Sunday, May 31, 2015

Jared Bernstein — Why is it so hard to regulate the banks? It’s less the complexity than the political power.


Jared is hammering on power. Good for him. It's not about economics as a science (that excludes power). It's about power and the rents that power enables. Time to take the gloves off on this before it kill us all.
Generally speaking, businesses earn profits in one of two basic ways. The first is by providing goods and services more productively than others and selling them at a price people are willing to pay. The second is by seeking rents. “Rent,” in the economic sense, refers broadly to any excess benefits that people and businesses receive simply because they have power over something that others need. Patents are a form of rent, as are cable TV monopolies. 
For economists, rent­-seeking is everywhere, and is a common way that economies go awry. Crudely speaking, productivity enhancement is good, because it makes society richer over all. Equally crudely, rent­-seeking is bad, because it makes the people who are already rich even richer. Rent-­seeking tends to be a force against innovation and for stagnancy, in large part because its focus is on the past — on maintaining power and influence gained long ago, often at the expense of innovation. Businesses built around rent­-seeking don’t try to increase the size of the pie; they just want to make sure they get a bigger slice. (If a company doesn’t seem to care about your opinion of it as a customer, there’s a good chance that it is seeking rents.) — Adam Davidson

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