14 ms·

The Rent Hypothesis

157 points by ddeck 12y ago

ngoel36 12y ago
Unrelated to the content - do people find that the bolding of linked words/phrases makes the article easier or harder to read?
- dragontamer 12y ago
  Harder. I think blue-underlines are the easiest for me to read. It might be familiarity.
- DanBC 12y ago
  Harder.
- ccvannorman 12y ago
  I liked it after I realized what was happening. Blue on black is too busy.
- savanaly 12y ago
  Didn't notice that certain words were bolded until you pointed it out.
- savanaly 12y ago
  Didn't notice that certain words were bolded until you pointed it out.
- c22 12y ago
  Yes. I didn't realize they were links till I got to the ones labeled "here". If those hadn't been on the page I would have likely finished reading and left completely oblivious to the links.
- logicallee 12y ago
  Holy cow!! I didn't read the whole thing, but going back, I thought it was just the author's very peculiar style of emphasis! Like writing comic-book style: (1) I thought he was doing it to be engaging, and make you really focus on his point! [1] http://www.comicbookbrain.com/_imagery/_2007_07_27/bb119_pg5_1000.jpg http://www.comicbookbrain.com/_imagery/_2007_07_27/bb119_pg5...
- jedanbik 12y ago
  Bolding places emphasis on the word being bolded, whereas underlining places emphasis on the line underneath the word. In the context of a URL, usability would dictate underlining links, to match convention.
ccvannorman 12y ago
This is a very important topic as robotics and automation begin their exponential curve of running our lives. Who will own the robots? Will the majority of humanity be enslaved to rent-seekers who own patents on a robot hinge?
- rayiner 12y ago
  > Will the majority of humanity be enslaved to rent-seekers who own patents on a robot hinge? If current trends continue, it will be the capitalist who first commercialized the robot once public and private R&D had done all the heavy lifting.
  - dragontamer 12y ago
    No robot is 100% self sufficient. There will always be a need for skilled labor to maintain and update robots. Even the most magical electric self-driving car requires maintenance in the form of software updates, tire rotations and the like. I think we are entering a period of "super industrialization", where even fewer workers are needed to do greater amounts of work. Careful care needs to go into making sure we don't enter the age of "robber barons" again, but I think a careful review of history and thoughtful policy decisions can guide us into this new era.
    - deleted 12y ago
      [deleted]
    - jfoutz 12y ago
      I've been thinking more and more about "super tools". Not so much humans and machines working together to build things, like cars or highways. More like one person orchestrating an array of automation to solve a specific problem. A tool is so much more versatile than a die press stamping out the same object over and over. Tools imply flexibility and adaptability to different circumstances. I think automation will happen from the bottom up. Some plumbers use cameras and nitrogen gas to detect leaks. Soon, they'll use robots to detect and repair leaks. They'll get better and faster, requiring less and less oversight. The natural consequence of that, the guy with the good tools can fix more stuff in a day.
pinky1417 12y ago
Wow, impressive article especially considering it comes from (I think) a junior at Princeton https://www.linkedin.com/pub/evan-soltas/29/5/b44 https://www.linkedin.com/pub/evan-soltas/29/5/b44 My only gripe is that he thinks that entrepreneurship and investment are struggling. If they're struggling now, then they've been struggling through all of human history.
- Shivetya 12y ago
  what I think needs to be taken away from this is that to fix areas were we think there is little competition which causes the conditions he sees is that we need to remove regulation which acts as a barrier to entry. far too many business are protected by heavy regulatory burdens to the point that to enter into such the costs of compliance eat up any slack which reduces your ability to react.
  - genericuser 12y ago
    I agree those barriers should be removed in the majority of cases, as in the majority they seem to be purely protection for already existing businesses. However it is important to note that some of the areas with the least competition, most regulations, and highest compliance costs exist in such a state due at least in large part to honest safety concern. Aerospace and Medical are the two broad areas that have many facets that immediately come to my mind as falling into this category. Just saying it is important to remember our goal is safely bettering the world, not simply being able to stand atop a burning pile of rubble and yell Anarchy. Although I believe that sounds like a lot of fun too.
- fauigerzigerk 12y ago
  I don't know about entrepreneurship but investment is definitely struggling. As a share of GDP it is relatively low right now compared to the long run average (in the U.S). And that is in spite of exceptionally low interest rates. However, investment as used in GDP calculations comprises more than just business investment. It also includes construction of new homes for instance. So to compare investment to corporate profits, which are indeed relatively high, you would need to know the level of business investment and I don't know where to find that data right now.
deleted 12y ago
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wppick 12y ago
At the beginning of civilization, the research budget for the invention of fire was zero, while the benefits of fire were incalculable. Compare this to the development costs of the next generation of Boeing aircraft relative to the small improvements in air travel. This dynamic has enormous implications for the presumed benefits of increases in government spending beyond some low base. Over time and with increasing complexity, returns on investment in society begin to level off and turn negative. Once the easy irrigation projects are completed, society begins progressively larger projects covering longer conduits with progressively smaller amounts of water produced. Bureaucracies that started out as efficient organizers turn into inefficient obstacles to improvement more concerned with their own perpetuation than with service to society. Elites who manage the institutions of society slowly become more concerned with the their own share of a shrinking pie than with the welfare of society as a whole. The elite echelons of society go from leading to leeching. Elites behave like parasites on the host body of society and engage in what economists call "rent seeking," or the accumulation of wealth through nonproductive means--postmodern finance being one example. Excerpt from: http://www.amazon.com/Currency-Wars-Making-Global-Crisis/dp/1591845564 http://www.amazon.com/Currency-Wars-Making-Global-Crisis/dp/...
