Tuesday, December 29, 2015

Brad DeLong — Must-Read: Dean Baker: The Upward Redistribution of Income: Are Rents the Story?

Brad DeLong apparently agrees with Piketty that rent is intrinsic to capitalism. Marx had held that rent is not only intrinsic to capitalism but also the driving force behind it in distributing the surplus in favor of non-producers through capitalistic distributional institutions.

The bulk of this upward redistribution comes from the growth of rents in the economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals. The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality, as for example argued by Thomas Piketty.
Dan Kervick went on to point out in the comments that for Piketty this is rent extraction and it's endemic to capitalism.

Matt Rognlie argued that most of the differential was owing to housing. That would be land rent.

It's difficult to see how anything accrues to capital from production rather than from ownership and institutional arrangements privileging ownership.  Historically, all ownership resulted from the commons as a result of exercise of power, either through raw force or the force of law. Since governance has always been class-based, institutional arrangements have been class-based, either through a ruling class governing by force, or by a republic chiefly representative of class interests.

WCEG — The Equitablog
Must-Read: Dean Baker: The Upward Redistribution of Income: Are Rents the Story?
Brad DeLong


Dan Lynch said...

Not only do the rich own the capital, they own the government. I.e. doctors not only lobby the government to artificially limit the supply of doctors, but they lobby to set Medicare fees, and to make sure that any health care plan leaves private for-profit care alone.

For example, there has never been a big push in this country for public health care, not even from so-called liberals.

Medicine used to be a low-paid profession, until the government got involved.

There is nothing wrong with any occupational group organizing for fair wages and job security, but I would say doctors have gone a little too far. :-) Ditto lawyers.

Ignacio said...

Dan they love their fascism/corporatism and hate competition. In every nation there is some lobbies which hold the population hostage through their anti-capitalism while they preach about "free markets" and how hard they worked to be at the top of the chain. "Free market" concept is laughable.

It's all linked to the problem of having to come with bullshit jobs to sustain our current system due to excess capacity and diminishing profit rates (an other internal contradiction of capitalism that was spoken by Marx long ago).

In a sensical system the pharma industry wouldn't be blocking progress to eliminate viruses and malign bacteria problems instead of making them chronic problems for profit and rent extraction. The whole healthcare industry is a a rent-seeking sector nowadays, from doctors to pharma.

Avoid it at all costs, and what is worse is that they actually don't solve that many problems as they imply (organisms regenerate and cure themselves more often than not). Some of the old discoveries helped a lot (antibiotics, but now bacteria are evolving to be resistant to last generation antibiotics, so even that is running it's course), but actual social changes regarding nutrition, exercising and hygiene are the main "culprits" of extending life expectancy more than recent (last 3-4 decades) medicine and pharma advances (except for some exceptional diseases).

It has come to a point than healthcare industry is almost like the FIRE sector, which the actual value added to society has turned negative (as seen in USA, were life expectancy of ex-middle class whites is dropping catastrophically, and one of the problems is over-medication and drug abuse, all provided by healthcare industry).

Unknown said...


"In every nation there is some lobbies which hold the population hostage through their anti-capitalism while they preach about "free markets" and how hard they worked to be at the top of the chain"

These people are doing capitalism. The goal of capitalists is to win. How do you win? By creating a monopoly\oligopoly in your market to become rich and powerful. So its not that big business executives arent practicing capitalism by trying to prevent competition via isntitutional structure and Govt.

Capitalists and "markets" arent the same thing. Capitalism is nothing but private ownership of property and production. "Capitalism" doesnt have anything to say about "free markets".

The best capitalists are the worst free marketers because competition is bad for the big guys.

Matt Franko said...

The only place (other than Johns Hopkins of course) where you can get heart surgery in my state (Maryland) is at the University of MD Medical Center ... other hospitals have tried to get permits to build one, but have been consistently denied... the state wont permit them the state prefers to concentrate all efforts/funds at the UMMC ("Center of Excellence") as a policy UMMC is a PUBLIC institution not a bunch of "capitalist pigs, yada yada..."

Its the same for Level I Trauma.... they maintain a fleet of 30 medivac helos and land at the accident site and fly the victim into UMMC no matter where the accident occurs... its public policy...

Seems to work too....

Anonymous said...

