rent-seeking

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pages: 288 words: 64,771

The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality by Brink Lindsey

"Robert Solow", Airbnb, Asian financial crisis, bank run, barriers to entry, Bernie Sanders, Build a better mousetrap, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, collective bargaining, creative destruction, Credit Default Swap, crony capitalism, Daniel Kahneman / Amos Tversky, David Brooks, diversified portfolio, Donald Trump, Edward Glaeser, endogenous growth, experimental economics, experimental subject, facts on the ground, financial innovation, financial intermediation, financial repression, hiring and firing, Home mortgage interest deduction, housing crisis, income inequality, informal economy, information asymmetry, intangible asset, inventory management, invisible hand, Jones Act, Joseph Schumpeter, Kenneth Rogoff, Kevin Kelly, knowledge worker, labor-force participation, Long Term Capital Management, low skilled workers, Lyft, Mark Zuckerberg, market fundamentalism, mass immigration, mass incarceration, medical malpractice, Menlo Park, moral hazard, mortgage debt, Network effects, patent troll, plutocrats, Plutocrats, principal–agent problem, regulatory arbitrage, rent control, rent-seeking, ride hailing / ride sharing, Robert Metcalfe, Ronald Reagan, Silicon Valley, Silicon Valley ideology, smart cities, software patent, too big to fail, total factor productivity, trade liberalization, transaction costs, tulip mania, Uber and Lyft, uber lyft, Washington Consensus, white picket fence, winner-take-all economy, women in the workforce

There is enormous variation in the quality of governance across countries and here at home, across states and localities as well as federal agencies. Around the globe, bigger governments actually seem to do better in controlling corruption and clientelism than smaller ones.15 Beating back rent-seeking here in the United States will sometimes require increasing the size of government; in particular, we will need to increase its analytical capacity and develop forms of government activity that cost taxpayers more up front but that are less susceptible to rent-seeking than those we have today. Yes, rent-seeking is endemic to government, as all human institutions are flawed and subject to principal-agent problems. But some nations—and some states and localities within this country—control those problems much better than others, and their example demonstrates that real improvement is possible.

Since some policymakers are much more successful than others in resisting capture by the interests they regulate, it follows that the causes of failure are more specific than the existence of democracy and activist government, and that remedies for those specific maladies can be fashioned. Some rent-seeking may be inevitable in a modern democratic welfare state, it is true, but the current high level of rent-seeking is not. While democratic government is inherently vulnerable to predation by narrow, well-organized interests, the specific structure of the policymaking process can help to reduce this vulnerability, or it can make it even worse. In particular, democracy is best able to protect itself from exploitation by the powerful when it is most deliberative in character. Officials in democratic systems can resist the claims by the powerful for special favors but only when those claims are brought out into the open and subjected to serious scrutiny. What characterizes all the areas of rent-seeking described in the previous chapters is that, in one way or another, democratic deliberation has broken down.

They are all affluent and high-status, and they share common ties and the same cultural milieu with the policymakers who regulate them. Although rent-seeking is a pervasive feature of democracies, not all rent-seeking schemes are created equal. Taxi drivers in many cities have been able to stymie the entrance of Uber into their markets, reducing competition and increasing their incomes in the process. Whatever one thinks of Uber, and both of us are basically supportive of the business model (if not the scandal-plagued corporate culture), taxi drivers are almost always people of very modest incomes. Labor unions have often been able to increase the wages and job security of their members above what a competitive market would provide, with costs passed on to consumers. But most union members are, at best, middle class. Our cases feature dynamics that are very distinct from the rent-seeking of taxi drivers and union members.


pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

All told, more than $3.2 billion was spent on lobbying in 2011 alone.25 The main distortion is to our political system; the main loser, our democracy. But often rent seeking involves a real waste of resources that lowers the country’s productivity and well-being. It distorts resource allocations and makes the economy weaker. A byproduct of efforts directed toward getting a larger share of the pie is shrinkage of the pie. Monopoly power and preferential tax treatment for special interests have exactly this effect.26 The magnitude of “rent seeking” and the associated distortions in our economy, while hard to quantify precisely, are clearly enormous. Individuals and corporations that excel at rent seeking are amply rewarded. They may garner immense profits for their firms. But this does not mean that their social contribution is even positive. In a rent-seeking economy such as ours is becoming, private and social returns are badly misaligned.

In this section, I recap the essential points of divergence: The Right has in mind a perfectly competitive economy with private rewards equal to social returns; we see an economy marked by rent seeking and other distortions. The Right underestimates the need for public (collective) action, to correct pervasive market failures. It overestimates the importance of financial incentives. And, as a result of all of these mistakes, the Right overestimates the costs and underestimates the benefits of progressive taxation. Rent seeking and the inequality/efficiency trade-off A central thesis of this book is that rent seeking is pervasive in the American economy, and that it actually impairs overall economic efficiency. The large gaps between private rewards and social returns that characterize a rent-seeking economy mean that incentives that individuals face often misdirect their actions, and that those who receive high rewards are not necessarily those who have made the largest contributions.

This should not come as a surprise: we have a political system that gives inordinate power to those at the top, and they have used that power not only to limit the extent of redistribution but also to shape the rules of the game in their favor, and to extract from the public what can only be called large “gifts.” Economists have a name for these activities: they call them rent seeking, getting income not as a reward to creating wealth but by grabbing a larger share of the wealth that would otherwise have been produced without their effort. (We’ll give a fuller definition of the concept of rent seeking later in the chapter.) Those at the top have learned how to suck out money from the rest in ways that the rest are hardly aware of—that is their true innovation. Jean-Baptiste Colbert, the adviser to King Louis XIV of France, reportedly said, “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.” So, too, for the art of rent seeking. To put it baldly, there are two ways to become wealthy: to create wealth or to take wealth away from others.


pages: 481 words: 120,693

Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, assortative mating, banking crisis, barriers to entry, Basel III, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Boris Johnson, Branko Milanovic, Bretton Woods, BRICs, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, commoditize, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, disruptive innovation, don't be evil, double helix, energy security, estate planning, experimental subject, financial deregulation, financial innovation, Flash crash, Frank Gehry, Gini coefficient, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, John Markoff, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, liberation theology, light touch regulation, linear programming, London Whale, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Simon Kuznets, Solar eclipse in 1919, sovereign wealth fund, starchitect, stem cell, Steve Jobs, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tony Hsieh, too big to fail, trade route, trickle-down economics, Tyler Cowen: Great Stagnation, wage slave, Washington Consensus, winner-take-all economy, zero-sum game

And at a time of increasing economic complexity, what chance does government have of keeping up with business if the best and the brightest go to the private sector? Finally, the age of globalization has brought one more twist to the story of rent-seeking and how it has helped to create the super-elite: like so much else, rent-seeking has now gone global. That’s not entirely a new story—multinationals have long paid bribes to secure contracts abroad, and some of the most lucrative examples of historic rent-seeking have involved overseas concessions, like the East India Company’s right to trade in India granted by the British Crown, or the Hudson’s Bay Company’s rights to the Canadian fur trade. But the international ripple effect of rent-seeking is today even more extensive. A fortune created by rent-seeking in one country can have a powerful effect thousands of miles away. Britain’s football clubs and, increasingly, its newspapers are being bought up by emerging markets oligarchs, particularly Russians.

More broadly, they are also a reminder that, for all its success in raising 300 million of its 1.3 billion citizens out of poverty since the introduction of market reforms in the late 1980s, Beijing has also created one of the world’s most conducive economies for rent-seeking. “There are skeletons behind every entrepreneur in China,” Rupert Hoogewerf, publisher of the Hurun Report, told a reporter. We don’t often equate the rise of China with the rise of the red oligarchs. That’s partly because, unlike most economies that are friendly to rent-seeking, China has been so phenomenally successful: rent-seeking and the sustained high growth that China has experienced don’t often go together. It is also because, in contrast with the countries of the former Warsaw Pact, which transferred the property of the communist state into private hands with a big-bang sell-off, China’s market reforms have been slower and its avenues for rent-seeking have been more varied and more opaque than a quick privatization drive led from the top.

Witness, for example, the 2007 McKinsey/Bloomberg/Schumer report prepared by McKinsey for Michael Bloomberg on the threat that other, less onerously regulated financial centers, particularly London, posed to New York’s pole position as the world’s preeminent financial capital. One of the key recommendations was that the United States shift to the British “light touch” regulatory philosophy. As rent-seeking wealth spills across borders from the country where it was granted to other parts of the world, as rent-seeking plutocrats do deals with one another, and as economic rules go global, the question Professor Rajan asked of the Bombay Chamber of Commerce may need to be adjusted. He asked his Indian audience if their country was at risk of political capture by rent-seeking national oligarchs. An equal, and probably greater, danger is the rise of an international rent-seeking global oligarchy. SIX PLUTOCRATS AND THE REST OF US If you really wanted to examine percentage-wise who was hurt the most on their income, it was Wall Street brokers.


pages: 409 words: 125,611

The Great Divide: Unequal Societies and What We Can Do About Them by Joseph E. Stiglitz

"Robert Solow", accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Asian financial crisis, banking crisis, Berlin Wall, Bernie Madoff, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, clean water, collapse of Lehman Brothers, collective bargaining, computer age, corporate governance, credit crunch, Credit Default Swap, deindustrialization, Detroit bankruptcy, discovery of DNA, Doha Development Round, everywhere but in the productivity statistics, Fall of the Berlin Wall, financial deregulation, financial innovation, full employment, George Akerlof, ghettoisation, Gini coefficient, glass ceiling, global supply chain, Home mortgage interest deduction, housing crisis, income inequality, income per capita, information asymmetry, job automation, Kenneth Rogoff, Kickstarter, labor-force participation, light touch regulation, Long Term Capital Management, manufacturing employment, market fundamentalism, mass incarceration, moral hazard, mortgage debt, mortgage tax deduction, new economy, obamacare, offshore financial centre, oil shale / tar sands, Paul Samuelson, plutocrats, Plutocrats, purchasing power parity, quantitative easing, race to the bottom, rent-seeking, rising living standards, Ronald Reagan, school vouchers, secular stagnation, Silicon Valley, Simon Kuznets, The Chicago School, the payments system, Tim Cook: Apple, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Turing machine, unpaid internship, upwardly mobile, urban renewal, urban sprawl, very high income, War on Poverty, Washington Consensus, We are the 99%, white flight, winner-take-all economy, working poor, working-age population

Much of the inequality in our economy has been the result of rent seeking, because, to a significant degree, rent seeking redistributes money from those at the bottom to those at the top. But there is a broader economic consequence: the fight to acquire rents is at best a zero-sum activity. Rent seeking makes nothing grow. Efforts are directed toward getting a larger share of the pie rather than increasing the size of the pie. But it’s worse than that: rent seeking distorts resource allocations and makes the economy weaker. It is a centripetal force: the rewards of rent seeking become so outsize that more and more energy is directed toward it, at the expense of everything else. Countries rich in natural resources are infamous for rent-seeking activities. It’s far easier to get rich in these places by getting access to resources at favorable terms than by producing goods or services that benefit people and increase productivity.

So does preferential tax treatment for special interests. In a broad sense, “rent seeking” defines many of the ways by which our current political process helps the rich at the expense of everyone else, including transfers and subsidies from the government, laws that make the marketplace less competitive, laws that allow CEOs to take a disproportionate share of corporate revenue (though Dodd-Frank has made matters better by requiring a nonbinding shareholder vote on compensation at least once every three years), and laws that permit corporations to make profits as they degrade the environment. The magnitude of rent seeking in our economy, while hard to quantify, is clearly enormous. Individuals and corporations that excel at rent seeking are handsomely rewarded. The financial industry, which now largely functions as a market in speculation rather than a tool for promoting true economic productivity, is the rent-seeking sector par excellence.

The financial industry, which now largely functions as a market in speculation rather than a tool for promoting true economic productivity, is the rent-seeking sector par excellence. Rent seeking goes beyond speculation. The financial sector also gets rents out of its domination of the means of payment—the exorbitant credit and debit card fees and also the less well-known fees charged to merchants and passed on, eventually, to consumers. The money it siphons from poor and middle-class Americans through predatory lending practices can be thought of as rents. In recent years, the financial sector has accounted for some 40 percent of all corporate profits. This does not mean that its social contribution sneaks into the plus column, or comes even close. The crisis showed how it could wreak havoc on the economy. In a rent-seeking economy such as ours has become, private returns and social returns are badly out of whack.


pages: 443 words: 98,113

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay by Guy Standing

3D printing, Airbnb, Albert Einstein, Amazon Mechanical Turk, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Big bang: deregulation of the City of London, bilateral investment treaty, Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, cashless society, central bank independence, centre right, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, credit crunch, crony capitalism, crowdsourcing, debt deflation, declining real wages, deindustrialization, disruptive innovation, Doha Development Round, Donald Trump, Double Irish / Dutch Sandwich, ending welfare as we know it, eurozone crisis, falling living standards, financial deregulation, financial innovation, Firefox, first-past-the-post, future of work, gig economy, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, income inequality, information retrieval, intangible asset, invention of the steam engine, investor state dispute settlement, James Watt: steam engine, job automation, John Maynard Keynes: technological unemployment, labour market flexibility, light touch regulation, Long Term Capital Management, lump of labour, Lyft, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, means of production, mini-job, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, nudge unit, Occupy movement, offshore financial centre, oil shale / tar sands, open economy, openstreetmap, patent troll, payday loans, peer-to-peer lending, plutocrats, Plutocrats, Ponzi scheme, precariat, quantitative easing, remote working, rent control, rent-seeking, ride hailing / ride sharing, Right to Buy, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Altman, savings glut, Second Machine Age, secular stagnation, sharing economy, Silicon Valley, Silicon Valley startup, Simon Kuznets, sovereign wealth fund, Stephen Hawking, Steve Ballmer, structural adjustment programs, TaskRabbit, The Chicago School, The Future of Employment, the payments system, The Rise and Fall of American Growth, Thomas Malthus, Thorstein Veblen, too big to fail, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, Y Combinator, zero-sum game, Zipcar

The Economist has constructed an index of crony capitalism based on the wealth of billionaires in sectors such as casinos, oil and construction where, in its view, there is ample scope for rent seeking through cosy relations with government.2 It claims that rent seeking is worse in emerging-market economies, which account for two-thirds of ‘crony wealth’, with Russia heading the 2016 rankings of twenty-two countries. Britain, at fourteenth, comes top among industrialised economies, followed by the USA at sixteenth. However, the index does not include technology industries or much of finance as rent-seeking sectors, despite their lobbying power. In 2014 The Economist suggested that crony capitalism had peaked, but in 2016 it acknowledged that there was still reason to worry. Even on its restricted definition of crony sectors, crony wealth accounted for nearly a fifth of billionaire wealth in developed countries and half of billionaire wealth in developing countries.

