6 ms·

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

by golergka 9y ago

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.
taneq 9y ago
Well clearly absentee owners and both retirees are unproductive and therefore parasitic so they should be eliminated. /s
yorwba 9y ago
Rent-seeking is the attempt to profit from economic activity without contributing anything of value to said activity. I.e. you could eliminate the rent-seeker and the only effect would be lowered costs due to them no longer collecting their cut. Of course pure rent-seeking is pretty rare, and most middlemen do provide at least some value e.g. doing market research and helping interested parties find each other. But in some cases they gain an entrenched position and start taking larger cuts purely because they can. An ideal free market would correct that through emergence of a competitor, but in the real world that is often prevented through lobbying for regulations in favor of the rent-seeker.
- richardknop 9y ago
  Isn't entire retirement / pension system based on rent-seeking? Only tiny amount of people make enough money that they can stop working and retire without having to extract / take cut from economic activity / labour of younger working people (and cheap labour in developing world). How would you handle pensions other than rent-seeking via investment? Plus, as the population of western world is aging and there are more and more old people and less productive young people, the rent-seeking will only get worse. Much more people will be retired and will depend on getting cut from productive working people who will be squeezed more and more (higher taxes, longer hours, lower or stagnating wages). This can be alleviated to a degree by western corporations being global and exploiting cheap labour in third world but even that will be exhausted once the developing world catches up to western standard.
  - yorwba 9y ago
    Sure, if you look at old people and young people separately, it appears that old people only take money out of pension funds and young people only pay into them. But the whole point is that young people eventually become old people. Old people receiving payouts isn't rent seeking, it's time-delayed compensation for their previous contributions. The changing demographics are certainly a problem, but assuming the population trends continue, today's young people aren't particularly worse off. Their pension contributions may be used for more than one old person, but once they become old themselves, the next younger generation will be in exactly the same situation.
winter_blue 9y ago
Investors (and lenders) put a lot of effort in carefully selecting good investments, and take a lot of risk in giving money to others. Interest and investment return is necessary, at the bare minimum, to cover the loss of failed investments and unpaid loans. There's quite a bit of effort that goes into selecting a good place to invest. And, there's also a whole lot of risk involved. Look at Y Combinator, or other VCs and angel investors, for example. If investments count as "rent-seeking behavior", eliminating it would nearly destroy the economy. People often fail to see the value of deferred expenditure of money / capital, while criticizing rent-seeking behavior. There's real value in a person choosing not to spend their money immediately, and instead giving it to someone else.
- Gibbon1 9y ago
  One thing that gets missed because economists spend the last 50 years trying to burying it was that the high tax rates the US used to have were there to prevent extractive rents. Extractive mean instead of taking profits and re-investing converting profits to personal income. That's what got taxed. So back then we had high tax _rates_, high investment, and low profits. Now were have low tax rates, low investment, and high profits. The thing economists don't want to you get is the amount of taxes collected remained mostly constant. The difference is in the amount re-invested vs the amount extracted.
- chesimov 9y ago
  Would the reasoning be something like this? Investors determine how money might optimally be put to use, for example identifying which ventures are most likely to succeed/fail, thus providing value to society, for which they are paid?

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.

taneq 9y ago

Well clearly absentee owners and both retirees are unproductive and therefore parasitic so they should be eliminated. /s

yorwba 9y ago

Rent-seeking is the attempt to profit from economic activity without contributing anything of value to said activity. I.e. you could eliminate the rent-seeker and the only effect would be lowered costs due to them no longer collecting their cut. Of course pure rent-seeking is pretty rare, and most middlemen do provide at least some value e.g. doing market research and helping interested parties find each other. But in some cases they gain an entrenched position and start taking larger cuts purely because they can. An ideal free market would correct that through emergence of a competitor, but in the real world that is often prevented through lobbying for regulations in favor of the rent-seeker.

richardknop 9y ago
Isn't entire retirement / pension system based on rent-seeking? Only tiny amount of people make enough money that they can stop working and retire without having to extract / take cut from economic activity / labour of younger working people (and cheap labour in developing world). How would you handle pensions other than rent-seeking via investment? Plus, as the population of western world is aging and there are more and more old people and less productive young people, the rent-seeking will only get worse. Much more people will be retired and will depend on getting cut from productive working people who will be squeezed more and more (higher taxes, longer hours, lower or stagnating wages). This can be alleviated to a degree by western corporations being global and exploiting cheap labour in third world but even that will be exhausted once the developing world catches up to western standard.
- yorwba 9y ago
  Sure, if you look at old people and young people separately, it appears that old people only take money out of pension funds and young people only pay into them. But the whole point is that young people eventually become old people. Old people receiving payouts isn't rent seeking, it's time-delayed compensation for their previous contributions. The changing demographics are certainly a problem, but assuming the population trends continue, today's young people aren't particularly worse off. Their pension contributions may be used for more than one old person, but once they become old themselves, the next younger generation will be in exactly the same situation.

winter_blue 9y ago

Investors (and lenders) put a lot of effort in carefully selecting good investments, and take a lot of risk in giving money to others. Interest and investment return is necessary, at the bare minimum, to cover the loss of failed investments and unpaid loans. There's quite a bit of effort that goes into selecting a good place to invest. And, there's also a whole lot of risk involved. Look at Y Combinator, or other VCs and angel investors, for example. If investments count as "rent-seeking behavior", eliminating it would nearly destroy the economy. People often fail to see the value of deferred expenditure of money / capital, while criticizing rent-seeking behavior. There's real value in a person choosing not to spend their money immediately, and instead giving it to someone else.

Gibbon1 9y ago
One thing that gets missed because economists spend the last 50 years trying to burying it was that the high tax rates the US used to have were there to prevent extractive rents. Extractive mean instead of taking profits and re-investing converting profits to personal income. That's what got taxed. So back then we had high tax _rates_, high investment, and low profits. Now were have low tax rates, low investment, and high profits. The thing economists don't want to you get is the amount of taxes collected remained mostly constant. The difference is in the amount re-invested vs the amount extracted.
chesimov 9y ago
Would the reasoning be something like this? Investors determine how money might optimally be put to use, for example identifying which ventures are most likely to succeed/fail, thus providing value to society, for which they are paid?