
The Rent Seeking Economy - bokonist
http://intellectual-detox.com/2013/04/14/rent-seeking-economy/
======
hcarvalhoalves
> Problem number two is that the economic system does not create incentives to
> produce the products or technology that generate the most utility. The
> economic system produces the incentive to create products where the
> entrepreneur can capture as much of the consumer surplus/utility created as
> possible.

This captures all that is wrong with most of current startups and VCs in two
sentences.

I have the impression that some 2/3 of the investments are being poured into
yet another social product with advertising business model. I see little money
being thrown at harder problems, and literally zero at art.

~~~
bokonist
Kleiner Perkins invested in over 60 cleantech companies. Unfortunately, their
cleantech portfolio seems to be having pretty lousy results -
[http://www.mercurynews.com/business/ci_22385874/kleiner-
perk...](http://www.mercurynews.com/business/ci_22385874/kleiner-perkins-john-
doerr-falling-behind-after-betting)

I think the proportion of VC funded companies that are doing an advertising
bases social product is a bit exaggerated. I'd say the majority of funding is
for paid subscription based SaaS web apps and software, stuff that manages
some part of the enterprise, analytics, advertising optimization, security,
backups, data management, etc. etc. See, for instance, one first tier venture
firm's portfolio - <http://www.generalcatalyst.com/companies>

However, the point remains that few VC funded companies are attacking the
areas that have the most potential for raising quality of life. I do not blame
the VC firms for this - they are doing the economically smart thing. Software
has a much greater potential for generating the high profits of natural
monopoly with relatively low capital investment costs. Cleantech simply does
not provide the same returns.

In reality, the solution may be more Solyndras. Maybe we need some public
institution - government or philanthropic - to grant loans at a 2 to 1 match
for equity investment in companies that are tackling socially useful problems.
Many of these companies will fail. But the knowledge, know how, and personal
experience generated will create the base for the next round of companies, or
the round of companies after that, to create products that change the world.
But currently it is not rational for VC's to play the long game, because there
is little chance than any particular company they invest in will capture the
value created by new innovations. Since much the result of the product will
end up as consumer surplus/public surplus, it makes sense that the public
contribute to the initial funding if the public wants the investment to
happen.

~~~
waps
And what if "socially useful" - which effectively means whatever the current
public opinion is - is ... wrong ? We are the very same people that once
believed the earth is flat, and the people that proved that walking in a
straight line between two points has to be less efficient than walking in a
circle (the ancient Greeks. Why ? Because a circle is perfect. Despite proving
that the shortest distance is just that straight line), were probably smarter
than us, at least on average.

Then it will just be a big net loss to everyone.

Socially useful actually working is predicated on people's rational thinking
actually producing good outcomes, and ... well, look at our history. The
argument that "this time" we'll be right seems a bit unlikely to be true,
doesn't it ?

The good thing/massive problem with capitalism is that it's an "intelligent"
algorithm in it's own right, and the conclusions it reaches (the balance on
your and everyone else's accounts) are guided by the algorithm, which doesn't
care about morals, especially not about the fickle current version (we're < 40
years removed from the prevailing opinion being that skin color determines
your worth. In lots of regions that's still true, like large parts of India,
or the vast majority of muslim countries).

The differences of opinion between people and "the system" are not really
different from the differences between a dictator and it's subjects. Except,
of course that the capitalist algorithmic dictator has several advantages.
First, he cannot go mad (before you disagree, read up on a few dictators.
It'll put things like the Iraq wars and the patent system in the proper
perspective). Second capitalism has actual, real information to base it's
conclusion on, and nobody can unduly influence it's opinions for long. Third
this dictator doesn't care about race, social status, ... (imho conservatives
are not fair when it comes to race and religion ("the poor are immoral"
argument), liberals are not fair when it comes to social status ("the poor are
dumb" argument). I don't want either to stay in power for long).

We're switching to a world in which the vast majority of the population is
useless, economically. There is no reason for them to be alive, no value in
it. There is no way to prevent our capitalist dictator from realizing this is
so, and it will -my biology book uses the term "correct". That's the real
problem.

~~~
mikecane
>>>We're switching to a world in which the vast majority of the population is
useless, economically. There is no reason for them to be alive, no value in
it.

Then the algorithm is unfit for human use.

