Sunday, July 29, 2012

"Rent Theory" as a Symptom?

After reading Michael Hudson's essay, "Veblen’s Institutionalist Elaboration of Rent Theory," one can't help seeing rampant rentier mentality as a symptom, not the original cause.

Component momentum in a system comes as no surprise at all within biology or system theory, or even psychology or anthropology.

From other system perspectives, runaway rent-seeking habits are one specific that falls under the more general heading of institutional momentum. Other names are phenotypic persistence, principal of prior plausibility, etc, etc ... or just random habits unrestrained.

The deeper issue is why the group momentum of such habits isn't recognized, diverted & shaped to other purposes sooner. That comes down to failure at group-wide, situational awareness, followed by failure to automatically trigger appropriate checks & balances in a complex system - a topic well discussed by the framers of our Constitution.

In small tribes, daily or weekly group-wide council discussions address this group awareness requirement. However, given our population size, no current media process parses all our distributed observations fast enough.

That leaves one pondering how far off track we really are, and what the recovery steps are.

Just when we need to be distributing enough resources & time to continually improve the quality of our distributed decision-making abilities ... we've instead gone off the rails.  Our policy decision-making habits are already so concentrated that our population-wide, self-regulation gap may be widening beyond control. Worse, our distributed situational awareness may have lost ability to reconnect. Is the probability of recovery already insignificant? How would we know?  Can that gap be estimated quantitatively?

(And arranging terrorist events just isn't an adequate rallying cry anymore. Black Ops thinking just won't cut it as a continuous mobilization strategy.)

Rampant rent seeking is a symptom of distributed disconnects, & failure to evolve checks & balances as fast as our options are expanding. As a nation, culture or system, we're distracted, and it no longer matters what the distractions are. The core problem is that we can't parse our options fast enough to optimize how we explore them. The result is random policy drift by elites reconstituting Central Planning by any other name.

We need indirection, and the communication throughput to capitalize on best options that some will inevitably stumble upon before all will. It's no longer a question of if HP needs to know that HP knows. Rather, we need to know how quickly HP needs to know what HP knows. There's no other way to drive continuous improvements in group agility.

How WOULD we drive continuous improvement in group agility?  Group practice?  When was the last time YOU acted like an owner of your democracy?

Every day, there are always many things we should start doing differently.  Yet if we don't actually start, it just won't matter what we would'a, could'a, should'a done.


marris said...

Please explain why I can't use your own ideas to attack this post:

> Classical political economy had used the labor theory of value to isolate the elements of price that had no counterpart in necessary costs of production. Economic rent - the excess of price over this "real cost" - is unearned income.

Couldn't I just put on my Roger Erickson hat and say the classical political economists were focused on "static value," and that the non-labor price components reflect "dynamic value" ?

After all, the entrepreneurs and speculators gain profit only by dynamically valuing goods and services correctly. In a static economy, they would not do much.

Tom Hickey said...

"entrepreneurs and speculators gain profit only by dynamically valuing goods and services correctly"

Putting entrepreneurs and speculators in the same sentence is a non sequitur. Entrepreneurs make a productive contribution, speculators provide market liquidity, which produces nothing.

I don't think that modern economists hold the Classical LTV anymore. Post Keynesians have developed a modern LTV in which price is cost-based and a chief cost is labor. Materials have to be extracted, refined, and delivered by labor, and both capital and consumer goods are produced by labor. Management is an aspect of labor. Intellectual property recognizes the role of discovery, invention, and creativity.

Anything not needed to produce goods for market involves rent. Artificial scarcity and special privilege also lead to rent. Externality leads to rent.

marris said...

> speculators provide market liquidity, which produces nothing

I don't get it. Since when is market liquidity nothing?

This is also not the only role of speculators, right? Successful speculation creates futures prices to which producers can respond. How do we know that the PKs are not just dawdling?

If it took "modern economists" time to jump off the Classical LTV ship, then why should we be surprised if it takes them longer to see productivity in speculation?

Tom Hickey said...

marris: "I don't get it. Since when is market liquidity nothing?"

It's not nothing, but it produces nothing. It's an economic activity that should be taxed more than production instead of being privileged, e.g., capital gains tax rate instead of regular income from production.

Consumption is not nothing and it is taxed as something that is not production, e.g., sales tax, luxury tax, sin tax. Consumption is contributory to circular flow, but it is not extractive, so it is not rent.

marris said...

> It's not nothing, but it produces nothing.

The counter-argument is still the same:

Successful speculation creates futures prices to which producers can respond.

"Research" also produces "nothing" ... except knowledge. That is what futures markets do.

> Consumption is not nothing and it is taxed as something that is not production.

Uh, yeah... It's *not* only the case that consumption is "not productive." It is the *opposite* of production. A consumer takes goods and services that could go to *other* consumers (even future generations) and removes them.

It's a fun little game of words to call this "non-extractive," but whatever.

Obviously ALL trades contribute to flow, circular or otherwise.

Tom Hickey said...

marris, it's kind of like Justice Potter Stewart reflection the criteria for distinguishing hard pornography.

In Jacobellis v. Ohio (1964), Stewart wrote in his short concurrence that "hard-core pornography" was hard to define, but that "I know it when I see it."

While Justice Stewart was criticized for relying on a subjective criterion and later admitted it, the fact is that subjective criteria are used in human decision-making all the time and to try to make human action into a science, e.g., by reducing it to amoral rational utility maximization defies the facts about humans actually behave. See the Robert Shiller interview on behavioral economics that I just posted.

I agree that there is a grey area between productive and non-productive. It is either going to take admission of a subjective criterion or else acceptance of the gratuitous assumption of amoral rational utility maximization.

Obviously, those who subscribe to rational utility maximization by individuals as the basis of human action in society will reject that there is any difference.

In the end, to the degree that this is matter of tax policy it will be decided politically.