
The Upward Redistribution of Income: Are Rents the Story? - vezzy-fnord
http://cepr.net/publications/reports/working-paper-the-upward-redistribution-of-income-are-rents-the-story
======
advisedwang
Please be aware that the source, the Center for Economic and Policy Research,
is a think-tank and not a journal or research institute. This does not mean
the work or conclusions are invalid, but it does mean the authors likely have
an agenda.

~~~
vezzy-fnord
I picked this study up from Mark Thoma's blog. FWIW, Dean Baker (founder of
the CEPR and author of the paper here) has a well-established record as an
economist and his credentials can be looked up.

I'm not sure what your implication is, though. Are you afraid of a liberal
bias, conservative bias, pro-capitalist or anti-capitalist bias?

If I posted a paper from the Quarterly Journal of Austrian Economics, I doubt
that you would consider the "journal" part to be a consolation.

~~~
crdoconnor
This paper seems to be directly targeting doctors specifically and is
leveraging resentment against the 1% for doing so.

The author (Dean Baker) is a supporter of ACA. Maybe this is some sort of
attempt at fomenting support for bringing down doctors' wages in order to help
bring down the costs of ACA.

~~~
evoloution
Based on what they say you are probably right. They first say some things that
are true but then give completely unjustified explanations about the medical
profession. The regulation of the medical profession and the health market
also exists in most European countries, even in Poland for example where
doctors are not paid well. But somehow he attributes the high cost of care in
USA on the high degree of regulation which is in most Western countries...
Americans also pay more for drugs, nurses, and insurance. Hospital CEOs and
administrative staff in US also gets paid considerably more. As a foreigner in
USA with experience in the field, I would say that they are doing a pretty
good job to make sure that the doctors that get to practice medicine in USA
have passed through multiple filtering by ensuring that even the worst doctor
is in a good enough level. If you want to have cheaper care at any cost, I
think you could do it but there will be a price to pay. Medical travel is a
viable option but then if things do not go well is your life valued according
to Indian or American standards. In other words how much coverage do you get
from their malpractice insurance. The medical profession is already very
stressful and most young doctors feel that they are not well compensated for
their long education, 8 years of student loans, training and skills on top of
basically being converted to bureaucrats that their practice is ruled by
compensation agreements (do not spend more than x time for each patient). Most
doctors are smart and very few are "missionaries". If the medical profession
keeps becoming less attractive you are just going to end up with less smart
doctors and more smart programmers/engineers/finance/e.t.c. There are choices
to be made...

------
iandanforth
I wish this were actually about _housing_ rents, since that behaviour
certainly warrants a discussion over government regulation.

~~~
nostromo
Here's a recent paper that did take on that issue:

[http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf](http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf)

> Recent trends in both capital wealth and income are driven almost entirely
> by housing, with underlying mechanisms quite different from those emphasized
> in _Capital_.

If the paper reads too academic, here's an accessible write-up:

[https://medium.com/the-ferenstein-wire/a-26-year-old-mit-
gra...](https://medium.com/the-ferenstein-wire/a-26-year-old-mit-graduate-is-
turning-heads-over-his-theory-that-income-inequality-is-actually-2a3b423e0c)

~~~
MilnerRoute
The paper defines "rents" differently than its common meaning (e.g. the
monthly payment for an apartment).

"this upward redistribution comes from the growth of rents in the economy in
four major areas: patent and copyright protection, the financial sector, the
pay of CEOs and other top executives, and protectionist measures that have
boosted the pay of doctors and other highly educated professionals."

The Medium blogger seems to only be talking about housing.

~~~
Mikeb85
It's defined as 'economic rent', of which housing rent is a type.

"In classical economics, economic rent is any payment made (including imputed
value) or benefit received for non-produced inputs such as location (land) and
for assets formed by creating official privilege over natural opportunities
(e.g., patents)."

[https://en.wikipedia.org/wiki/Economic_rent](https://en.wikipedia.org/wiki/Economic_rent)

~~~
ArkyBeagle
Rack rent ( the sort you pay your landlord) is distinct from (Ricardian) land
rents.

FTA:"The argument on rents is important because, if correct, it means that
there is nothing intrinsic to capitalism that led to this rapid rise in
inequality, as for example argued by Thomas Piketty."

I find Baker mostly moderate and nicely curmudgeonly.

------
CuriousSkeptic
"The argument on rents is important because, if correct, it means that there
is nothing intrinsic to capitalism that led to this rapid rise in inequality,
as for example argued by Thomas Piketty."

Isn't rent seeking the defining characteristic of capitalism? (compared to
other ways to implement a market economy)

~~~
sputknick
Nope. Capitalism is about capital going to where it is most productive. Rent
Seeking is about capital going to where it's told to go based on rules.

~~~
danharaj
That is a laughable definition. Let's just define our favorite economic system
as "the system where the best things happen".

Capitalism is merely a kind of economic system where the means of production
are controlled privately for the purpose of profit.

Observed consequences of capitalism are commodity production, competitive
markets, sophisticated financial markets and instruments of debt and credit,
wage labour, capital accumulation, and _rent seeking_.