~~~
VLM
That's insightful but probably not the way you meant it. Its insightful in
that "everyone" or "every citizen" or whatever used to be involved in "the"
economy (as if there can only be one) and its a perfect 1:1 mapping with the
world or a geographic country.

That's going away. Fast.

What will 99% of the population use for an economic system? In the 3rd world
there's a lot of drugs and crime, so thats possible. Whuffie or however
doctorow spells it? HN Karma?

Its kinda like how the "world of warcraft" economy means pretty much nothing
to the people frozen out of it (the vast majority of the human population).

Current trends show eventually 1% of the population will have a perfect 100%
of the existing economy, at which point the old economy and the 1% will become
completely meaningless to the 99%. Our economy will be based solely on trading
wheelbarrows of firewood, or wheelbarrows of weed, or bottles of Tide, or
bitcoins, or EVE ISK, or solar energy in the form of charged batteries, or oil
products, whatever it is, it'll be something other than the existing federal
reserve currency system which is rapidly becoming irrelevant to the world, and
soon to the USA.

~~~
mikecane
>>>What will 99% of the population use for an economic system?

That is the problem of the modern world. Who intends to solve it? And it's not
like Everything Has Been Done. Just look at the old crumbling infrastructure.
Work _needs_ to be done.

------
bayesianhorse
The fundamental fallacy in this article is to assume that risk management and
avoidance of risk is unproductive, unhealthy and inherently worthless.

But it's not. The financial markets direct energy towards new ideas, old
enterprises and value storage. To do that, they have to allocate investment
and risk.

Good risk management (or at least moderately well done) generates the best
growth for the least risk. Bad risk management can be seen in several
countries' stagnating GDP curves.

Nature does this too, by the way. Imagine an ant colony: It grows
exponentially, because the more ants are in that colony, the more food they
bring in and the more larvae can be raised. But the super organism has to make
decisions, with surprisingly intelligent mechanisms, how many of the current
ants to risk for food foraging, how many to hold in reserve, how many larvae
to raise etc. If they do it right, they grow exponentially, but if they for
example risk half of their workers on a single day and loose them to a rain
fall or predator, they falter.

~~~
geebee
I don't think the article makes this assumption. I'd say the general thesis
presented in the article is in this sentence:

"Wall Street hedge funds rarely make their fortunes by placing sound long term
bets about the proper allocation of resources. "

Now, there's a lot of wiggle room in the word "rarely." I think that everyone
would agree that there is _some_ rent-seeking behavior on wall street, and
everyone would agree that the banking sector plays a critical role in the
economy (moving money from where it is to where it is needed, and managing
risk). So the real disagreement is about the ratio.

This article seems to imply that only a quarter of wall street's activities
produce economic value. That's very low, lower than I've read anywhere.
However, Paul Woolley at the LSE estimates that the financial sector would be
a "third to a half" of its size (see link below), though, if it were limited
to the wealth-producing activities. It's a controversial statement, of course,
but he's hardly alone in this estimate.

For anyone interested in this topic, I'd recommend starting with a New Yorker
article titled "what good is wall street?"

[http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_...](http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_cassidy)

And follow the links to the researchers listed to read more about the details
that are not included in the New Yorker article.

------
sliverstorm
A thought occurs to me- the standard historical approach to natural monopolies
that people have generally been happy with is government involvement, ala
power plants. Would it be insane for the government to get involved with
social networking?

