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Some income inequality is due to rent-seeking behaviour and some is due to variance in productivity. In an ideal world the first source would be eliminated, but

Some income inequality is due to rent-seeking behaviour and some is due to variance in productivity. In an ideal world the first source would be eliminated, but a question remains: Is there an ideal amount of productivity inequality? Even with 100% tax rates, the productive can find dimensions where it is possible to earn more, usually fame, status, non-taxable goods and political power.

dredmorbius 9y ago
You fail to mention labour negotiating leverage, or rather lack thereof. See Adam Smith, or Ricardo's Iron Law of Wages, or J.S. Mill. Productivity is a canard. Either labour is paid its living costs or not.
- dwaltrip 9y ago
  > Productivity is a canard. Either labour is paid its living costs or not. Care to elaborate? You don't think there are large variations in productive capacity among all of labour, and that higher productivity usually results in compensation far beyond living wages? This may not apply to the majority of workers. I could see the Iron Law of Wages being true for them [1]. However, I don't think we should ignore the dynamics that we find as we move towards the edges of the spectrum. [1] Still, I would argue that a "living wage" means different things at different times. A living wage at time period 1 could result in a significantly better quality of life than that from time period 2.
  - dredmorbius 9y ago
    Productivity generates consumer surplus. "A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation." https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/Chapter_8 https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_...
    - dwaltrip 9y ago
      Thanks for the responses. I'll definitely add those materials to my list.
  - dredmorbius 9y ago
    Also: Baumol's Cost Disease. https://en.m.wikipedia.org/wiki/Baumol%27s_cost_disease https://en.m.wikipedia.org/wiki/Baumol%27s_cost_disease
golergka 9y ago
Why do you see rent-seeking as something to be eliminated?
- mathgladiator 9y ago
  So, I'm curious as to how eliminating rent seeking would impact investments and retirements.
  - roenxi 9y ago
    There are some caveats on 'rent seeking' that mean it has quite a small impact. Technically, rent seeking comes up in situations where a private individual is capturing the value created through, eg, public infrastructure. The public can take this value for themselves through a land tax. The profit made from maintaining a productive asset isn't considered 'rent'. So, for example, renting out a house is not necessarily rent seeking behavior (!!) because the landlord is maintaining the house. The rent-seeking part is when the rent is raised because a new local train station opens. In this slightly technical instance, eliminating rent seeking, by definition, is likely to reduce the income to the those who are not adding any value. The behavior that is dis-incentivised was, again by deffinition, never economically productive. Economically productive investment (ie, capitalism) is supposedly untouched. Investors and retirees have to reallocate their investments into productive ventures instead of rent seeking, hopefully at no loss to their income. The theory and practice might not be the same thing, I'm no economist.
  - deleted 9y ago
    [deleted]
- tmnvix 9y ago
  Not the poster that you were addressing, but for me it is because it is inherently parasitic. First line from the description in Wikipedia: "In economics and in public-choice theory, rent-seeking involves seeking to increase one's share of existing wealth without creating new wealth." (My emphasis) We live in a time where those that take most, likely need it least and also often take from those that need it most, but often have least.
- 9y ago
alacombe 9y ago
Your first assumption is totally wrong. In which "ideal world" would rent-seeking be eliminated ? Beside a totalitarian world, I really do not see how you can eliminate this type of behavior. Even in that world, you would do nothing but create an unequal society where elites, unchecked, would be the new "rich" (a few hundred years-time worth of "communist regiment" experiments proves it, including to this very day).
- tmnvix 9y ago
  > Some income inequality is due to rent-seeking behaviour and some is due to variance in productivity. The above statement is "totally wrong"? How can you be so sure?
  - alacombe 9y ago
    no, the assumption that eliminating rent-seeking behavior could be achieved. As per the wikipedia description: "idea of rent-seeking was developed by Gordon Tullock in 1967.[2] The expression rent-seeking was coined in 1974 by Anne Krueger.[3] The word "rent" does not as a rule refer here to payment on a lease but stems instead from Adam Smith's division of incomes into profit, wage, and rent.[4] The origin of the term refers to gaining control of land or other natural resources." [emphasis mine] Whether it is a pseudo "public" Government or a Private individual, the behavior of "rent-seeking" is the same, ie. resource's control.
    - yorwba 9y ago
      The use of "ideal world" pretty much indicates that they don't think elimination of rent-seeking is actually achievable.
    - kbenson 9y ago
      I can't help but think you might be mistaken in your interpretation of what the original commenter meant by "in an ideal world" and possibly also by how the term "rent-seeking" is being used in this conversation. I'm struggling to understand how your not seeing how you can eliminate this type of behavior in practice relates to what is, by definition, perfection, and often just the idea of it.
richardknop 9y ago
But rent-seeking is the basis of current western capitalist economy. Entire pension system is based on investments (i.e. old people extracting money from labour of others without having to work) - and it is the reason why politicians are chasing the unsustainable continuous GDP growth. This would collapse without rent-seeking as most old people suddenly would have to go back to work (except small minority of old people that made enough money in their lives but that will be less than 1%).
- whatyoucantsay 9y ago
  In economics, the term "rent-seeking" has a specific meaning. Taking pensions, presumably after paying into the system for 40 years, does not generally fit it. A more accurate and less ageist example is the struggling company that lobbies the government for government grants or special protections. This activity fails to create any benefit for society and in fact harms the public by redistributing resources from taxpayers to the company.