Including hedge-fund billionaires and other financiers would double the crony wealth share of total US billionaire wealth from 14 per cent to 28 per cent. Including the youthful billionaires of Silicon Valley would push it up even more. As The Economist admitted, ‘If technology were to be classified as a crony industry, rent-seeking wealth would be higher and rising steadily in the Western world.’ Moreover, The Economist’s narrow definition substantially understates crony capitalism. Its examples of rent seeking were ‘forming cartels’ and ‘lobbying for rules that benefit a firm at the expense of competitors and customers’. It thus omitted the most insidious way in which crony capitalism is extending its grip: political manipulation by the plutocracy and elite, who are funding politicians and political parties to favour the interest of rentiers (see Chapter 7).

It is claimed that global capitalism is based on free markets. This is the first lie of rentier capitalism. Given the spread of intellectual property rules, development of the global capital-risk insurance system and the rent-seeking abilities of the plutocracy in crony capitalism, the existing situation is probably the most unfree market system in history. There has been a commodification of ideas, knowledge and information. While Paul Mason has interpreted the abundance of information as indicative of ‘postcapitalism’,52 the reality is actually a deepening penetration of capitalist logic and rules, in which rent seeking has been legitimised and strengthened by new global institutions and structures. Use of the word post-capitalism is revealing, as any word beginning with that prefix suggests a lack of direction. Rather, capitalism has mined the sphere of ideas as a lucrative source of income for rentiers.


pages: 421 words: 110,272

Deaths of Despair and the Future of Capitalism by Anne Case, Angus Deaton

Affordable Care Act / Obamacare, basic income, Bertrand Russell: In Praise of Idleness, business cycle, call centre, collapse of Lehman Brothers, collective bargaining, Corn Laws, corporate governance, correlation coefficient, crack epidemic, creative destruction, crony capitalism, declining real wages, deindustrialization, demographic transition, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Elon Musk, falling living standards, Fellow of the Royal Society, germ theory of disease, income inequality, Jeff Bezos, Joseph Schumpeter, Kenneth Arrow, labor-force participation, low skilled workers, Martin Wolf, Mikhail Gorbachev, obamacare, pensions crisis, randomized controlled trial, refrigerator car, rent-seeking, risk tolerance, shareholder value, Silicon Valley, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, universal basic income, working-age population, zero-sum game

Political protection is being used for personal enrichment, by stealing from the poor on behalf of the rich, a process known to economists and political scientists as rent-seeking. It is, in a sense, the opposite of free-market capitalism, and it is opposed by the Left, because of its distributional consequences, and the Right, because it undermines freedom and a truly free market. It is as old as capitalism itself, as Adam Smith knew very well even in 1776. In his Wealth of Nations, often seen as the bible of capitalism, Smith noted that while tax laws could be cruel, they were “mild and gentle” in comparison with the laws that the pressure of “our merchants and manufacturers has extorted from the legislature, for the support of their own absurd and oppressive monopolies.” He suggested that “these laws may be said to be all written in blood.”19 Rent-seeking is a major cause of wage stagnation among working-class Americans and has had much to do with deaths of despair.

American healthcare bears much of the blame, as does policy, particularly the failure to use antitrust to combat market power, in labor markets perhaps even more than goods markets, and to rein in the rent-seeking by pharma, by healthcare more generally, and by banks and many small- or medium-size business entrepreneurs, such as doctors, hedge fund managers, the owners of sports franchises, real estate businesspeople, and car dealers. All of these get rich from the “oppressive monopolies” and special deals, tax breaks, and regulations that they have “extorted from the legislature.” The very top ranks of the American income distribution, the top 1 percenters and top tenth of 1 percenters, are less likely to be corporate heads than they are to be entrepreneurs who run their own businesses,20 many of whom are protected by rent-seeking. Inequality is much cited for its baleful impacts. In this book, we see inequality as a consequence as much as a cause; if the rich are allowed to enrich themselves through unfair processes that hold down wages, and raise prices, then inequality will certainly rise.

Afterward, when so many people lost their jobs and their homes, and the bankers continued to be rewarded and were not held to account, American capitalism began to look more like a racket for redistributing upward than an engine of general prosperity. We do not think that taxation is the solution to rent-seeking; the right way to stop thieves is to stop them stealing, not to raise their taxes.21 We need to stop the abuse and overprescription of opioids, not tax the profits. We need to correct the process, not try to fix the outcomes. We need to make it easier for foreign doctors to qualify to practice in the US. We need to stop bankers and real estate dealers writing regulations and tax laws in their own interests. The problem for less educated people is stagnant and declining wages, not inequality in and of itself, and indeed much inequality is the consequence of forcing down wages in order to enrich a minority. Reducing rent-seeking would do much to reduce inequality. When the owners of a pharmaceutical company get fabulously rich from the high prices, extended patents, approvals, and convenient regulations that their lobbyists have persuaded the government to grant, they greatly contribute to inequality, both by pushing down the real incomes of those who have to pay for the drugs and by pushing up the highest incomes at the top of the distribution.


pages: 607 words: 133,452

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

"Robert Solow", accounting loophole / creative accounting, agricultural Revolution, barriers to entry, business cycle, cognitive bias, creative destruction, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, endogenous growth, Ernest Rutherford, experimental economics, financial innovation, informal economy, interchangeable parts, invention of radio, invention of the printing press, invisible hand, James Watt: steam engine, Jean Tirole, John Harrison: Longitude, Joseph Schumpeter, Kenneth Arrow, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, peer-to-peer, pirate software, placebo effect, price discrimination, profit maximization, rent-seeking, Richard Stallman, Silicon Valley, Skype, slashdot, software patent, the market place, total factor productivity, trade liberalization, transaction costs, Y2K

Indeed, even after their patent expired, Boulton and Watt were able to maintain a substantial premium over the market by virtue of having been first, despite the fact that their competitors had had thirty years to learn how to make steam engines. The wasteful effort to suppress competition and obtain special privileges is referred to by economists as rent-seeking behavior. History and common sense show it to be a poisoned fruit of legal monopoly. Watt’s attempt to P1: KNP head margin: 1/2 gutter margin: 7/8 CUUS245-01 cuus245 978 0 521 87928 6 April 29, 2008 17:24 4 Against Intellectual Monopoly extend the duration of his 1769 patent is an especially egregious example of rent seeking: the patent extension was clearly unnecessary to provide incentive for the original invention, which had already taken place. On top of this, we see Watt using patents as a tool to suppress innovation by his competitors, such as Hornblower, Wasborough, and others.

Repeatedly, in surveys of R&D lab and company managers, only 23 percent to 35 percent indicate that patents are effective as a means of appropriating returns. By way of contrast, 51 percent argue that trade secrecy is effective.23 Although in the simplest case patent law does not have an impact on trade secrecy, in cases where it is possible to expend real resources to make secrets less accessible, the innovator faces a real trade-off between private rent seeking through secrecy and public rent seeking through patents. This is true also in the case of copyright, as publicly enforced copyright is potentially an alternative to socially undesirable methods such as encryption and digital rights management that are designed to limit reproduction. There is a small literature in economics on this trade-off.24 One issue is how information that changes rival firm beliefs may work to the advantage of the firm releasing the information.

Monopolies innovate as little as possible and only when forced to; in general, they would rather spend time seeking rents via political protection while trying to sell at a high price their old refurbished products to the powerless consumers, via massive doses of advertising: “[Pharmaceutical] Companies today have found that the return on investment for legal tactics is a lot higher than the return on investment for R&D,” says Sharon Levine, the associate executive director of the HMO Kaiser Permanente. “Consumers today are paying an inordinate premium under the guise of the creating the stream of innovation in the future. But it’s actually funding lawyers.”37 Economists call this socially inefficient rent seeking. It is ugly, but the polite academic jargon rent seeking means “corruption” and all that comes with it. We have already mentioned the music industry, where corruption has become the standard marketing practice, as exemplified by the sorry story of payola. In industries that are highly monopolized and in which the returns from capturing the main distribution and information channels are enormous, the temptation to bend and then break the rules is too strong to resist, as public choice theory and economic common sense suggest.


pages: 310 words: 85,995

The Future of Capitalism: Facing the New Anxieties by Paul Collier

"Robert Solow", accounting loophole / creative accounting, Airbnb, assortative mating, bank run, Berlin Wall, Bernie Sanders, bitcoin, Bob Geldof, bonus culture, business cycle, call centre, central bank independence, centre right, Commodity Super-Cycle, computerized trading, corporate governance, creative destruction, cuban missile crisis, David Brooks, delayed gratification, deskilling, Donald Trump, eurozone crisis, financial deregulation, full employment, George Akerlof, Goldman Sachs: Vampire Squid, greed is good, income inequality, industrial cluster, information asymmetry, intangible asset, Jean Tirole, job satisfaction, Joseph Schumpeter, knowledge economy, late capitalism, loss aversion, Mark Zuckerberg, minimum wage unemployment, moral hazard, negative equity, New Urbanism, Northern Rock, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, race to the bottom, rent control, rent-seeking, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, too big to fail, trade liberalization, urban planning, web of trust, zero-sum game

If this sounds too good to be true, brace yourself: it is about to get even better. For this we need another handy economic concept – rent-seeking. Rent-seeking is a menace; here is an example. Suppose that a legislature passes a law that grants a monopoly to a group of producers. Why did the legislature do such a thing? Because the legislators were lobbied and coaxed with rewards. The regulation generated rents; the lobbying was rent-seeking. The distinguished economist Anne Krueger showed that lobbying, and other rent-seeking, will increase up to the point at which one extra dollar spent on it yields one extra dollar of rent. The resources devoted to rent-seeking are a total waste. The gains from agglomeration are rents: so, do they attract rent-seeking? Economists have never posed that question and there is a simple reason for their neglect.

If the Henry George Theorem is right and the gains accrue only to landowners, then there is no scope for rent-seeking. Land is in fixed supply and so not amenable to lobbying or any other action. But the Henry George Theorem is wrong. In a metropolis, most of the gains of agglomeration accrue to those people with high skills and little need for housing. Suddenly, many opportunities for rent-seeking open up. People elbow their way into jobs by lobbying well-connected relatives; they pay tutors for the extra study that gets them more credentials; they go to hundreds of interviews. Or they squeeze their need for housing by delaying marriage, or delaying children. Each of these is a form of rent-seeking. Behaviour gets distorted in the competition to capture the lucrative rents of agglomeration. The rent-seeking does not increase the overall size of the pie, it just inflicts a collective loss of well-being upon mid-career people scrambling against each other.

The rent-seeking does not increase the overall size of the pie, it just inflicts a collective loss of well-being upon mid-career people scrambling against each other. Potentially, these losses from rent-seeking are massive. By taxing the gains of agglomeration, we reduce the pressure for rent-seeking. Getting that job in the metropolis would still be worth doing, but since it would be less lucrative, people are less likely to be driven to extreme measures. Delaying having children in order to be able to remain in a pricey London or New York City apartment might become a sacrifice too much. The economic rents of agglomeration in our thriving big cities are currently staggeringly large. Not only is the scramble for them probably inflicting damage on the people who are scrambling, but its sheer momentum may blind people to the irreversible damage they can do to their own lives.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War

Obvious ways to increase rental payments include the development of economies of scale, the creation of barriers to entry which keep competitors out, becoming a Hollywood superstar, friendly government regulation (otherwise known as protectionism), military action, bribery, racism in its many forms and slavery. Apart from Hollywood, these examples suggest that nation states have strong incentives to collude with commercial interests. Rent-seeking is not confined to the private sector alone. In modern-day parlance, we might call linkages between governments and commercial interests ‘state capitalism’. Western governments have used the methods of state capitalism for hundreds of years in their bid to shape the world around them. Indeed, rent-seeking behaviour was, over the centuries, closely linked to colonization. The discovery and exploitation of lands and peoples offered an abundance of raw materials and cheap labour designed to furnish Western economic tastes. So long as the local population could be bribed, destroyed or enslaved, the Malthusian constraint, at least for the West, could be removed (Incas, Aztecs, Native Americans, Aborigines and Black Africans doubtless didn’t feel the same).

