Assetisation and the end times of neoliberalism — Richard Murphy

Capitalism is about capitalizing whatever can be capitalized into an asset on a balance sheet.

And it can be said that the creation of these 'assets' is now the focus of modern capitalism.

This then defines modern capitalism as a mechanism for rent extraction, and not profit-making.

And what that means is that value creation has ceased to be what markets are about.

No wonder we are in the end-times for neoliberalism.

Tax Research UK

Assetisation and the end times of neoliberalism
Richard Murphy | Professor of Practice in International Political Economy at City University, London; Director of Tax Research UK; non-executive director of Cambridge Econometrics, and a member of the Progressive Economy Forum

Asher Schechter — Angus Deaton on the Under-Discussed Driver of Inequality in America: “It’s Easier for Rent-Seekers to Affect Policy Here Than In Much of Europe”

In an interview with ProMarket, Nobel Prize-winning economist Angus Deaton talks about the connection of rent-seeking and monopolization to rising inequality.

ProMarket — The blog of the Stigler Center at the University of Chicago Booth School of Business
Angus Deaton on the Under-Discussed Driver of Inequality in America: “It’s Easier for Rent-Seekers to Affect Policy Here Than In Much of Europe”

Asher Schechter

David F. Ruccio — Utopia and the economics of control

Good article about economics, power and ethics, with which I would substantially agree as a philosopher. 

However, Professor Ruccio passes over the economic aspect of power, which bestows the ability to extract economic rent. 

Power results in asymmetries that vitiate perfect competition and generate imperfect markets. This allows for rent extraction. Rent goes to the powerful, that is, the owners of real and financial capital, to the disadvantage of those lacking power, basically workers.

Economic rent, rent-seeking, and rent extraction create inefficiencies and therefore fall under the purview of purely economic inquiry. 

Employing models whose assumptions are so limiting that they ignore rent is either unscientific, or worse, ideologically biased. The former is ignorant and the latter is unethical.

Let's get real here and call a spade a spade. Morons or crooks?

Occasional Links & Commentary

Utopia and the economics of control

David F. Ruccio | Professor of Economics, University of Notre Dame

David F. Ruccio — Global rentier capitalism

… as the authors of the new report from the United Nations Conference on Trade and Development have explained, there is a growing concern that

increasing market concentration in leading sectors of the global economy and the growing market and lobbying powers of dominant corporations are creating a new form of global rentier capitalism to the detriment of balanced and inclusive growth for the many.

And they’re not just talking about financial rentier incomes, which has been the focus of attention since the global meltdown provoked by Wall Street nine years ago. Their argument is that a defining feature of “hyperglobalization” is the proliferation of rent-seeking strategies, from technological innovations to mergers and acquisitions, within the non-financial corporate sector. The result is the growth of corporate rents or “surplus profits.”...

What happens when economists assume away asymmetry, especially of market power.

Occasional Links & Commentary
Global rentier capitalism
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Chris Dillow — Ducking questions about capitalism

Theresa May’s speech this morning was trailed as a defence of free market capitalism. If that’s what it was, it failed because she failed to answer the big questions....

Stumbling and Mumbling
Ducking questions about capitalism
Chris Dillow | Investors Chronicle

Matt Stoller — How to Educate Yourself on Monopoly Power

Bibliography.

Medium — Matt Stoller
How to Educate Yourself on Monopoly Power

Matt Stoller

ht Lambert Strether at Naked Capitalism

Diane Coyle — Property is – theft?

Buying versus renting. Is buying over in the drive for rent-seeking?

The Enlightened Economist

Property is – theft?
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Joe Collins — Getting to the bottom of this ‘shitty rent business’…

The rent-seeking argument emerging out of the progressive side of the mainstream economics community runs something like this: the top 1% are socially unproductive and receive obscene amounts of money by securing themselves into positions of ownership that permit them to misappropriate wealth. Taken to its logical conclusion this argument would suggest that ‘elites’ are the problem and once we mitigate their ability to appropriate unearned gains, we can get on with establishing a good society where there is relative equality of opportunity and a more desirable amount of economic inequality. Sounds great! But does it work and is it enough?

David Ruccio’s ‘sense’ on why this is happening is accurate – grotesque inequality has made marginal productivity theory untenable so the search is on for an alternative means to understand the post-GFC world....

Progress in Political Economy

Getting to the bottom of this ‘shitty rent business’…
Joe Collins | Department of Political Economy at the University of Sydney

Nobel Laureates — Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality

Eliminating rent seeking and toughening enforcement of antitrust laws are “critical” to reducing rising inequality, said two Nobel Laureates, Angus Deaton and Joseph Stiglitz, during a panel of Nobel laureates last Friday. Two fellow laureates, Roger Myerson and Edmund Phelps, echoed their message and warned of a return to 1930s-style corporatism.