dredmorbius 9y ago

You fail to mention labour negotiating leverage, or rather lack thereof. See Adam Smith, or Ricardo's Iron Law of Wages, or J.S. Mill. Productivity is a canard. Either labour is paid its living costs or not.

dwaltrip 9y ago
> Productivity is a canard. Either labour is paid its living costs or not. Care to elaborate? You don't think there are large variations in productive capacity among all of labour, and that higher productivity usually results in compensation far beyond living wages? This may not apply to the majority of workers. I could see the Iron Law of Wages being true for them [1]. However, I don't think we should ignore the dynamics that we find as we move towards the edges of the spectrum. [1] Still, I would argue that a "living wage" means different things at different times. A living wage at time period 1 could result in a significantly better quality of life than that from time period 2.
- dredmorbius 9y ago
  Productivity generates consumer surplus. "A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation." https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/Chapter_8 https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_...
  - dwaltrip 9y ago
    Thanks for the responses. I'll definitely add those materials to my list.
- dredmorbius 9y ago
  Also: Baumol's Cost Disease. https://en.m.wikipedia.org/wiki/Baumol%27s_cost_disease https://en.m.wikipedia.org/wiki/Baumol%27s_cost_disease

golergka 9y ago

Why do you see rent-seeking as something to be eliminated?

mathgladiator 9y ago
So, I'm curious as to how eliminating rent seeking would impact investments and retirements.
- roenxi 9y ago
  There are some caveats on 'rent seeking' that mean it has quite a small impact. Technically, rent seeking comes up in situations where a private individual is capturing the value created through, eg, public infrastructure. The public can take this value for themselves through a land tax. The profit made from maintaining a productive asset isn't considered 'rent'. So, for example, renting out a house is not necessarily rent seeking behavior (!!) because the landlord is maintaining the house. The rent-seeking part is when the rent is raised because a new local train station opens. In this slightly technical instance, eliminating rent seeking, by definition, is likely to reduce the income to the those who are not adding any value. The behavior that is dis-incentivised was, again by deffinition, never economically productive. Economically productive investment (ie, capitalism) is supposedly untouched. Investors and retirees have to reallocate their investments into productive ventures instead of rent seeking, hopefully at no loss to their income. The theory and practice might not be the same thing, I'm no economist.
- deleted 9y ago
  [deleted]
tmnvix 9y ago
Not the poster that you were addressing, but for me it is because it is inherently parasitic. First line from the description in Wikipedia: "In economics and in public-choice theory, rent-seeking involves seeking to increase one's share of existing wealth without creating new wealth." (My emphasis) We live in a time where those that take most, likely need it least and also often take from those that need it most, but often have least.
9y ago

alacombe 9y ago

Your first assumption is totally wrong. In which "ideal world" would rent-seeking be eliminated ? Beside a totalitarian world, I really do not see how you can eliminate this type of behavior. Even in that world, you would do nothing but create an unequal society where elites, unchecked, would be the new "rich" (a few hundred years-time worth of "communist regiment" experiments proves it, including to this very day).

tmnvix 9y ago
> Some income inequality is due to rent-seeking behaviour and some is due to variance in productivity. The above statement is "totally wrong"? How can you be so sure?
- alacombe 9y ago
  no, the assumption that eliminating rent-seeking behavior could be achieved. As per the wikipedia description: "idea of rent-seeking was developed by Gordon Tullock in 1967.[2] The expression rent-seeking was coined in 1974 by Anne Krueger.[3] The word "rent" does not as a rule refer here to payment on a lease but stems instead from Adam Smith's division of incomes into profit, wage, and rent.[4] The origin of the term refers to gaining control of land or other natural resources." [emphasis mine] Whether it is a pseudo "public" Government or a Private individual, the behavior of "rent-seeking" is the same, ie. resource's control.
  - yorwba 9y ago
    The use of "ideal world" pretty much indicates that they don't think elimination of rent-seeking is actually achievable.
  - kbenson 9y ago
    I can't help but think you might be mistaken in your interpretation of what the original commenter meant by "in an ideal world" and possibly also by how the term "rent-seeking" is being used in this conversation. I'm struggling to understand how your not seeing how you can eliminate this type of behavior in practice relates to what is, by definition, perfection, and often just the idea of it.

richardknop 9y ago

But rent-seeking is the basis of current western capitalist economy. Entire pension system is based on investments (i.e. old people extracting money from labour of others without having to work) - and it is the reason why politicians are chasing the unsustainable continuous GDP growth. This would collapse without rent-seeking as most old people suddenly would have to go back to work (except small minority of old people that made enough money in their lives but that will be less than 1%).

whatyoucantsay 9y ago
In economics, the term "rent-seeking" has a specific meaning. Taking pensions, presumably after paying into the system for 40 years, does not generally fit it. A more accurate and less ageist example is the struggling company that lobbies the government for government grants or special protections. This activity fails to create any benefit for society and in fact harms the public by redistributing resources from taxpayers to the company.