Friday, June 10, 2011

Krugman Says "Rentier"

New post out from Krugman today, where he introduces his readership to the term "rentier"; excerpt:

rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense.

I believe the term applies to a broader demographic, but it is a start at least for Krugman.


(*Headline form hat tip winterspeak)

23 comments:

Mario said...

Krugman is funny...he seems to be terrible at bluffing. We all know that he knows the REAL definition of rentier yet his definition, although inaccurate in the literal sense, is actually still addressing the real culprits that are rentiers (the bailout companies!!!)...and in that way he is communicating more effectively with the larger population...even if he's not speaking in the most accurate terms.

It's interesting to watch Krugman "knowingly" say lies and inaccuracies. I think at this point, like Bernake, he knows the MMT concepts are real and applicable. These guys, for whatever reason, are skiddish on going public about it. Fascism anyone?!?!!

The greatest irony in all of this is that those politicians demanding spending cuts and "less government" are actually the ones building an even stronger state power through fear, destruction, and extreme corporate mercantilism. The irony is so sickening. Let's just tell the people to watch "Revenge of the Sith"...maybe that will get the message across!?!?! LOL

Crake said...

Most outspoken government spending critics of today fall to realize Big Government = Big Business, and they fight the former while championing the latter. As Mario wrote, absence government, big business easily takes over the vacuum creating an oppressing corporate state. Therefore to me, these government critics are basically slaves playing with their chains.

Mario said...

either they are slaves playing with their chains or they're bought out slaves playing with their power and accumulated wealth...after all savings is depleted from the private sector and resting in the hands of big business. They are like Smaug, the dragon from the Hobbit by JRR Tolkein...they just want to accumulate as much wealth as they possibly can so they can just sit on it and do nothing with it at all. These people are vampirical dragon lizards on our planet...there's a freaking image for ya eh!?!!

Tom Hickey said...

This opens up the whole dimension of economic rent and the influence of the "investor class," rentiers really, which is something that most people are completely unaware of.

But as Matt points out, economic rent is broader and deeper than Krugman's ownership of assets, since it includes land rent, monopoly rent, and financial rent.

Michael Hudon's latest on the grip of rentiers on the EZ are must-reads.

How Financial Oligarchy Replaces Democracy

EU: Class War Declared


EU: Politics Financialized, Economies Privatized

Matt Franko said...

Marshall Auerback recently posted up an article at the UMKC blog where he points out that although rentiers are part of the non-govt sector, they should not necessarily be considered entrepreneurs...

Many people on the right consider bankers to be entrepreneurs. They mostly are not, let's face it, anybody can loan someone else horizontal money and take a commission out of the deal. Banks are partners with the govt sector, and often get govt bailouts when they fail.

I consider true entrepreneurship to be (mostly) outside the FIRE sectors.

Link_http://neweconomicperspectives.blogspot.com/2011/06/tim-pawlenty-blurs-distinction-between.html

Resp,

Tom Hickey said...

Entrepreneurship is about innovation. Otherwise, starting an enterprise is just about capturing a portion of existing market share.

True, the banks innovated financially. But was it actually innovation, or just cheating in disguise?

Matt Franko said...

Right Tom,
Financial "innovation" was just cheating/getting around the spirit of regulations....

Most of banking (80%+ I believe) is just vanilla loans against property and autos, with commissions on originations.... then secutization of these loans and another commission on the placement of the securitizations... this is not entrepreneurship. Especially when they even F this simple process up and then have to go to Treasury to get bailed out...

I have some but very little respect for this industry at this point.


Resp,

Clonal said...

Tom,

Talking of rentiers,

compare the two set of industry financial statements below

Industry Income-Expense Statements Finance-Insurance

vs

Industry Income-Expense Statements: Manufacturing

Clonal said...

The above clearly is reason enough to nationalize and to run it as a public utility.

Clonal said...

Running Finance/Insurance as a public utility in case I was not clear.

Mario said...

wow that's incredible clonal. 99% gross profit and 97% net profit in the financials!!!! Holy smokes that's beyond incredible.

I don't know exactly what you are proposing to make that a public utility...are you suggesting the Fed open up teller windows for the general public or something?

I personally disagree that banking is not innovative and/or entrepreneurial. Financial innovation is just as valid as any other type of innovation. The creation of options was huge and totally valid for an economy imho. I DO AGREE that bailing them out is not a good idea nor is it valid to stretch the law, lobbying, and do this or that, however the general public does need to be accountable for their own actions as well particularly for agreeing to mortgages they could not afford, etc. The existence of snake-oil salesmen (and stupid, gullible customers) does not negate the validity of natural medicine. Innovation and human ingenuity is valid in whatever field or industry it may be found.

Quite frankly most anyone can do most jobs and most things are not that challenging to accomplish. Anyone can run a factory, drill oil, make cars, movies, furniture, etc. So just b/c anyone can selling loans to people does not discount the industry (plus not everyone can sell loans...if you've ever worked for a bank before you'd know how competitive and challenging selling loans can be...selling is an art to be sure no matter what industry). But that's just my view. Banks and the financials do have their place in this world and in our economy to be sure...just not the way things are right now that's all.

