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The Critical Difference Between Rentier Wealth And Wealth Creation
Submitted by Charles Hugh Smith from Of Two Minds
The Critical Difference Between Rentier Wealth and Wealth Creation
If you want to understand why our economy is stagnating and wealth inequality is rising, look at the rise of rentier skims and the resulting decline in wealth creation.
To understand why the real economy is stagnating, we have to understand the critical difference between rentier wealth and wealth creation. Rentier wealth is skimmed by fees that provide little to no value to the to the person paying the fee.
The classic example is a fee collected to pass from one fiefdom's border to the next: no value is provided to the person paying the border fee; it is a rentier skim that transfers wealth from serfs to the fiefdom's landowning nobility.
In the modern economy, rentier skims take a variety of forms. The government is adept at levying rentier skims. Harsh penalty fees piled on top of minor traffic violations are one example; another is extra fees to "expedite" services government is supposed to provide in a timely manner.
A California architect recently recounted the new fee structure in a Northern California municipality: the fee to have the city planning department review your building permit application leaped to $6,000. Since the department warned applicants it will take at least six months for the agency to process the application, they kindly offer an alternative: for a mere $4,000 more (an "expedited fee"), the applicant can get his application reviewed in a mere four months rather than six months.
This is pure rentier skim.
Planned obsolescence provides many other examples of rentier skims. Microsoft's operating systems and hardware makers both operate a form of rentier skim, in that each new OS and device offers marginal benefits (if any) in terms of productivity. The rare printer that doesn't break down in a few years is obsoleted as software drivers are no longer available on the new OS.
Cartels and quasi-monopolies offer a wealth (ahem) of rentier skims. Monopolies can raise prices and degrade services at will. Cartels maintain price controls while denying they do any such thing.
Compare the monthly healthcare insurance fees offered by the handful of providers in your area--the differences are either cosmetic or result from differences in benefits.
Finance offers the richest opportunities for rentier skim. Load up college students with tens of thousands of dollars in high-interest student loans for marginal educations that could be provided at a fraction of the cost (see The Nearly Free University and The Emerging Economy: The Revolution in Higher Education) and what do you get? A nearly lifelong rentier skim off the student debt-serfs.
Higher Education’s Aristocrats: Over five years, administrators enjoyed pay increases of between 40 percent and 135 percent, and as a result each received $450,000 to $3.3 million from cumulative increases by the end of 2012-2013, the most recent year for which tax data is available.
Higher education is basically a multilayered rentier skim.
The net result of an economy of endless rentier skims is stagnation and rising wealth inequality. Money that could be saved and invested in productive enterprises and infrastructure is skimmed off by financial and political Elites.
Simply put, the rich get richer and the poor get poorer. This is the teleology of every rentier economy: the built-in consequence of rentier skims is increasing wealth inequality and economic stagnation.
This reality is easily visible in the data. Note how the wealth of the bottom 90% declined since 2003, while the wealth of the top 5% rebounded smartly.
Real median income declined from 2000 to 2014, while net worth (wealth) skyrocketed in the same time frame:
Rentier skims are naturally owned by the wealthy, so their wealth increases as the earned income of the bottom 90% declines due to the ever-rising costs of multiple rentier skims.
But this rising tide of wealth is concentrated in the accounts of those who own the rentier skims and the Upper Caste (Clerisy class) that serves them (for example, college administrators). Protecting Elites and the Clerisy Class That Serves Them.
The resulting wealth disparity is made visible in this inverted pyramid of wealth:
If you want to understand why our economy is stagnating and wealth inequality is rising, look at the rise of rentier skims and the resulting decline in wealth creation from productive investment.
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STICK EM UP! GIMME ALL YOUR MONEY
Humana up 400% since Obamacare Bill.
Physician, heal bill thyself.
I watched the price of real estate QUADRUPLE in seven years.
For a special low introductory rate to new clients, I will provide a service that optimally minimizes your payment of all the other rentier fees. Act now, this is a one-time-only recurring offer!!
