Nobel Prize Winning Economist Blasts America's "Rent-Seeking" Economy

Tyler Durden's picture

Via Mike Krieger of Liberty Blitzkrieg blog,

I’m really grateful Angus Deaton was willing to come out and state the obvious.

That is, the fact this economy isn’t what we’ve been told. In reality, it’s largely a rent-seeking based system, in which a meaningful percentage of the people who earn the most money are not only not adding value to society, they’re in fact parasites feeding off the general public.

Market Watch reports:

Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might, said Nobel-winning economist Angus Deaton on Monday.

 

If an entrepreneur invents something on the order of another Facebook, Deaton said he has no problem with that person becoming wealthy.

 

“What is not OK is for rent-seekers to get rich,” Deaton said in a luncheon speech to the National Association for Business Economics.

 

Rent seekers lobby and persuade governments to give them special favors.

 

Bankers during the financial crisis, and much of the health-care system, are two prime examples, Deaton said.

 

Rent-seeking not only does not generate new product, it actually slows down economic growth, Deaton said.

 

“All that talent is devoted to stealing things, instead of making things,” he said.

 

Another prime example of rent-seeking is that the Medicaid is funding opioid prescriptions for low-income workers, Deaton said. The results are workers who are becoming addicted and overdosing while profits are going to the Sacker family which owns Purdue Pharma that makes OxyContin.

But Jeff Sessions swears it’s all the fault of the evil marijuana.

Deaton said he favors a single-payer health system only because our current part-private and part-public system is exquisitely designed to give opportunities for rent-seeking.

 

“So I, who do not believe in socialized health-care, would advocate a single-payment system…because it will get this monster that we’ve created out of the economy and allow the rest of capitalism to flourish without the awful things that healthcare is doing to us,” he said.

 

Raising taxes on the wealthy is not a good way to combat rent-seeking because it taxes the legitimate profits of entrepreneurs along with rent-seekers.

 

“The key is to somehow find a way of tackling rent-seeking, crony capitalism, and corruption legal and illegal and build fairer, more equal society without compromising innovation or entrepreneurship,” he said.

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centerline's picture

Answer: tax the fuck out of rent-seekers.

Oh, and uphold the laws already on the books.

vollderlerby's picture

... and prevent them from doing a tax inversion dealio to escape taxes AND change the god damn tax code to tax foreign earnings WHEN EARNED not when repatriated, which is of course fucking never.  

malek's picture

Yes, more government a/k/a more taxes is the solution!!!1!   /s

centerline's picture

Far less government and an entirely different approach to taxes altogether. The current system is built to punish the masses and protect the elite.  Gots to go.

 

Ignatius's picture

For right now, imagine being born into a game of Monopoly that's already been won.  That's the rig and the point of highlighting the problem with rent-seeking economies.

Americans don't give a shit about people doing well - they want to do well themselves - but Americans do care about opportunity.

centerline's picture

This game was won a long, long time ago.  Heck, the game monopoly itself was originally made to point this out. 

Ignatius's picture

I beg to differ in that the problem with a rentier economy was identified by classical economists long ago, before they were summarily bought off by the perps, the banksters.

But you are right about Monopoly, a game of aquiring houses and hotels and no industry.

Things that are done can be un-done.

centerline's picture

Our history has been one of elites with property and the masses renting from them one way or another.  Boom and bust, again and again.  It is surely fair to say that the game has been played again and again - not that same game per se.  My point is more aimed that the underlying way in which we have structured ourselves again and again.  Always some variation of a fuedal model.  Same game, different players. 

Logan 5's picture
Logan 5 (not verified) centerline Mar 10, 2017 1:32 PM

"The RENT is too damn high!"

~Jimmy McMillan

centerline's picture

Sure is.   Edit to above... I meant to use a different word than "game."  It reads funny.  lol.  Thats what I get for writing fast.  Meant to say that the same game gets played again and again by different players.  So... it is a different round of the same game (he who has the most property wins).

Pinto Currency's picture

It's racketeering using central planning that is being described.

Minimize central planning and the racketeering can't function.

MagicHandPuppet's picture

"Rent seekers lobby and persuade governments to give them special favors."

The answer is not simply trying to add taxes to rent seekers (who essentially OWN the policians they give money to - and those politicians aren't likely to rock the boat and bite the dirty hand that feeds them).  The answer is term limits, restructuring the laws that enable lobbying, financial campaign (and other) contribution to politicians and allowed side-deals or insider trading, etc. where politicians essential get a middleman cut from the rent seeking.  If we strip away the ability for politicians to personally gain from these bullshit crimes (and apply very harsh penalties when they get caught), then the path to rent seeking is destroyed.