“To the very considerable extent that inequality is generated by rent seeking, we could sharply reduce inequality itself if rent seeking were to be somehow reduced,” said Angus Deaton, recipient of the 2015 Nobel Prize in Economics. Deaton described inequality in the U.S. as being primarily driven by industry rents, and rejected proposals to increase taxes on the rich as a way to reduce rent seeking.

“I don’t think that rent seeking, which is incredibly profitable, is very sensitive to taxes at all. I don’t think taxes are a good way of stopping rent seeking. People should deal with rent seeking by stopping rent seeking, not by taxing the rich,” he said.

The panel was part of the annual Allied Social Sciences Associations (ASSA) meeting in Chicago. Fellow Nobel Laureate Joseph Stiglitz, recipient of the 2001 prize, offered a more sympathetic view of higher taxes on the rich as a method to reduce inequality, but stressed the importance of rent-seeking to the rise in inequality in the U.S....

Rent extraction is made possible by asymmetric power. The way to reduce rent-seeking is to level the power. Symmetrical power is an assumption of neoclassical economics as the basis of free markets that are fair.

But markets are not naturally symmetrical because societies are structured on the basis of class and power is distributed asymmetrically as matter of social structure.

The problem in addressing rent this way is that this was a key insight of Marx. So anyone proposing such a solution is bound to be attacked as a 'Marxist," "socialist," or 'communist." Most people capable of making difference don’t' want to go there, at least alone, and no one wants to go first.

Pro-Market
Nobel Laureates: Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality

Michael Hudson — Rentier Capitalism – Veblen in the 21st century

As the heirs to classical political economy and the German historical school, theAmerican institutionalists retained rent theory and its corollary idea of unearned income. More than any other institutionalist, Veblen emphasized the dynamics of banks financing real estate speculation and Wall Street maneuvering to organize monopolies and trusts. Yet despite the popularity of his writings with the reading public, his contribution has remained isolated from the academic mainstream, and he did not leave a “school.” The rentier strategy has been to make rent extraction invisible, not the center of attention it occupied in classical political economy. One barely sees today a quantification of the degree to which overhead charges for rent, insurance and interest are rising above the cost of production, even as this prices financialized economies out of world markets.

Michael Hudson
Rentier Capitalism – Veblen in the 21st century

See also


L. Randall Wray, Veblen’s Theory of Business Enterprise and Keynes’s Monetary Theory of Production, <i>Journal of Economic Issues</i>

Yves Smith — Oxfam Report on Rent Seeking Among the Top Wealthy Reinforces Neoliberal Shibboleths

Yves Smith on economic rent and rent seeking.

At a higher level of abstraction, having a business that achieves sustainable profits over time entails creating or exploiting market inefficiencies. Perfectly efficient markets generate thin to no profit.

Even in neoclassical economics, which assumes perfect markets (money, goods and labor), rent is gain resulting from market inefficiencies. Rent seeking is active exploitation of market inefficiencies.

Thus, it is rational to promote inefficiencies that one can exploit. According to Peter Thiel, entrepreneurs loathe competition and seek monopoly.

It is very difficult to compute rent in that every market that is not perfect, which is all markets. There are knock on effects among markets that amplify rents throughout the system. In addition, externality and transaction cost further complicate the issue since they are not measured.

Rentier activity is a lot like pornography: hard to define in a way you can operationalize, but you know it when you see it.

This conundrum illustrates why almost always a bad idea to try to come up with single point estimates of complex phenomena. If you do attempt to put metrics on them, its better to measure what you can measure reasonably well, paramaterize other important issues as best you can, and make qualitative conclusions.

Just as there is soft and hard-core pornography, just as there is economic rent and egregious economic rent.
 
Naked Capitalism
Oxfam Report on Rent Seeking Among the Top Wealthy Reinforces Neoliberal Shibboleths
Yves Smith

Ed Walker — Capitalism Versus The Social Commons

For a long time, and particularly since WWII, societies around the world have managed substantial parts of their productive activity in non-capitalist zones. In the UK, for example, health care is provided by the National Health Service. It operates in a market society, but it is not part of the process of capital accumulation. The education system is an example in the US. We can think of these non-capitalist enclaves as a social commons. We all share in them, and we all have a stake in seeing to it that they operate at a high level.

With the turn towards neoliberalism in the past 35 years, the rich have tried to colonize these non-capitalist sectors. Currently UK capitalists and the Tories are intent on privatizing the NHS for their personal gain. They look at the way the US medical/drug system works for the benefit of the rich and they want that for themselves. In the US, we have already turned over big chunks of the prison system to these people, with predictable results. The big push in the US is the effort to take over the education system for personal profit. In a larger perspective, the capitalists and their economists tell us constantly that European welfare states are impossibly expensive and must be privatized. Why? Why is this such a big deal?