"Four billion people, all strung out of their minds
On power trips and slaving ships
Not seeing that they're blind
One day, I'll be in front of you, one day, I'll be in front of you
Put up your hands, give me all your money
Don't think, don't blink 'cause I can't rely on you
I sold myself and I'll sell you with me
Don't blink, don't think that I can rely on you"
http://www.youtube.com/watch?v=7kJO6Ansonc
The wealth is concentrated in the hands of 1%. It is not by coincidence but by design.
To control over 60% of the wealth flows in an economy, you only need to control less than 1% of the population.
All your analysis and charts are belongs to us.
lets start with taxation - how do i avoid paying taxes ?
by staying out of the circus system.
In my country, having 6 kids will enable you to avoid paying taxes.
Native Belgiums can't afford that but most immigrants can and as a present, they get a free house with 5 sleeping rooms and 2 bathrooms and enough subsidies to live for free.
Where do I sign?
Just move to New Jersey .......same goodies avalibily to all "non-productive people "
As a tax professional I can answer this question. Don't have any taxable income!
Income taxes? Endorse your bills before you spend them.
If I avoided paying taxes I would be 30-40% richer. Nice, but still not enough to get me excited.
In the time it took me to increase my wages (through increasing the value of my labour) by 40%, the price of real estate went up 400%. You can't start a business out of your garage if you don't have a garage. Start with the price of real estate.
wealth... growth...
does anybody know what these days counts as economic growth?
IT'S THE ABILITY OF A COUNTRY TO KEEP THE WAGES UNDER CONTROL AGAINST THE INFLATION.
INCREASED INFLATION + STABLE OR LOWER WAGES = GROWTH FOR THE GDP
So why do they want higher inflation?
MORE "GROWTH"!!
We lowe growth! By the only thing that's to much about that story is the people and the actual economy!
and all thanks to globalisation where everybody can be as rich as the richest middle class in the world. And how did they do it? By making the richest middle class as poor as the poorest middle class in the world.
you all voted and loved it!
"From each according to what I want.
TO EACH ACCORDING TO WHAT I WANT TOO! Haha!"
I cannot speak to Europe bit in the USA..."the malefactors of great political wealth can speak to Putin as a. Nazi...BUT WE ARE THE NATIONAL SOCIALISTS!"
Isn't it a bit early to be drunk? :)
Only if you stop drinking at all.
A+.
Exactly the "New American."
Now pay for your trillion dollar deficits using this approach to...shall we call it recovery? Indeed we shall! We shall run on this platform!
Just look at the fees on your cell phone bill, home phone bill, car rental bill, tuition statement, home purchase/sale statement, property tax statement, car purchase, etc. Nearly everything that can be taxed has been taxed via fees - and there are even quite a few places where fees get hidden - such as gas prices.
In hindsight, opening the till, and giving Guido his daily protection was the "good old days" .
.gov eliminated Guido, took his place, and raised it to an art form.
Now the Mob is .gov.
And EVERYTHING the Mob used to generate cash, is being used by .gov
TSA security checks at the airport are the same thing. They piss me off enough, but when they have "elite lines" that get to cut in front of the serfs it is infuriating as all fuck. They fucking just get to cut right in front of you, and if you don't like it the TSA puts you on a no-fly list or gives you 3 cavity searches or whatever.
Fuck this goddamned place.
Aristocracy.
The difference is whether or not you have to work for wage/salary. If you do, you only have your brain and body to sell, and your employment income is subject to income taxing.
On the other hand, if you are from the Leisure Class, as someone who can receive hundreds of millions dollar worth of stock dividends each year without lifting a finger ( the long-term "investment income" is income tax-free) , then you belong to the Rentier Class, who owns the means of production but has agents overseeing daily operations of wage slavery.
CHS the libertarian goes Piketty-Keynesian compatible !
When debate of economic ideas meets the wall of hard facts.
Excellent article, summing up the entire structure of our failing economy in simple, plain language that is wholly accurate, bitchez.
Did he mention the price of real estate?
Or the effect of unregulated lending on the price of real estate?
Either my definition of rentier is way off or the author doesn't know what one is.
Could you do me a favour, could you explain to me how land rent isn't also a form of rentier wealth? I could use a good laugh.
++++++++ ...
Very simple. If you get something tangible or valuable for your "rent", such as the use of land, a house, or a car that is a fair bargain and a net gain to the economy.
