Rent-Seeking and Rentiers....

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Tim Liston
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Joined: Sun Aug 07, 2005 3:10 pm

Rent-Seeking and Rentiers....

Postby Tim Liston » Fri Mar 10, 2017 8:54 pm

The handful of you who read my stuff here in the LO forum know that there are two industries that I have decried for some time as being largely malevolent: banking and healthcare.

Not many authors trash both those industries simultaneously. Like me, most authors take them on one at a time. But in the recent article linked below, Nobel economist Angus Deaton takes them both to task, which got my notice….

Nobel economist takes aim at rent-seeking banking and healthcare industries (click on the title, from MarketWatch)

The money quote: “All that talent is devoted to stealing things, instead of making things,”

Economic “rent” in this context is income gained by those who engage in conduct that while although technically legal, is generally corrupt, and therefore usually requires collusion with government. AKA "crony-capitalism." Rent-seeking often involves labor guilds as well. One of my favorite bloggers, Charles Hugh Smith, writes frequently about the “rentier class.” And he rightfully adds the education industry, particularly post-secondary, to the rent-seeking mix. Though primary and secondary government schools are comfortable extracting rent.

The banking industry extracts rent primarily by socializing its risk and losses, which in the context of fractional reserve lending are sometimes enormous. With banks, it’s heads-they-win, tails-we-lose, as has been proven time and time again, most recently with the big 2009 bailout. And banks use their control of the Federal Reserve to manipulate the economic environment. (Paying interest on deposits, how silly! Sound money, how mundane!) The financial industry is the largest industry contributor to political campaigns, most times enriching both parties. And to no surprise, the financial industry has grown through the decades and is now 20% of our GDP. And they make nothing, feed nobody and don’t fix anything….

Healthcare is even more egregious in its rent-seeking, the real pros. Deaton describes the healthcare industry as "exquisitely designed to give opportunities for rent-seeking.” He favors a single-payer system, but only to nuke the current outrageous Rube Goldberg business model. There are so many rent-extracting mechanisms in our healthcare system that they are simply too numerous to discuss individually. I’ve compiled at least 11 ways in a “post-in-process” I’ll put up some day. I mentioned a few last summer. Not posting their prices is only one of my 11. Facility fees don’t even make my list, even auto repair shops charge shop fees....

Although Deaton didn’t mention education, it too deserves mention in any discussion of rent-seeking. From labor guilds to entry barriers to government collusion to non-profit abuse to funding obfuscation, education need not take a back seat when it comes to malfeasant profiteering. Though education should get a bit of a pass because people simply haven’t adjusted to very obvious new realities particularly with respect to the value of a typical college education. Exploiting profound ignorance is not rent-seeking….

BTW, to call the banking and healthcare (and education) sectors of our economy “rent-seekers” is to give property managers and landlords (what people typically associate with the payment of “rent”) a bad name. My apologies to the landlords out there. This is different....

The fact is, pretty much all the so-called “growth” (yeah right!) in our economy over the last three or four decades has been confined to the growth of rent-seeking industries and rentiers, and their government collaborators. The “real” economy, i.e. the economy that builds and fixes things, and that serves people honestly and fairly, has been on a decline all the while. Until we finally wake up to this reality the economic gulf between the rentiers and everybody else will continue to widen. This is the real “swamp” and if anyone believes that Trump is going to even begin to address these issues, they’re in for a rude awakening….


ryan costa
Posts: 2249
Joined: Fri Jan 06, 2006 10:31 pm

Re: Rent-Seeking and Rentiers....

Postby ryan costa » Sat Mar 11, 2017 1:22 pm

banking and fiat currency are necessary for all levels of industry and commerce beyond mercantilism. Every gesture of de-regulation has lead to a bubble and collapse. The bailouts are pretty new, but necessary. The first real bailout was a dumb accident. World War 2 happened, so the U.S. printed up a bunch of money to replace the money private sector banks and financiers lost. It recapitalized all the banks and industries.


"shall we have peace" - Henry Charles Carey

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