- notahacker 12y ago
  A graph of world economic growth since the invention of fire shows anything but diminishing returns however. If rent-seeking behaviour is increasing, it's because the pie is - at least on a global level - growing at an accelerating rate. Elites always have and always will seek to take disproportionate shares of that wealth because they can, and because regimes, legal norms and competition encourage them to do so rather than because creating wealth doesn't pay. Much of postmodern finance is undoubtedly rent seeking, but so were the fights over ownership of natural resources and sovereign-granted monopolies of earlier generations, and the local nobility and religious bodies taking the surplus agricultural produce before that.
  - tjradcliffe 12y ago
    The non-monotonic nature of growth has been used to justify the claim that complex societies fail because investment in complexity provides diminishing returns, however: http://www.amazon.com/Collapse-Complex-Societies-Studies-Archaeology/dp/052138673X/ref=sr_1_1?s=books&ie=UTF8&qid=1426793591&sr=1-1&keywords=collapse+of+complex+societies http://www.amazon.com/Collapse-Complex-Societies-Studies-Arc...
xnull6guest 12y ago
I'm happy to see frank and intelligent conversation about rent. There seems to be a general understanding that the wages earned and the capital inherited by the very tip of our society does not speak to high levels of merit but instead to some form of malfeasance or at least market failure. But when pressed to pronounce what mechanism explains these impressions, theories depart - sometimes violently. There are hundreds of thousands of wealthy families in this upper crust and hundreds of millions of people churning in the domestic system that in part begets it. What's more, the finances of the US are owed to far more than domestic productivity - for example its role in the IMF and World Bank as well as its being the defacto fiat currency make international activity, macro- and eventually micro-, spanning between a billion or two people crucial to understanding its economy. Any explanation of the impression that the class society forming in America is not due to actually earned wealth must be sufficiently complicated to capture around _2 billion_ people and close to a half of the globe! This is a tall order to demand of a blog post. In any case, let us examine some of the questions the author asks - in particular about finance. > Why does finance make so much money? Can it really cost that much to do what financial intermediaries do? There's a number of reasons. Moral hazard, quite plainly. Regulatory capture (http://www.propublica.org/series/fed-tapes http://www.propublica.org/series/fed-tapes) too. These are domestic explanations and do go to some length to explain how these powerful enterprises are able to meet with law enforcement and regulatory bodies. Others say that HFT, legal barriers to trading, and delayed entry into IPO concentrate the gains of Wall Street into small hands. On the macro side Piketty offers a simple and compelling mathematical model (plus data to back it) that suggests that large wealth all on its own balloons exponentially over smaller wealth because both grow as an exponential over time but large starting wealth increasingly will win out in terms of total proportion - this would be exacerbated by the savings rate available to those 'in the know' of the finance industry (whose full time job it is to grow wealth through investment and speculation as fast as possible). But in a country where it's difficult to find investments that grow fast enough to beat inflation, where do the mammoth amounts of growth that sustain and feed the highest levels of American finance come from? Outside the country, unfortunately. Take Soros who seems to have wizard like capabilities to predict the future given his alien levels of success 'speculating' on currency exchanges and international companies. Soros does not speculate on markets - at least not in the traditional sense. Nor do the top brass. Soros actively partners with the US government to install organizations in countries around the world encouraging their 'transition' to foreign investment - usually through revolution and regime change. He, others who do the same, and those others in the sphere of 'civil society', are able to invest early in existing and new international companies as American companies consume the revenues and bring the customer base of newly freed local resources to the international community. The US government is happy to partner here because it can engineer regime change in its and its allies favor but launder the activity through private citizens and companies - this allows it to continue to wave the banner of self-determination, of individual rights and of international law. Do these things count as rent seeking? Probably. Actually, almost certainly. But its important to understand how complicated - and more importantly opaque - the system that benefits the few is. I hope the conversation continues to make it mainstream - maybe some day we will be able to have a mass informed debate.
baddox 12y ago
> Rents are not always bad. Protections for intellectual property make sense not in spite of the rents they generate, but rather because of them. A patent, after all, is a temporary monopoly. These monopoly rents give incentives for innovation and allow innovators to cover the costs of research and development. This is a weird way to talk about IP and rent. Is profit from IP necessarily rent? The problem is that "rent" is defined as "profits earned above what would be earned in a competitive market," but "competitive market" isn't well-defined until you define a system of rights (namely property rights). Markets are just systems of trade, and "trade" is the exchange of ownership. Thus, an action which most of us believe constitutes a violation of property rights (e.g. I buy a laptop and someone takes it from a cafe without my permission and then sells it to a third party) is not "trade in a competitive market." So is an IP right a legitimate instance of ownership? Many people (and most Western legal systems) consider it to be so. There are also people who don't consider it to be so, pointing out differences between physical property and intellectual property. And, to be clear, there are people who don't even accept certain aspects of well-accepted physical property rights.
- skilesare 12y ago