Obviously, I'm just a dreamer since this requires the corrupt rent-seeking middlement politician whores to pass laws that stop themselves from continuing to getting rich off of enslaving the rest of us.

centerline's picture

Absolutely.  The formation of a "political class" is disgusting.  The fact this term is real today and awknolwedged is infuriating to me.  That is definately part of the problem that has to be fixed. 

Obviousman's picture

I realized this when I was audited by an IRS official who boasted that he had a "master's degree in taxation."  My immediate reaction was that any society that can even produce something called that is already down the shitter.

True Blue's picture

Look, term limits would take away the only stick we have with which to control those fuckers -kicking them out of office.

Impose term limits, and they will just forgo the lubricant and ream us as hard as they can, as fast as they can -because there will be no consequences and they will be out of office in X years anyway.

Instead of term limits, demand a special ballot when they leave office and let us decide if they get paid or sentenced.

 

Oh, and want to start fixing healthcare? Scrap ZeroCare and impose a %30 flat tax on all cosmetic procedures -including Nancy Pelosi's botox.

crazzziecanuck's picture

Term limits exists.  They're called elections.

Term limits won't solve the problems either.  "We know you're up in 8 years.  Turn tricks for us then and then in year nine, we'll take real good care of you."  It will just just make them even more creative with the corruption.  "Your kid having a hard time finding a job? We know ways to help out with that but we'll expect something in return."

There is no way tinkering can fix this problem, and considering the judicial system protects the legislative (and vice versa), it will be a tad difficult.  You cannot legislate ethics and morality, especially when we allow the unethical and immoral to run the show.  People just need to pay attention and see how the sausage is made.  That's hard as well because all the bleating from the MSM convinces both the left and right to obsess over sh*t that doesn't matter.

 

fbazzrea's picture

divide and conquer has been the name of the "real" game since the Tower of Babel.

it's 99.99% of U.S. against <.01%. they only rule because we give them permission.

replace and repeal permission 

Logan 5's picture
Logan 5 (not verified) centerline Mar 10, 2017 2:17 PM

I always wondered why the 'ghettos' of Meditteranean & Baltic were right alongside LUXURY TAX

Déjà view's picture

§ Ambulance chasing lawyers

§ Healthcare 'taxing' GDP @ 19%

§ Highest corporate tax in OECD

» FIRE economy...

 

AldousHuxley's picture

Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ....

 

Not real science. Can't reliably repeat cause and effect. Justification of rent seeking economy.

 



CPL's picture

You want to know how to fix it?  Put ten BitCoins in my wallet and I'll tell you the solution to collectively save billions of dollars and tens of thousands of hours of bullshit without killing everyone.  It's easy, you won't like some of the steps you'll have to do, but once it's fixed you won't have to look at it as an issue for a while and lowers the noise surrounding housing pretty easily.

My wallet address for sending BTC to obtain information:

1JdRM74wtrBDZbu8n2aUPP3bLrCtEFFuM8

 

centerline's picture

Wow... I just looked up the bitcoin rate.  Yikes.  I wish I had 10 bitcoins now.

And I am intrigued also.  Ugh.  Loan me some bitcoins?  ha ha.

CPL's picture

No.

This idea of resorting to more taxes, go fuck yourself.  Once you broach the line and say 'throw money at the problem', it means you've already lost because you resort to the sloppy and lazy approach to problem solving.  In this case everyone is skirting the issue of telling the landlords to settle down and work in their community.  The next step after that is easy.  Dig a hole and put them in it, or blow them out the airlock.

(in a nutshell why Obama fucked it up and why he's not fit to lead a herd of goats.  Zero management skills.  No acceptable method to problem solve.  Merely sentient, not sapient.)

centerline's picture

Is actually not more taxes CPL.  It is far less.  Is differently placed taxes.  Different approach.  Don't misinterpret as "more of the same."  What you are suggesting is "barrel of a gun" solution.  No thanks.  That is the sloppy way out.  Once the top are blown out the airlock, where does it end?  SJWs will destroy the world with those tools.

Obama did not want to fix all this.  Different aggenda.  Clearly to keep the current paradigm going for the elite who know that a shit storm is coming.

 

CPL's picture

Housing isn't just an 'elite' issue is it?   Unless you are squatting in a card board box or a train yard hobo, living somewhere is everyone's issue.  Stop pretending it isn't and smarten up.  It's important to avoid tunnel vision if you want local business to run properly.  And yes, taxes are a big red flag that signals to everyone in the population that the people they hired to fix a problem everyone has, can't fix the problem

The whole purpose of a government is to facilitate day to day bullshit that keeps things running.  Regardless of the 'elites', the 'elites' are changed like underwear often and without much thought, mainly because they are more or less useless pigfuckers.  They have the memories of goldfish and the lifespans of mayflies, they are not worth a fiddlers fuck concerning housing for a city.  They are just handy for throwing under buses or dumping out an airlock since they are seemingly driven to produce and breed more morons to jump into positions they aren't remotely qualified for. 

