It’s all about the rents

John Maynard Keynes was famous for his acerbic quote: Euthanize the rentiers.

How did we come to worship the rentiers in our economy instead?

I’ve been nattering on about the scourge of rentiers since CK’s inception, and how classical political economy focused on freeing an economy from rent seeking.

Lately, other writers are starting to take notice. Here’s libertarian author, Michael Lind, calling attention to the drag on the economy that these rentiers impose.

“Landlords, lenders, copyright holders and others — which use their natural or artificial monopoly power to extract excessive tolls, fees and other recurrent payments from the rest of society, including productive businesses. The fees or rents extracted by these interests constitute a kind of “private taxation” which — rather than public taxation — is the greatest threat facing America’s productive economy.”

Lind deconstructs the persistent conservative myth of government taxation and regulation being the problem, and well describes the real threat to the American economy.

“Today America’s powerful rentier interests, particularly those in the FIRE (finance, insurance and real estate) sector, are mobilizing campaign contributions and paid propaganda to promote what I called the Rentier Agenda: low taxes on those whose income is derived from capital gains; the privatization of public infrastructure and the deregulation of regulated private utilities, to generate windfall profits for investors in privatized or deregulated agencies; and a macroeconomic policy that serves the interests of creditors, at the expense of slow growth and mass unemployment, rather than productive businesses and workers.”

Of course, some writers have been at this beat far longer than yours truly. Pulitzer Prize-winning journalist David Cay Johnstonhas been doing heroic work exposing how the economic deck is tilted against average Americans. His rigorously researched books –Perfectly Legal, Free Lunch and now with his latest, The Fine Print, well describe our economic disparity.

“The reality is people are now, finally — and I can claim some of the credit for this through my books and my reporting — people are looking around and saying, “Wait a minute! Starting back in 1980, I was promised that I was going to have a better life. We’d all prosper. Yet all the gains are going to the top.”

Johnston shows how the wealthy and the corporations they control have gamed our legislative system to their benefit, through the use of campaign contributions and non-stop lobbying.

“In the case of corporations, what they do is they get rules passed that prevent competitors from coming into the markets, so they can charge higher prices. As I said, all you need is a penny a day extra, from every person in America, and you have an extra billion dollars at the end of the year. This problem of rent-seeking is, then, compounded by our campaign finance system. What big business — and that’s those 2,600 companies which own 80 percent of the business assets in America – what those 2,600 companies have figured out, and their leaders have figured out, because people running these firms are very smart people, is that it is easier to mine Congress and the state legislatures for gold than to go out and earn it in the marketplace. Sometimes all you need is to get one word put in to a regulation.”

Rent seeking has been massively enabled by the forty year trend of lowering tax rates on the wealthy and the corporations they control. This low tax regime was sold on the premise that it would benefit all Americans with increased growth. It turns out that this claim was not exactly true.

Economist, Joseph Stiglitz took to the New York Times the other day to point out that the idea of low taxes on the wealthy leading to growth is ideological nonsense. And, rather than productive enterprises, this low tax rate encourages rent seeking.

“Remember, the low tax rates at the top were supposed to spur savings and hard work, and thus economic growth. They didn’t. Indeed, the household savings rate fell to a record level of near zero after President George W. Bush’s two rounds of cuts, in 2001 and 2003, on taxes on dividends and capital gains. What low tax rates at the top did do was increase the return on rent-seeking. It flourished, which meant that growth slowed and inequality grew.”

This low tax environment enabled the wealthy and the corporations they control to fund more lobbying, and better public relations describing the wonders of low taxes. Wash, rinse, and repeat. It’s a vicious circle.

What would an economy free from rent seeking look like? Here’s Michael Lind with a proposal.

“The Anti-Rentier tax agenda would seek to raise capital gains taxes on rentiers while lowering the tax burden on American workers and the profits of productive businesses. The Anti-Rentier policy reform agenda would involve increasing public ownership or utility regulation of infrastructure. Instead of cutting Social Security and Medicare to force the elderly to buy more products from parasitic private-sector monopolies and oligopolies, the Anti-Rentier coalition would favor expanding Social Security and other public social insurance, while phasing out tax subsidies for private health insurance and private retirement products. When it comes to economic management, an Anti-Rentier movement would tolerate a modest amount of inflation, in the interest of productive business and solvent government, at the expense if necessary of the creditor elite.” 

You’ll notice that this proposal is pretty much the opposite from what is proposed by our Kenyan, Muslim, Socialist President, with his policies enabling Wall Street criminals, and his latest budget calling for the cutting of Social Security.

As the French say–

Plus ça change.

 

 

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