~~~
vezzy-fnord
Rent-seeking is relatively agnostic of any particular economic order. To some
extent, the Marxist-Leninist planned economies were nothing _but_ that.

~~~
danharaj
I didn't say rent seeking only occurs in capitalist systems, only that it is a
consequence of the premises.

------
arca_vorago
I would say it's about the lack of structure in the old landholding
aristocratic way of doing things when we are in a population explosion, which
will inherently create an upward redistribution of wealth due to physical
limitations of land.

That being said, I think as our technology progresses, we, at least in
America, have plenty of land that would be good once we can figure out
reliable ways to generate energy (already mostly there with solar, wind, geo)
but more importantly water. I have always imagined my off the grid setup as
sufficient to power a dehumidifier that pulls water from the air and filters
it to potable. (in concjuction with a well if possible, sometimes though the
water is below rock or other tough structures or is too deep.)

The original point is though, that the more wealth you have the more you can
generate and create (for yourself or others), but the less you have in a
growing population of less-havers, pulling yourself up is harder than ever.

tldr - The middle class is what's really under attack here, as the poor have
formerly had more upward mobility into becoming middle class. That is going
away with the current growing inequality.

------
EGreg
The main explanation is not considered here: Automation and Outsourcing.

Both reduce the demand for local human labor, and thus depress wages. They
cause wealth redistribution upwards by providing a power imbalance between the
capitalist and the worker.

David Harvey did a nice talk about this:
[http://m.youtube.com/watch?v=qOP2V_np2c0](http://m.youtube.com/watch?v=qOP2V_np2c0)

------
zygomega
Rents can be seen as a future cash flow stream, at least partially protected
from erosion by competition, that is a reward for past efforts. In a world
where interest rates decline after the establishment of the rent, super-normal
profits flow to the rentier. Keynes missed this in his 'euthanasia of the
rentier' tirade.

~~~
dnautics
wrong "rent". rent in this case is "rent-seeking" which means seeking favor
from government disbursal, regulation, or generally something which tilts the
economic landscape in their favor (e.g. bailouts, FOMC operations, first-
access to government-issued loans, etc).

~~~
gozur88
But the paper in question included "patent and copyright protection" and the
entire financial sector in its definition of rents. That's just odd.

~~~
dnautics
patent and copyright restriction is a HUGE rent. Even more so now that we're
first-to-file and not first-to-invent. The financial sector subsists on two
government-policy pillars. 1) access to lower-than-market interest rates on
juicy loans which can then be flipped to the public at a higher rate
(resulting in overall increased public exposure to the pain of systemic risk)
and 2) secular inflation, which drives the general public into subsidizing
corporate risk (via the stock market, e.g.) in order to be able to retire,
since savings won't cut it.

And that's not even getting into bailouts.

~~~
gozur88
>patent and copyright restriction is a HUGE rent. Even more so now that we're
first-to-file and not first-to-invent.

Technically to consider it a rent the copyright holder would not be producing
anything, which just isn't true. Well, not for patents on genuine inventions.

The same is true for financial services. They _do_ provide a service for the
money.

~~~
dragonwriter
> Technically to consider it a rent the copyright holder would not be
> producing anything, which just isn't true.

Even by the (overly restrictive, IMO, as it excludes economic monopoly rents
that are not derived from government-granted monopolies), copyright and patent
are sources of rents drawn on the government-issued monopoly right to exclude
others from duplicating the covered subject matter (or, in the case of patent,
even independently developing it).

Even that restrictive definition upthread does not included the requirement
that the rent-seeker was not required to produce something in order to
_secure_ the government-granted privilege from which it extracts rents.

------
doctorpangloss
> "For computer software, patents together with copyright protection are the
> entire price of the product."

That doesn't ring true. Software is sold in far more complex ways that in no
way benefit from the copyright regime. That could mean software consulting and
support for open source projects, or it could mean advertising and IAP-
supported free-to-play games. Both are extremely lucrative.

You might want to call in-app purchases something that corresponds to
copyright. I think all that matters is what is enforceable (ask the movie and
music industries). That game services have figured out how to make the
enforceability of copyright irrelevant by centralizing hosting and matchmaking
is the far bigger story.

Put another way, the researchers bring up removing patent regimes on drugs in
order to save money and reduce rents. That's only because of the peculiar way
that drugs work—it doesn't necessarily make sense. Jana Hunter, an indie
musician, had this great phrase: "If technology provided loopholes for free
food and shelter, that’s what we’d be arguing about." [0] But technology only
provides loopholes for some free stuff, like music and drugs, and we can't
just decide that property rights can be ignored when they're cheap to exploit
(like copyright or patent infringement).

