Rentiers vs. Democracy

The American political system is caught in a vicious circle (or cycle, or whatever you want to call it). The rich influence politicians, who then make it easier for the rich to influence politicians.

Economists call this process “rent-seeking”:

When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation. An example … is when a company lobbies the government for loan subsidies, grants or tariff protection. These activities don’t create any benefit for society; they just redistribute resources from the taxpayers to the special-interest group. (Investopedia)

Joseph Stiglitz explains the effect of rent-seeking on inequality in an article about food stamps (being cut) and farm subsidies (not being cut):

As small numbers of Americans have grown extremely wealthy, their political power has also ballooned to a disproportionate size. Small, powerful interests — in this case, wealthy commercial farmers — help create market-skewing public policies that benefit only themselves, appropriating a larger slice of the nation’s economic pie. Their larger slice means everyone else gets a smaller one — the pie doesn’t get any bigger — though the rent-seekers are usually adept at taking little enough from individual Americans that they are hardly aware of the loss. While the money that they’ve picked from each individual American’s pocket is small, the aggregate is huge for the rent-seeker. And this in turn deepens inequality.

Economic rent-seekers are also known as “rentiers”, which can be confusing at first since “rentier” looks like “renter”. Rentiers, however, often own their own homes (in a nice neighborhood).

“Rentier” is an apt term, since it sounds classy (being French) and there is a rentier class. Earlier this year, Michael Lind wrote an interesting series of articles about America’s rentier class and what the rest of us should do about them: “Private Sector Parasites”, “How Rich Moochers Hurt America” and “Defeating Useless Rich People”. The titles are a little misleading, because not all rentiers are rich. Labor unions, for example, behave as rentiers if they use their position to extract unnecessarily high “rent” from the rest of society. But the rich rentiers are the ones wreaking havoc these days.

Lind points out that we need to distinguish between two different ways of making money:

Unfortunately, with the exception of some leftist and liberal economic thinkers who distinguish “rentier capitalism” or “financial capitalism” from “industrial capitalism,” conventional political discourse doesn’t distinguish between profit-earning “makers” and rent-extracting “takers.” Many progressives and populists indiscriminately denounce “big business” and “the corporations” as though a productive consumer electronics manufacturer were no different than a company that monopolizes the tolls from privatized municipal parking meters. At the same time, the center-left, whose upscale supporters tend to be credentialed upper-middle-class professionals, tend to ignore the antisocial aspects of the rent-extracting schemes of the professional guilds — medicine, law and the professoriate — as well as of their elite accomplices, the credential-granting universities.

On the right, the greatest triumph of the rentier interests has been to redefine “capitalist” to mean, not productive entrepreneur or successful industrial company executive, but “anybody who makes money” — a category that includes not only investors in productive enterprises but also rentiers and a third category of speculators in unproductive assets (Picasso paintings and Persian rugs, as opposed to machine tool factories). In today’s rentier-friendly conservative ideology, somebody who makes payday loans at usurious interest rates, gouges businesses with high insurance rates, or gets paid tolls from a privatized toll road is as much a “maker” and an “entrepreneur” and a “capitalist” as someone who puts together a team of inventors, engineers, workers and investors to apply [new technology].

It can be tricky, of course, to distinguish between producers and rent-seekers. Wealthy farmers provide an obvious service when they grow food that people need, but act as rentiers when they convince politicians to increase unnecessary food subsidies.

Lind argues for a variety of policies that would limit rent-seeking and foster productive economic activity, such as converting banks into low-profit, publicly-regulated utilities; making extraordinarily high interest rates illegal again; removing impediments to lower-cost health care; and increasing taxes on certain kinds of capital gains.

However, although he mentions campaign contributions in these three articles, Lind doesn’t emphasize how crucial it is to reduce the role of money in politics. Money, after all, is the principal resource small groups can use to get special treatment from politicians, because in our system of government anyone who wants to become a politician or remain one need lots of money.

But candidates and elected officials should not have to spend much of their time begging people for money to pay for their political campaigns. Voters should not be subjected to insane amounts of inane but expensive political advertisements. There should be greater restrictions on professional lobbyists. It shouldn’t be possible to leave Congress or a government agency and immediately take a high-paying job in the industry over which you had jurisdiction. Until our government isn’t for sale, it’s going to be extremely difficult to stop the vicious cycle (or circle) we’re in. We need to make it less appealing to be a rentier.

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