Would ISPs and/or cellular service be a good example of what happens when
government does _not_ get involved? I don't follow that stuff too closely, but
I think both have in fact been de-regulated?

~~~
zanny
ISPs and cell service are exactly what happens _when_ government gets
involved. Power plants are actually _less_ regulated.

Cell service is compeltely broken because the government "sold" radio
frequency spectrum. They sold all of it. Now there is none left to sell or
distribute. And now a few concentrated companies own the _rights_ (another
government construct) to broadcast on _their_ frequencies. So there is a
rigged, no competition market, because you can't erect cell towers and
broadcast on _any_ frequency anymore (at least those viable for cell service)
because someone owns that frequency band.

ISPs, again, are poor government intervention - almost all of the ground wires
were laid under government subsidy upwards of a hundred years ago for some
phone channels, so all the current private owners of coax / phone lines almost
exclusively got them _from_ government that already laid them, and rarely ever
lays them themselves (and when they do, they do slight extensions to already
established backbone, they aren't laying it themselves).

In addition, these private providers will contract with local governments to
provide _exclusive_ service, and will bribe the town council to block
competition from laying their own lines (or heavens forbid, the township
itself own the fucking wires running under their streets). As a result, you
_can't_ lay your own cable / fiber / phone lines (unless you are Google and
have billions of political pressure) and even if you could, you are at an
insurrmountable competitive disadvantage because not only does your
competition already have all their wire laid decades ago, they can readily
drop their prices to run you out of the market because they have barely any
overhead in providing your service. They are making hand over fist profit off
of consistent customers that are paying year on end. And _then_ , there is
inertia, and market manipulation by the established players, to make "average
joes" not consider switching providers.

On the other end of the spectrum, it is federally regulated that power
companies need to be contractable, in that you can select the company you get
"power" from, even though the actual power lines are carrying juice from a
thousand plants at any one time, and a lot of peoples homes are feeding back
into the system. It is also regulation that enables average joes to set up
their own solar panels / wind turbine / generator and get reimbursed any power
they feed back into the system - if power companies could do whatever they
wanted, they would prevent their customers from setting up their own power
backup since it hurts their profits.

In the end, it is not very complex I think - even though the examples can be -
if you stifle the ability for new players to enter a market, easily, and
compete with the established ones (be it through insurmountable subsidized
initial investment to enter the market, actual law book regulation preventing
it, or rigged business code favoring the monopoly) you direly hurt the economy
by creating artificial monopolies.

Even if the monopolies do "reasonably" well (NASA, for example, basically
prevented private space investment because for 30 years it was hugely funded
by taxpayers to own the sector, AT&T owned phone service for 60 years by
government mandate, etc) markets with only one player (don't even look further
than personal computing or the Linux world - there was barely any innovation
in GCC until Clang came along to provide competition, or how Firefox had to
get a lot faster when Chrome became a real competitor). Competition drives
innovation, and in _any_ situation where you facilitate a one man market, you
_will_ starve innovation and improvement just by only having one force in the
market, even if they have good intentions.

Competition is _essential_ to progress. It is the fuel that produces a _huge_
amount of improvement in every field and business. So if a government is going
to craft any law, it should be to make new competition easier to found and
enter a market with, not harder. The electric grid regulation makes it easier
to enter the market (even if the individual power sources are heavily
regulated / zoned / mandated, and the status of a player against a power
company only exists for consumers to power co, not business to power co, etc -
there is a lot of regulatory cruft behind the respectable outer cover) and as
a result promotes competition and better prices for the consumer (the ability
to "shop" your power company in a state is a _huge_ reason US power costs are
so much lower than elsewhere in the world).

It is why almost _all_ the innovation right now is in web / computers. It is
barely regulated, extremely easy to enter the market, and as a result a
disproportionate amount of ideas go into it (even when other fields cry for
innovation, like medicine, agriculture, telecom, etc) because the market is
_free_ and as a result it is _healthy_.

~~~
bokonist
" _Cell service is compeltely broken because the government "sold" radio
frequency spectrum. They sold all of it._ "

Usually the government selling something off is not cited as an example of
government intervention. Most __lazzei-faire __types believe that is exactly
what government should do - sell off the property to put it in the hands of
the free market.

The actually problems are three-fold. 1) The government still owns large
portions of spectrum that are underutilized 2) the government restricts
changing the use of spectrum, such as changing UHF TV into 4G and 3) the
government does not charge any sort of property tax based on the value of the
spectrum, so there is no incentive for the spectrum to end up with the highest
value use.

" _ISPs, again, are poor government intervention - almost all of the ground
wires were laid under government subsidy upwards of a hundred years ago for
some phone channels,_ "

Most people in my state get their internet via cable wires laid in the past
few decades.

" _In addition, these private providers will contract with local governments
to provide exclusive service, and will bribe the town council to block
competition from laying their own lines (or heavens forbid, the township
itself own the fucking wires running under their streets)._ "

Local governments are much closer to small market players than they are to the
leviathan state. There are thousands of towns and cities, but usually only a
couple cable companies in any area. The exclusivity contracts are usually
given out of position of weak bargaining power.

" _and even if you could, you are at an insurrmountable competitive
disadvantage because not only does your competition already have all their
wire laid decades ago, they can readily drop their prices to run you out of
the market because they have barely any overhead in providing your service._ "

And here is the problem that has nothing to do with government - broadband
wired internet is a natural monopoly. There are extreme capital expenses and
the company that builds the first network has a huge advantage, it is usually
not profitable for a second business to enter the market.