It also led to excessive flows of savings into emerging investments where returns for investors were, frankly, suspect. Rent-seeking behaviour is not confined to greedy Western capitalists. It is found all over the emerging world where the distinction between private companies and government control is, at best, tenuous. Pretending that corporate governance will somehow be good enough to protect the interest of developed-world investors is, in some cases, laughable. In The Writing on the Wall, Will Hutton criticizes China’s Communist Party for failing to disentangle itself from corporate China, arguing that China is suffering as a result from endemic corruption or, in Ricardo’s terminology, abusive rent-seeking behaviour. Whether or not the corruption is endemic, the key point is, surely, that investors in the developed world have no guarantee that they’ll receive the returns they expect from investing in Chinese capital markets.

(i) healthcare (i), (ii), (iii), (iv), (v), (vi), (vii) hedge funds (i), (ii), (iii) Hertz, Noreena (i) Hitler, Adolf (i) Hobbes, Thomas (i) Home Office (i) Hong Kong (i) ‘hot money’ inflows (i) housing market anarchy in capital markets (i), (ii) capital controls (i) population ageing (i) price stability (i), (ii), (iii), (iv) savings (i) trade (i) human capital theory (i) human ingenuity argument (i), (ii) Hume, David (i), (ii) Hungary (i) hunt for yield (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) Huntingdon, Samuel (i) Hutton, Will (i), (ii) hyperinflation (i), (ii) IFS see Institute for Fiscal Studies IMF see International Monetary Fund immigration economic integration, political proliferation (i) nationalism (i) number of migrants to US (i) political economy and inequalities (i), (ii), (iii) population demographics (i) Spain and silver (i) Immigration Act (i), (ii) Immigration and Naturalization Act (1965) (i), (ii), (iii), (iv) imperialism (i), (ii), (iii), (iv), (v) imports (i), (ii), (iii), (iv), (v), (vi) income inequality globalization (i), (ii) political economy and inequalities (i) education (i) the emerging gap (i) emerging nations and income inequality in the developed world (i) food shortages (i) globalization (i) living with inequality (i) new modes of redistribution (i) not getting just rewards (i) a three-country model (i) too much domesticity (i) United Kingdom (i) winners and losers (i) price stability and economic instability (i) resource scarcity (i) state capitalism (i), (ii) Western progress (i), (ii), (iii) the West’s diminished status (i) income per capita argument (i) incomes China (i), (ii), (iii), (iv) political economy and inequalities (i), (ii) price stability and economic instability (i), (ii), (iii), (iv), (v), (vi) rent-seeking behaviour (i) scarcity (i), (ii), (iii), (iv) trade (i), (ii), (iii), (iv) India anarchy in capital markets (i), (ii) Islam (i) political economy and inequalities (i), (ii), (iii), (iv), (v), (vi), (vii) population demographics (i), (ii), (iii) price stability and economic instability (i) rent-seeking behaviour (i) scarcity (i), (ii), (iii), (iv) state capitalism (i), (ii), (iii) trade (i), (ii), (iii), (iv), (v) the West’s diminished status (i), (ii), (iii), (iv), (v) Indonesia (i), (ii), (iii) Industrial and Commercial Bank of China Ltd (ICBC) (i) Industrial Revolution (i), (ii), (iii), (iv), (v), (vi) infant mortality rate (i), (ii), (iii) inflation anarchy in capital markets (i) economic integration, political proliferation (i) indulging the US no more (i), (ii) political economy and inequalities (i), (ii) population demographics (i), (ii), (iii) price stability and economic instability (i) back to the 1970s (i) defining and controlling inflation (i) emerging economies (i), (ii) inflation as an instrument of income and wealth distribution (i) inflation as a result of currency linkages (i) overview (i), (ii), (iii) from stability to instability (i) we are not alone (i) resource scarcity (i) state capitalism (i), (ii) trade (i), (ii) the West’s diminished status (i), (ii), (iii) information technology (i), (ii) Institute for Fiscal Studies (IFS) (i), (ii) interest rates anarchy in capital markets (i), (ii), (iii), (iv), (v), (vi) globalization (i) indulging the US no more (i), (ii) price stability and economic instability (i), (ii), (iii), (iv), (v), (vi), (vii) savings (i) state capitalism (i), (ii), (iii) trade (i) the West’s diminished status (i), (ii) International Monetary Fund (IMF) (i), (ii), (iii), (iv), (v), (vi) International Olympic Committee (i), (ii) Internet (i) investment anarchy in capital markets (i), (ii), (iii), (iv), (v), (vi) capital flows and nation states (i), (ii) economic integration, political proliferation (i) nineteenth century (i) political economy and inequalities (i) population demographics (i), (ii), (iii) price stability and economic instability (i) protectionism (i) resource scarcity (i) state capitalism (i) trade (i), (ii), (iii) investment banks (i), (ii) ‘invisible hand’ (i), (ii), (iii), (iv), (v), (vi) Iran (i), (ii), (iii), (iv), (v) Iraq (i), (ii), (iii) Ireland (i), (ii) Islam (i), (ii), (iii) Isutani, Minoru (i) Italy (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) Izvolsky, Count Alexander (i) Japan anarchy in capital markets (i), (ii), (iii), (iv) political economy and inequalities (i), (ii), (iii), (iv), (v) population demographics (i), (ii), (iii), (iv), (v), (vi), (vii) price stability and economic instability (i), (ii) scarcity (i), (ii) secrets of Western success (i), (ii) state capitalism (i), (ii), (iii), (iv) trade (i), (ii), (iii) US trade deficit (i) the West’s diminished status (i), (ii), (iii), (iv), (v) Jay, Peter (i) Jefferson, Thomas (i) jet airline industry (i) Jewish populations (i), (ii), (iii) Jin Mao Tower (i) Jones, Francis (i) Judt, Tony (i) junk bonds (i), (ii) juntas (i) Kamin, Steven B.


State-Building: Governance and World Order in the 21st Century by Francis Fukuyama

Asian financial crisis, Berlin Wall, Bretton Woods, centre right, corporate governance, demand response, Doha Development Round, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, George Akerlof, Hernando de Soto, information asymmetry, liberal world order, Live Aid, Nick Leeson, Pareto efficiency, Potemkin village, price stability, principal–agent problem, rent-seeking, road to serfdom, Ronald Coase, structural adjustment programs, technology bubble, The Market for Lemons, The Nature of the Firm, transaction costs, Washington Consensus, Westphalian system

It is common to characterize regimes in sub-Saharan Africa as “neopatrimonial”— that is, with political power used to service a clientelistic network of supporters of the country’s leaders (Joseph 1987; Fatton 1992). In some cases, as with Mobutu Sese Seko of Zaire, neopatrimonial regimes result in what Evans (1989) characterizes as “predatory” behavior, where a large part of society’s resources are stolen by a single individual. In others, it merely amounts to rent-seeking—that is, use of the public sector to reallocate property rights to the benefit of a particular interest—that is directed toward a single family, tribe, region, or ethnic group. As van de Walle (2001) points out, the neopatrimonial regime, usually embodied in the office of the president, exists side-by-side with a Weberian rational bureaucracy, often created in colonial times, that seeks to perform routine public administration tasks.

Other observers pointed out that it was not presidentialism per se but rather the type of electoral system used in the legislative branch that frequently led to major problems like political gridlock (e.g., the combination of a presidential system with legislative proportional representation that is typical in much of Latin America—see Horowitz 1990; Lijphart 1996; Lardeyret 1996; Cowhey and Haggard 2001). Tendencies toward rent-seeking and pork-barrel politics are encouraged under a number of conditions, such as multimember electoral districts, geographically small constituencies, and open-list proportional representation, though the embedding of patronage in the party system depends heavily on the historical sequencing of franchise expansion and bureaucratic reform (Shefter 1993). All of this research leads to a realistic contextual richness but a relatively limited clear-cut theory of optimal political system design. 26 state-building Basis of Legitimization The third aspect of stateness is closely related to the question of systemic institutional design but goes beyond it by including a normative dimension—that is, the state’s institutions not only have to work together properly as a whole in an administrative sense, they also have to be perceived as being legitimate by the underlying society.

In the end, the empirical relationship between democracy and development remains complex and ambiguous: It does not support either authoritarian transitions as a general approach to economic reform or democratization as a growth strategy. Barro’s (1997) cross-country survey shows that democracy is positively correlated with growth at low levels of development but then becomes negatively correlated at medium levels of per capita GDP. Patronage and rent-seeking (Turkey, Argentina, Brazil), populism (Venezuela), and corruption (Pakistan under Bhutto and Sharif) all remain democratic vices. It the missing dimensions of stateness 29 is hard to see a clear causal relationship between the wave of democratization that hit sub-Saharan Africa during the 1990s and the continent’s slightly improved economic performance in this period. Cultural and Structural Factors The fourth aspect of stateness that is relevant to institutional capacity is subpolitical and related to norms, values, and culture.


pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Robert Solow", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, bank run, banks create money, Basel III, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cleantech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, margin call, Mark Zuckerberg, market bubble, means of production, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, profit maximization, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, zero-sum game

In 2015 the combined wealth of the planet's sixty-two richest individuals was estimated to be about the same as that of the bottom half of the world's population - 3.5 billion people.8 So how does the alchemy continue to happen? A common critique of contemporary capitalism is that it rewards ‘rent seekers' over true ‘wealth creators'. ‘Rent-seeking' here refers to the attempt to generate income, not by producing anything new but by overcharging above the ‘competitive price', and undercutting competition by exploiting particular advantages (including labour), or, in the case of an industry with large firms, their ability to block other companies from entering that industry, thereby retaining a monopoly advantage. Rent-seeking activity is often described in other ways: the ‘takers' winning out over the ‘makers', and ‘predatory' capitalism winning over ‘productive' capitalism. It's seen as a key way -perhaps the key way - in which the 1 per cent have risen to power over the 99 per cent.9 The usual targets of such criticism are the banks and other financial institutions.

For centuries, economists and policymakers - people who set a plan for an organization such as government or a business - have divided activities according to whether they produce value or not; that is, whether they are productive or unproductive. This has essentially created a boundary - the fence in Figure 1 below - thereby establishing a conceptual boundary -sometimes referred to as a ‘production boundary' - between these activities.16 Inside the boundary are the wealth creators. Outside are the beneficiaries of that wealth, who benefit either because they can extract it through rent-seeking activities, as in the case of a monopoly, or because wealth created in the productive area is redistributed to them, for example through modern welfare policies. Rents, as understood by the classical economists, were unearned income and fell squarely outside the production boundary. Profits were instead the returns earned for productive activity inside the boundary. Historically, the boundary fence has not been fixed.

The definition of value is always as much about politics, and about particular views on how society ought to be constructed, as it is about narrowly defined economics. Measurements are not neutral: they affect behaviour and vice versa (this is the concept of performativity which we encountered in the Preface). So the point is not to create a stark divide, labelling some activities as productive and categorizing others as unproductive rent-seeking. I believe we must instead be more forthright in linking our understanding of value creation to the way in which activities (whether in the financial sector or the real economy) should be structured, and how this is connected to the distribution of the rewards generated. Only in this way will the current narrative about value creation be subject to greater scrutiny, and statements such as ‘I am a wealth creator' measured against credible ideas about where that wealth comes from.


pages: 346 words: 89,180

Capitalism Without Capital: The Rise of the Intangible Economy by Jonathan Haskel, Stian Westlake

"Robert Solow", 23andMe, activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, Andrei Shleifer, bank run, banking crisis, Bernie Sanders, business climate, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, cognitive bias, computer age, corporate governance, corporate raider, correlation does not imply causation, creative destruction, dark matter, Diane Coyle, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Glaeser, Elon Musk, endogenous growth, Erik Brynjolfsson, everywhere but in the productivity statistics, Fellow of the Royal Society, financial innovation, full employment, fundamental attribution error, future of work, Gini coefficient, Hernando de Soto, hiring and firing, income inequality, index card, indoor plumbing, intangible asset, Internet of things, Jane Jacobs, Jaron Lanier, job automation, Kenneth Arrow, Kickstarter, knowledge economy, knowledge worker, laissez-faire capitalism, liquidity trap, low skilled workers, Marc Andreessen, Mother of all demos, Network effects, new economy, open economy, patent troll, paypal mafia, Peter Thiel, pets.com, place-making, post-industrial society, Productivity paradox, quantitative hedge fund, rent-seeking, revision control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Ronald Coase, Sand Hill Road, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, software patent, sovereign wealth fund, spinning jenny, Steve Jobs, survivorship bias, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, total factor productivity, Tyler Cowen: Great Stagnation, urban planning, Vanguard fund, walkable city, X Prize, zero-sum game

Some tangible investment may also generate limited social returns: consider the fiber-optic cables installed by high-frequency trading firms for the sole purpose of shaving fractions of microseconds off trading times (described vividly by John Kay 2016). And not all money spent on rent-seeking generates an intangible investment, at least not in the main methodologies used to measure intangibles. But it does seem that rent-seeking or zero-sum investments are more common among intangible investments than among tangibles. This could have a bearing on investment and productivity figures. It is possible that the increase in intangible investment is concealing a rise in rent-seeking investments that do not increase GDP. This would not explain the fall-off in investment that has been observed in the economy, but it would help explain the fall-off in productivity and in TFP. It is conceivable that in a poorly governed economy, the amount of intangibles whose purpose is to attract rents goes up.