  Economic rent is the amount above the COSTs, not the just above a competitive market, unless you're considering that all competitive markets drive profits to zero. (Which a lot of people argue is one issue with perfect markets) It turns out, that they're both immoral and awesome. we have to find a way to have our cake and eat it too. -@hypercapital
  - jjoonathan 12y ago
    Competitive markets drive profits to 0, and then the only people who are making profits are behemoth rent-seekers in the exceptional markets. Yaay.
- kd0amg 12y ago
  I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product (not the whole product line, just the individual item). In a perfectly competitive market, price is driven down to match that cost, but the comparison with production cost is easier to apply in markets that aren't perfectly competitive (like licenses for a particular patent). Once an invention has been developed, the marginal cost (to the inventor) of someone else's use of that invention is zero. Any license fee at all that the inventor collects is in excess of what it costs the inventor for the licensee to use the invention, so the license fee is rent.
panglott 12y ago
It seems that he's mostly considering the value of the idea of economic rents in terms of how well they explain corporate profits as a means of testing the idea of economic rents themselves. However, the core idea of economic rents comes from analyses of land rents and monopoly rents in the 19th century: application to contemporary corporate profits is a derivative application of the idea. Land rents, for example, were the rents generated by idle 18th and 19th century gentility simply for inheriting the land at the basis of economic production in an agricultural economy, rather than for contributing useful labor towards agricultural production. This idea has gained renewed attention with the rise of extreme inequality and inherited capital. He also seems to be conflating these different kinds of rents together: land rents, monopoly rents, IP rents. The economic value of IP rents can be easily seen in patent trolling, defensive patents, &c. But trying to explain the corporate profits in terms of unspcified "rents" sound more like a project to discredit the idea of economic rents by conflating a lot of variables. That might be because I'm skeptical that economic rents are a predominant explanation of rising corporate profits, of course.
- esoltas 12y ago
  It's true that I'm talking about all different types of rents in the article. I've written about land rents and land taxes here, if you're interested: http://esoltas.blogspot.com/2012/06/on-land-taxes.html http://esoltas.blogspot.com/2012/06/on-land-taxes.html. Also, as old as the Henry George analysis of land rents is, it is still quite relevant. If you look at some of the rebuttals to Piketty's capital (eg., this one: https://ideas.repec.org/p/spo/wpecon/infohdl2441-30nstiku669glbr66l6n7mc2oq.html https://ideas.repec.org/p/spo/wpecon/infohdl2441-30nstiku669...), what you see is that most the growth in capital/income ratios comes from increases in the value of land capital. That would suggest George is still relevant to our world, and that conversations about IP might be secondary.
  - panglott 12y ago
    Thanks, I've long wished there was a well-informed contemporary reappraisal of Henry George. There were a few municipalities in the U.S. that went to land value taxation in the late 19th century, but their economic history is not especially remarkable. Most, IIRC, have shifted to conventional property taxes, mostly because the original impetus for Georgist taxes are now obscure and out of fashion, and there is a perceived value to having tax structures common to other municipalities (easier to attract businesses and professionals if taxes aren't unusual).
nwah1 12y ago
See also: The Law of Rent Land, and natural opportunities in general, are the original and most fundamental source of rent. Even the electromagnetic spectrum is monopolized. And although the holders of these exclusive rights do pay the FCC, they pay very little compared to the actual value. Likewise, people pay very little in taxes compared to the true value of their land. Imagine if instead of having to pay income taxes and sales taxes, which disincentivize labor and business, we instead charged people for the use of land. We could reform property taxes such that we exempt all building and improvement value, and just tax land. This would encourage efficient use of land, reduce sprawl, and boost productivity because it would remove the deadweight loss of other taxes. It would also be cheaper and simpler to collect, and less invasive.
- 21echoes 12y ago
  see https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism and https://en.wikipedia.org/wiki/Single_tax https://en.wikipedia.org/wiki/Single_tax
- sliverstorm 12y ago
  What is the true value of the land under your house? Or do you simply object to the current property tax rates rather than valuation?
  - nwah1 12y ago
    Assessment needs to become more accurate and more of our taxation should shift to land, and away from productive activity. It may even be possible in many locales to use self-assessment, with the concept being that if you set it too low, others may outbid you according to a certain set of rules to keep things fair and reasonable. Current property tax assessors are licensed professionals, and each county in the US handles it differently. Sometimes they are elected, sometimes they are appointed. One could also imagine the local governments outsourcing assessment to private tax assessment companies. Zillow and many companies already have assessments for most of the country freely available on their website.
    - 12y ago
bcg1 12y ago
I agree with the author about the problem with rents; unfortunately this argument is almost always framed politically (including, probably not intentionally, this article). The arguments he is making are logical, but the premises he is using are only true in the academic economics echo chamber. For instance, he doesn't even mention the fact that government is, almost by definition, either the largest or second largest rentier in modern America (their main competitor being "to-big-to-fail" financial institutions). This is probably unintentional on his part but not on the economists he mentions such as Tom Piketty and Paul Krugman, because of their personal politics. To exclude government from this discussion is probably not correct. It is not hard to see evidence of this by the way... take healthcare.gov for instance. If your company had $500 million CASH to build a website, what level of quality could you produce? Government also encourages rent seeking by other actors in the economy, even leads to rent seeking becoming the main game in town. Real entrepreneurs end up getting hurt by this because it steals away resources from their customers. Also economists like Piketty and Krugman then paint all companies with a broad brush and advocate that their legitimately earned profits be redistributed, which thankfully the author of the article seems to be defending against.