So yeah, competition is good. But initiating competition in the cable market
might require government intervention. It might require the government to
subsidize a second network. It might require the government to block mergers
between the cable companies and content providers. And even in the best case
you are probably not going to have more than two or three broadband options in
one town. So the government would probably still want to regulate the internet
providers as common carriers ( <http://en.wikipedia.org/wiki/Common_carrier> )
and ensure network neutrality.

" _AT &T owned phone service for 60 years by government mandate_"

Keep in mind that AT&T pretty much built its monopoly on its own. The
government had the choice between breaking it up, and converting it to a
regulated monopoly, and chose the latter. This may have been the wrong choice,
but the country was probably better off for having at least some government
intervention, and not allowing the monopoly to be completely unregulated and
dedicated solely towards shareholder profits.

~~~
zanny
> Usually the government selling something off is not cited as an example of
> government intervention. Most lazzei-faire types believe that is exactly
> what government should do - sell off the property to put it in the hands of
> the free market.

When a government sells intangible information waveforms, I'd consider it
intervention. Radio spectrum is not a finite resource. You _generate_ radio
waves with devices by producing electromagnetic radiation. The "sale" of
spectrum implies that the government owns what is on the exact same scale as
visible light, which is completely insane. But it is the world we live in.

> Most people in my state get their internet via cable wires laid in the past
> few decades.

I live on the East Coast, my experience is probably different. Do note that
_cable_ is much more modern than phone lines - what AT&T had laid a century
ago, most cable is indeed decades old. My area was seeded with cable lines in
the 60s, it was early at that too.

> Local governments are much closer to small market players than they are to
> the leviathan state. There are thousands of towns and cities, but usually
> only a couple cable companies in any area. The exclusivity contracts are
> usually given out of position of weak bargaining power.

I talk about this in another topic I made in this thread, and it mentions how
economic systems larger than a political system can push around the politics
to their own gains. The way cable companies extort local government is a prime
example.

> And here is the problem that has nothing to do with government - broadband
> wired internet is a natural monopoly. There are extreme capital expenses and
> the company that builds the first network has a huge advantage, it is
> usually not profitable for a second business to enter the market.

 _Infrastructure_ is a natural monopoly. There are dramatic diminishing
returns on laying a second redundant set of the same thing than using one
thing. I _personally_ think fiber / cable / phone wire should be publicly
owned and maintained, and ISPs provide gateways to the Internet via the
routing servers and DNS caches to their clients, but you can contract with
anyone to provide you the connection to the backbone.

Roads separate man from animal, in that man will slave to lay roads that
benefit others, but not lose competitive reproductive advantages as a result.
Any other animal that would forge their environment to the benefit of the many
of their species would die off from having less energy to spend breeding. As a
species, we have a unique ability to build foundations of road, power, and
network that enable magnitudes of productivity gains for little cost - if we
collectively agree to pay and support it. It isn't something I feel works well
in a private competitive market, but I am pretty libertarian. So the solution
to me is not to try to create artificial incentives to waste resources laying
redundant cable, but that the cable should never be private in the first
place. It is laid under public roads, run over private property, and should be
a public good. It even _was_ , for a brief time, until most local governments
sold them to greedy business. I don't know how to solve the extortion problem,
unless it is mandated at a higher level that the smaller governments can't
sell off public infrastructure like that.

> Keep in mind that AT&T pretty much built its monopoly on its own. The
> government had the choice between breaking it up, and converting it to a
> regulated monopoly, and chose the latter. This may have been the wrong
> choice, but the country was probably better off for having at least some
> government intervention, and not allowing the monopoly to be completely
> unregulated and dedicated solely towards shareholder profits.

The early years of AT&T were a mix of government incentive and business
practice. They spread so fast because everyone wanted phones, and they got
subsidized to provide to _everyone_. It is another situation I think the
correct solution would have been to go the way of roads (or maybe power lines)
- public infrastructure supporting private, competitive end points. The phone
lines should create a market for competition, as a foundational infrastructure
an industry can be built on.

~~~
PeterisP
Well, with current technologies, radio spectrum is a finite resource. Say,
1900 mhz range GSM standard has some 300 channels available, and if your cell
towers are using these channels than I can't use them at all (or we both will
get just disruption).

~~~
zanny
And if you are both disrupting, neither of you are making a profit and are
losing customers. It is in the best interests of all parties to _negotiate_
usage that maximizes benefit of all parties involved.

It doesn't require the violence of law for people to come to compromise.
Profit motive is plenty enough _I_ think.

