Chris Dillow — Two posts on power and rent-seeking

When capital is favored as a factor, asymmetrical power and consequent rent extraction result. The consequence is push back from those that perceive themselves as being cheated.

Stumbling and Mumbling

Reinventing The Wheel

Cronyism, & the Demand for Redistribution

Chris Dillow | Investors Chronicle

Tony Wikrent — Paul Krugman on Challenging the Oligarchy

This past Sunday, Stirling Newberry noted that the latest New York Review of Books includes a review by Paul Krugman of Robert Reich’s new book, Saving Capitalism: For the Many, Not the Few. It is an excellent review of what promises to be a seminal book on crucial issues of political economy. Remarkably, Krugman review is entitled, simply, Challenging the Oligarchy. Read on if you’re wondering why that title is so remarkable.

Both Reich and Krugman are generally regarded as liberal stalwarts, but the fact is that both were dangerously neo-liberal in their beliefs in the 1990s and early 2000s. I think the multiple failures of the Dubya administration, especially the 2007-2008 financial crash, caused them to rethink some basic beliefs and assumptions. But what especially forced them to rethink their economics was the brutal and shameless way Bush and the neo-cons used their political power to drive us into the Iraq War. They seemed to have had nagging doubts regarding the issue of how political power impacts economics, but by the end of the Bush Jr. regime, both Reich and Krugman were openly discussing how political power was shaping economic results.…

real economics
Paul Krugman on Challenging the Oligarchy

Tony Wikrent

Don Quijones — The Men Who Stole The Sun

Incredible.

If there’s one thing we should have learnt from this extended period of post-crisis drudgery, it is that there is no limit to how far our elected governments will go to protect the interests and privileges of oligarchs and oligopolies. In Spain, the government will even steal the sun’s rays to protect the country’s energy plutocracy.

Now the Spanish government is planning to tax homes that produce their own energy through solar power and store some of it using batteries. El País reports:

A draft decree prepared by the Industry, Energy and Tourism Ministry establishes a new fee to discourage the use of batteries or other storage systems by people who produce electricity, with solar or photovoltaic panels for instance, and who are connected to the national power grid.

This latest royal decree follows on the heels of an earlier one announced in 2013 that levied a tax solely on those who generate their own electricity. Once passed into law, intrepid small-time energy producers will be forced to pay a backup toll for the power from their solar panels, in addition to the access toll paid by everyone who consumes electricity from the conventional grid.

What’s worse, in order to figure out who is producing what level of energy (and, of course, how much to tax it), all solar panels would have to be hooked up to the grid. Energy producers who don’t connect to the grid could face a fine of up to 30 million euros (yes, seven zeros!). As Forbes reports, the intention is clear: to scare taxpayers into connecting to the grid in order to be taxed:....

Not mention that in some places gathering rain water is prohibited.

Wolf Street
The Men Who Stole The SunDon Quijones

Tony Wikrent — “If You Are Not Building a Nation, Then What the Fuck Are You Doing?”

May good points but I think that Tony is confused about the role of political and economic geography, geopolitics, and geostrategy. While the points he makes about development are well taken, they are largely orthogonal to the points that Alfred McCoy make about position relative to Halford Mackinder, and he might have included Nicholas Spyckman, too. Now, development is coming together with geographical position in Eurasia. This is likely to have much greater impact on much greater land space than the US has had owing to the relatively isolated position of the US geographically, which required amassing sea power like England previously.

The point is that if one doesn't understand how the players view the game as a set of rules on a particularly configured board, then one is not going to understand the moves that they are making and liable to make based on objectives and tradeoffs. It's therefore essential to understand the "grand chessboard," whatever one thinks of it. It is a high stakes game that the players take very seriously.

Naked Capitalism
“If You Are Not Building a Nation, Then What the Fuck Are You Doing?”
Yves Smith
Guest post by Tony Wikrent

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

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

Andrew Korybko — Forget Congress! The Deep State is America’s real bad guy in Ukraine

....Congress’ function isn’t to call the shots in American foreign policy, but to function as ‘democratic’ window dressing for established deep state policies. To expand upon this further, the deep state is defined by the author as representing the permanent diplomatic, defense, and intelligence bureaucracy that doesn’t cycle out of power whenever presidential administrations change. They represent a continuous and consistent force in shaping the application of America’s foreign policy, hence why despite the regular shuffling of the state’s upper echelon (e.g. Secretary of State, Director of the CIA, the President), the country’s policies proceed unabated amidst these symbolic periodic transitions.

This accounts for the discrepancy between Senator and then presidential candidate Obama and President Obama. As soon as one occupies the chair in the Oval Office, one becomes an extension of the deep state for the simple reason that the deep state is assumed to have information that everyone else, even the president on own, lacks. Of course, this is true of most countries and not just the US. However, the US deep state has more resources at its disposal than most others.

