David Ruccio — Rent-seeking and the 1 percent

I’m intrigued by the increasing references to rent-seeking as a way of making sense of the groteque unequal distribution of income in the United States. What explains this trend?We now have Joseph Stiglitz, Josh Bivens and Lawrence Mishel, and Paul Krugman all referring to rents or rent-seeking in order to analyze how the 1 percent has managed to capture a larger and larger share of the income generated within the U.S. economy. It seems that, within “polite company” (or at least what passes for polite company within mainstream economics), it’s now permissible to invoke and describe the rent-seeking behavior of the economic elite (in a manner analogous to the way rent was originally used, to describe what landlords received for the use of their land, as the return obtained by virtue of ownership, not because of anything they actually did or produced).Here’s my sense: the obscene amounts of income going into the pockets of the top 1 percent and the fact that much of that income is associated with what are increasingly seen as economically useless activities (such as returns to stock ownership, serving as Chief Executive Officers of large corporations, and the financial sector) have put the final nail in the coffin of neoclassical marginal productivity theory. It’s simply become increasingly difficult to square the concentration of income among those at the very top (and the stagnation of incomes for pretty much everyone else) with the idea that everybody gets what they deserve, according to their marginal contributions to production.

OCCASIONAL LINKS & COMMENTARY on economics, culture and society
Rent-seeking and the 1 percent
David Ruccio | Professor of Economics, University of Notre Dame

Marginalism is the basis of neoclassical economics), whose public agenda was formalization of theory and focus on efficiency through marginal analysis. It can be argued that there was also a hidden agenda of deflecting attention away from economic rent, which is inherently extractive.

Rent extraction had been central to the classical economics of Smith and Ricardo that culminated in Marx, and marginalism was successful in bring that project to a close. Now some major voices in economics are beginning to rethink that position, as we have been harping on for some time.

Economic rent includes land rent as extraction from land ownership as in feudalism, monopoly rent from productive capital as in industrial capitalism, and financial rent from finance capital as in financial capitalism. Economic rent is a market imperfection that creates friction and leads to distortion, of which inequality is one prominent manifestation. Inequality also creates friction and leads to further distortion. Generally, the recommended antidotes for economics rent are taxation and regulation.

Professor Ruccio does not think that the rent explanation gets to the core of the issue, however, nor does he see the remedies as sufficient to correct the problem, which is structural. He sees the issue as being centered on extraction of surplus value owing to class power. So while rent is not "wrong," it is an insufficient analysis in that it doesn't take the whole into account. Unless the issue of power is addressed, the problem cannot be solved since the foundation remains untouched.