Again.  Let's do a run down.  You want government to fix the problem, but don't hire people that know how to fix things.  No one wants to do what's required, nor do they want to pay for the professionals to help them.  This is obviously the story where the moral of the tale is 'can't fix stupid'.  OR...Do you want to fix the problem?  

The bunch of them sitting around with their thumbs in their ass and bitching about it, doesn't fix anything does it.  Nor do taxes.  Too many taxes already.  Those taxes highlighting how fucking useless the government really is at governing.

New_Meat's picture

and that's why I hate them elites

itstippy's picture

Taxes are necessary in advanced societies.  Done properly, they provide a somewhat fair, uniform, and predictable way to fund mutual benefits like roads and infrastructure, education, defense, sanitary systems, law enforcement, etc.  Collecting taxes based on user fees (gas tax) or ability to pay (income tax) isn't perfect, but it's somewhat fair.  Collecting taxes for the dual purpose of raising public revenue and social engineering is much more insidious (tobacco tax, liquor tax, soda tax).  

The big problem is that government seems to inherently desire more taxes, more public spending, and more power.  Politicians are highly skilled at convincing a majority of voters to support these activities, which inevitably leads to deficit public spending.

Once deficit public spending becomes ingrained, it turns the working class into tax mules for the poor and the wealthy.  The formula is simple: government provides services in excess of taxes, paid for by borrowing money from the rich.  The rich expect to get their money back plus interest (rent seeking).  Eventually the working class must shoulder the burdens of paying for mutual benefits (roads, infrastructure, etc.), PLUS supporting the poor (entitlement programs), PLUS paying interest to the wealthy rent seekers (interest on public bonds).  

Wealthy people hate it when the government taxes them to pay for stuff, but they LOVE it when the government borrows money from them to pay for stuff.  Yummy!

crazzziecanuck's picture

I agree with the overall point, but there's another.

People would be more willing to pay taxes if those who flaunt the tax code or manipulate it get away with everything.  There's a story up in Canada where KPMG sold wealthy tax people the idea that by "gifting" to a company in the Isle of Mann, all returns would also be tax free.  It was illegal, and the government found out about it.  Instead of going after tax cheats criminally, they sent the cheats a letter asking for back taxes to be paid, without penalty, so long as they kept the content of these letters secret.  Well, the letters didn't remain secret for long.

If you're poor, go to jail.  If you're rich, quietly pay up.  If you're a Wall Street bank and you commit criminal acts of fraud, just pay a small fine.  They don't even pay the full fine value and the fine itself is tax deductible.  Talk about kicking the taxpayers, citizens, and their victims right in the balls.

As a poor taxpayer, what would you think?  Tax evasion becomes justified as our society continues its rot from the head down.  There are the occassional moves in the right direction (i.e., IRS recently going after Caterpillar for transfer pricing), but they are deliberately few and far between.  If you're on the board of any firm at the top of the S&P, you know full well that getting caught for tax evasions is like the lottery.  We need to rip up the Holder memo and start throwing these f**kers in jail.  I guess we can start by amending exactly how limited liability is for corporations and their managers.

I won't even get into the issue of spending priorities, because it's fairly obvious, but that also influences people's opinion on paying tax too.

logicalman's picture

The only half way reasonable form of taxation is excise tax.

No need for IRS - Tax code fits on a postcard - no way to avoid tax other than doing without the taxed items.

No tax on food or clothing.

Luxury goods taxed hard - that way the rich pay their share.

Tax lawyers out of business and all the unproductive parasites at IRS have to do something useful for a living.

Income tax is the bastard child of robbery and extortion.

centerline's picture

Agreed.  Just that it does need to be carefully done because it does have a greater effect on the poor since consumption is such a large percentage of thier income/welfare. 

IRS and the income tax needs to go. 

logicalman's picture

That's the reason for no tax or food or clothing.

After that, a sliding scale where more expensive/luxury items get hit harder - Less % tax on a Hyundai than a Merc, for example.

Would be a lot more equitable than what we have now.

adanata's picture

 

It seems the Saudis weren't the only ones paying to play with Hilda; seems California doesn't hate Trump so much as the Hollyweird/Silicon Valley billionaires and their web of deals with the "foundation". The more people see all this, the sooner we can get rid of the worst of it.

vollderlerby's picture

No you fucking idiot, it is not.  If you're going to tax companies that produce in AMerica and reinvest in America but no other companies, that's just fucking stupid.  Same as your comment.

NugginFuts's picture

someone's sarcasm detector on the fritz today?