~~~
mikeash
Allowing anyone with a small amount of money to disrupt valuable uses of
spectrum would basically legalize extortion. I doubt many radio-spectrum
businesses could exist in an environment where any random person with a few
thousand dollars and an evil mind could _legally_ demand that they pay up or
be shut down.

~~~
zanny
You just called it what it is. Criminal extortion, and it would also be
sabotage, to use a frequency band to attack another party running on it.

That doesn't magically become legal. For the same reasons you could take
someone using "your" frequency right now to court, you could take someone
using the frequencies you do only for the purposes of attacking the signal
quality on the same basis.

And no, opening up spectrum doesn't suddenly mean everyone and their mom is
buying radios and spamming electromagnetic radiation, for the same reason
people don't do it today, because they can be targeted for sabotage if they
aren't productively using their radio usage.

~~~
mikeash
I don't understand, if there's no ownership of the spectrum, then on what
basis would the user be able to take the attacker to court? What if the
attacker says he just really enjoys spamming high-powered electromagnetic
hash, but would be willing to give up his hobby for the right price?

~~~
zanny
That right there _would_ be considered extortion in court, and like I said, it
is sabotage to actively attack infrastructure to defraud a business (ie,
blocking roads for trucks, building a power sink to rip juice from a local
area from someone, scheduling trains to intentionally prevent someone else
from using them at a certain time).

It is like any other infrastructure. You should be free to use it, and
punished if you abuse it.

~~~
mikeash
Who decides that my joyous hobby of spamming the radio spectrum is extortion
and not legitimate use?

------
acchow
> In a dysfunctional society, people acquire wealth via corruption, rent
> seeking, and theft.

I believe these three are one and the same.

~~~
zanny
They are three sides of the same coin, but reflect on the subtlety of the
robbery.

------
koalaman
Wow, that's a hell of a preamble just to bitch about Facebook.

Facebook emerged in a competitive market and was successful because it was
visionary and was extremely well executed. I think that they deserve the
success that they've had, and you will have to do some more convincing to show
me the 'rent' that they are extracting from me.

Now if you were to ask me whether I think a closed proprietary corporate
system is the ideal identity provider for the internet, I would say no. But I
expect something better and more open to emerge within the next few years.

The fact remains that the internet sector is fiercely competitive and open,
and America's internet sector is the envy of the world, and plenty of well
managed countries have been so far unable to come close to matching it.
Lumping Facebook and Google in with the financial and regulated monopolies
does a disservice to your argument.

~~~
rayiner
Do you use Facebook because it's the best social network product, or do you
use it because all your friends are using it? Can you imagine someone coming
along and writing a better Facebook? One with stronger privacy controls,
better UI, etc? Why hasn't anyone done it? Maybe it's because everyone uses
Facebook?

The article's point on this is sound: Facebook makes a ton of money because it
operates in an industry where the network effect gives it a natural monopoly.
A competitor doesn't just need to build a better product, but they have to
overcome the tremendous advantage of Facebook's network.

As the article points out, there is no money in competitive markets. In a
competitive market, once Facebook proved the concept, it would've been flooded
with clones offering the service at lower prices (less advertising). There is
certainly nothing about the Facebook product itself that isn't easily copied.

~~~
snowwrestler
People said the same things about MySpace and their lunch was eaten by
Facebook.

I use Facebook because most of my friends and family are on Facebook--true.
But there was a time when I did not use Facebook, but still kept in touch with
friends and family. I transitioned to Facebook because it worked better than
the previous technologies I used (snail mail, phone, email, MySpace, etc.).

There was nothing magically unique about that transition; it could happen
again if someone makes something better than Facebook.

I actually don't think Facebook is a great example of rent-seeking because
Facebook makes so little rent...Zuckerberg is rich on paper because of how he
played the investment market, not the rent he charges on his product.
Facebook's profits are very small.

Microsoft or Apple are probably better examples, but even those fail the
typical definition of "rent-seeking", which is economic activity that is
captured by regulatory exclusion. Neither Microsoft nor Apple achieved their
position because the government mandated that everyone must use Windows or
iTunes. They achieved their position by out-competing the alternatives.

It's true that once they were on top, they were harder to defeat. But that
does not make them rent-seekers. And historically this sort of advantage tends
to be pretty temporary. History is full of dominant companies that are no
longer around. I remember a time when Microsoft was the feared 800 lb gorilla
that no one could beat...people don't think that anymore.

------
throwaway1979
A quote comes to mind ... Capitalism is the greatest system we know of for
creating weath. It is also one of the worst systems for distributing weath.

It seems we are coming to the point where automation has significantly reduced
the need for labor in producing basic commodities. It is particularly
challenging when one has to advise college bound students as to what subjects
offer a rewarding career. The essay speaks highly of the wages in the medical
profession ... I think that part of the essay was misinformed. I don't know
any medical professional who is not independently weathy and can get by on
their salaries. They have massive loans to pay and if they have their own
practice, they have to deal with TONS of crap .. insurance, marketing, and so
on.