It is conceivable that in a poorly governed economy, the amount of intangibles whose purpose is to attract rents goes up. So for any given level of intangible investment, output would be lower, and TFP would fall. This risk provides a good reason for policymakers to guard against rent-seeking in an increasingly intangible economy. There is also the possibility that the rise of intangible investment may be encouraging more rent-seeking, which may be increasing the gap between leaders and laggards that we discussed earlier. A paper by James Bessen specifically asks whether the gap between leaders and laggards among US nonfinancial businesses has been caused by increasing intangible investment or by greater rent-seeking by leading firms. Bessen looks at the relationship between regulation in industries (measured by an index of regulation and by political lobbying expenditures) and the valuations of public companies.

An optimistic interpretation of this is that the legal and institutional structures behind a transformation to an intangible-intensive economy are being worked out and that until they are, there will be a disproportionate incentive for firms to spend more on rent-seeking relating to intangible investment. For example, as spillovers and scale effects become more important, existing tax and competition and IP rules get tested to destruction, requiring lobbying, legal arguments, and institutional reboots. This adjustment to a new type of economy will need a lot of spending by firms and governments that is not immediately productive. Thus a given dollar of business intangible spending has less productivity-raising effect. A more troubling interpretation is that these types of rent-seeking are linked to the inherent characteristics of intangibles, in particular their contestedness: this would imply that TFP growth will continue to be low until governments learn to do a much better job of preventing rent-seeking and designing the institutions an intangible economy needs.


pages: 288 words: 76,343

The Plundered Planet: Why We Must--And How We Can--Manage Nature for Global Prosperity by Paul Collier

agricultural Revolution, Berlin Wall, business climate, Doha Development Round, energy security, food miles, G4S, information asymmetry, Kenneth Arrow, megacity, new economy, offshore financial centre, oil shock, profit maximization, rent-seeking, Ronald Coase, Scramble for Africa, sovereign wealth fund, stem cell, Stewart Brand

No authority would be able to construct and enforce property rights over natural assets. In this society physical control of the asset is all that matters. This gives rise to three problems: mal-distribution, rent-seeking, and uncertainty. Mal-distribution comes about partly because the strong are advantaged over the weak, but it is compounded by chance: some territories are better endowed than others. If we imagine the population distinguished in the two dimensions of strength and luck, the natural assets are acquired disproportionately by those who are lucky and strong. “Rent-seeking” is the technical term for ways, including violence, to acquire ownership. Basic economics predicts that the value of natural assets, which technically are unearned “rents,” will be matched by the efforts to “seek” those rents, so that the potential social value of natural assets will be dissipated by the costs incurred.

With business-as-usual, the likely outcome is that more will mean worse just through sliding further down the list of priorities. If the government publicly decides to make a quantum leap in investment the outcome could be even worse than that. The political special-interest lobby groups that try to capture public spending are alerted that there is more money on the table and so exert themselves, through legitimate and illegitimate means. The resources burned up in such lobbying contests are called “rent-seeking.” If rent-seeking is frustrated by checks and balances such as veto points, the lobbies may try to dismantle them. Nuhu’s departure for Oxford was induced by effective lobbying, and dismantled one important check. Michael Ross, a political scientist from UCLA, aptly terms this higher-order destructiveness “rent-seizing.” The experience that gave Ross that insight was not oil in Africa but timber in Thailand, where he documented the systematic dismantling of the checks which impeded the plunder of the country’s forests.

For example, a country might argue that it should have rights to emit carbon based on the carbon it was emitting when the cap was imposed. Or the right to emit as much carbon as some other country. Or because it is poor. Or because it did not emit any of the carbon that caused the problem. Rent-seeking over carbon rights can occur both nationally and internationally. At the national level it is already apparent in the U.S. Congress. Potentially, the assignment of carbon rights could make the huge rent-seeking machine that is the American agricultural lobby look like a side-show. Internationally, the scope for scams may well be even larger. Firms that want to continue emitting carbon simply need to purchase a piece of paper certifying that some firm somewhere elsewhere is emitting correspondingly less carbon than it otherwise would have done.


The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis by Tim Lee, Jamie Lee, Kevin Coldiron

active measures, Asian financial crisis, asset-backed security, backtesting, bank run, Bernie Madoff, Bretton Woods, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, debt deflation, distributed ledger, diversification, financial intermediation, Flash crash, global reserve currency, implied volatility, income inequality, inflation targeting, labor-force participation, Long Term Capital Management, Lyft, margin call, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, negative equity, Network effects, Ponzi scheme, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, rising living standards, risk/return, sharing economy, short selling, sovereign wealth fund, Uber and Lyft, uber lyft, yield curve

This means, for example, being in a position to take advantage of the aftermath of the extreme inflationary spiral that would be the manifestation of dislocation in the simple mirror-image anticarry regime. This also requires resources. Fundamentally, therefore, in some sense carry is its own antithesis. Carry as Rent-Seeking The notion of carry as fundamentally being about power and control of resources calls to mind the economic concept of rent-seeking. Wikipedia defines rent-seeking as extracting an income “by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth. Rent-seeking implies extraction of uncompensated value from others without making any contribution to productivity.” Rent-seeking is usually thought about in terms of an industry group or interest group lobbying politicians in order to secure monopoly power. The classic example is taxi drivers securing and defending a taxi licensing scheme.

The authors believe that the answer to this conundrum is the following: carry is a naturally occurring phenomenon in financial markets. It can be understood at an even more fundamental level, beyond merely financial markets, which we will touch on later in this book. In its more limited form, carry can be a motor, or at least a lubricant, for progress. The problem occurs when carry comes to dominate over other market behaviors or forces, in which case it can begin to manifest in forms that could be considered rent-seeking or even corruption or infringement of liberties. In financial carry trades, on the one side are those who could ultimately be desperate for liquidity, and on the other side are those—the carry traders—who are the suppliers of that liquidity. This can be perceived as an economic relationship, but in a broader context it could also be understood as a power relationship. The transformation of the natural force of carry into what looks more like exploitation would not occur in the theoretical free market economy of an economics textbook.

If the central bank succeeds in resurrecting the carry bubble, and hence broadening the carry regime further—as central banks finally did in 2009—then the illusion of central bank power can be restored, probably to an even greater extent than before. But really, more than being in control of it, the central bank is merely a captive of the carry regime; it is the vehicle for the broadening and extension of the carry regime and the rent-seeking opportunities that the regime ultimately permits. What this chapter has explained is that the carry regime is fundamentally deflationary in nature, but it has the effect of broadening the scope of money to encompass financial instruments that are not normally considered to be money, at least during the carry bubble phases. This process of expanding moneyness keeps deflationary forces at bay; even more than this, it can even appear inflationary for extended periods.


pages: 462 words: 129,022

People, Power, and Profits: Progressive Capitalism for an Age of Discontent by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, barriers to entry, basic income, battle of ideas, Berlin Wall, Bernie Madoff, Bernie Sanders, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, central bank independence, clean water, collective bargaining, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crony capitalism, deglobalization, deindustrialization, disintermediation, diversified portfolio, Donald Trump, Edward Snowden, Elon Musk, Erik Brynjolfsson, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, Firefox, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, gig economy, global supply chain, greed is good, income inequality, information asymmetry, invisible hand, Isaac Newton, Jean Tirole, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John von Neumann, Joseph Schumpeter, labor-force participation, late fees, low skilled workers, Mark Zuckerberg, market fundamentalism, mass incarceration, meta analysis, meta-analysis, minimum wage unemployment, moral hazard, new economy, New Urbanism, obamacare, patent troll, Paul Samuelson, pension reform, Peter Thiel, postindustrial economy, price discrimination, principal–agent problem, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, Richard Thaler, Robert Bork, Robert Gordon, Robert Mercer, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, self-driving car, shareholder value, Shoshana Zuboff, Silicon Valley, Simon Kuznets, South China Sea, sovereign wealth fund, speech recognition, Steve Jobs, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, two-sided market, universal basic income, Unsafe at Any Speed, Upton Sinclair, uranium enrichment, War on Poverty, working-age population

Others succeed by using their market power to exploit consumers or their workers. This is nothing more than a redistribution of income; it does not increase the nation’s overall wealth. The technical term in economics is “rent”—rent-seeking is associated with attempting to get a large share of the nation’s economic pie, in contrast with wealth creation, which strives to increase the size of the pie. Policymakers should zero in on any market in which there are excessive rents because they are a sign that the economy could perform more efficiently: the exploitation inherent in excessive rents actually weakens the economy. A successful fight against rent-seeking results in redirecting resources into wealth creation. Fourth, a less divided society, an economy with more equality, performs better. Particularly invidious are inequalities based on race, gender, and ethnicity.

Here, however, the national pie may at the same time shrink, because to exploit his market power, the monopolist limits production, to make the goods the monopoly produces more scarce. Thus, at best, rents are unhelpful to growth and efficiency, at worst harmful. They can be harmful because they distort the economy, because they “crowd out” the kinds of “good” economic activity that is the basis of true wealth creation. We naturally describe the pursuit of higher incomes through acquiring more rents as rent-seeking. If talented individuals in society are attracted to rent-seeking—whether making more money through the exertion of monopoly power or scamming others in the financial sector or enticing them into gambling or other nefarious activities—then fewer talented individuals will be engaged in basic research, providing goods and services that individuals really want and need, and other activities that increase the real wealth of the nation.

Ninth, there is a comprehensive economic agenda that would restore growth and shared prosperity. It combines taking down impediments to growth and equality, such as those posed by corporations with excessive market power, and restoring balance, for instance, giving more bargaining power to workers. It entails providing more support for basic research and more encouragement to the private sector to engage in wealth creation rather than rent-seeking. The economy, of course, is a means to an end, not an end in itself. And the middle-class life that seemed a birthright of Americans in the years after World War II seems to be slipping out of the reach of a large swath of the country. We are a far richer country now than we were then. We can afford to ensure that this life is attainable for the vast majority of our citizens. This book shows how this can be done.


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

accounting loophole / creative accounting, Albert Einstein, anti-globalists, asset-backed security, banking crisis, banks create money, basic income, Boris Johnson, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, collective bargaining, corporate raider, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, G4S, Goldman Sachs: Vampire Squid, high net worth, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, Kickstarter, labour market flexibility, laissez-faire capitalism, land value tax, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, mass immigration, means of production, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Philip Mirowski, plutocrats, Plutocrats, popular capitalism, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, wealth creators, WikiLeaks, Winter of Discontent, working poor, Yom Kippur War, zero-sum game

There are intermediate cases too of ‘soft power’ where goods are provided, but as a means of getting rent: social networking sites provide users with ways of keeping in contact with people but their income is mainly economic rent from letting out advertising space. Businesses can compete not only by providing better products more cheaply but by ‘rent-seeking’, that is, seeking control of assets and resources that can be used to extract rent from users. Joseph Stiglitz, former Chief Economist at the World Bank, claims that the return of the rich is largely the result of a massive growth in rent-seeking, particularly in the financial sector. He argues that this not only transfers income from one group to another, but has a negative effect on the economy because it diverts resources from productive uses that create wealth, to mere wealth extraction.22 Instead of being reinvested in production, the money is merely siphoned off to the unproductive rentier.

What claim have they, on the general principle of social justice, to this accession of riches?’116 Actually, some of them would also have been active rentiers when they were awake, working to find more sources of rent, interest and capital gains. But the question remains: how can income in the form of salary for work be ‘unearned’? It can if the work involves extracting unearned income through rent-seeking, interest-charging or any of the other methods covered in this book. ‘Even today’s rent-seeking plutocrats work for a living – Carlos Slim or the Russian oligarchs owe their fortunes to rents they’ve captured themselves, not to estates conquered by distant ancestors,’ writes Chrystia Freeland.117 Remembering the definitions in Chapter Three of earned income as conditional on producing goods and services (‘use-values’), and unearned income as derived from control of existing assets that others lack but need, then the salary earned – or rather received – by someone whose work consists of extracting rent or interest and getting control of new sources belongs to the second category.

But once they were privatised – and this first happened during a period in which top rates of tax fell to 40% in the UK – the rich could pay what to them were trifling sums for their services, while the rest had to pay dearly.26 Politicians may wring their hands when privatised suppliers push their prices up far above inflation, but it’s also out of their hands. But there’s another new area in which rent-seeking is advancing. ‘Intellectual property’ may sound dull, but it’s opened up huge new possibilities for companies to extract rent from others, with major consequences. Intellectual property is the ownership of ideas and the representation of those ideas, covering trademarks, patents (allowing ownership of inventions – tangible or virtual – for specific periods of time) or copyright, protecting authorship of books, music, art, images and films, again for specific periods of time.


pages: 306 words: 82,765

Skin in the Game: Hidden Asymmetries in Daily Life by Nassim Nicholas Taleb

availability heuristic, Benoit Mandelbrot, Bernie Madoff, Black Swan, Brownian motion, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cellular automata, Claude Shannon: information theory, cognitive dissonance, complexity theory, David Graeber, disintermediation, Donald Trump, Edward Thorp, equity premium, financial independence, information asymmetry, invisible hand, knowledge economy, loss aversion, mandelbrot fractal, mental accounting, microbiome, moral hazard, Murray Gell-Mann, offshore financial centre, p-value, Paul Samuelson, Ponzi scheme, price mechanism, principal–agent problem, Ralph Nader, random walk, rent-seeking, Richard Feynman, Richard Thaler, Ronald Coase, Ronald Reagan, Rory Sutherland, Silicon Valley, Steven Pinker, stochastic process, survivorship bias, The Nature of the Firm, transaction costs, urban planning, Yogi Berra

For instance, the economist and psycholophaster Richard Thaler, partner of the dangerous GMO advocate übernudger Cass Sunstein, interpreted this piece as saying that “there are not many non-idiots not called Taleb,” not realizing that people like him are less than 1 percent or even less than one-tenth of 1 percent of the population. CHAPTER 7: INEQUALITY AND SKIN IN THE GAME fn1 It came to my notice that in countries with high rent-seeking, wealth is seen as something zero-sum: you take from Peter to give to Paul. On the other hand, in places with low rent-seeking (say the United States before the Obama administration), wealth is seen as a positive-sum game, benefiting everybody. fn2 Complex regulations allow former government employees to find jobs helping firms navigate the regulations they themselves created. fn3 Thirty-nine percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and 73 percent will spend a year in the top 20 percent.