What they call "rentier skim" means taking money and giving nothing of value in return, and this is a net loss or drag on the economy.
I wish they would come up with a different term than "rentier". It is too easy to confuse with rent.
You always get something valuable out of rent otherwise you would not pay it. Getting a building permit in 4 instead of 6 months is valuable. I guess what you're saying is that rent generated by natural scarcity and ownership privileges will create a gain to the economy where artificial scarcity does not, but I don't see it.
Lets for a moment declare a country as land owned by it's government (which requires much less mental gymnastics than pretending private ownership is a natural right). The artificial scarcity it creates is then just a roundabout way of acquiring land rent ... you're free to walk into the sea if you want to avoid it (or find someone else's land to live on).
Non-geo-libertarianism is just a mess of sloppy thinking IMO.
Silly me, you are right. Being held up by a robber who performs the valuable service of not blowing your brains out in return for all your money, is exactly the same as paying rent to live in someone else's house. (sarkylert)
Therefore, unless you invite every homeless person in town to live in your house rent free, you are exactly the same as an armed robber.
Grow up, liberal.
If that robber owns the land you are on and you have a contract to allow him to do exactly that for access to those lands then yes ... they are both forms of land rent.
What is your address and when can we move in?
I live on the land owned by the Dutch Government, marrying in is probably the easiest route unless you are a refugee with a good sob story.
Yes but you proved to me that you do not own the land, and it is immoral to charge anybody to live on it. Therefore, you have no right to charge anybody rent or prevent them from living in your house.
PS my father was a Dutch citizen born in Neupekela Groningen. Leave the key under the mat.
All ownership is based on conquest, somewhere up the line.
And all renteniering is based on charging money for something that does not have clear cost of production. The fact that a square meter in Manhatten is worth more than the same in Antarctica has nothing to do with costs and everything to do with the social value created by: amenities, infrastructure, social structure, etc (location location location).
Building a house costs money, but the value of the land is not based in the costs of production.
The Netherlands is actually one of the few exceptions: That is why we say God created the world, but the Dutch created the Netherlands.
And that house really is "worth" 800 grand because the bank lent that much money to someone who bought it.
And if you can't see the sarcasm in that sentence then there is no hope for any of us.
Here, let me try again:
"The price of land doesn't matter because as the price goes up, competitors come in and offer up cheaper land and the problem solves itself."
Did you hear me that time? Once more:
"All we have to do is wait for another Murder-Death-Kill and then we'll know where the location of the perp."
Or, if you think land rent is "free" money, why don't you go buy some houses, rent them to the first tenants that come along, and watch the profits roll in?
I have heard of people stupid enough to say houses should be free, but never seen one stupid enough to do this.
You don't truly own land if you have to pay taxes on it, on that I assume we can see eye to eye?
Now you are beginning to get it. If you can see the difference between paying for land, and owning the land, or paying taxes and not owning the land, you can see the difference between rent and the skim.
I also see there is no difference between living on government land and living on someone else's land ... there is little advantage to me to being a peon to a private land owner to being a peon to a collective land owner, renaming tax to rent changes nothing.
Well which is it? Is it fair to pay rent, or taxes, for the use of land or not? You can't have it both ways. You can't say it is unfair to charge you rent, but fair for you to charge someone else. You can't say it is unfair to prevent you from using someone else's land free of charge, but fair for you to do the same.
Is it fair to be born into a world and told there is no land for you what-so-ever?
Every other animal on the planet is born onto land that their ancestors conquered. Perhaps that is the answer.
I think both land rents and land taxes are fair solutions to the intractable problems of reality ... you should be able to profit from improvements on the parts of the commons you have been granted title to, the community should be able to take back those parts of the commons you have been granted title to if others can make more productive use of it (not through annexation, but simply through the slow grind of taxation being greater than your profit).
On the other hand I think first come first serve is not fair and to call it a natural right as some claim to legitimacy is pathetic and completely unsupported. The only thing natural history and history teaches us is that might makes right, that's the law of nature ... nature is not a great guiding principle IMO.
One man's fee is another man's paycheck.
Reagan knew and expanded government.
Thanks to subversive articles like this we'll soon see Internet access fees.
But eventually the guillotines skim the rentiers.
An American, not US subject.