It might be easy to put this down to greed, or to the Great Man theory of economic progress, or creative destruction. But perhaps there is something in the nature of capitalism that can explain this better. Two books published in the wake of WWII examine a broad sweep of economic history to try to understand how that war happened. Karl Polanyi’s The Great Transformation sees the war as the end of the experiment with unrestrained free market capitalism, and offers the hope of a more socialist future. Hannah Arendt’s The Origins of Totalitarianism offers a dark view of human nature and of the capitalist system, and is much less hopeful…

Arendt has a strong Marxian flavor. Polanyi sees the value of the increase in productivity brought on by the industrial revolution, but believes strongly in the Enlightenment view that humans can control and direct society to prevent the damage that unrestrained capitalism can bring, damage he describes in detail. Far from celebrating capitalism, both Arendt and Polanyi argue that unrestrained capitalism and free market ideology were significant factors in the rise of fascism…

"Privatize everything that can be monetized."

Naked Capitalism
Capitalism Versus The Social Commons
Ed Walker

Lawrence Lessig — Capitalism’s Biggest Enemies: Elites Who Advocate Free-Market Competition

Interest politics.

Evonomics
Capitalism’s Biggest Enemies: Elites Who Advocate Free-Market CompetitionLawrence Lessig | Roy L. Furman Professor of Law and Leadership at Harvard Law School

Alan Pyke — Wall Street Is Drooling Over The Money It Will Make On Americans Who Can’t Afford Houses

Bad news for American families is great news for the financial industry, according to the real estate finance industry trade magazine CRE Finance World (CREFW).

Workers’ incomes will continue to decline and homeownership will become an ever more remote dream for the typical American, boosting demand for rental housing and pushing the cost of rent up, an article in the magazine’s new edition says. That will cause the market for rental housing securities — complex financial contracts backed by rental properties — to explode over the next year, Deutsche Bank analyst Harris Trifon writes.

Think Progress
Wall Street Is Drooling Over The Money It Will Make On Americans Who Can’t Afford Houses
Alan Pyke

First, securitize the mortgages, then foreclose, then securitize the rents. What could go wrong?

Derek Thompson — The Rise (and Rise and Rise) of the 0.01 Percent in America

How'd they all get so rich? It wasn't the way the rest of us get rich. It wasn't their wages. It was something else.

The richer you are, the more likely your riches come from stocks, not salary. For the three groups graphed above—1 percent, 0.1 percent, and 0.01 percent—capital gains account for 22, 33 and 42 percent (respectively) of their average income. At the very tippy-top of the economy, the 400 richest tax returns analyzed by the IRS take home about 50 percent of their income from capital gains.

Practically all the growth in average income at the top comes from stocks. Between 1992 and 2007, the average salary of a top-400 tax return doubled, but average capital gains haul increased 13X. Wages are for normal people. The richest get richer from their investments.

Atlantic Business 

The Rise (and Rise and Rise) of the 0.01 Percent in America

Derek Thompson

Top management is paid in stock deals instead of income for the obvious reason that capital gains are taxed way less then ordinary income. The reason given, however, is that this creates the incentive to "maximize shareholder value." As result the incentive is to manage toward stock price, largely based on quarterly earning relative to analysts estimates rather than longer term company fundamentals, when top management will likely be gone. Is this a perverse incentive? It certainly seems to be a case of economic rent.

Robert Shiller--The best, brightest and least productive?

So much of our national "brain power" is siphoned off into finance where nothing of value is produced and rent seeking on already exsisting assets extracts a high cost on the rest of society. Yale Professor Robert Shiller sums it up pretty well.

To some people, the question is a moral one. Trading against others is regarded as an inherently selfish pursuit, even if it might have indirect societal benefits. But, as economists like to point out, traders and speculators provide a useful service. They sort through information about businesses and (at least some of the time) try to judge their real worth. They are thus helping to allocate society’s resources to the best uses – that is, to the most promising businesses.

But these people’s activities also impose costs on the rest of us. Indeed, a 2011 paper by Patrick Bolton, Tano Santos, and José Scheinkman argues that a significant amount of speculation and deal-making is pure rent-seeking. In other words, it is wasteful activity that achieves nothing more than enabling the collection of rents on items that might otherwise be free.

We hear people defend these predator rent-seekng finance capitalists all the time. Just turn on Fox News or listen to resident CNBC idiot Joe Kernan gush about "producers" and why they should be taxed less and regulated less. It's bullshit.

Shiller hits the nail on the head. Read the full article here.