But the worst casualty has been free markets, as the public, already prone to hating financiers, started conflating free markets and higher order forms of corruption and cronyism, when in fact it is the exact opposite: it is government, not markets, that makes these things possible by the mechanisms of bailouts. It is not just bailouts: government interference in general tends to remove skin in the game. The good news is that in spite of the efforts of a complicit Obama administration that wanted to protect the game and the rent-seeking bankers,fn3 the risk-taking business started moving toward small independent structures known as hedge funds. The move took place mostly because of the overbureaucratization of the system as paper shufflers (who think work is mostly about paper shuffling) overburdened the banks with rules—but somehow, in the thousands of pages of additional regulations, they avoided considering skin in the game.

Consider that transgenic-GMO eaters will eat non-GMOs, but not the reverse. So it may suffice to have a tiny percentage—say, no more than 5 percent—of an evenly spatially distributed population of non-genetically modified eaters for the entire population to have to eat non-GMO food. How? Say you have a corporate event, a wedding, or a lavish party to celebrate the fall of the Saudi Arabian regime, the bankruptcy of the rent-seeking investment bank Goldman Sachs, or the public reviling of Ray Kotcher, chairman of Ketchum the public relations firm, which is the enemy of scientists and scientific whistleblowers. Do you need to send a questionnaire asking people if they eat or don’t eat transgenic GMOs and reserve special meals accordingly? No. You just select everything non-GMO, provided the price difference is not consequential.


pages: 436 words: 76

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

"Robert Solow", Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, business cycle, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

Unless we allow indiscriminate development, construction sites will be limited and permission to develop them valuable. These restrictions often create large rents, and firms will spend correspondingly large sums to get them. A government that creates or assigns these resources can impose heavy taxes, or large up-front fees, for their use-as with specific taxes on oil and mineral deposits, or the allocation of spectrum for mobile phone companies. These fees and taxes yield revenue and discourage rent seeking. Rent seeking impedes the functioning of a market economy-the pursuit of gains from trade through specialization and differences in capabilities. It limits innovation though disciplined pluralism. It corrodes the integrity of politics. These adverse political and economic effects often reinforce each other. Rents and Competitive Advantages ••••••••••••••••••••••••••••••••••••• Firms derive rents from their competitive advantages.

The mechanics of coordination were less effective under central direction then in the spontaneous order of market economies. No economy has ever been so vulnerable to rent-seeking as the collapsed Soviet Union. Russia is rich in natural resources. Its centralized economy had established many monopolies of production, communication, and transportation. Western firms, anxious to do the business that had been opened to them, required political and economic connections. Never have so many rents been on offer in such a short space of time. The beneficiaries of the process were the politically well connected, managers of established Russian businesses, and criminal gangs. Public choice-the self-amplifying cycle of political corruption and economic rent-seeking described by Buchanan's model (p. 294)found its fullest expression. As oligarchs bought politicians, they could demand further favors. 3 Few rents in Russia are derived from scarce talents or the competitive advantages of firms.

If there are no scarce factors in an economy, bargaining and productivity theories converge. This is an intriguing result, but it probably does not reveal much of the truth about markets. In modern economies, many factors are scarce and there are many sources of rents. The acquisition and defense of rents, and bargaining and dispute over their distribution, are the main influences on income distribution. Rent Seeking ••••••••••••••••••••••••••••••••••••• Economic rents are returns to scarcities-the exceptional talents of individuals, the distinctive capabilities of corporations. But not all individuals have scarce talents, not all corporations have distinctive capabilities. If scarcity does not naturally exist, perhaps it can be invented, and rents garnered anyway. The grant of monopolies has been a source of patronage and revenue for governments for thousands ofyears and continues today in poor countries and corrupt states. 7 In postcommunist Russia, the Orthodox Church won an alcohol monopoly.


pages: 370 words: 102,823

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

balance sheet recession, banking crisis, basic income, Bernie Sanders, Bretton Woods, business climate, business cycle, Carmen Reinhart, central bank independence, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, endogenous growth, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, forward guidance, full employment, G4S, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, low skilled workers, Martin Wolf, mass incarceration, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, quantitative easing, QWERTY keyboard, railway mania, rent-seeking, road to serfdom, savings glut, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Steve Jobs, the built environment, The Great Moderation, The Spirit Level, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, trickle-down economics, universal basic income, very high income

There is no easy way of providing a neat quantitative answer, but recent events and studies have lent persuasive weight to theories putting greater focus on rent-seeking and exploitation. We shall discuss this evidence in the next section, before turning to the institutional and political factors which are at the root of the recent structural changes in income distribution. Rent-seeking and top incomes The term ‘rent’ was originally used to describe the returns to land, since the owner of the land receives these payments by virtue of his or his ownership and not because of anything he or she does. The term was then extended to include monopoly profits (or monopoly rents)—the income that one receives simply from control of a monopoly—and in general returns due to similar ownership claims. Thus, rent-seeking means getting an income not as a reward for creating wealth but by grabbing a larger share of the wealth that would have been produced anyway.

The chapters by Joseph Stiglitz and Colin Crouch look at two of the major gaps between orthodox economic theory and the reality of modern capitalism. Stiglitz addresses the growth of inequality over the past thirty years. He takes on the neoclassical view that wages and salaries reflect the marginal productivity of workers, showing that the very high incomes of corporate executives in fact reveal a form of ‘rent-seeking’, in which rewards are extracted without relation to productivity or economic desert. Moreover he points out—again contrary to the orthodox view—that such inequality is not the price that has to be paid for greater economic prosperity, but actually retards growth. Stiglitz offers a range of policy measures which would reverse recent trends, including changes to executive compensation schemes, macroeconomic policies to reduce unemployment, greater investment in education and the reform of capital taxation.

A framework that sees policy as simply fixing imperfections in order to let markets achieve an exogenously determined equilibrium state is of little use when policy is needed to dynamically create and shape new markets in processes of evolution and transformation. Within the orthodox framework, the existence of some market failure is a necessary but not sufficient condition for state intervention.26 If government is to step in, it is claimed that gains from the intervention must outweigh the associated costs due to ‘governmental failures’27 such as capture by private interests (cronyism, corruption, rent-seeking),28 misallocation of resources (for example, ‘picking losers’)29 or undue competition with private initiatives (‘crowding out’).30 There is thus a presumed trade-off between two inefficient outcomes, one of which is generated by free markets (market failure) and the other by public intervention (government failure). Neo-Keynesian economists tend to emphasise market failures, especially those related to imperfect information,31 and thus to advocate more extensive government intervention, while public choice theorists32 tend to see the market as usually able to ‘self-correct’ and worry more about government failures.


pages: 740 words: 217,139

The Origins of Political Order: From Prehuman Times to the French Revolution by Francis Fukuyama

Admiral Zheng, agricultural Revolution, Andrei Shleifer, Asian financial crisis, Ayatollah Khomeini, barriers to entry, Berlin Wall, blood diamonds, California gold rush, cognitive dissonance, colonial rule, conceptual framework, correlation does not imply causation, currency manipulation / currency intervention, demographic transition, Deng Xiaoping, double entry bookkeeping, endogenous growth, equal pay for equal work, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, Francisco Pizarro, Hernando de Soto, hiring and firing, invention of agriculture, invention of the printing press, Khyber Pass, land reform, land tenure, means of production, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, RAND corporation, rent-seeking, Right to Buy, Scramble for Africa, selective serotonin reuptake inhibitor (SSRI), spice trade, Stephen Hawking, Steven Pinker, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Washington Consensus, zero-sum game

Again, we are back to the problem of the stacked turtles. It is possible that patrimonial officeholding itself rests on a set of prior social conditions even as it is fostered by deliberate government policy. RENT-SEEKING SOCIETIES Ancien régime France was an early prototype of what is today called a rent-seeking society. In such a society, the elites spend all of their time trying to capture public office in order to secure a rent for themselves—in the French case, a legal claim to a specific revenue stream that could be appropriated for private use. Was this rent-seeking coalition a stable one? It lasted for almost two centuries and provided a political basis for France’s emergence as the dominant continental power. On the other hand, we know that the grandeur of the French court masked enormous weaknesses.

Mancur Olson has made the general argument that entrenched interest groups tend to accumulate in any society over time, which aggregate into rent-seeking coalitions in order to defend their narrow privileges.19 They are much better organized than the broad mass of people in a society, whose interests often fail to be represented in the political system. The problem of a dysfunctional political equilibrium can be mitigated by democracy, which at least theoretically allows nonelites to have a greater share in political power. But even then there is usually a large disparity in the organizational capacity of elites and nonelites that prevents the latter from acting decisively. We have seen numerous examples of rent-seeking coalitions that have prevented necessary institutional change and therefore provoked political decay. The classic one from which the very term rent derives was ancien régime France, where the monarchy had grown strong over two centuries by co-opting much of the French elite.

THE VICTORY OF SOCIETY OVER POLITICS NATION BUILDING BY FOREIGNERS CHINA VERSUS INDIA 13 - SLAVERY AND THE MUSLIM EXIT FROM TRIBALISM CREATION OF A MUSLIM STATE THE ORIGINS OF MILITARY SLAVERY 14 - THE MAMLUKS SAVE ISLAM MAMLUK DECAY STATES AS ORGANIZED CRIMINALS 15 - THE FUNCTIONING AND DECLINE OF THE OTTOMAN STATE A ONE-GENERATION ARISTOCRACY MILITARY SLAVERY PERFECTED THE OTTOMAN STATE AS A GOVERNING INSTITUTION REPATRIMONIALIZATION AND DECAY THE OTTOMAN LEGACY 16 - CHRISTIANITY UNDERMINES THE FAMILY EUROPEAN EXCEPTIONALISM MARX’S MISTAKE FROM STATUS TO CONTRACT THE SOCIAL BACKGROUND TO STATE BUILDING IN EUROPE PART THREE - The Rule of Law 17 - THE ORIGINS OF THE RULE OF LAW CONTEMPORARY CONFUSIONS CONCERNING THE RULE OF LAW HAYEK’S THEORY THAT LAW IS PRIOR TO LEGISLATION FROM CUSTOMARY TO COMMON LAW 18 - THE CHURCH BECOMES A STATE THE CATHOLIC CHURCH DECLARES INDEPENDENCE THE REAPPEARANCE OF ROMAN LAW LAW AND THE RISE OF THE MODERN STATE HOW THE MEDIEVAL CHURCH SET PRECEDENTS FOR CONTEMPORARY RULE OF LAW 19 - THE STATE BECOMES A CHURCH RULE OF LAW IN THE MIDDLE EAST SEPARATION OF MOSQUE AND STATE HOW THE RULE OF LAW FAILED TO SURVIVE CONTACT WITH THE WEST IN BOTH INDIA AND ISLAM WHY THE RULE OF LAW WAS STRONGER IN WESTERN EUROPE 20 - ORIENTAL DESPOTISM CHINA’S MODERNITY AFTER THE TANG-SONG TRANSITION THE EVIL EMPRESS WU THE MANDATE OF HEAVEN 21 - STATIONARY BANDITS GOOD GOVERNMENT, BAD GOVERNMENT THE “BAD EMPEROR” PROBLEM INSTITUTIONS AREN’T ENOUGH PART FOUR - Accountable Government 22 - THE RISE OF POLITICAL ACCOUNTABILITY EUROPE’S LATE STATE BUILDING THE MARCH OF EQUALITY HE WHO KNOWS ONLY ONE COUNTRY KNOWS NO COUNTRIES EUROPE’S EASTERN ZHOU PERIOD THE ROLE OF LAW IN EUROPEAN DEVELOPMENT A FRAMEWORK FOR STATE BUILDING 23 - RENTE SEEKERS THE BEGINNINGS OF PATRIMONIAL ABSOLUTISM THE INTENDANTS AND CENTRALIZATION THE LIMITS OF CENTRALIZED POWER AND THE IMPOSSIBILITY OF REFORM THE FAILURE OF RESISTANCE TO ABSOLUTISM IN FRANCE RENT-SEEKING SOCIETIES 24 - PATRIMONIALISM CROSSES THE ATLANTIC THE BANKRUPT SPANISH STATE TAXATION AND NO REPRESENTATION TRANSFER OF INSTITUTIONS TO THE NEW WORLD THE IRON LAW OF LATIFUNDIA 25 - EAST OF THE ELBE LORDSHIP AND BONDAGE CONSTITUTIONALISM AND DECLINE IN HUNGARY FREEDOM AND OLIGARCHY 26 - TOWARD A MORE PERFECT ABSOLUTISM SOURCES OF RUSSIAN ABSOLUTISM FREE ALTERNATIVES THE PEASANT-OWNING CARTEL AFTER PETER ABSOLUTISM ACHIEVED 27 - TAXATION AND REPRESENTATION THE ROOTS OF ENGLISH POLITICAL SOLIDARITY FREE CITIES AND THE BOURGEOISIE THE STRUGGLE OVER TAXATION THE GLORIOUS REVOLUTION TO THE AMERICAN AND FRENCH REVOLUTIONS 28 - WHY ACCOUNTABILITY?


