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Tom - OT query for you if I may. Much of your commentary in recent months from a progressive standpoint has talked in passing of the structure of the economy and 'rent-seeking' bahaviour. Can you suggest anywhere which sets out how you look at rent-seeking as a phenomenon? It seems quite a problematic concept to me (even if I'm generally highly progressively-minded). Taking my cue from certain MMTers and the Kaldorian tradition, my conception of inflation is entirely as a function of the market power of various economic agents when it comes to price-setting; the more various individuals and firms hold significant market power when setting prices (or wages), the higher inflation will be.But every employee or firm strives to increase its own market power in order to maximise its own share of national income (or even to minimise the risk of one losing one's job). An academic striving to publish one more paper in a year seems to me to sit on the same qualitative continuum as a firm spending money to improve its brand and make it less likely that consumers will try out a new entrant into the market. Both cases reflect legally-permitted individual utility-maximising behaviour which may have detrimental side-effects on other agents (often, in a zero-sum sense, on competitors).Illegal activities aside, I feel uncomfortable denouncing rent-seeking per se without being able to distinguish it, in a qualitative sense, from my own attempts to optimise my resumé or broaden my network of contacts.I'd be interested in your views. Compelling as I find Michael Hudson's pieces in terms of identifying the FIRE sector as a culprit, I don't find it easy to follow his logical arguments. I haven't explored Tullock or Krueger; are they worth reading?
Complicated matter wrt details, Anders, but simple concept to understand. "Economic rent" means a gain in revenue or increase in wealth whose source is non-productive, therefore extractive. Primary investment, work, and some services are productive. Rent generally accrues from exploiting a non-competitive advantage, often expressly manufactured artificially. Some things are obvious and easily demarcated, like crime. Much that may constitute economic rent resides at the borderline, and it is difficult to define rules for targeting it.The way I propose would be to use the concept of taxing negative externality as including economic rent and go after the core of obvious extraction without being concerned with the margin. This is the bulk of it anyway. Land rents is pretty easily identified by comparing price change in areas that have benefited from public improvement from similar areas that have not. Monopoly rent is pretty easily identified on the basis of the degree of competition and the benefits of governmental intervention. Financial rent is also pretty easily identified relative to productive investment.The basic principle is whether a behavior is growing the pie or just cutting a bigger slice. Many people are concerned about whether this will affect their incomes or wealth, for a variety of reasons. My response is that the obvious rent-seeking that needs to be addressed is that occurring on a fairly massive scale. Ordinary people need not be concerned about personally taking a hit since they are way out at the periphery of the problem.Of course, it economic rent is to be taxed, it has to be quantified. But the key issue is quality. Extraction is harmful to quality since it skews the standard of living, which is based on distributed prosperity.I think it is valuable to get a background by looking at academic types like Gordon Tullock. Anne Krueger, Jadgish Bhagwati, Mancur Olson, and Michael Hudson, as well as Henry George and the Georgists to get an idea of what the issues are and then come to one's own conclusions.For example, a big issue now is intellectual property. What are the advantages and disadvantages of various approaches to its legal status. One is going to have a very different perspective on this depending on whether one is a creator or a user. Where is the balance point?But looking at Michael Hudson's arguments, which involve chiefly land rent and financial rent, it's pretty obvious that a great deal of gain comes from positioning wrt to land rent, and this often has a political component that is artificial. It's also pretty clear that FIRE is responsible for an increasing large share of GDP for a sector that is basically non-productive, making money from money rather than production. Warren Mosler favors taxing land rent but addressing FIRE though reforms he has proposed.Monopoly rent can be a bit more difficult to distinguish, since it involves extraction from productive activity in excess of contribution. But the degree of competition in an industry and industry standards are good indicators, as well as gains artificially generated by governmental privilege.All this is particularly important since extraction through rent-seeking affects not only circular flow but also innovation. societies that are dominated by rent-seeking are generally stagnant or declining. This is usually a problem for underdeveloped and developing countries but it is now affecting the developed world, too.
I should also add that economic rent is also institutionally imposed, for example, the institution of slavery that was at one time considered natural. See Aristotle and Aquinas, for instance. Serfdom also, and now "exploitation" of workers through perverse distributional effects like not sharing productivity gains due to decreased bargaining power of labor. Positive law, regulation, and taxation can address institutional perversity that results in economic rent. Crime is also a source of economic rent and recently Bill Black especially has shown how the financial sector has been largely a running a criminal enterprise. This should not only be investigated and prosecuted, but the gains clawed by penalties and taxation.
Mr Hickey: Where would you place the profits of a company like apple? I know Steve Jobs was a visionary, but had it not been for our economic environment and his place in society we may never had heard of him. I suspect that some sort of rent is involved, but it doesn't seem to be any of the ones you mentioned.
GLH, in my view, while Apple is a very innovative and productive company, it is extracting significant monopoly rent. Apple has done everything it can to create a closed platform by controlling both the hardware and system software, thereby excluding competition.Disclosure: While I don't own any interest in Apple, I have used their products almost exclusively since 1985 because in my view they offer the superior product.
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