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This sentence grabbed my attention, but I'm having trouble getting a clear understanding: "While efficient finance is essential to a modern economy, it appears

This sentence grabbed my attention, but I'm having trouble getting a clear understanding: "While efficient finance is essential to a modern economy, it appears that a significant share of returns to large human and technological investments in the past decade, such as those in sophisticated computerized program trading, were from rent redistribution rather than genuine wealth creation." In particular, modern finance as rent redistribution. The wikipedia entry on 'economic rent' is helpful, but doesn't get me all the way there. Help would be much appreciated!

barrkel 14y ago
In the language of the current top comment, rent seeking is looking to increase your own share of the total pie (and implicitly, other people's share less), rather than making the pie bigger. So the "profits" are more about redistributing things into your own pocket through structural advantages (like control of capital or co-opting the state), rather than wealth creation. The implication is that this is inefficient because the same resources and intelligent people could have been doing productive things that created wealth, like creating startups, rather than e.g. creating financial products that return big bonuses today but blow up a few years down the line, where the state or other people are left holding the can, with no net gain in the system.
aphelion 14y ago
If I buy logs and built rafts with them, which I then sell to people trying to cross a river, I'm creating wealth. If I own a strip of land up and down the river and charge people who want to cross it in their rafts, I'm extracting rents. If I patent the concept of raft building and require anyone building their own rafts to pay me, I'm extracting rents. What that quotation means is that all the finance MBAs and Wall Street quants of the last decade aren't making the economic pie bigger, they're just ensuring that they get a bigger slice of it.
stilltrying 14y ago
Thanks for the replies. I kept searching around, and I think my mistake was focusing too much on the word 'rent'. Focusing instead on 'redistribution', what helped clarify my understanding the most is the criticism that modern finance is becoming more of a zero-sum game; and 'rent' is mainly being used as the economic dirty word for this behavior. http://seekingalpha.com/article/1069231-from-positive-to-zero-to-negative-sum-capitalism http://seekingalpha.com/article/1069231-from-positive-to-zer...

barrkel 14y ago

In the language of the current top comment, rent seeking is looking to increase your own share of the total pie (and implicitly, other people's share less), rather than making the pie bigger. So the "profits" are more about redistributing things into your own pocket through structural advantages (like control of capital or co-opting the state), rather than wealth creation. The implication is that this is inefficient because the same resources and intelligent people could have been doing productive things that created wealth, like creating startups, rather than e.g. creating financial products that return big bonuses today but blow up a few years down the line, where the state or other people are left holding the can, with no net gain in the system.

aphelion 14y ago

If I buy logs and built rafts with them, which I then sell to people trying to cross a river, I'm creating wealth. If I own a strip of land up and down the river and charge people who want to cross it in their rafts, I'm extracting rents. If I patent the concept of raft building and require anyone building their own rafts to pay me, I'm extracting rents. What that quotation means is that all the finance MBAs and Wall Street quants of the last decade aren't making the economic pie bigger, they're just ensuring that they get a bigger slice of it.

stilltrying 14y ago

Thanks for the replies. I kept searching around, and I think my mistake was focusing too much on the word 'rent'. Focusing instead on 'redistribution', what helped clarify my understanding the most is the criticism that modern finance is becoming more of a zero-sum game; and 'rent' is mainly being used as the economic dirty word for this behavior. http://seekingalpha.com/article/1069231-from-positive-to-zero-to-negative-sum-capitalism http://seekingalpha.com/article/1069231-from-positive-to-zer...