On the other hand, we will just, in a Darwinian way, end up in a world where
the technological loopholes intrinsically don't exist. This happened in
commercial video games, and it happened so quickly only because of enormous
ingenuity, an extremely competitive market and a complete disconnect from the
conventional political process (ever heard of a video game studio lobbyist?).

If you want to improve wealth distribution, messing with the mechanics of how
things are bought and sold, as always, isn't going to get you very far. Maybe
just raise taxes, you know?

[0] [http://lowerdens.tumblr.com/post/34308869231/on-spotify-
and-...](http://lowerdens.tumblr.com/post/34308869231/on-spotify-and-music-
consumption)

~~~
vezzy-fnord
_we can 't just decide that property rights can be ignored when they're cheap
to exploit (like copyright or patent infringement)_

Copyrights and patents are state-granted exclusionary privileges, not property
titles.

 _If you want to improve wealth distribution, messing with the mechanics of
how things are bought and sold, as always, isn 't going to get you very far._

What are you talking about? Abolishing and reforming institutions is one of
the most powerful tools there is.

 _Maybe just raise taxes, you know?_

The whole point of this paper is that simplistic fiscal shenanigans like this
_don 't_ work.

~~~
CuriousSkeptic
I used to argue against conflating property and immaterial rights along those
lines. But it gets kind of interesting if you realize that all property titles
are state-granted exclusionary privileges. So the distinction might not be
that important.

When John Locke argued for the moral right of property as a result of labor,
he also argued that it only applies when there are an abundance of resources.
An extension of that though could be, why not look at all rent generating
propert with suspicion. Property rents, as a result of exclusive rights to
scarce resources, could be seen as an externality, as a result of everybody
else accepting those exclusive rights without compensation for being excluded.

~~~
vezzy-fnord
_But it gets kind of interesting if you realize that all property titles are
state-granted exclusionary privileges._

Insofar as current arrangements of a state holding eminent domain, yes. Not
intrinsically.

 _Property rents, as a result of exclusive rights to scarce resources, could
be seen as an externality, as a result of everybody else accepting those
exclusive rights without compensation for being excluded._

A property owner may extend easement or some other non-possessory right to
usage, so to immediately classify all property as an "externality" is flat out
wrong. If anything, private property rights are a necessary (if not the
primary) precondition to resolving externalities.

~~~
CuriousSkeptic
I meant rent as the externality, not the property as such.

Without the state taking the cost of enforcing the exclusivity the possessor
would probably have to invest some cost in securing it. Either buying weapons
or entering some kind of contractual agreements.

In either case the cost would probably correlate with the value of property.
The rent, then, is the value the possessor can extract from the property as a
result of not having to take those costs. In fact, it is the other way around,
the cost is distributed among the non-possessors.

Assuming we would like to avoid a situation where possessors have to invest in
violent means of exclusivity, I argue that the states role should be to
enforce propery as, fair, contractual agreements between possessor and non-
possessors.

~~~
vezzy-fnord
_The rent, then, is the value the possessor can extract from the property as a
result of not having to take those costs._

But the nature of uncertainty of action means that such a cost isn't really
quantifiable. It seems like you're trying to say that the rent is the value
derived during idling. But idling can serve a valid social purpose in
conferring availability of something, or when land is converted for a purpose
only on occasion but must necessarily remain available by idling.

~~~
CuriousSkeptic
I think it is quantifiable. One way to quantify it is to determine exactly how
much you are prepared to pay to keep the tile, (or some else is to get it).

A possibly fairer way might be to let you pay what the next highest bidder is
prepared to pay. That means you unique addition remains your profit, while
also quantifying the opportunity cost instead.

Regarding idling, I'm not arguing against that, only against the system by how
it's scheduled and who pays and who gets paid for it

------
PaulHoule
Certainly you can think of it this way, if definitionally, it is a kind of a
"rent" to be so lucky to be in any situation where you can get paid vastly
more than the average.

------
ChuckMcM
I would like to believe this is the dominant factor. It would provide a good
argument for the abolishment of rents quickly (copyright length, patent
length) and make another argument against extending patent protection to genes
or software less compelling.

That said, the "boom" in startups is all about creating rents as a way of
funding the business. Whether its the percentage cut that Uber or AirBnB takes
or the price you charge advertisers for access, those are by this definition
just rents transferring wealth from the consumers and workers into a third
party's pocket.

~~~
gozur88
By the normal definition companies running a matching service or a platform
for advertisers aren't engaged in rent seeking because they're providing a
service.