~~~
numbsafari
I sometimes wonder if the state of many MDs finances isn't the result of their
own egos rather than any larger failing of "the system".

Most of my friends who became MDs gave almost zero thought to what they were
paying for school. They also took on huge amounts of credit card debt while in
school trying to live like doctors before they were doctors. Being in a half-
decent pre-med or med school entitled them to ridiculous credit card offers.
In their minds they were all "roughing it" by driving their parents' hand-me-
down Volvos, but in reality they all had new clothes and expensive computers.

When it comes to school, most of them never looked at how much someone
graduating from institution X will earn vs. the cost. They all simply wanted
to go to Penn or Harvard or Hopkins. If offered a full-ride at a second or
third tier institution, but no ride at a top tier school, they all took the no
ride option (with one exception, and he's a very well paid anesthesiologist
who came out with very modest debt).

Can I tell you how many times I've looked at what school my personal physician
went to? Zero.

------
zanny
I think this article nails a lot of key points, and it is really spot on. The
sad thing is not many people are going to read it because it is a lot of true
words.

I don't think the economic culture of the US bred global business, though. I
think the trivialization of the distance did. Glottalization meant that it
would be much cheaper for a US based company to enter a fledgling market (say,
McDonalds) and reestablish themselves as the market force in that area, since
it has a much cheaper barrier to entry than building an entire enterprise from
the ground up. The economies of scale grow faster as you approach ludicrously
global scale, because you can really streamline all aspects of your business.

There isn't really a correlation with global business and competition, either
- I'd say global business is only possible when corruption enables rent
seeking business (which has no competition and is rigged to the market
dominator) OR when there is _real_ competition, and the global business is so
successful _because_ of the economies of scale and significantly lower market
entry barriers to new regions than a brand new business.

So you could have either. We have, sadly, a lot of the first, but the second
can happen to.

And global business (with competition) is good. It means the competition and
economies of scale drive profits to zero, and maximize the benefit to the
consumer.

The _problem_ with global business is that when our markets and economics are
global but our politics and emotions are local, those super companies have
significantly more influence than a tiny group of people in an isolated pocket
economy artificially cut off by an imaginary line on a map. The global
business that truly connect the world extract their clout from the entirety of
the species, while a countries politics gets its validation from its people.

And _no_ country has a population, GDP, productivity, or workforce,
competitive with the global one. _Of course_ they will be corrupted by global
business. Their resources are much more limited and restricted, because our
politics and cultures are outdated in the face of a modern economy.

But this is just one piece of a giant puzzle. Individually, the problems are
obvious, stupid, an simple, and often the work of the greedy and corrupt rent
seekers. But there are _millennias_ worth of built up greed to lead us to
where we are today with the rigged system we work with, and the individual
parts complement each other and support one another to maintain the whole
broken game. The problem isn't fixing one part, it is figuring out how to
remove the tumors before they kill the host, and there are millions of small
tumors that add up to a large cancer. And as you chip at the fringes of one,
the rest keep on poisoning the system, and they all have to be somehow dealt
with.

------
jchrisa
After The Future is a great start for anyone who wants to go deeper than the
stale "capitalism bad" arguments.