logicallee 12y ago
Look at all the rent Apple is seeking on the new 12 inch Macbook, for example. In 2015 the world supply of 12 inch Macbooks increased suddenly and unexpectedly. Nobody saw it coming. The world simply has a great new product in it starting in 2015 that it didn't have in 2014 or 2013. On HN there were 1269 comments: https://news.ycombinator.com/item?id=9172373 https://news.ycombinator.com/item?id=9172373 One thousand, two hundred, sixty-nine! The current front-page has 6-12 comments on most stories, and tops out at 59 for a popular OpenSSL security advisory people care about and are discussing, to up to 141 for a large piece of news about Tesla direct sales being allowed in NJ. (A big issue because people feel strongly about this.) 1269 comments on the 12 inch macbook. Clearly people feel strongly about the sudden discovery of 12 inch Macbook deposits worldwide! It's a totally new thing, amazing. The top comment at that link states that this is a beautiful machine. Another comment says "The overall design of the new MacBook is revolutionary." This is a spontaneous revolution that happened worldwide in 2015. Now let's turn to rents. As another poster said in the present thread[1], "A graph of world economic growth since the invention of fire shows anything but diminishing returns however. If rent-seeking behaviour is increasing, it's because the pie is - at least on a global level - growing at an accelerating rate." The amount of value this machine has for users is way more than the incremental increase in what was available between 1982 and 1983, for example, at the same number of inflation-adjusted dollars. But that other poster continues in the same comment (still [1], in this thread): "Elites always have and always will seek to take disproportionate shares of that wealth because they can." Apple is an elite market-maker. Although there is a spontaneous increase in 2015 in the availability of the highly desirable 12-inch Macbook, in fact Apple is not giving them away at cost. Or even within 5% of cost. It has positioned itself as a rentier sitting on its laurels and enjoying the profits of the worldwide spontaneous existence of a large deposit of totally new 12 inch Macbooks. It is taking a disproportionate share of the wealth, the actual, true, value that has just spontaneously sprung into existence this year without any work from Apple. Out of nowhere, you have a trackpad that responds to a force-push. Out of nowhere, you have a machine that weighs just a hair over 2 pounds, a full pound lighter than the previous 13-inch macbook air and 16% lighter than the previous, impossibly small 11-inch Macbook air. But with a full-size 12 inch retina display, and lasting 9 hours on a charge. People want it. I want it. But Apple is hoarding this spontaneous innovation and creation. Truly, no clearer example could possibly be found of "Elites have and will always take disproportionate share of wealth", than Apple, which has secured a one hundred percent monopoly on a spontaneous natural resource that everyone could enjoy. This is rent in action. It has led to a smart phone in every single person's pocket when they did it with the iPhone in 2007. It has led to a proliferation of tablet PC's that changed the face of mobile computing the world over, when they did it with the iPad. And it makes my blood boil to see them do it with the 12 inch Macbook. It's just bald-faced theft of a disproportionate share of the world's wealth. They're even blatant about it, with this graph: http://www.patentlyapple.com/.a/6a0120a5580826970c01b8d0e769c0970c-800wi http://www.patentlyapple.com/.a/6a0120a5580826970c01b8d0e769... How can they get away with this? This is an absolute blatant boast that they are taking a disproportionate share of the wealth that is spontaneously created, and that they have absolutely nothing to do with. They do so at prices that show obvious and blatant rent. Are we just going to idly sit by and let them do it? Even cheer them on? (for the satire-impaired: yes) [1] https://news.ycombinator.com/item?id=9233624 https://news.ycombinator.com/item?id=9233624
spinlock 12y ago
Is entrepreneurship struggling. I would have assumed we were in an entrepreneurship bubble.
deleted 12y ago
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skilesare 12y ago
I'm going to be proposing a solution to the issues with economic rent in a upcoming talk at the Texas Bitcoin Conference on March 29th at 9am. The solution involves insuring the inalienable right to the full output of one's labor and a social contract that lets the economic rent seeking continue. It probably won't work, but sure has been fun unwinding the thread.
bandrami 12y ago
Wait. Historically, the purpose behind patents was to spur _the theft of other states' property_, not "innovation". The King would grant a patent to whatever foreign engineer was willing to immigrate with a particular invention or industrial technique that another state was keeping secret (printing presses and coal refining both crossed the English Channel that way). The same language of "patent" was used for early colonial charters, too, because it was the same process: somebody willing to take something from somebody else is granted (some) legal protection by the state that benefits from that taking. Patents were developed as a way to aid piracy, not a way to prevent it.
artur_makly 12y ago
im posting this comment for my friend : It's funny how high the inverse correlation is with CEO pay and start-up success. I think Shumpeterian forces may invert in the near future and leave these examples like Oracle/Larry Ellison relatively dated. When automation dominates economic growth, you'll be in this situation where basic income is the only way most people can get by - how to facilitate that? 90% taxes on high capital gains incomes like in the mid-20th century? That's more of the communism angle, where fixed property becomes de-facto state owned. Pikkety doesn't get it, there was a good interview with Andreesen to that effect. What about stuff like bitcoin and decentralized apps that are open source, thus not protected by rent-levy's in IP law, yet gain huge economic power directly through usage? Could basic income be tied into that? Perhaps indeed it could, a more decentralized alternative to the commie scenario (which probably isn't politically feasible in the US anyway, hopefully...) - Patrick Dugan @patrick_dugan

