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Rentier economies = declining living standards for the masses.

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Hannah Bell Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:10 PM
Original message
Rentier economies = declining living standards for the masses.
Rentier income - economic rent and interest or other financial charges - are the major factor polarizing the U.S. and other economies. This polarization of wealth and income is just the opposite from what the classical economists and Progressive Era reformers hoped to bring about. A study for the Congressional Budget Office recently showed how sharply the maldistribution of rentier income has increased in recent years, largely as a result of lowering tax rates on capital income and capital gains. "In 2003, the top one percent of the population received 57.5 percent of all capital income." This was the highest proportion since the CBO began collecting data in 1979 - which also happened to be the year in which real wage levels peaked. At that time the top one percent of the population received "only" 37.8 percent of capital income, and the top ten percent two-thirds (66.7 percent), compared to nearly four-fifths (79.4 percent) in 2003. The Center on Budget and Policy Priorities concludes: "Extending lower tax rates on capital gains and dividend income would exacerbate the long-term trend toward growing income inequality."<4> So the concentration of rentier income is largely the result of regressive tax policies replacing the progressive taxes that existed prior to the 1970s.

The wealth created by the past century's technology and basic means of production thus is not accruing to society as a whole, but to the topmost 1 percent of an economy that is polarizing increasingly, thanks to today's asset-price inflation. Prof. Baumol provides part of the explanation in an article contrasting productive with unproductive ways of gaining wealth.<5> Expanding Joseph Schumpeter's categorization of innovations in terms of new modes of manufacture, marketing or economic organization, this article adds "acts of 'unproductive entrepreneurship'" such as "innovations in rent-seeking procedures, for example, discovery of a previously unused legal gambit that is effective in diverting rents to those who are first in exploiting it," e.g., the creation of monopolies and means of acquiring them or increasing their ability to extract economic rent from the economy. Other examples might include property speculation, corporate raiding, greenmail and leveraged buyouts.

The bulk of this rentier income is not being spent on expanding the means of production or raising living standards. It is plowed back into the purchase of property and financial securities already in place - legal rights and claims for payment extracted from the economy at large. Most rental income and interest is channeled back into the property and stock market to buy more rent-yielding real estate or ownership rights. This inflates prices for these assets, making property and financial speculation more attractive than new capital formation. The economy shrinks, in much the way that Ricardo warned would occur as a result of groundrent diverting revenue from industry to landlords. Except in this case, revenue ends up being diverted into the financial sector.

http://www.cooperativeindividualism.org/hudson-michael_...

For examples of rentier economies: France's ancien regime, the economies of the latin american oligarchies, etc.

Shiny department stores with security guards at the doors to keep out the impoverished masses two blocks over.
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Hannah Bell Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:22 PM
Response to Original message
1. "Rent seeking": defined
Rent seeking generally implies the extraction of uncompensated value from others without making any contribution to productivity, such as by gaining control of land and other pre-existing natural resources, or by imposing burdensome regulations or other government decisions that may affect consumers or businesses. While there may be few people in modern industrialized countries who do not gain something, directly or indirectly, through some form or another of rent seeking, rent seeking in the aggregate imposes substantial losses on society.

Most studies of rent seeking focus on efforts to capture special monopoly privileges, such as government regulation of free enterprise competition, though the term itself is derived from the far older and more established practice of appropriating a portion of production by gaining ownership or control of land. The term "monopoly privilege rent seeking" is an often-used label for the former type of rent seeking. Often-cited examples include a farm lobby that seeks tariff protection or an entertainment lobby that seeks expansion of the scope of copyright.

Other rent seeking is held to be associated with efforts to cause a redistribution of wealth by, for example, shifting the government tax burden or government spending allocation. A temp agency can also become a rent-seeking entity for longer-term position placements, continuing to take a portion of an employee's paycheck months or even years after providing the initial job placement service, often providing no insurance benefits or anything that might otherwise justify taking cuts of employees' wages.

http://en.wikipedia.org/wiki/Rent-seeking

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leftstreet Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:23 PM
Response to Original message
2. God forbid the impoverished masses should have our wages raised
Uses good examples, too.

snip

Stock-market speculation today is largely a rent-seeking activity as companies are raided for their land or other property income. Retail food stores in particular have become land plays. Earlier this year, corporate raiders wanted McDonald's to mortgage the land value of its restaurants and pay out the loan proceeds as dividends. This raid illustrates how today's real estate bubble itself is largely a financial phenomenon. The upshot is that on the mortgage banker ends up with most of the net groundrent. Since World War II, interest charges have absorbed the increase in real-estate rent as a proportion of U.S. national income, just as interest is absorbing a rising share of industrial cash flow and consumer income.