PDF <http://www.sok.bz/web/media/video/AfterFuture.pdf>

Or give money to the publisher and I hope the author:
<http://www.akpress.org/afterthefuture.html>

Spoiler alert - let's forget communism, quit our jobs, and work toward
Autonomy.

~~~
hcarvalhoalves
Found this interview with the main points about the book:

<http://vimeo.com/25367464>

Good ideas here.

------
guylhem
Rent seeking can't and won't last. You don't need to go very far - just read
<http://reason.com/archives/2013/04/14/the-end-of-power> on the frontpage
today (the comments suck however - they basically try to deny the fact that
for humanity as a species, the last century has been the best ever)

The basic idea stands - too many people have more comfort, want too many
things, and are harder to control - and now more than ever.

The solution to rent seeking is basic capitalism, as in the use of reason.

Ayn Rand style capitalists do worry about the letter and the spirit of the
laws and of a contract, because they know it is in their best interest. They
are not into rent seeking because they know the end results.

She said that beautifully : "I am not primarily an advocate of capitalism, but
of egoism; and I am not primarily an advocate of egoism, but of reason. If one
recognizes the supremacy of reason and applies it consistently, all the rest
follows."

Ayn Rand theory and work can be seen as one implementation of John Rawl theory
of justice. He added a 2nd part about equality, but he also deconstructed the
opposition between freedom and equality.

Basically, you only need a good premise, then you can work on it. The premise
here is reason.

The only real "competition" could be from a belief not based on reason, such
as racism or a kind of religious fondamentalism - but not any kind as
explained by John Rawls, just the kind incompatible with democracy. I'll put
islamism in that bag (the basic idea of stoning to death women who had sexual
relation outside of marriage in this day and age is not very palatable to me).

Anyway, the remedy is the same for both diseases - science (and the occasional
readings of libertarian books)

If you have ideological problems with Ayn Rand, read at least about John Rawls
veil of ignorance on <http://en.wikipedia.org/wiki/A_Theory_of_Justice>

~~~
sliverstorm
Maybe I'm just thick as a board tonight, but while you wrote a lot, you don't
really seem to have explained "the solution to rent seeking" as you see it.
Can you expound?

~~~
brc
The challenge for most people is to understand that less regulation results in
less rent seeking. Only a large and powerful state can implement the required
blocks to form monopolies. Only a powerful state can entrench the class divide
between the ruled and the rulers.

The solution, then, is to reduce the size of the state and allow for less
central planning and involvement.

Further to this: the size of the state and those who run it seek to gain more
power. Power is delivered through votes. Thus much that passes for political
debate is not based on reason, but rather emotions and feelings - people
finding and leveraging biases, beliefs and BS. Virtually no modern policy
making is done using reason and simple analysis - instead it is done by
emotionally trying to sway the argument - the 'think of the children' model.

A triumph of reason over emotion and reduction in the size o f the state. This
creates the environment where those rent-seeking cannot fool those using
reason, and they lack the all-powerful controls to enforce the monopolies.

~~~
PeterisP
"Only a large and powerful state can implement the required blocks to form
monopolies." - now that is decidedly false; if there are any entry barriers
(such as capital investments required to start), then free market naturally
tends to consolidate (as it's more profitable) towards monopolies or
oligopolies, which coincidentally means the end of free market in that
industry. Only a powerful state can _PREVENT_ monopolies and keep the free
market economy as defined, with many suppliers and buyers setting the prices
in a market instead of a monopolistic ultimatum.

For real life examples, see the classic USA situations of railway and oil
magnates in 19th century - these monopolies weren't caused by the state and
regulations, but by lack of it.

Of course, states can also create bad monopolies, but the solution is to
change government actions, not to "disarm" the state - since in that case the
bad monopolies will stay anyway, and even more monopolies will arise.

~~~
brc
If it is decidedly false, name one monopoly that exists without a state
backing it up. I am genuinely interested because I have thought long and hard
for an example, and I have never found one. It's hard enough to find a real
monopoly [as oppposed to a company enjoying current market dominance], and to
me, impossible to find one that exists without the help of the state.

The free market does not tend towards monopoly or oligopoly. If any one player
is gaining market power and capturing a lot of consumer surplus, then
competition will eventually find a route around that and supply an alternative
with better value. This has been proven time and time again.

Even coming up with a situation where you need a large capital investment to
get started, given a compelling enough market (which is what is created when
an individual firm tends towards monopoly) then the capital formation is
possible to organise.

Your solution 'change government actions' is hopelessly unworkable, this is
what the original post is all about. All the while the opportunity to rent-
seek is available, people with the desire to do so are going to exploit it.

The countries with the worst monopolies are those with the largest share of
the income owned and distributed by the state. These monopolies harm consumers
and rivals and only exist because the state is there to back them up. This
goes all the way up to the very worst monopoly of them all, which is where the
state is the economy, such as in soviet russia.

Reduce the size and reach of the state, and you make it impossible for rent-
seeking behaviour to occur, because there is no structure to support it.

