that the government should slow the pace of its land-release programme (you know, because there's a glut at the moment and we need to combat urban sprawl). And he'll be listened to, thanks to his family connections and inherited wealth (a portion of which he donates to various political parties). Wow this turned in to a bit of an essay. Just one last thing: I found your last paragraph very interesting. It's an area I'd love to see given more focus by academic economists, given the mainstream view appears to have whittled things down to just two factors of production: capital and labour. Perhaps we're trying to push a number of square pegs through a number of round holes here...
dredmorbius 10y ago
As another case in point, from another HN comment and article, look at the case of plea-bargaining: https://news.ycombinator.com/item?id=12282830 https://news.ycombinator.com/item?id=12282830 One party (the prosecutor) has the option to threaten a severe penalty (high cost) to the defendant, whilst the defendant (often indigent) has little means to mount a defense. The DA's benefit is not only offsetting court costs (an interest in which the Court is complicit), but in racking up a conviction. That is, the costs (overbearing convictions, often false convictions) are externalised, the benefits (trial costs, political advantage) are internalised. I don't see how this can be considered "rent seeking". It's simply a strongly asymmetric power relationship and cost/benefit allocation.

Don't we call this 'rent-seeking'?

by niftich 10y ago

Don't we call this 'rent-seeking'?

Not necessarily, though I'd have to think about that. Economic rent is essentially payment for time-based access to some capability which isn't (generally) consumed in use. Agricultural rents are the nominal case, though others apply. One characteristic of rents, as opposed to raw material inputs, is that while high material costs lead to high general price levels, that is, a supply-shock inflation, high price levels lead to high rents. (If you're living in the San Francisco Bay Area, that check you're cutting every month is due, at least in significant part, to the high local labour pay rate. Though yes, a constrained housing supply has a great deal to do with this.) The landlord (or rentier) can successfully extract liquidity, but she isn't imposing costs elsewhere. There's a difference if you, say, have one part of a region which offers employment, and another which offers housing, but they're unconnected. The externalities of employment (congestion, traffic, pollution, crime, infrastructure provision) aren't borne by the housing provider. Though the employment region may also be spared other expenses, e.g., residential sewerage and education costs, though those are often much lower. Here you've got a situation where arbitrary division lines of cost burden vs. profits accrual. This is distinct from the typical case of rent-seeking, in which a landlord's privileged position allows them to extract the benefits of increased demand. Your question goes deep into the questions of cost, value, and price theory, and it's a very common element of much economic theory, which treats the behaviors of prices for wages, stocks, capital, rents, and goods fairly distinctly. Particularly in the 18th and 19th century discussion, but also in much 20th century literature.

spangry 10y ago
Interesting definition of economic rents. Much more constrained than the generalised rents == unearned profits. It's definitely given me something to think about. However, I have to disagree with a number of your points. The assertion that rentiers and more generally, the existence of private economic rents, do not impose costs elsewhere is not correct. In a direct sense, they reduce the general wealth level around them because that is precisely what they are extracting from others. In addition, privatised rents distort the allocation of capital and labour towards the direction of wherever that rent exists. This is bad for a number of reasons: productive inputs are not being put to their most productive use, often large proportions of a community's or country's productive capacity is being employed to enrich a relatively small rentier class, other non-rentier businesses are either hobbled or destroyed by higher input prices and if the rent is attached to an exportable commodity (e.g. iron ore, coal, oil), export facing businesses suffer due to relative appreciations of their domestic currency. It's interesting you bring up raw materials: I assume you mean natural commodities like iron, coal, gas, oil etc. These are the classic example of rent-generating commodities that make a small number of people very rich, while severely distorting the capital structure of an economy. For example, take a look at: https://en.wikipedia.org/wiki/Dutch_disease https://en.wikipedia.org/wiki/Dutch_disease. Ironically the Netherlands has probably some of the world's best policy in this regard, mainly focussed on their successful oil export industry. They ameliorate the effect by a combination of high rent-recovery taxes ~%60, a significant degree of nationalised production and a very well-funded sovereign wealth fund. And it may be true that retiers may, in some circumstances, be the main beneficiaries of increased demand. However, this could be said of many businesses. I don't think this is the primary issue. Although it sounds a bit trite, the primary issue is that rentiers enjoy unearned private profits. So when a local council builds a nice park somewhere (with public money), nearby private landholders get to privatise a significant share of the benefit economic via increased land-rents (capitalised as higher private land prices). Although it doesn't sound 'so bad', this kind of system can fuel very damaging economic behaviours: notably it can encourage speculative investment, lead to inter-generational wealth concentration, and it can severely distort the political economy. For instance, a land developer, fortunate to inherit the lucrative family business, can suggest to one of his long-time family friends, an influential member of government, where the government should locate that new train station they're planning to build (co-incidentally near some land he has been 'banking'). He might also provide his views that the government should tighten up on zoning laws (you know, to ensure family friendly suburbs), and that the government should slow the pace of its land-release programme (you know, because there's a glut at the moment and we need to combat urban sprawl). And he'll be listened to, thanks to his family connections and inherited wealth (a portion of which he donates to various political parties). Wow this turned in to a bit of an essay. Just one last thing: I found your last paragraph very interesting. It's an area I'd love to see given more focus by academic economists, given the mainstream view appears to have whittled things down to just two factors of production: capital and labour. Perhaps we're trying to push a number of square pegs through a number of round holes here...

dredmorbius 10y ago

As another case in point, from another HN comment and article, look at the case of plea-bargaining: https://news.ycombinator.com/item?id=12282830 https://news.ycombinator.com/item?id=12282830 One party (the prosecutor) has the option to threaten a severe penalty (high cost) to the defendant, whilst the defendant (often indigent) has little means to mount a defense. The DA's benefit is not only offsetting court costs (an interest in which the Court is complicit), but in racking up a conviction. That is, the costs (overbearing convictions, often false convictions) are externalised, the benefits (trial costs, political advantage) are internalised. I don't see how this can be considered "rent seeking". It's simply a strongly asymmetric power relationship and cost/benefit allocation.