Excellent article.

Thanks for posting, Hannah - you find the most interesting stuff!
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Hannah Bell Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:26 PM
Response to Reply #2
4. I find it highly interesting (& threatening to the entire economic edifice) that rises in workers'
wages in excess of productivity increases = "inflation," but rises in capital's returns in excess of productivity increases = ?
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leftstreet Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:50 PM
Response to Reply #4
9. (increases = authoritarianism)
I'd say.
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The Magistrate Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:25 PM
Response to Original message
3. People Badly Need, Ma'am, To Keep Their Eye On This Particular Ball....
Mr. Smith is hardly Dr. Marx, but he referred to rent as an expression of men's desire to gain without devoting themselves to the least degree of effort or exertion. It is the rawest and most exploitative form of wealth.

"The laboring classes are necessarily the most numerous portion of society, and it is nonesense to maintain that what benefits the greatest number is injurious to the whole."
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anigbrowl Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:33 PM
Response to Reply #3
5. I have mixed feeling about this
In general, I'm against rent-seeking as it's a Bad thing in economic terms. On the other hand, I don't consider rent a desire to gain without effort or exertion. It is true in cases such as large land-holdings by aristocrats, but is someone saves up to buy ana apartment block or suchlike and rents it out, that seems perfectly fair to me. Landlords have certain responsibilities towards their tenants (which aren't always discharged, but then some tenants don't always pay the rent either), and they are putting their property at some risk by renting it.

Incidentally, I have never owned land for rental, but I have had both good and bad experiences as a renter and am OK with the principle of the thing. I've also rented out equipment I owned on an occasional basis (I own a fair bit of specialized electronic equipment for film production), but I don't feel bad about making money that way - I had to save to buy the equipment, and if/when it was damaged it has been up to me to follow up with the insurer and get the replacement cost back, during which time I can neither use nor rent the gear.

In short, rent-seeking based on inheritance is bad. Rent-seeking based on an investment isn't.
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The Magistrate Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:48 PM
Response to Reply #5
8. 'Economic Rent', Ma'am, And 'House Rent', Are Different Concepts
The former has passed pretty much out of common usage, and so people always hear the latter when the first is meant. Rent originally meant the owner's share of any increase in the value of a holding, usually land; tenants on the land turned that portion over to the owner. It extended not only to grain grown, but to wild products that were not cultivated at all, only gathered, including items like drift-wood washed ashore on sea-coast tracts. In economics, it is this sort of meaning that is meant. By now, ownership of shares in a corporation, say, have no relation whatever to investment of capital in the corporation, being brought from other parties, who brought them from someone else on a stock exchange. In this sort of case, dividends are pure rent, as are capital gains realized when shares are sold for a price greater than their purchase price.

Renting house space is a trade like any other, which involves usually some investment of capital, a goodly load of debt, and much exertion in maintainance of the premises and diligence in selecting tenants and contractors. It is not the sort of 'rent' meant in the piece above.

"When a man says he loves his wife, he loves his daughter, and he loves a good hamburger, he had better be meaning something very different in each instance."
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anigbrowl Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 06:32 PM
Response to Reply #8
10. I know, that was why I drew the distinction between land title and bought property. Incidentally...
I am not female, and dislike titles like 'Sir' and 'Ma'am', although I appreciate you were just trying to be polite.
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Deja Q Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:36 PM
Response to Original message
6. Renting has its positive sides,
like paid for maintenance, shared utilities, and such, but it should be affordable.

I know some say "affordable housing means more riff-raff move in", but costs do not equate to people being taught basic niceties about civilized life. They are two separate issues.
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Hannah Bell Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 05:45 PM
Response to Reply #6
7. different meaning of "rent". the article's not about renters, but "rentiers".
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Odin2005 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 07:07 PM
Response to Original message
11. Rent-seeking behavior by elites is a common cause of the fall of civilizations historically
It saps away economic surpluses on lavish conspicuous consumption by the elites that in a healthy society would be reinvested into society. The Roman Empire, and other so-called "Universal States" of dying civilizations were essentially giant rent-seeking operations.
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handmade34 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-02-09 07:12 PM
Response to Original message
12. Syndicalism anyone?????
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