pages: 401 words: 109,892

The Great Reversal: How America Gave Up on Free Markets by Thomas Philippon

airline deregulation, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, barriers to entry, bitcoin, blockchain, business cycle, business process, buy and hold, Carmen Reinhart, carried interest, central bank independence, commoditize, crack epidemic, cross-subsidies, disruptive innovation, Donald Trump, Erik Brynjolfsson, eurozone crisis, financial deregulation, financial innovation, financial intermediation, gig economy, income inequality, income per capita, index fund, intangible asset, inventory management, Jean Tirole, Jeff Bezos, Kenneth Rogoff, labor-force participation, law of one price, liquidity trap, low cost airline, manufacturing employment, Mark Zuckerberg, market bubble, minimum wage unemployment, money market fund, moral hazard, natural language processing, Network effects, new economy, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, price discrimination, profit maximization, purchasing power parity, QWERTY keyboard, rent-seeking, ride hailing / ride sharing, risk-adjusted returns, Robert Bork, Robert Gordon, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, Snapchat, spinning jenny, statistical model, Steve Jobs, supply-chain management, Telecommunications Act of 1996, The Chicago School, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, Travis Kalanick, Vilfredo Pareto, zero-sum game

Most of the campaign money does not come from interest group PACs, but rather from individual donors … It doesn’t seem accurate to view campaign contributions as a way of investing in political outcomes … Because politicians can readily raise campaign funds from individuals, rent-seeking donors lack the leverage to extract large private benefits from legislation. It is tempting to compare this statement to the “permanently high plateau” prediction for US stocks that Irving Fisher made in October 1929. To be fair, however, they did not claim to make a prediction about the future, as Fisher did. They were instead reflecting on the common wisdom at the time and, based on their reading of the evidence, they suggested a reorientation of research away from its focus on rent-seeking donors. Much has changed since then, and Luigi Zingales, an economist at the University of Chicago, worries in a 2017 article about a diabolic loop between economic power and political power.

For instance, if a good that can be produced for $10 is sold for $15 because it is protected by a patent, then the rent to the patent holder is $5. Some rents are protected by artificial restrictions. For example, draconian occupational licensing laws that restrict entry into certain professions protect those who already hold licenses from competition, allowing them to charge higher prices. When economists talk about “rent-seeking,” they refer to the attempt by individuals or by groups to tilt public policy in a way that establishes or increases those artificial advantages in their favor. This term does not necessarily have a moral connotation. It is rational for people to protect their rents. That does not make them bad people. But it often leads to bad policies. The interplay between rents and inequality means that competition does not always reduce inequality.

The fact that lobbying has always taken place (and, if anything, seems to be increasing) is enough, under conditions of minimal rationality, to argue that it must matter. Put another way, if we hold the view that firms spend money on lobbying but it is useless, then we must recognize that this view is inconsistent with most of what we know about economics and human nature. It’s not strictly impossible, but I am not going to take this idea very seriously. Second, rent seeking is a zero-sum game, and zero-sum games are difficult to identify in the data. For instance, suppose firm A spends $100 to lobby for a regulatory change that would give it an advantage over firm B. Firm B then spends $200 to fight this change. Firm B prevails. What do we see? We see that they collectively spent $300 and that nothing has changed: the relative market shares, growth rates, and productivity of the two firms are the same as before.


pages: 577 words: 149,554

The Problem of Political Authority: An Examination of the Right to Coerce and the Duty to Obey by Michael Huemer

Cass Sunstein, Chelsea Manning, cognitive dissonance, cuban missile crisis, Daniel Kahneman / Amos Tversky, en.wikipedia.org, Eratosthenes, experimental subject, framing effect, Gini coefficient, illegal immigration, impulse control, Isaac Newton, Julian Assange, laissez-faire capitalism, Machinery of Freedom by David Friedman, Milgram experiment, moral hazard, Phillip Zimbardo, profit maximization, profit motive, Ralph Nader, RAND corporation, rent-seeking, Ronald Coase, Stanford prison experiment, The Wealth of Nations by Adam Smith, unbiased observer, uranium enrichment, WikiLeaks

The worry is that too many consumers would foolishly choose to buy services from unqualified doctors, lawyers, and so on. As these examples illustrate, legal paternalism is quite widespread in modern Western society. All of these are unjustified laws. 7.1.3 Rent seeking Rent seeking is behavior designed to extract wealth from others, especially through the vehicle of the state, without providing compensatory benefits in return.6 The most straightforward example is a company lobbying the government for subsidies. But many of the policies that exemplify legal paternalism are also motivated partly by rent seeking. Consider the following. – Prescription drug laws. These laws transfer money from consumers to doctors and pharmacists. If a person wishes to buy a prescription drug, he must first pay a doctor to see him and give him permission to buy it

Those who are not corrupted do little to restrain those who are. 6.8 Conclusion: anatomy of an illusion The common belief in authority is the product of nonrational biases. Belief in authority is socially harmful. 7 What if There Is No Authority? 7.1 Some policy implications 7.1.1 Prostitution and legal moralism If there is no authority, legal moralism, as in the case of laws against prostitution, is unjustified. 7.1.2 Drugs and paternalism Legal paternalism, as in the case of drug laws, is unjustified. 7.1.3 Rent-seeking Laws motivated by rent-seeking are obviously unjustified. 7.1.4 Immigration Immigration restrictions are unjustified. 7.1.5 The Protection of individual rights Laws that protect individual rights are justified. 7.1.6 Taxation and government finance Taxation is justified if and only if voluntary methods of government finance prove unworkable. 7.2 The case of aid to the poor 7.2.1 Welfare and drowning children It is sometimes permissible to force someone to help a third party in an emergency.

These motives are analogous to those displayed in policies of types (3)–(9) listed above.23 The specific examples I have given of policy types (3)–(9) are not important, so long as one agrees that there are (a nontrivial number of) policies of each of these types. It does not greatly matter, for instance, whether one agrees that licensing laws are motivated by rent seeking as long as one agrees that a significant number of laws are motivated by rent seeking. The point is that the state has many policies and laws whose motivations do not justify the coercion required to implement them. This is a problem because the state’s authority is generally held to be comprehensive and content-independent. On a very strict reading of the comprehensiveness and content-independence conditions, the existence of just a few laws that the state is not entitled to make would preclude the state’s having genuine authority.


pages: 225 words: 61,388

Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa by Dambisa Moyo

affirmative action, Asian financial crisis, Bob Geldof, Bretton Woods, business cycle, buy and hold, colonial rule, correlation does not imply causation, credit crunch, diversification, diversified portfolio, en.wikipedia.org, European colonialism, failed state, financial innovation, financial intermediation, Hernando de Soto, income inequality, information asymmetry, invisible hand, Live Aid, M-Pesa, market fundamentalism, Mexican peso crisis / tequila crisis, microcredit, moral hazard, Ponzi scheme, rent-seeking, Ronald Reagan, sovereign wealth fund, The Chicago School, trade liberalization, transaction costs, trickle-down economics, Washington Consensus, Yom Kippur War

Others estimate that of the US$525 billion that the World Bank has lent to developing countries since 1946, at least 25 per cent (US$130 billion) has been misused. Vast sums of aid not only foster corruption – they breed it. Aid supports rent-seeking – that is, the use of governmental authority to take and make money without trade or production of wealth. At a very basic level, an example of this is where a government official with access to aid money set aside for public welfare takes the money for his own personal use. Obviously, there cannot be rent-seeking without a rent. And because foreign aid (the rent) is fungible – easily stolen, redirected or extracted – it facilitates corruption. Were donor conditionalities remotely effective, this would not be the case. But, as described previously, conditionalities carry little punch.

Yet another explanation put forward for Africa’s poor economic showing is the absence of strong, transparent and credible public institutions – civil service, police, judiciary, etc. In The Wealth and Poverty of Nations, David Landes argues that the ideal growth and development model is one guaranteed by political institutions. Secure personal liberty, private property and contractual rights, enforced rule of law (not necessarily through democracy), an ombudsman-type of government, intolerance towards private rent-seeking and optimally sized government are mandatory. In Empire: How Britain Made the Modern World, Niall Ferguson points to the common-law system and the British-type civil administration as two institutions that promoted development. Ferguson also notes that it is a country’s underlying legal and political institutions that make it conducive to investment (and counter-disinvestment through less capital flight) and innovation.

As discussed earlier, among development practitioners there is increasing acknowledgement that ‘soft’ factors – such as governance, the rule of law, institutional quality – play a critical role in achieving economic prosperity and putting countries on a strong development path. But these things are meaningless in the absence of trust. And while trust is difficult to define or measure, when it is not there the networks upon which development depends break down or never even form. Foreign aid does not strengthen the social capital – it weakens it. By thwarting accountability mechanisms, encouraging rent-seeking behaviour, siphoning off scarce talent from the employment pool, and removing pressures to reform inefficient policies and institutions, aid guarantees that in the most aid-dependent regimes social capital remains weak and the countries themselves poor. In a world of aid, there is no need or incentive to trust your neighbour, and no need for your neighbour to trust you. Thus aid erodes the essential fabric of trust that is needed between people in any functioning society.


pages: 350 words: 103,270

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again by Nicholas Dunbar

asset-backed security, bank run, banking crisis, Basel III, Black Swan, Black-Scholes formula, bonus culture, break the buck, buy and hold, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, diversification, Edmond Halley, facts on the ground, financial innovation, fixed income, George Akerlof, implied volatility, index fund, interest rate derivative, interest rate swap, Isaac Newton, John Meriwether, Kenneth Rogoff, Kickstarter, Long Term Capital Management, margin call, market bubble, money market fund, Myron Scholes, Nick Leeson, Northern Rock, offshore financial centre, Paul Samuelson, price mechanism, regulatory arbitrage, rent-seeking, Richard Thaler, risk tolerance, risk/return, Ronald Reagan, shareholder value, short selling, statistical model, The Chicago School, Thomas Bayes, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve, zero-sum game

Such dangers are well understood in consumer financial markets.13 Where customers are confused about their buying decisions, they can fall prey to “rent seeking” by sophisticated vendors, who extract outsized profits without delivering real value for their customers. With bespoke over-the-counter derivatives and structured products, opaque pricing allows dealers to build hefty margins into the transaction. This means that the difference between the true manufacturing cost and what the customer actually pays can be earned as “rent” by the dealer over the life of the trade. So long as the customer feels that they are getting a good deal, such rent seeking can be extremely profitable for large financial institutions. Take the most common type of retail structured product, a low-risk bond coupled with equity options.

By branding their products and selling them like toothpaste, the dealers fulfilled Miller’s fears. Since the late 1990s, financial institutions have earned billions annually in rent by selling these structured products to price-indifferent consumers and hedging their exposure over time.14 At first glance, institutional derivative customers would seem to offer fewer opportunities for rent seeking by banks. Shareholders require and reward managers to avoid the fog of confusion that makes consumers easy victims of rent seeking. The managers, in turn, expect the bankers that compete for their business to genuinely act in their best interest and not try to pull the wool over their eyes. “Our best relationship banks think intensively about our capital structure and hedging strategy,” is how the head of corporate finance at Lufthansa expresses it. This requires a certain kind of skill among derivatives salespeople.

The bells and whistles attached to this derivative made it much more costly to trade than a standardized product, enough to justify a bid-offer spread in the region of fifty basis points. On a single transaction that reached $250 million in size, that meant J.P. Morgan could book a profit of over $10 million. One might say that there was no value being created here for Poste Italiane, just rent seeking by J.P. Morgan. If this wasn’t sufficient evidence of his lack of competence, Catasta made things worse by adjusting his derivatives, exposing himself to more trading costs and even more rent seeking. According to sources at the company, Catasta would periodically dismantle older deals and replace them with new ones, until July 2003. This last tweak—possibly a result of an earlier bet’s losing money—alone cost Poste Italiane €50 million. This was bad news for Catasta, but Polverino quickly became a star within J.P.


Adam Smith: Father of Economics by Jesse Norman

"Robert Solow", active measures, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

On the relation between famines and democracy, see Amartya Sen, Poverty and Famines, Oxford University Press 1981; and more recently, Cormac Ó Gráda, Famine: A Short History, Princeton University Press 2009 Rent-seeking: this idea was first specifically developed by Gordon Tullock in ‘The Welfare Costs of Tariffs, Monopolies and Theft’, Western Economic Journal, 5.3, 1967. It was further developed, and the term ‘rent-seeking’ coined, by Anne Krueger in ‘The Political Economy of the Rent-Seeking Society’, American Economic Review, 64.3, 1974. See also Roger D. Congleton and Arye L. Hillman (eds.), Companion to the Political Economy of Rent-Seeking, Edward Elgar 2015 James Anderson on rent: see An Enquiry into the Nature of the Corn Laws, 1777. I am very grateful to John Kay for this reference. J. H. Hollander, ‘Adam Smith and James Anderson’, Annals of the American Academy of Political and Social Science, May 1896, summarizes what is known of the relationship between the two men.