~~~
dragonwriter
> The free market does not tend towards monopoly or oligopoly. If any one
> player is gaining market power and capturing a lot of consumer surplus, then
> competition will eventually find a route around that and supply an
> alternative with better value.

This is true under the usual simplifying first-week-of-Econ 101 assumptions
(which exclude economies of scale, barriers to entry, irrationality --
including imperfect consumer information about the utilities realized in
purchases, interaction between markets [note that the last two interact in an
important way, in that enough money derived from one market and applied to the
information market can drive imperfect consumer information in a particular
direction], etc., etc., etc., ad nauseum, ad infinitum), which are useful for
pedagogical purposes at that stage but tend not to exist in the real world in
the markets for a wide variety of goods.

 _This_ has been proven time and time again.

~~~
brc
Can you please provide an example of where a monopoly has formed with no state
power involved? I am interested in this area and want to find any real world
examples.

------
JimboOmega
I think he missed one of the most obvious rent-seeking behaviors - fees. And
reducing price transparency in general

Whether you are flying across the country, visiting the doctor, or trying to
get Internet installed at your house, a large portion of the actual cost will
probably be hidden from you. The travel industry, in particular, lives and
dies by how well it hides the true cost from you.

Finding ways to make people pay more for the same things is a large and ever
growing component of the economy that is fundamentally non-productive.

------
scotty79
I think one of most severe abuses is renting apartments to workers.

You buy apartments and charge people significant part of their earnings for
the privilege of having a roof over their heads.

Why is that bad?

As an owner you don't live there yourself so you only have an incentive to
keep the place in shape good enough to be rented. Which is usually pretty low.

The worst part is that if you can't find the people to occupy your apartment
your costs are pretty low (you don't have a profit but that's not the same as
money being drained from your account). So you can buy and hold apartment for
years at very low cost. This creates artificial scarcity (in addition to
actual scarcity) of places to live that keeps the prices up.

I think progressive property tax would enliven real estate trade. Prices would
drop and more ordinary people could afford to buy one on credit instead of
renting. This could save working people a lot of money so they can actually
start their lives instead of slaving on their first job with just enough money
to pay the rent.

Tax should be constructed in such way that holding even large apartment, or
even two or three would pose no burden or almost no burden, but you might be
better of selling your fifth apartment even at 50% below market price than
holding it for a year.

~~~
tempaccount9473
Selling your property involves paying a 5% cut to the agent, buying a property
involves paying 5% in fees as points, closing costs, inspections, legal fees,
etc. I would hate to do that every year or two as I moved between employers,
but being able to rent an apartment anywhere in the world means I can go where
there is demand for my skills.

The reason why people spend 65% of their after-tax income on rent is because
people are willing to spend 65% of their after-tax income on rent. Supply and
demand is a bitch, and when you fuck with it, you create massive distortions
that end up enriching a small minority at the expense of everyone else (for an
example, see anyone paying $600/mo for a nice 2 bedroom rent-controlled
apartment in Manhattan).

And I like the idea behind a progressive property tax, but it would never,
ever, ever become law in the US. Not while there is a single breath of life in
any lobbyist or congressman.

~~~
scotty79
Mobility is important but I think additional costs involved in buying/selling
an apartment could be reduced if lots of properties often changed hands. There
even could be whole credit products that could follow you and adjust
accordingly as you swap houses. I know there's high demand for apartments in
some areas but prices of most houses lost touch with what ordinary men can
afford and I think artificial scarcity played a role in this. I think such tax
could break a lot of currently parasitically growing rent based fortunes.

If you want to see how sick accommodation can get you don't have to look
further than Japan. House there is such a valuable asset that it's often
shared between three adult generations. And if you have to rent an apartment
you often have to pay additional half a year of rent up front as a non-
refundable gift to the landlord. <http://en.wikipedia.org/wiki/Key_money>

I think government should try to put as much of the real estate in hands of as
many different people as it can.

I'm not saying government should hit families that own two or three apartments
or houses and rent some. I just don't like the ones that hold dozens of
properties (lots of them empty) barely keeping them from falling apart. That's
no good to anyone, apart from them.