Haven't you forgotten about the trickle down effect?
Actually there never was a trickle down effect, it is just those on high pissing on you.
The "trickle-on" effect.
Because the little people aren't worthy enough to experience a "flood up" effect.
You shall be trickled on and you shall be grateful! Now shut up and get back to work, useless slave!!
Excellent theme, The Critical Difference Between Rentier Wealth and Wealth Creation.
However the term "wealth creation" is terrible. Wealth was created either by, well, the Creator and so has always been potentially available. Or it is produced, that is, human ingenuity, labor, and cooperation has produced something from whatever pre-cursors were available. Many of the gains in our ability to produce are based on the historical legacy of the generations that went before us, which is perhaps out most important capital. All or it inherited free of encumbrances (well, mostly, if we keep certain sordid aspects in the past).
Wealth creation is a term that only came into vogue in the eighties. It is laden with ideology. The term is mainly intended to convey the impression that wealthy owners are a boon to the rest of us who would be poor without them, when in fact replacing owners is the easiest thing in the world. And most of the wealth that they have "created" no matter how savvy or creative they were, involves gaming the system, either by chance or by intent. A lot of the legacy capital we have inherited was created by the sweat and/or intelligence of people who never received more than a pittance for their contributions.
Industry "Associations" are a good example of rentier exploitation. As an Association they get together for their mutual benefit by coluding, charging fee and barriers under self regulation and standardising practices and agreements creating virtual monopolies.
Govt. Dept charging extra for expedited fee creates an incentive to keep stretching the process time. It should be illegal.
Rentier skim and seigniorage are only a part of the reason our economy is stagnating.
As more regulation is passed it becomes harder to create wealth... by creating a new product, inventing a new way of organizing business or improving the efficiency of making an existing product. This is due to the closed door effect. When someone gets rich, they immediately turn around and close the door behind them, so no one else can compete with them. Read Schumpeter's treatise, "Capitalism, Socialism and Democracy."
Another reason is the tax structure is antithetical to wealth creation. All governments tax income and sales. Since taxes are a drag on whatever is taxed income and sales are lowered. We see this all too well in the economic results in Japan when they raised their value added tax. As governments deficit spend they must pretend their profligate spending isn't so bad so they raise taxes.
So, while rentier skim and seigniorage negatively effect our economies, their effect is less than the out of control regulation that is designed to protect the politically favored's profits from competition. This is obvious when we look at the fact that small business ownership in the US is at an all time low.
As if the above expostion by CHS isn't bad enough.....
the "doing god's work" rentiers have the unmitigated gall to DEMAND - under threat! - bail-outs when their skimming/scamming/fraud operations blow up!!!
Who gets stuck with the tab? Look in the nearest mirror sucker - and hold up any kids/grandkids while you're at it.
But don't dare complain - else you might get labeled a "Dissident"... OMG!!!!
Sorry Charles, but your article is mostly bullshit.
We all know the wealth rebound of the top 5% did not happen because of rentier skims.
And you fail to touch on border cases:
- Is the concept of paying interest on borrowed money/stuff generally bad?
- Are all the Asian immigrants who work and save like crazy, to buy one house after another, and starting with the second house rent them out to receive rentier income, generally evil?
And I miss any mention on the role of competition, or the suppression of it, in this context.
Not all economic growth is created equal. If you spend money but afterwards have little to show for it, you have wasted it. Sadly much of the money America "invest it itself" each year through government spending and programs falls into this category. We need the right kind of economic growth, growth that is sustainable, with a purpose, well directed, and that has long lasting benefits. A great deal of our problems come from the poor quality of what we call growth. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/08/the-wrong-kind-of-growth.html
CA's prop 13 protects the rentiers and promotes institutional loan fraud, I think it's time to limit prop 13 to owner occupied homes and impose rent revenue taxes on the rentier class.
The author neglects to provide the technical, economic definition of rent. It is income received solely on the basis of ownership. Thus, every bondholder and stock investor belongs to the rentier class when they receive interest or dividend income, without doing any work that adds value to a good or service.
Ummm. You mean like a "carbon tax"?
Or a "penalty" for not having Obama-complaint health care?
Or a "luxury" tax on "cadillac" health insurance plans?