Given his specific friendships and connections with the great merchants of Glasgow, it may well have taken a degree of personal bravery for him to do so. Indeed, Smith appears to have been the first person to present a comprehensive analysis of what crony capitalism amounts to, and why it is damaging to business and government alike. In doing so he opened up and made prominent three sets of ideas which, further refined and developed, have become analytic tools of lasting significance. The first of these is the idea of rent-seeking. ‘Rent’ in this sense, or ‘economic rent’, is not quite the same thing as the rent received on land or property, though the ideas are related. We can refine the description given earlier—as unearned income received, over and above the returns generated in competitive markets—by thinking of it as the difference between the market price and the lowest price a seller would accept. In the perfectly competitive markets of economic theory, there are no brands or products with an established public reputation—indeed there are no brands at all—and no participant has a large enough market presence to have any effect on pricing.

Smith does not have a theory of economic rent as such—the first steps towards one were taken in 1777, a year after publication of The Wealth of Nations, in a work by his contemporary and critic James Anderson of Hermiston—and as a result he appears to underestimate the possibility that companies can build up ‘good’ rents and thus sustainable competitive advantage by entirely legitimate means. But, as we have seen, Smith is acute in identifying and characterizing the special interests of his time, and the interrelated issues of rent-seeking, collusion, lobbying and their effects; and the wider links he draws between mercantilism and colonization are bold and illuminating. The second important idea in analysing crony capitalism is that there can be asymmetries of information and power between players in a market. Merchants can readily hoodwink politicians, as we have seen; and in commerce, far from believing that an invisible hand inevitably works to create conditions of equal competition in markets, Smith is alive to the possibilities for some market players to exploit and derive unfair advantage over others.


pages: 828 words: 232,188

Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy by Francis Fukuyama

Affordable Care Act / Obamacare, Andrei Shleifer, Asian financial crisis, Atahualpa, banking crisis, barriers to entry, Berlin Wall, blood diamonds, British Empire, centre right, clean water, collapse of Lehman Brothers, colonial rule, conceptual framework, crony capitalism, deindustrialization, Deng Xiaoping, disruptive innovation, double entry bookkeeping, Edward Snowden, Erik Brynjolfsson, European colonialism, facts on the ground, failed state, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, Francisco Pizarro, Frederick Winslow Taylor, full employment, Gini coefficient, Hernando de Soto, Home mortgage interest deduction, income inequality, information asymmetry, invention of the printing press, iterative process, Kickstarter, knowledge worker, labour management system, land reform, land tenure, life extension, low skilled workers, manufacturing employment, means of production, Menlo Park, Mohammed Bouazizi, Monroe Doctrine, moral hazard, Nelson Mandela, new economy, open economy, out of africa, Peace of Westphalia, Port of Oakland, post-industrial society, post-materialism, price discrimination, quantitative easing, RAND corporation, rent-seeking, road to serfdom, Ronald Reagan, Scientific racism, Scramble for Africa, Second Machine Age, Silicon Valley, special economic zone, stem cell, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, too big to fail, trade route, transaction costs, Tyler Cowen: Great Stagnation, Vilfredo Pareto, women in the workforce, World Values Survey, zero-sum game

14 The answer that scholars such as Richard Joseph have given is that politics in Nigeria is what he labels “prebendal,” involving a fatal mixture of rent seeking, clientelism, and ethnicity. Because of oil, the state has ready access to a steady flow of resource rents, which the elites have shared among themselves. While all poor people—the 70 percent of the population below the poverty line—in theory have a common interest in ending corruption and redistributing those resources more fairly, they are divided into more than 250 ethnic and religious communities that do not want to work with one another. Their ties are instead vertical, to clientelistic networks controlled by the elites, who dole out just enough patronage and subsidies to mobilize support at the next election. The system is stable because members of the elite rent-seeking coalition realize that using violence to grab a larger share of the total pie will hurt everyone’s interests, including their own.

Any effort to override the price signals given by the market can be dangerous if politicians get their hands on the process: investment decisions will be made on political rather than economic grounds. The history of developing countries in Latin America, Africa, and the Middle East is littered with cases of industrial policy gone bad and collapsing in a flurry of corruption and rent seeking, like the Argentine effort to create a domestic car industry noted in chapter 18. For government intervention to work, the state must have what Peter Evans labels “embedded autonomy”: bureaucracies have to respond to social needs, but also must be free of pressures to satisfy rent-seeking political constituencies, allowing them to promote longer-term goals that serve a broad public interest. This kind of policy worked in Japan, South Korea, Taiwan, and China but failed elsewhere. The difference in outcomes lies in the quality of government.3 Where does this strong Asian state come from?

Public good may be invoked during election campaigns, but the state is not impersonal: favors are doled out to networks of political supporters in exchange for votes or attendance at rallies. This pattern of behavior is visible in countries from Nigeria to Mexico to Indonesia.2 Douglass North, John Wallis, and Barry Weingast have an alternative label for neopatrimonialism, what they call a “limited access order,” in which a coalition of rent-seeking elites use their political power to prevent free competition in both the economy and the political system.3 Daron Acemoglu and James Robinson use the term “extractive” to describe the same phenomenon.4 At one stage in human history, all governments could be described as patrimonial, limited access, or extractive. The question is, How did such political orders ever evolve into modern states?


pages: 538 words: 121,670

Republic, Lost: How Money Corrupts Congress--And a Plan to Stop It by Lawrence Lessig

asset-backed security, banking crisis, carried interest, circulation of elites, cognitive dissonance, corporate personhood, correlation does not imply causation, crony capitalism, David Brooks, Edward Glaeser, Filter Bubble, financial deregulation, financial innovation, financial intermediation, invisible hand, jimmy wales, Martin Wolf, meta analysis, meta-analysis, Mikhail Gorbachev, moral hazard, Pareto efficiency, place-making, profit maximization, Ralph Nader, regulatory arbitrage, rent-seeking, Ronald Reagan, Sam Peltzman, Silicon Valley, single-payer health, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, WikiLeaks, Zipcar

And these interests could leverage their power to achieve this rapaciousness because—in part at least—of the “self-reinforcing cycle of mutual financial dependency” between members of Congress and the lobbyists, as the American Bar Association’s Lobbying Task Force put it.8 Reagan couldn’t see this in the early 1970s when his philosophy was finally set. The dynamic hadn’t quite taken hold. No doubt there was “rent seeking”—efforts by special interests to secure favors through the government that they couldn’t get through the free market. But then, the level of this rent seeking was nothing close to the level that is now the new normal. It’s not the game that has changed. It is the scale. Reagan can be forgiven for missing this scale. Likewise with the alleged rapaciousness of bureaucrats. It’s easy to see how Reagan’s fear was engendered. In the early 1970s, Nixon, a Republican, had established the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), the Consumer Product Safety Commission (CPSC), and the Mining Enforcement and Safety Administration (MESA), and had expanded the Office of Management and Budget (OMB).

This was Teddy Roosevelt’s view: “Corporate expenditures for political purposes… have supplied one of the principal sources of corruption in our political affairs.”51 But however clever political antitrust might be, a more fundamental response would be to weaken the ability of wealth to leverage political power. Never completely. That would not be possible. But at least enough to weaken the return from rent seeking, perhaps enough to make ordinary innovation seem more profitable. Any reform that would seek to weaken the ability of wealth to rent-seek would itself be resisted by wealth. So long as private money drives public elections, public officials will work hard to protect that private money. And if you doubt this, look to Wall Street: never has an industry been filled with more rabid libertarians; but never has an industry more successfully engineered government handouts when the gambling of those libertarians went south.

Crawford, The Pressure Boys, 7. 13. Lynn, Cornered, 5–7, 258–59, n. 23. 14. The theory of regulatory capture raises questions about whether cartel-like industries will use their power to extract rents in the market or through government. And indeed, as Posner writes, the strongest examples of successful rent seeking come from relatively competitive industries. See Posner, “Theories of Economic Regulation,” 335, 343–45. The success of the “deregulation” movement may have now shifted the rent-seeking game toward the focus that now concerns Rajan and Zingales. 15. Rajan and Zingales, Saving Capitalism from the Capitalists, 296. 16. Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965). 17. Obama for America, “Barack Obama and Joe Biden’s Plan to Lower Health Care Costs and Ensure Affordable, Accessible Health Coverage for All” (2008), 5–6, available at link #143. 18.


India's Long Road by Vijay Joshi

Affordable Care Act / Obamacare, barriers to entry, Basel III, basic income, blue-collar work, Bretton Woods, business climate, capital controls, central bank independence, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, congestion charging, corporate governance, creative destruction, crony capitalism, decarbonisation, deindustrialization, demographic dividend, demographic transition, Doha Development Round, eurozone crisis, facts on the ground, failed state, financial intermediation, financial repression, first-past-the-post, floating exchange rates, full employment, germ theory of disease, Gini coefficient, global supply chain, global value chain, hiring and firing, income inequality, Indoor air pollution, Induced demand, inflation targeting, invisible hand, land reform, Mahatma Gandhi, manufacturing employment, Martin Wolf, means of production, microcredit, moral hazard, obamacare, Pareto efficiency, price mechanism, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, race to the bottom, randomized controlled trial, rent-seeking, reserve currency, rising living standards, school choice, school vouchers, secular stagnation, Silicon Valley, smart cities, South China Sea, special drawing rights, The Future of Employment, The Market for Lemons, too big to fail, total factor productivity, trade liberalization, transaction costs, universal basic income, urban sprawl, working-age population

There is plenty of evidence that India has a vigorous and dynamic entrepreneurial class that possesses the ‘animal spirits’ that are required to make risky investments in search of profits. But history all over the world shows that entrepreneurship can be directed to productive or unproductive uses depending on the context.20 If the rewards are greater in unproductive rent-​ seeking than in productive activities, then that is where business energy will go.21 There is no doubt that liberalization in India has very been successful in channelling the energy of firms into innovative and productive uses.22 However, there is also evidence, especially in the recent past, that India’s corporate sector is vulnerable to rent-​seeking and unproductive entrepreneurship, a disease that could arrest the growth of productivity in the long run. The lesson is that while the state must redouble its efforts to liberalize, it must at the same time safeguard competition and restrain corruption and crony capitalism (see Chapter 11).

What Pritchett and Summers have documented is not all that surprising when one thinks about it. Growth is a long-​distance race. Super-​fast growth for a couple of decades or more is like running the distance of a marathon at the speed of a sprint. Most countries cannot make it. Many countries have brief high-​growth spurts that fizzle out due to lack of stamina. Fast-​growing countries slow down because they have fiscal explosions or fall prey to rent-​seeking oligarchies and crony capitalists or simply fail to sustain the pace of productivity improvement.11 In recent years, India has looked vulnerable to falling at each of these hurdles. I emphasize again that India’s aim is not just fast growth but high-​quality, fast growth. That sets the bar higher than fast growth pure and simple. (While fast growth makes inclusion easier to achieve, it does not make inclusion inevitable.

In India, a further twist was given to this kind of thinking by a ‘heavy industry’ strategy (based loosely on Soviet planning models), which was adopted in the Second Five Year Plan and used to justify the physical allocation of investment.5 It was taken for granted that extensive government intervention and controls were necessary to subdue or supplant the market, and make the private sector’s activities consonant with the planned trajectory of output.6 Once the controls were established, the dynamic of rent-​seeking took over and they proliferated to the point where no economic activity, unless of very small scale, could be legally pursued without obtaining dozens of permits and licences from different departments of government. Controls permeated every facet of business decision-​making including investment, output-​mix, pricing, credit, employment, entry, and exit. Especially harmful were the controls on foreign trade and investment that stemmed from the belief in ‘self-​ reliance’.


pages: 151 words: 38,153

With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don't Pay Enough by Peter Barnes

Alfred Russel Wallace, banks create money, basic income, Buckminster Fuller, collective bargaining, computerized trading, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, diversified portfolio, en.wikipedia.org, Fractional reserve banking, full employment, hydraulic fracturing, income inequality, Jaron Lanier, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, land reform, Mark Zuckerberg, Network effects, oil shale / tar sands, Paul Samuelson, profit maximization, quantitative easing, rent-seeking, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the map is not the territory, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, Upton Sinclair, Vilfredo Pareto, wealth creators, winner-take-all economy

Another way to say this is that rent is the extra money people pay above what they’d pay in truly competitive markets. The contemporary concept of rent also includes income from privileges granted by government—import quotas, mining rights, subsidies, tax loopholes, and so on. Many economists use the term rent seeking to describe the multiple ways in which special interests manipulate government to enrich themselves at the expense of others. If you’re wondering why Washington, DC, and its environs have grown so prosperous in recent decades, it’s not because government itself has become gargantuan, it’s because rent seeking has. In short, rent is income received not because of anything a person or business produces but because of rights or power a person or business possesses. It consists of takings from the larger whole rather than additions to it. It redistributes wealth within an economy but doesn’t add any.

Further, it not only adds no value to the economy but “distorts resource allocation and makes the economy weaker.”14 And finally: “There’s no begrudging the wealth accrued by those who have transformed our economy—the inventors of the computer, the pioneers of biotechnology. But, for the most part, these are not the people at the top of our economic pyramid. Rather, to a too large extent, it’s people who have excelled at rent seeking in one form or another.” EIGHTY YEARS AGO, JOHN MAYNARD KEYNES looked forward to what he called “the euthanasia of the rentier.” That day would come when the supply of capital was so large, relative to the demand for it, that the return to capital “would have to cover little more than [its] exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment.”