What I pointed out in the comments is that, for Piketty, there is no fundamental difference between "rents" and any other returns to capital. The liberals are always trying to attribute the problems of inequality to market "imperfections" that allow capitalists to extract unwarranted rents. The implication is that if only we could get these markets to function more perfectly and competitively, there would be no rent extraction and no unjustified inequality. But Piketty is skeptical of this entire picture.

Tom Hickey said...

IN the neoclassical model upon which Piketty relies, perfect competition (no asymmetry) results in profit being equal to the historical real rate of interest, which is very low. Any return above that is the result of market imperfections (asymmetry) that augments the real return on capital above the real rate.

Supposedly a "free market" along with "free trade" and "free capital flow" eliminates asymmetry, resulting in perfect markets and pure profit with no economic rent.

Marx recognized that and held that as long as ownership prevailed, the petite bourgeoisie would ally with the haute bourgeoisie against workers to create asymmetry that would result in economic rent.

What's happening now is that the natural relationship of the petite bourgeoisie ("middle class") that Marx asserted is coming into play as the haute bourgeoisies and new dynastic aristocracy is running away with most of the rent, cramming down the petite bourgeoisie to worker status, I.e., the precariat.

What Marx foresaw happening as a result of the globalization of capital is indeed happening although unsurprisingly not precisely as he foresaw because emergence in a complex social system.

The basic Marxian model is work producing fruit of labor with the fruit of labor in excess of subsistence for workers. That is the surplus. Logically, it should be divided according to the marginal productivity of workers. If workers chose collectively to divide it differently, such as from each according to ability and to each according to need, that is their right.

Those who are not productive deciding how to divide the surplus is rent-seeking and rent-extraction, and it is accomplished through force, either directly or indirectly through distributional institutions controlled by a ruling class rather than the working class.

Piketty says that he hasn't "read Marx." Well, I haven't "read Marx" either. Of course, Marxists scholars will argue over details, as scholars are wont to do, but most people understand the underlying differences between the neoclassical model and Marx's views, which are an elaboration of the classical models of his time that did incorporate rent, whereas neoclassical models mostly ignore it by assuming it away.

Now more mainstream people are chucking their fear of being tarred as Marxists and saying, wait a minute.

NeilW said...

"Those who are not productive deciding how to divide the surplus is rent-seeking and rent-extraction"

They are productive. They organise the effort, which is production. Profit is merely the wages of the profit seeker.

The problem is that in the collective bargaining workers are not getting a decent share of the proceeds because they have had their power as a collective force divided and conquered.

The trick in the future is to divide and conquer the profit seeker's ability to collectivise. And you do that by brutal anti-trust laws on the same level as the anti-union laws of the last 30 years.

Tom Hickey said...

If they are productive, then they are part of labor.

This is an issue now regarding top executives and board members, especially those compensated in shares rather than ordinary income. Are they to be counted as labor or capital. Are they rewarded on the basis of marginal productivity and just deserts or are they able to command rent through control of distributional institutions.

This is the thorny side of capital, where the claim is that capital is productive and there is therefore no actual distinction between capital and labor in this regard. The market decides distributional issues extremely well.

This view ignores asymmetries resulting from "market imperfections," such as asymmetrical power in shaping distributional institutions, as well as asymmetrical information, and other such factors.

The end result is however that a very small number of human beings disproportionately own and control global financial and non-financial resources, and no amount of handwaving is going to change that fact.

Is it reasonable to assume that this is a result of productive contribution distributed proportionately?

Many if not most people know intuitively that this is the result of other factors than than individuals competing on a level playing field.

But conventional economics (handwaving) contradicts this perception by brushing rents aside and ignoring the effect of class structure.

Ignacio said...

Matt who knew that public healthcare works!? Crazy, right? Well, that's how it works on most of the civilized world.

Unfortunately a big chunk of the healthcare industry is not public hence not interested in actual elimination of health issues but chronification of them. Trillions at stake, we cannot allow for the elimination of diseases, all that pharma people has to live from something...

Same everywhere, same for many things, the corporatist state will promote laws to protect their privileges too (like the whole export business described in the other post).

Auburn, right, nut I'm just describing their rhetoric, those hypocrites will speak about "capitalism and free markets" when it's convenient but will quickly push politicians to write laws to protect them or abuse the population directly or indirectly.

The biggest case for rising taxes is not inequality, but the political power certain sectors of the population have gained (unfortunately not practical because ofc they put the politicians the first place).