157 points by ddeck 12y ago

Unrelated to the content - do people find that the bolding of linked words/phrases makes the article easier or harder to read?

dragontamer 12y ago
Harder. I think blue-underlines are the easiest for me to read. It might be familiarity.
DanBC 12y ago
Harder.
ccvannorman 12y ago
I liked it after I realized what was happening. Blue on black is too busy.
savanaly 12y ago
Didn't notice that certain words were bolded until you pointed it out.
savanaly 12y ago
Didn't notice that certain words were bolded until you pointed it out.
c22 12y ago
Yes. I didn't realize they were links till I got to the ones labeled "here". If those hadn't been on the page I would have likely finished reading and left completely oblivious to the links.
logicallee 12y ago
Holy cow!! I didn't read the whole thing, but going back, I thought it was just the author's very peculiar style of emphasis! Like writing comic-book style: (1) I thought he was doing it to be engaging, and make you really focus on his point! [1] http://www.comicbookbrain.com/_imagery/_2007_07_27/bb119_pg5_1000.jpg http://www.comicbookbrain.com/_imagery/_2007_07_27/bb119_pg5...
jedanbik 12y ago
Bolding places emphasis on the word being bolded, whereas underlining places emphasis on the line underneath the word. In the context of a URL, usability would dictate underlining links, to match convention.

ccvannorman 12y ago

This is a very important topic as robotics and automation begin their exponential curve of running our lives. Who will own the robots? Will the majority of humanity be enslaved to rent-seekers who own patents on a robot hinge?

rayiner 12y ago
> Will the majority of humanity be enslaved to rent-seekers who own patents on a robot hinge? If current trends continue, it will be the capitalist who first commercialized the robot once public and private R&D had done all the heavy lifting.
- dragontamer 12y ago
  No robot is 100% self sufficient. There will always be a need for skilled labor to maintain and update robots. Even the most magical electric self-driving car requires maintenance in the form of software updates, tire rotations and the like. I think we are entering a period of "super industrialization", where even fewer workers are needed to do greater amounts of work. Careful care needs to go into making sure we don't enter the age of "robber barons" again, but I think a careful review of history and thoughtful policy decisions can guide us into this new era.
  - deleted 12y ago
    [deleted]
  - jfoutz 12y ago
    I've been thinking more and more about "super tools". Not so much humans and machines working together to build things, like cars or highways. More like one person orchestrating an array of automation to solve a specific problem. A tool is so much more versatile than a die press stamping out the same object over and over. Tools imply flexibility and adaptability to different circumstances. I think automation will happen from the bottom up. Some plumbers use cameras and nitrogen gas to detect leaks. Soon, they'll use robots to detect and repair leaks. They'll get better and faster, requiring less and less oversight. The natural consequence of that, the guy with the good tools can fix more stuff in a day.

pinky1417 12y ago

Wow, impressive article especially considering it comes from (I think) a junior at Princeton https://www.linkedin.com/pub/evan-soltas/29/5/b44 https://www.linkedin.com/pub/evan-soltas/29/5/b44 My only gripe is that he thinks that entrepreneurship and investment are struggling. If they're struggling now, then they've been struggling through all of human history.

Shivetya 12y ago
what I think needs to be taken away from this is that to fix areas were we think there is little competition which causes the conditions he sees is that we need to remove regulation which acts as a barrier to entry. far too many business are protected by heavy regulatory burdens to the point that to enter into such the costs of compliance eat up any slack which reduces your ability to react.
- genericuser 12y ago
  I agree those barriers should be removed in the majority of cases, as in the majority they seem to be purely protection for already existing businesses. However it is important to note that some of the areas with the least competition, most regulations, and highest compliance costs exist in such a state due at least in large part to honest safety concern. Aerospace and Medical are the two broad areas that have many facets that immediately come to my mind as falling into this category. Just saying it is important to remember our goal is safely bettering the world, not simply being able to stand atop a burning pile of rubble and yell Anarchy. Although I believe that sounds like a lot of fun too.
fauigerzigerk 12y ago
I don't know about entrepreneurship but investment is definitely struggling. As a share of GDP it is relatively low right now compared to the long run average (in the U.S). And that is in spite of exceptionally low interest rates. However, investment as used in GDP calculations comprises more than just business investment. It also includes construction of new homes for instance. So to compare investment to corporate profits, which are indeed relatively high, you would need to know the level of business investment and I don't know where to find that data right now.

deleted 12y ago

[deleted]

wppick 12y ago

At the beginning of civilization, the research budget for the invention of fire was zero, while the benefits of fire were incalculable. Compare this to the development costs of the next generation of Boeing aircraft relative to the small improvements in air travel. This dynamic has enormous implications for the presumed benefits of increases in government spending beyond some low base. Over time and with increasing complexity, returns on investment in society begin to level off and turn negative. Once the easy irrigation projects are completed, society begins progressively larger projects covering longer conduits with progressively smaller amounts of water produced. Bureaucracies that started out as efficient organizers turn into inefficient obstacles to improvement more concerned with their own perpetuation than with service to society. Elites who manage the institutions of society slowly become more concerned with the their own share of a shrinking pie than with the welfare of society as a whole. The elite echelons of society go from leading to leeching. Elites behave like parasites on the host body of society and engage in what economists call "rent seeking," or the accumulation of wealth through nonproductive means--postmodern finance being one example. Excerpt from: http://www.amazon.com/Currency-Wars-Making-Global-Crisis/dp/1591845564 http://www.amazon.com/Currency-Wars-Making-Global-Crisis/dp/...