Oriental Review
Forget Congress! The Deep State is America’s real bad guy in Ukraine

Andrew Korybko

Merijn Knibbe — Socializing losses, privatising gains: bilateral investment treaties

Milieudefensie published a new report about these treaties. From the report:

Even insiders agree that ISDS undermines democratic decision making. An international arbitrator has summed it up nicely: “When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all […] Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.” That many “healthy, vibrant democracies have signed on to investor state dispute settlement” does not change the fact that national legal (democratic) systems are by definition bypassed when international investors – mostly transnational corporations – are enabled to challenge democratic policies for interfering with their profits before ad hoc and non-transparent investment tribunals. In addition, international investment agreements generally do not contain any provisions to exhaust local remedies before reverting to international arbitration. ISDS enables transnational corporations to bring a case directly against a country. In the eyes of its advocates this adds to the expediency of the system. But critics argue that ISDS gives transnational corporations a powerful tool to challenge a wide range of government regulation and public interest measures. Direct access to investment arbitration allows foreign investors to bypass the domestic legal system and effectively grants them more rights than domestic investors, effectively and unfairly undermining their competitiveness. The ISDS system not only lacks independence, accountability, transparency and coherence in law, it also makes little sense in economic terms as it appears to be inconsistent with the general free market paradigm…

Then present situation is already anti-democratic, and TPP and TIPP significantly up the ante.

Real-World Economics Review Blog
Socializing losses, privatising gains: bilateral investment treatiesMerijn Knibbe

Simon Johnson — Citigroup Will Be Broken Up

Simon Johnson quotes Elizabeth Warren:

“A century ago, Teddy Roosevelt was America’s trustbuster. He went after the giant trusts and monopolies in this country, and a lot of people talk about how those trusts deserved to be broken up because they had too much economic power. But Teddy Roosevelt said we should break them up because they had too much political power. Teddy Roosevelt said break them up because all that concentrated power threatened the very foundations of our democratic system.”

Citigroup is not the only TBTF that needs to be whittled down to size to rebalance political power in the US. Chase, Goldman, etc. also have to be addressed in the same breath.

Then there is the military-industrial complex and other trusts like energy and pharma. The clandestine agencies that have operational arms and agendas in addition to intelligence-gathering arms also need to be addressed. 

All of these have political power that constitutes a shadow government that drives oligarchic "democracy" in which voters are presented with a pre-selected slate of nominees chosen by the oligarchy based on the ability to raise funds from them as the chief donors. Then the public is supposed to believe that the recipients of this largesse are not influenced by it, especially when they need it for their next election and most of lawmakers time between elections is devoted to fundraising.

Baseline Scenario 

Citigroup Will Be Broken Up
Simon Johnson

Philip Pilkington — False Profit: How Paul Krugman’s Comments on Monopoly Distract From the Important Issues

So, what then is Krugman avoiding by positing what seems to be an emotionally appealing narrative? Simple: class power. Those two words neoclassical economists cannot stand to hear. The fact is that the idea of neoclassical competition is, at best, a relic of the 19th century, at worst, a fantasy pure and simple and income distribution has far more to do with class power than anything else. Class power is, of course, a political issue first and an economic issue second – one of the reasons that neoclassicals, who claim to practice “pure economics”, tend to avoid it. But it is class power that underlies the manner in which income is distributed today – especially when we are considering the role of finance.

Fixing the Economists
False Profit: How Paul Krugman’s Comments on Monopoly Distract From the Important Issues
Philip Pilkington

The plot (wrt rents) thickens. This single paragraphs sums it up.

For elaboration, see Michael Perelman, The Power of Economics vs. The Economics of Power (pdf) and C. Wright Mills, The Power Elite (pdf).

digby — A 1 percenter tells the truth about "job creators"

Nick Hanauer, successful entrepreneur and one percenter, gave testimony on income inequality a few days ago before the U.S. Senate. His testimony in full should be posted in every break room in America:

Hullabaloo
A 1 percenter tells the truth about "job creators"
digby

(h/t Mark Thoma at Economist's View)

John Nichols — With Romney-Ryan, GOP Becomes Grand Old Private-Equity Party

America’s robber barons have had to wait for more than a century—since Teddy Roosevelt went rogue and joined the anti-trust campaigners—for a Republican ticket that would truly represent their interests.

But every indication is that the Romney-Ryan ticket will be of, by and for the private-equity managers who have become the masters of America’s economic universe.

The Romney-Ryan ticket rejects the American faith of not just Democratic presidents such as Harry Truman and Franklin Roosevelt but of Republican presidents such as Dwight Eisenhower and Teddy Roosevelt.

“The absence of effective State, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power,” Teddy Roosevelt warned at Osawatomie, Kansas, in 1910. “The prime need to is to change the conditions which enable these men to accumulate power which it is not for the general welfare that they should hold or exercise.”

The Nation
With Romney-Ryan, GOP Becomes Grand Old Private-Equity Party
John Nichols