~~~
ChuckMcM
My definition is that you are constrained from providing the service unless
you pay a third party as rent seeking. If an Uber driver could offer someone a
ride and they could accept and pay for it without paying Uber a commission
(who has a no participation in that transaction at all) then I would agree it
isn't a rent, however they use the lock in of the payment service to extract a
rent whether or not they provide the matching service.

------
vinceguidry
> As a result of this upward redistribution, most workers have seen little
> improvement in living standards from the productivity gains over this
> period.

I believe this to be a myth caused by lamp-posting. The world is a much better
place than it was 30 years ago, we just haven't found the right way to
quantify exactly how much value 'high technology' has brought to their lives.

Measurable wealth might have been redistributed upwards, but everyone is still
better off regardless. I'd rather be poor today than rich twenty years ago.

~~~
mortenjorck

      I'd rather be poor today than rich twenty years ago.
    

Try volunteering at a soup kitchen sometime. You will rethink this sentiment.

~~~
at-fates-hands
Poor in this country (the US) is totally different than other countries.

Most "poor" people have TV's, VCR's computers and smartphones. Most poor
people can find places to sleep or crash or get groceries and handouts to
survive. With all of the government plans, it's actually pretty easy to be
poor in America:

[http://www.forbes.com/sites/timworstall/2013/06/01/astonishi...](http://www.forbes.com/sites/timworstall/2013/06/01/astonishing-
numbers-americas-poor-still-live-better-than-most-of-the-rest-of-humanity/)

You want to see real poverty? Go to Hati, go to Panama, Cuba or go to nearly
any South African country ravaged by centuries of war.

People literally have NOTHING. They're thankful for clean water, and a small
meal. Forget about clean clothes, basic hygiene and other multiple things we
take for granted every single day.

~~~
vinceguidry
Yes, the picture changes drastically if I'd have to consider being anywhere
other than the US.

------
vannevar
_The argument on rents is important because, if correct, it means that there
is nothing intrinsic to capitalism that led to this rapid rise in
inequality..._

Whatever the paper shows, I'm not sure you can draw this conclusion from it.
The fact that systematic inequality takes some specific form and prefers some
assets over others doesn't mean that it isn't a feature of capitalism, only
that within capitalism, not all assets behave identically. I'm not sure why
you would expect them to.

~~~
vannevar
Would the downvote care to elaborate? Why would the nature of the asset
imbalance absolve capitalism itself?

------
squozzer
All I can say is good luck with that project.

------
crdoconnor
>patent and copyright protection

Seems legit.

>the financial sector

Seems legit.

>the pay of CEOs and other top executives

Seems legit.

>and protectionist measures that have boosted the pay of doctors

Wait a second...

[https://3.bp.blogspot.com/_ZPUIbpPl1ME/SwLM3Q8Nl6I/AAAAAAAAA...](https://3.bp.blogspot.com/_ZPUIbpPl1ME/SwLM3Q8Nl6I/AAAAAAAAAMc/DuMyKl0Gjtw/s1600/Falling+Physician+Income.png)

I looked in the paper and he doesn't seem to address this, he just complains
that doctors earn more than in other rich countries. He also doesn't mention
that doctors in the US have to pay enormous malpractice insurance premiums
when comparing them.

So who is Dean Baker and why does he hate doctors?

~~~
astazangasta
Doctors in the US earn twice as much as the OECD average. Dean Baker talks a
lot about how during the era of 'globalization' manufacturing workers were
pitted against low-wage third world workers while doctors were shielded from
similar competition by professional organizations and barriers to entry by
immigration law. Basically, doctors in the US have lots of ways to control the
supply of doctors, so their wages are unsurprisingly elevated above the
international norm.

~~~
zanny
My uncle is an MD in Georgia and had to close his private practice four years
ago that he had for twenty because malpractice insurance, the racketing of
drug companies, and medicare / medicaid not paying out in timely or reasonable
manners left him with negative balance books many months, and the bureaucracy
meant he needed two employees just to cover the mountains of paperwork.

He estimated that for a simple referral or prescription he needed to produce
at least 15 different forms or records and provide them to the insurer /
medicare / pharmacy / etc, duplicate them in triplicate, back them up in
filing cabinets that took up a quarter of his office, etc. Yes, his business
was making probably 600k in revenue a year. And sometimes upwards of 550k of
that would end up going to expenses - salaries, rent, certifications,
licenses, bureaucratic bullshit, and a half dozen different kinds of
insurance.

He is now working for a hospital as part of basically a medical monopoly ring
in the state being paid much less than the OECD average but that isn't
pleasant to hear that the inflated salaries vary greatly depending on
location.

Hes 60 now. He paid off his student loan debt only five years ago, after
working in a hospital for 5 and then his private practice for 20 years after
graduating his MD.

It is insane, and hilarious, how people are misdirecting the obvious highway
robbery of insurance companies, hospital executives, and investors in the
industry on the backs of the doctors who are dedicating their lives to
medicine.