notahacker 12y ago
A graph of world economic growth since the invention of fire shows anything but diminishing returns however. If rent-seeking behaviour is increasing, it's because the pie is - at least on a global level - growing at an accelerating rate. Elites always have and always will seek to take disproportionate shares of that wealth because they can, and because regimes, legal norms and competition encourage them to do so rather than because creating wealth doesn't pay. Much of postmodern finance is undoubtedly rent seeking, but so were the fights over ownership of natural resources and sovereign-granted monopolies of earlier generations, and the local nobility and religious bodies taking the surplus agricultural produce before that.
- tjradcliffe 12y ago
  The non-monotonic nature of growth has been used to justify the claim that complex societies fail because investment in complexity provides diminishing returns, however: http://www.amazon.com/Collapse-Complex-Societies-Studies-Archaeology/dp/052138673X/ref=sr_1_1?s=books&ie=UTF8&qid=1426793591&sr=1-1&keywords=collapse+of+complex+societies http://www.amazon.com/Collapse-Complex-Societies-Studies-Arc...

xnull6guest 12y ago

I'm happy to see frank and intelligent conversation about rent. There seems to be a general understanding that the wages earned and the capital inherited by the very tip of our society does not speak to high levels of merit but instead to some form of malfeasance or at least market failure. But when pressed to pronounce what mechanism explains these impressions, theories depart - sometimes violently. There are hundreds of thousands of wealthy families in this upper crust and hundreds of millions of people churning in the domestic system that in part begets it. What's more, the finances of the US are owed to far more than domestic productivity - for example its role in the IMF and World Bank as well as its being the defacto fiat currency make international activity, macro- and eventually micro-, spanning between a billion or two people crucial to understanding its economy. Any explanation of the impression that the class society forming in America is not due to actually earned wealth must be sufficiently complicated to capture around _2 billion_ people and close to a half of the globe! This is a tall order to demand of a blog post. In any case, let us examine some of the questions the author asks - in particular about finance. > Why does finance make so much money? Can it really cost that much to do what financial intermediaries do? There's a number of reasons. Moral hazard, quite plainly. Regulatory capture (http://www.propublica.org/series/fed-tapes http://www.propublica.org/series/fed-tapes) too. These are domestic explanations and do go to some length to explain how these powerful enterprises are able to meet with law enforcement and regulatory bodies. Others say that HFT, legal barriers to trading, and delayed entry into IPO concentrate the gains of Wall Street into small hands. On the macro side Piketty offers a simple and compelling mathematical model (plus data to back it) that suggests that large wealth all on its own balloons exponentially over smaller wealth because both grow as an exponential over time but large starting wealth increasingly will win out in terms of total proportion - this would be exacerbated by the savings rate available to those 'in the know' of the finance industry (whose full time job it is to grow wealth through investment and speculation as fast as possible). But in a country where it's difficult to find investments that grow fast enough to beat inflation, where do the mammoth amounts of growth that sustain and feed the highest levels of American finance come from? Outside the country, unfortunately. Take Soros who seems to have wizard like capabilities to predict the future given his alien levels of success 'speculating' on currency exchanges and international companies. Soros does not speculate on markets - at least not in the traditional sense. Nor do the top brass. Soros actively partners with the US government to install organizations in countries around the world encouraging their 'transition' to foreign investment - usually through revolution and regime change. He, others who do the same, and those others in the sphere of 'civil society', are able to invest early in existing and new international companies as American companies consume the revenues and bring the customer base of newly freed local resources to the international community. The US government is happy to partner here because it can engineer regime change in its and its allies favor but launder the activity through private citizens and companies - this allows it to continue to wave the banner of self-determination, of individual rights and of international law. Do these things count as rent seeking? Probably. Actually, almost certainly. But its important to understand how complicated - and more importantly opaque - the system that benefits the few is. I hope the conversation continues to make it mainstream - maybe some day we will be able to have a mass informed debate.

baddox 12y ago

> Rents are not always bad. Protections for intellectual property make sense not in spite of the rents they generate, but rather because of them. A patent, after all, is a temporary monopoly. These monopoly rents give incentives for innovation and allow innovators to cover the costs of research and development. This is a weird way to talk about IP and rent. Is profit from IP necessarily rent? The problem is that "rent" is defined as "profits earned above what would be earned in a competitive market," but "competitive market" isn't well-defined until you define a system of rights (namely property rights). Markets are just systems of trade, and "trade" is the exchange of ownership. Thus, an action which most of us believe constitutes a violation of property rights (e.g. I buy a laptop and someone takes it from a cafe without my permission and then sells it to a third party) is not "trade in a competitive market." So is an IP right a legitimate instance of ownership? Many people (and most Western legal systems) consider it to be so. There are also people who don't consider it to be so, pointing out differences between physical property and intellectual property. And, to be clear, there are people who don't even accept certain aspects of well-accepted physical property rights.