Mario said...

that website bizstats.com is a great resource for industry financials clonal. Thanks for sharing it...great find.

Clonal said...

Mario,

You misunderstand. The rentier is not the Joe Blow working at the bank -- it is the owner of the bank who gets the profit. The salary/wages and officer's comps account for only 0.28% of total sales compared to net profits of 97.3%


Compare this to Manufacturing, where

Officers Comp. 0.65%
Salary-Wages 5.38%

compared to

Net Profit 8.11%

This is a major cause of the increasing Gini Coefficient in the USA

Mario said...

that's true and a valid point.

However those figures wouldn't be so high if it wasn't for the bailout and the QE purchases (particularly QE 1) that allows their financials to look much better than they really are.

I'd love to see what their REAL financials look like.

Clonal said...

Mario,

The figures are for 2007 well before the bailouts!

Mario said...

okay good know...however that means you're looking at financials at the peak of the bubble...

I'd still love to see what their REAL financials would look like in 2008 through to the present. You see what I mean?

Banking, in its purest form (aka without bailouts and government intervention) holds risks and liabilities just as any other industry. Sure profits could be weighted in your favor but it just depends on who you loan to, for what, and in what type of environment the economy is in. There are many, many banks that have gone out of business which only goes to show that it's not a perfect or flawless industry to say the least.

Clonal said...

Mario,

In other words before the crash. The figures may well have showed losses instead of profits had the bailouts not occurred. After the bailouts, it is back to business as usual on part of the FIRE sector.

The owners of the banks are the rentiers that Michael Hudson talks about -- not the working stiff -- whether working at the bank or in the manufacturing industry.

Mario said...

if the bailouts and QE 1, etc. didn't happen do you think the rentier class would have as strong a hold on our economy as they do today?

I'd suspect that they wouldn't. If only they had to eat their own losses!!!!!! If only...

I agree with you on your premise, I just disagree that banking and the financial industry is a "shoe-in" industry. That's all. Sure with the bailouts it's a shoe-in but only for those that have that safety net. Many banks didn't have that safety net and they lost out BIG TIME. It would be the same in any industry with such "bailouts"...agricultural subsidies for example, etc., etc. It doesn't mean that farming as an industry is a shoe-in.

I still don't know about nationalizing the banks, however maybe having a national bank as an option (kind of like the public option in health care) might not be a bad idea...and of course I think we can all expect how that kind of an idea would fare in Washington. LOL!!!

Clonal said...

Mario,

The problem with finance resides in one ofits core tenets -- namely the time value of money, otherwise known as interest. Please read Michael Hudson's seminal articles on this topic

The Mathematical Economics of Compound Rates of Interest: A Four-Thousand Year Overview Part I

The Mathematical Economics of Compound Rates of Interest: A Four-Thousand Year Overview Part II

and

Why the “Miracle of Compound Interest” leads to Financial Crises

They are well worth reading

Mario said...

thanks for those links Clonan.

I have only read part of the last article you linked to and honestly it reminds me of Austrian Economics a bit, and those conspiracies about how the Fed "owns the world" b/c of interest payments, etc., etc., etc.

In the last linked article, I think it can all be summed up by this:

"Financial returns therefore probably accumulated in the hands of lenders more rapidly than they could find commercial opportunities. This phenomenon has proved fateful for lending in today’s capital markets to spill over to increasingly risky ventures."

In other words, in economic downturns, lending gets harder so lenders head towards riskier and more complicated investment vehicles. Honestly, that's fine with me...as long as they are not bailed out and are held accountable and go under if that is the way the cards fall. Customers and consumers should be able to take care of themselves and make their own decisions just as if they were buying a car or TV, etc. Be informed and check it out. With the proper regulations and securities and accountability in place (like 100% FDIC insurance, bankruptcy, proper financial reporting, etc.) such investments can be contained and properly assessed by the market.

Just my thoughts on the matter. Compound interest can work in anyone's favor too by the way. I see no issue with this in general. I do still see issues with the rentier class at large and with buddying up with government and bailouts and subsidies and lobbying, and monopoly/cartel power control and market share, etc. Those are two very different issues though...just my thoughts on the matter. Usually its not about what we are doing but rather how we are doing it that is the issue. More often I tend to support proper regulation and real accountability rather than censorship and prohibition.

Clonal said...

To understand the problem of compound interest, and the requirement for growth that is implied, see the video by Dr. Albert Bartlett - Arithmetic, Population and Energy

Mario said...

I know I've seen that...I'm still not buying it. I'm just not into conspiracies of that sort...I have my own types I guess you could say but compound interest isn't one of them.

More often than not the gods are conspiring in our favor and in spite of ourselves!! LOL ;)

Cheers mate

Adam said...

For the people of Wisconsin they can see "rentiers" as monopolists they are.

Did anyone hear about the Scott Walker/ CoorsMiller rules about breweries. They want to regulate the true innovators of beer as they are large corporations.

http://thinkprogress.org/economy/2011/06/10/239780/wisconsin-craft-beer/