Dr. Engali's picture

Looks like somebody forgot their crazy pill today.

biff_rapper's picture

We must simultaneously raise the highest income tax brackets substantially and incur a market crash to erode wealth from the top.  This is the only way to level the playing field.  Once the tax rates reach an inflection point where it is more beneficial to pay the line workers their fair share than to horde their gold nefariously for selfish greed, the economy will flourish.

biff_rapper's picture

We must simultaneously raise the highest income tax brackets substantially and incur a market crash to erode wealth from the top.  This is the only way to level the playing field.  Once the tax rates reach an inflection point where it is more beneficial to pay the line workers their fair share than to horde their gold nefariously for selfish greed, the economy will flourish.

ersatz007's picture

"Yes, more government a/k/a more taxes is the solution!!!1!"

 

Sarcasm not withstanding, you raise a really good point.  What is the solution??  Raising taxes will probably just result in the rent-seekers re-writing legislation via their bribery system (aka 'lobbying') so that they can avoid those taxes; i.e., they'll just figure out another way to game the system AFTER the general populace believes something was done and the fervor to get out the pitchforks dies down.

Obviously, enforcing laws doesn't apply to the elite - as evidenced by the fact that not a single US banker went to jail for the 2008 calamity. 

 

 

CJgipper's picture

Reduce regulation.  That's what allows these rent seekers to exist.

 

LARGE portions of HCA, lifepointe, CHS, etc. are devoted to dealing with regulations.  Say it costs 100k for an office to be compliant in a given state.  If that's an individual doc, then take his 300k, and 100k comes right off of it and he's left with 200k.  BUt if you pool 3 offices, that's only 33k per office compliance costs.  Now, if someone says "I'll run it all for you and pay you 250k", you're going to LEAP at that offer.  And there you go.  That's what these healthcare management companies are doing on a much, much, much bigger scale.

ersatz007's picture

Agreed, over regulation certainly adds to the cluster f*&# we find ourselves in. And as I pointed out before the elite also use regulation as a way to reduce competition by making it impossible for smaller players to compete in the marketplace because they are unable to comply with the regulations out there.

Spungo's picture

I don't even think corporations should pay taxes. Most of my investments do not pay corporate income tax. They're called income trusts, and they're awesome. All of their profits are paid out to shareholders, and the shareholders pay the taxes. It's all taxed as regular income. 

What's really bizarre is that liberals were the ones who originally pushed to eliminate income trusts. Instead of keep everything within the country and having people pay the full tax rate, they wanted companies to offshore their headquarters and have the shareholders only pay dividend taxes. There was an income trust mania in Canada about a decade ago. Every company set up their own income trust. A few income trusts still exist up there. Boston Pizza has one (BPF.UN), The Keg has one (KEG.UN), Richards Packaging has one (RPI.UN). Those should be brought back to Canada and the US. Stop forcing companies to move overseas. The libs are bribed by the same people as the republicans, but they were able to sell the offshoring thing as "corporations are not paying taxes!!"

centerline's picture

I tend to agree.  Seems counterproductive to tax production instead of consumption.

Nick13_ro's picture

Taxing rent seeking is exacly what the rent seekers want. It makes the state dependent on the tax revenue so they can demand further privileges and increase their profit margin. The tax just gets transfered to the consumer. Nobody with a brain actually pays taxes- he just dumps the tax on someone else.

centerline's picture

Which is why the current taxation systems need to go.  Simply taxing people under the current structure simply results in the taxes being put on the renters.  Doesn't work.  I probably should have been more specific.  lol.  But, hey, makes for good conversation.  Appreciate the response. 

Saucy-Jack's picture

Rent seekers are subsidized by .gov.

Fannie and Freddie gruarnatee their scheme.

Same with student loans.

Gee, wonder how that happened?

Moral hazard is the SOP of the collusive bodies killing our freedoms and enslaving us.

armageddon addahere's picture

I really hate when economists use the term "rent seeking" when they  mean "the skim" "the bezzle" " the rake off"  "the rip off" or "tax".

 

When you rent a car, you get something for your money in a voluntary transaction. Same with renting furniture, a hotel room, an apartment, or anything else. It is just a variation on buying the same goods.

What they are talking about are illegal profits taken by crooks who give nothing in return. Not only completely different, but actually the opposite of what we normally call rent.

Anyone who can't tell the difference is a moron.

small axe's picture

too many parasites kill the host

kill or be killed -- that's our choice now

centerline's picture

Too late.  The damage is done.  What we can do though is to take down the age-old elite power structures with us.  And hopefully a more fair system can be built in it's place. 

small axe's picture

you're right, the old system is already damaged beyond repair. We're in the beginning stages of figuring out what's next.