skilesare 12y ago
Economic rent is the amount above the COSTs, not the just above a competitive market, unless you're considering that all competitive markets drive profits to zero. (Which a lot of people argue is one issue with perfect markets) It turns out, that they're both immoral and awesome. we have to find a way to have our cake and eat it too. -@hypercapital
- jjoonathan 12y ago
  Competitive markets drive profits to 0, and then the only people who are making profits are behemoth rent-seekers in the exceptional markets. Yaay.
kd0amg 12y ago
I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product (not the whole product line, just the individual item). In a perfectly competitive market, price is driven down to match that cost, but the comparison with production cost is easier to apply in markets that aren't perfectly competitive (like licenses for a particular patent). Once an invention has been developed, the marginal cost (to the inventor) of someone else's use of that invention is zero. Any license fee at all that the inventor collects is in excess of what it costs the inventor for the licensee to use the invention, so the license fee is rent.

panglott 12y ago

It seems that he's mostly considering the value of the idea of economic rents in terms of how well they explain corporate profits as a means of testing the idea of economic rents themselves. However, the core idea of economic rents comes from analyses of land rents and monopoly rents in the 19th century: application to contemporary corporate profits is a derivative application of the idea. Land rents, for example, were the rents generated by idle 18th and 19th century gentility simply for inheriting the land at the basis of economic production in an agricultural economy, rather than for contributing useful labor towards agricultural production. This idea has gained renewed attention with the rise of extreme inequality and inherited capital. He also seems to be conflating these different kinds of rents together: land rents, monopoly rents, IP rents. The economic value of IP rents can be easily seen in patent trolling, defensive patents, &c. But trying to explain the corporate profits in terms of unspcified "rents" sound more like a project to discredit the idea of economic rents by conflating a lot of variables. That might be because I'm skeptical that economic rents are a predominant explanation of rising corporate profits, of course.

esoltas 12y ago
It's true that I'm talking about all different types of rents in the article. I've written about land rents and land taxes here, if you're interested: http://esoltas.blogspot.com/2012/06/on-land-taxes.html http://esoltas.blogspot.com/2012/06/on-land-taxes.html. Also, as old as the Henry George analysis of land rents is, it is still quite relevant. If you look at some of the rebuttals to Piketty's capital (eg., this one: https://ideas.repec.org/p/spo/wpecon/infohdl2441-30nstiku669glbr66l6n7mc2oq.html https://ideas.repec.org/p/spo/wpecon/infohdl2441-30nstiku669...), what you see is that most the growth in capital/income ratios comes from increases in the value of land capital. That would suggest George is still relevant to our world, and that conversations about IP might be secondary.
- panglott 12y ago
  Thanks, I've long wished there was a well-informed contemporary reappraisal of Henry George. There were a few municipalities in the U.S. that went to land value taxation in the late 19th century, but their economic history is not especially remarkable. Most, IIRC, have shifted to conventional property taxes, mostly because the original impetus for Georgist taxes are now obscure and out of fashion, and there is a perceived value to having tax structures common to other municipalities (easier to attract businesses and professionals if taxes aren't unusual).

nwah1 12y ago

See also: The Law of Rent Land, and natural opportunities in general, are the original and most fundamental source of rent. Even the electromagnetic spectrum is monopolized. And although the holders of these exclusive rights do pay the FCC, they pay very little compared to the actual value. Likewise, people pay very little in taxes compared to the true value of their land. Imagine if instead of having to pay income taxes and sales taxes, which disincentivize labor and business, we instead charged people for the use of land. We could reform property taxes such that we exempt all building and improvement value, and just tax land. This would encourage efficient use of land, reduce sprawl, and boost productivity because it would remove the deadweight loss of other taxes. It would also be cheaper and simpler to collect, and less invasive.

21echoes 12y ago
see https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism and https://en.wikipedia.org/wiki/Single_tax https://en.wikipedia.org/wiki/Single_tax
sliverstorm 12y ago
What is the true value of the land under your house? Or do you simply object to the current property tax rates rather than valuation?
- nwah1 12y ago
  Assessment needs to become more accurate and more of our taxation should shift to land, and away from productive activity. It may even be possible in many locales to use self-assessment, with the concept being that if you set it too low, others may outbid you according to a certain set of rules to keep things fair and reasonable. Current property tax assessors are licensed professionals, and each county in the US handles it differently. Sometimes they are elected, sometimes they are appointed. One could also imagine the local governments outsourcing assessment to private tax assessment companies. Zillow and many companies already have assessments for most of the country freely available on their website.
  - 12y ago

bcg1 12y ago

I agree with the author about the problem with rents; unfortunately this argument is almost always framed politically (including, probably not intentionally, this article). The arguments he is making are logical, but the premises he is using are only true in the academic economics echo chamber. For instance, he doesn't even mention the fact that government is, almost by definition, either the largest or second largest rentier in modern America (their main competitor being "to-big-to-fail" financial institutions). This is probably unintentional on his part but not on the economists he mentions such as Tom Piketty and Paul Krugman, because of their personal politics. To exclude government from this discussion is probably not correct. It is not hard to see evidence of this by the way... take healthcare.gov for instance. If your company had $500 million CASH to build a website, what level of quality could you produce? Government also encourages rent seeking by other actors in the economy, even leads to rent seeking becoming the main game in town. Real entrepreneurs end up getting hurt by this because it steals away resources from their customers. Also economists like Piketty and Krugman then paint all companies with a broad brush and advocate that their legitimately earned profits be redistributed, which thankfully the author of the article seems to be defending against.

