Rent Seeking!

Our current semester is done. As college professors we now have time to renew our strength and get ready for the Spring semester. On top of this it is Christmas time, and lots of family activity will occur. I can’t say this is my favorite time of the year, but I always love to see my family.

When I first got married many years ago we paid rent. Eventually we bought a house, and except for one short year, have owned ever since. What got me thinking about rent was a book by Joseph Stiglitz and an editorial discussing Chairman Jeb Hensarling, a Republican from Texas. He is actually known as “K Street’s biggest opponent.” Now what the heck is K Street? I had never heard of it before. It appears that K Street is a major thoroughfare in Washington D.C. where all of the lobbyists are located. If you don’t remember what lobbyists are, they are the remora of our political system. They are the one’s who are responsible for “crony government programs that reward the well-connected business elite.” The philosophical reason for doing this is based on a mercantilism and a belief it is the government’s role to increase wealth even if it hurts individuals. This to me, and to Jeb Hensarling, is problematic.

Last May, Jeb spoke to the Heritage Foundation arguing “that the world of earmarks, subsidies, and tax preferences has caused many to view success with suspicion.” These earmarks and subsidies are nothing more than economic rent forwarded by cronyistic politicians to their very rich contributors.

The classic definition of economic rent is “the excess payment made to or for a factor of production over and above the amount expected by its owner.” Investipedia gives a couple of examples. If a worker is willing to work for $15 per hour, but because they belong to a union they receive $18, the $3 difference is considered rent. Another example of rent is the huge salaries the CEO’s receive. Rent occurs when someone is given something for nothing. Stiglitz does a good job in his book, “The Price of Inequality,” explaining the adverse affect of rent seeking and its relationship with cronyism.

Stiglitz believes that much of our inequality today is “a result of government policy, both what the government does and what it does not do.” Hmm, this sounds interesting. What does he mean? To understand what his argument is we have to go back to economic rent, which he calls rent seeking. “Rent seeking involves the many ways by which our current political processes help the rich at the expense of the rest of us,” thus the reason why I brought in the word mercantilist. Our government has created “hidden and open transfers” to their friends, created laws that favor certain competitors, and “statutes that allow corporations to take advantage of others or to pass costs on to the rest of society.”

Walmart is a classic example of this. Forbes recently reported that U.S. Taxpayers are paying about $6.2 Billion providing public assistance for Walmart employees. If anything is rent seeking it is this. This is why I think Mr. Hensarling is doing the right thing. He is attempting to do away with the rent seeking so prevalent in our Capital, and it doesn’t make any difference who is in the White House, they all do it (Although, I may not want him to do anything about the Export/Import Bank, for obviously purely selfish reasons).

We have so many problems in our country right now. It seems like we have lost our way. I think we need more people like Mr. Hensarling who believe in the free market and are willing to work hard to keep in free, and reduce the rent seeking that large business wants to keep in place. Even the famous Peter Drucker has a problem with rent seeking.

“Drucker was not reluctant to criticize large companies, saying for instance, that outsize packages for CEOs were a scandal and that taking big salaries while firing workers was morally and socially unforgivable.” Interesting, although he may not have made the connection, but it appears he was against both cronyism and rent seeking.

Drucker also understood problems with government. He did not trust government initiatives, and “was critical of public-sector welfare programs.” He also said that free enterprise “could not be justified as being good for business, only if it was good for society.”

We all recognize the importance of business in our society, but we also recognize the problem of an unfair advantage given to someone just because they are powerful and a friend of our politicians. Jeb, keep up the good work, tear down the walls of rent seeking, and make our business system fair once again.

And that is my thought for the day!

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One thought on “Rent Seeking!

  1. Stiglitz makes a remarkable warning about the increased disparity of income in the US and rightly attribute it to rent. Another example besides Walmart is the oil industry that extracts oil from our land and don’t pay a just price for the benefit.

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