logicallee 12y ago

Look at all the rent Apple is seeking on the new 12 inch Macbook, for example. In 2015 the world supply of 12 inch Macbooks increased suddenly and unexpectedly. Nobody saw it coming. The world simply has a great new product in it starting in 2015 that it didn't have in 2014 or 2013. On HN there were 1269 comments: https://news.ycombinator.com/item?id=9172373 https://news.ycombinator.com/item?id=9172373 One thousand, two hundred, sixty-nine! The current front-page has 6-12 comments on most stories, and tops out at 59 for a popular OpenSSL security advisory people care about and are discussing, to up to 141 for a large piece of news about Tesla direct sales being allowed in NJ. (A big issue because people feel strongly about this.) 1269 comments on the 12 inch macbook. Clearly people feel strongly about the sudden discovery of 12 inch Macbook deposits worldwide! It's a totally new thing, amazing. The top comment at that link states that this is a beautiful machine. Another comment says "The overall design of the new MacBook is revolutionary." This is a spontaneous revolution that happened worldwide in 2015. Now let's turn to rents. As another poster said in the present thread[1], "A graph of world economic growth since the invention of fire shows anything but diminishing returns however. If rent-seeking behaviour is increasing, it's because the pie is - at least on a global level - growing at an accelerating rate." The amount of value this machine has for users is way more than the incremental increase in what was available between 1982 and 1983, for example, at the same number of inflation-adjusted dollars. But that other poster continues in the same comment (still [1], in this thread): "Elites always have and always will seek to take disproportionate shares of that wealth because they can." Apple is an elite market-maker. Although there is a spontaneous increase in 2015 in the availability of the highly desirable 12-inch Macbook, in fact Apple is not giving them away at cost. Or even within 5% of cost. It has positioned itself as a rentier sitting on its laurels and enjoying the profits of the worldwide spontaneous existence of a large deposit of totally new 12 inch Macbooks. It is taking a disproportionate share of the wealth, the actual, true, value that has just spontaneously sprung into existence this year without any work from Apple. Out of nowhere, you have a trackpad that responds to a force-push. Out of nowhere, you have a machine that weighs just a hair over 2 pounds, a full pound lighter than the previous 13-inch macbook air and 16% lighter than the previous, impossibly small 11-inch Macbook air. But with a full-size 12 inch retina display, and lasting 9 hours on a charge. People want it. I want it. But Apple is hoarding this spontaneous innovation and creation. Truly, no clearer example could possibly be found of "Elites have and will always take disproportionate share of wealth", than Apple, which has secured a one hundred percent monopoly on a spontaneous natural resource that everyone could enjoy. This is rent in action. It has led to a smart phone in every single person's pocket when they did it with the iPhone in 2007. It has led to a proliferation of tablet PC's that changed the face of mobile computing the world over, when they did it with the iPad. And it makes my blood boil to see them do it with the 12 inch Macbook. It's just bald-faced theft of a disproportionate share of the world's wealth. They're even blatant about it, with this graph: http://www.patentlyapple.com/.a/6a0120a5580826970c01b8d0e769c0970c-800wi http://www.patentlyapple.com/.a/6a0120a5580826970c01b8d0e769... How can they get away with this? This is an absolute blatant boast that they are taking a disproportionate share of the wealth that is spontaneously created, and that they have absolutely nothing to do with. They do so at prices that show obvious and blatant rent. Are we just going to idly sit by and let them do it? Even cheer them on? (for the satire-impaired: yes) [1] https://news.ycombinator.com/item?id=9233624 https://news.ycombinator.com/item?id=9233624

spinlock 12y ago

Is entrepreneurship struggling. I would have assumed we were in an entrepreneurship bubble.

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skilesare 12y ago

I'm going to be proposing a solution to the issues with economic rent in a upcoming talk at the Texas Bitcoin Conference on March 29th at 9am. The solution involves insuring the inalienable right to the full output of one's labor and a social contract that lets the economic rent seeking continue. It probably won't work, but sure has been fun unwinding the thread.

bandrami 12y ago

Wait. Historically, the purpose behind patents was to spur _the theft of other states' property_, not "innovation". The King would grant a patent to whatever foreign engineer was willing to immigrate with a particular invention or industrial technique that another state was keeping secret (printing presses and coal refining both crossed the English Channel that way). The same language of "patent" was used for early colonial charters, too, because it was the same process: somebody willing to take something from somebody else is granted (some) legal protection by the state that benefits from that taking. Patents were developed as a way to aid piracy, not a way to prevent it.

artur_makly 12y ago

im posting this comment for my friend : It's funny how high the inverse correlation is with CEO pay and start-up success. I think Shumpeterian forces may invert in the near future and leave these examples like Oracle/Larry Ellison relatively dated. When automation dominates economic growth, you'll be in this situation where basic income is the only way most people can get by - how to facilitate that? 90% taxes on high capital gains incomes like in the mid-20th century? That's more of the communism angle, where fixed property becomes de-facto state owned. Pikkety doesn't get it, there was a good interview with Andreesen to that effect. What about stuff like bitcoin and decentralized apps that are open source, thus not protected by rent-levy's in IP law, yet gain huge economic power directly through usage? Could basic income be tied into that? Perhaps indeed it could, a more decentralized alternative to the commie scenario (which probably isn't politically feasible in the US anyway, hopefully...) - Patrick Dugan @patrick_dugan