At the same time, though less noticed, Congress also missed an opportunity to create a fund that pays dividends to all Americans. The revenue for this fund would have come from selling rights to dump carbon dioxide into our co-owned air. The story of these failures is both political and intellectual. In this chapter, I trace the transformation of a good idea—a market-based limit on carbon pollution—into a compromised and beaten one. This transformation was driven by the familiar Washington process of rent seeking, and its story yields a number of lessons. THE IDEA OF CAPPING FLOWS of harmful substances, and then letting markets allocate them, goes back to 1968, when a Canadian economist, the late John Dales, floated the idea in a book called Pollution, Property & Prices1 At the time, Dales wasn’t thinking about climate change; he was thinking about farmers who polluted streams with chemical runoffs.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game

One of the best measures of the rent seeking relationship between elites and citizens in a stagnant economy is the Gini coefficient, a measure of income inequality; a higher coefficient means greater income inequality. In 2006, shortly before the recent recession began, the coefficient for the United States reached an all-time high of 47, which contrasts sharply with the all-time low of 38.6, recorded in 1968 after two decades of stable gold-backed money. The Gini coefficient trended lower in 2007 but was near the all-time high again by 2009 and trending higher. The Gini coefficient for the United States is now approaching that of Mexico, which is a classic oligarchic society characterized by gross income inequality and concentration of wealth in elite hands. Another measure of elite rent seeking is the ratio of amounts earned by the top 20 percent of Americans compared to amounts earned by those living below the poverty line.

Bureaucracies that started out as efficient organizers turn into inefficient obstacles to improvement more concerned with their own perpetuation than with service to society. Elites who manage the institutions of society slowly become more concerned with their own share of a shrinking pie than with the welfare of society as a whole. The elite echelons of society go from leading to leeching. Elites behave like parasites on the host body of society and engage in what economists call “rent seeking,” or the accumulation of wealth through nonproductive means—postmodern finance being one example. By 2011, evidence had accumulated to show that the United States was well down the return curve to the point where greater exertions by more people produced less for society while elites captured most of the growth in income and profits. Twenty-five hedge fund managers were reported to have made over $22 billion for themselves in 2010 while forty-four million Americans were on food stamps.

Capital and currency markets are powerful complex systems nested within the larger Tainter model of civilization. As society becomes more complex, it requires exponentially greater amounts of money for support. At some point productivity and taxation can no longer sustain society, and elites attempt to cheat the input process with credit, leverage, debasement and other forms of pseudomoney that facilitate rent seeking over production. These methods work for a brief period before the illusion of debt-fueled pseudogrowth is overtaken by the reality of lost wealth amid growing income inequality. At that point society has three choices: simplification, conquest or collapse. Simplification is a voluntary effort to descale society and return the input-output ratio to a more sustainable and productive level. An example of contemporary systemic simplification would be to devolve political power and economic resources from Washington, D.C., to the fifty states under a reinvigorated federal system.


pages: 222 words: 70,132

Move Fast and Break Things: How Facebook, Google, and Amazon Cornered Culture and Undermined Democracy by Jonathan Taplin

1960s counterculture, affirmative action, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, American Legislative Exchange Council, Apple's 1984 Super Bowl advert, back-to-the-land, barriers to entry, basic income, battle of ideas, big data - Walmart - Pop Tarts, bitcoin, Brewster Kahle, Buckminster Fuller, Burning Man, Clayton Christensen, commoditize, creative destruction, crony capitalism, crowdsourcing, data is the new oil, David Brooks, David Graeber, don't be evil, Donald Trump, Douglas Engelbart, Douglas Engelbart, Dynabook, Edward Snowden, Elon Musk, equal pay for equal work, Erik Brynjolfsson, future of journalism, future of work, George Akerlof, George Gilder, Google bus, Hacker Ethic, Howard Rheingold, income inequality, informal economy, information asymmetry, information retrieval, Internet Archive, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: technological unemployment, John von Neumann, Joseph Schumpeter, Kevin Kelly, Kickstarter, labor-force participation, life extension, Marc Andreessen, Mark Zuckerberg, Menlo Park, Metcalfe’s law, Mother of all demos, move fast and break things, move fast and break things, natural language processing, Network effects, new economy, Norbert Wiener, offshore financial centre, packet switching, Paul Graham, paypal mafia, Peter Thiel, plutocrats, Plutocrats, pre–internet, Ray Kurzweil, recommendation engine, rent-seeking, revision control, Robert Bork, Robert Gordon, Robert Metcalfe, Ronald Reagan, Ross Ulbricht, Sam Altman, Sand Hill Road, secular stagnation, self-driving car, sharing economy, Silicon Valley, Silicon Valley ideology, smart grid, Snapchat, software is eating the world, Steve Jobs, Stewart Brand, technoutopianism, The Chicago School, The Market for Lemons, The Rise and Fall of American Growth, Tim Cook: Apple, trade route, transfer pricing, Travis Kalanick, trickle-down economics, Tyler Cowen: Great Stagnation, universal basic income, unpaid internship, We wanted flying cars, instead we got 140 characters, web application, Whole Earth Catalog, winner-take-all economy, women in the workforce, Y Combinator

They describe these firms as “rent seeking.” Economic rents are the return to a factor of production in excess of what would be needed to keep it in the market.… For example, capital can extract rents by engaging in anti-competitive behavior to earn revenues well in excess of opportunity cost.… Moreover, labor market structure can lead to some elements of monopsony in certain industries, slanting the division of this labor contract rent towards the firm. The classic example of rent seeking we all deal with is our cable service, which costs more than it should and is less responsive than it should be because its local monopoly allows the company to make a better “deal” for itself. It is probably fair to ask whether Google, Facebook, and Amazon are rent-seeking firms—i.e., whether they monopolize the resources they use.

And research by Professor Jonathan Albright has shown that right-wing websites have manipulated Google’s algorithm to autofill the query “Are Jews…” with the word evil as the top choice. He noted, “The right has colonized the digital space around these subjects—Muslims, women, Jews, the Holocaust, black people—far more effectively than the liberal left.” Google, Amazon, and Facebook are classic “rent-seeking” enterprises. The New York Times columnist Adam Davidson explains the concept: In economics, a “rent” is money you make because you control something scarce and desirable, whether it’s an oil field or a monopolistic position in a market.… The left, right and center of the economics profession all agree that reducing rent-seeking behavior, and improving overall growth, is essential if we want to “make America great again.” Google and Facebook each have more than one billion customers while Amazon has 350 million. They all take their rent off the top, whether through direct payment or advertising subsidy.


pages: 442 words: 130,526

The Billionaire Raj: A Journey Through India's New Gilded Age by James Crabtree

accounting loophole / creative accounting, Asian financial crisis, Big bang: deregulation of the City of London, Branko Milanovic, business climate, call centre, Capital in the Twenty-First Century by Thomas Piketty, centre right, colonial rule, Commodity Super-Cycle, corporate raider, creative destruction, crony capitalism, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, facts on the ground, failed state, Francis Fukuyama: the end of history, global supply chain, Gunnar Myrdal, income inequality, informal economy, Joseph Schumpeter, liberal capitalism, Mahatma Gandhi, McMansion, megacity, New Urbanism, offshore financial centre, open economy, Parag Khanna, Pearl River Delta, plutocrats, Plutocrats, Ponzi scheme, quantitative easing, rent-seeking, Rubik’s Cube, Silicon Valley, Simon Kuznets, smart cities, special economic zone, spectrum auction, The Great Moderation, Thomas L Friedman, transaction costs, trickle-down economics, Washington Consensus, WikiLeaks, yellow journalism, young professional

The second featured businesses in what Walton called “rent-thick” sectors, meaning those where firms made money—or “rents”—via access to favors. Economists worry about what they call “rent seeking,” meaning the way some businesses earn profits beyond what they could make in a competitive market, for instance by owning the rights to land or resources or intellectual property. Some companies earned rents by lobbying or bribing, others from operating in cartels or as monopolies. The term “rentier” was sometimes used by left-wing thinkers to describe the same thing, meaning those who grabbed valuable resources, such as licenses to drill oil fields or develop real estate. Digging into the data, Walton found a clear pattern. In the early years after its 1991 reforms India’s new billionaires operated mostly in areas like IT services, which had little in the way of rent-seeking. But as the economy took off and globalization jacked up demand for things like commodities and land, so the wealth of billionaires shot up most of all in rent-thick sectors, from mining and property to cement, infrastructure, and telecoms.

A handful made money in ways that echoed the oligarchs of Russia, snapping up state-owned assets using capital provided by state-owned banks. But most merely operated in sectors that were tied closely to the government, where they could put their connections to good use. There was even a special local word for the tycoons themselves: “promoters,” a term that referred to the individual or family who owned most of the equity in the business and who in turn tightly controlled its operations. The business of rent-seeking in India led many tycoons to build up sophisticated influence machines. Some, like Vijay Mallya, became politicians themselves. Others created modern versions of the old Reliance Industries “intelligence agency” in New Delhi, the sophisticated lobbying operation built up over the decades by Mukesh Ambani’s father. There were more indirect techniques of influence too, as prominent tycoons expanded their business operations to open hospitals, schools, hotels, and newspapers.

There was no full-scale privatization program as part of China’s economic reform process, but Communist Party officials still worked with businesses to take control of, or extract resources from, giant state companies. India’s story was similar, as liberalization took an economy long under state control and moved large parts of it back towards the private sector. As this happened, political leaders and civil servants found themselves in control of suddenly valuable state assets. The kinds of rent-seeking that followed came in many shades, as Milan Vaishnav pointed out in When Crime Pays, his study on Indian corruption and criminality. Some flowed from the ability to change rules to suit one business interest or another. Others involved doling out scarce natural resources, from mineral rights to land. A third variety involved politics, and in particular the need to provide illegal funding to political parties.24 Economic growth itself was not to blame for this: some countries, such as Poland, managed to introduce market reforms without an accompanying wave of cronyism.


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

accounting loophole / creative accounting, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, drone strike, end world poverty, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, global reserve currency, Guggenheim Bilbao, Gunnar Myrdal, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, new economy, New Urbanism, Occupy movement, peak oil, phenotype, plutocrats, Plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, short selling, Silicon Valley, special economic zone, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

The bankers in pursuit of their individual interests plainly did not contribute to the general welfare and in the USA the Federal Reserve bailed out the banks but not the people. This has now led to an admission that monopoly power is more than an aberration but a systemic problem that arises out of what economists refer to as ‘rent seeking’. ‘To put it baldly,’ says the economist Joseph Stiglitz, ‘there are two ways to become wealthy: to create wealth or to take wealth away from others. The former adds to society. The latter typically subtracts from it, for in the process of taking it away, wealth gets destroyed.’1 Rent seeking is nothing more than a polite and rather neutral-sounding way of referring to what I call ‘accumulation by dispossession’. The virtue of Stiglitz’s somewhat truncated account of rent seeking or accumulation by dispossession is that it recognises the seamless way in which monopoly power in economic transactions is paralleled by monopoly power in the political process.

Regressive taxes and write-offs; regulatory capture (in which the foxes are put in charge of the henhouse); acquiring or leasing state or private assets at discount prices; inflated cost-plus contracts with state agencies; writing legislation to protect or subsidise particular interests (energy and agribusiness); buying political influence through campaign contributions – these are all political practices that give a free hand to big moneyed and monopolistic interests while permitting them to plunder the public treasury at the expense of the taxpayer. These political practices supplement conventional rent seeking in land and property markets; rents on resources and on patents, licences and intellectual property rights; plus excess returns due to monopoly pricing. Then there are all the quasi-legal ways of gaining excess profits. The creation of financial markets that lack any transparency or in which adequate information is lacking creates a fog of misunderstanding in which sharp practices are impossible to curb.

When we add in the proliferation of abusive practices such as predatory lending in housing markets that transferred billions in asset values from the public to the financiers, abusive credit card practices, hidden charges (on phone and medical bills), as well as practices that skirt if not infringe the law, we end up with a vast array of practices where big corporations and big moneyed interests add to their wealth hand over fist even as the economy as a whole collapses and then stagnates. As Stiglitz remarks, ‘Some of the most important innovations in business in the last three decades have centered not on making the economy more efficient but on how better to ensure monopoly power or how better to circumvent government regulations intended to align social returns and private rewards.’2 What is missing from Stiglitz’s account of rent seeking as a strategy (though not from his account of the social outcomes) is the demolition of a wide range of democratic rights, including economic rights to pensions and health care, and free access to vital services such as education, police and fire protection, and state-funded programmes (like nutritional supplements and food stamps in the case of the USA) that have hitherto helped to support low-income populations at an adequate standard of living.


pages: 976 words: 235,576

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite by Daniel Markovits

"Robert Solow", 8-hour work day, activist fund / activist shareholder / activist investor, affirmative action, Anton Chekhov, asset-backed security, assortative mating, basic income, Bernie Sanders, big-box store, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, carried interest, collateralized debt obligation, collective bargaining, computer age, corporate governance, corporate raider, crony capitalism, David Brooks, deskilling, Detroit bankruptcy, disruptive innovation, Donald Trump, Edward Glaeser, Emanuel Derman, equity premium, European colonialism, everywhere but in the productivity statistics, fear of failure, financial innovation, financial intermediation, fixed income, Ford paid five dollars a day, Frederick Winslow Taylor, full employment, future of work, gender pay gap, George Akerlof, Gini coefficient, glass ceiling, helicopter parent, high net worth, hiring and firing, income inequality, industrial robot, interchangeable parts, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, Kodak vs Instagram, labor-force participation, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, mass incarceration, medical residency, minimum wage unemployment, Myron Scholes, Nate Silver, New Economic Geography, new economy, offshore financial centre, Paul Samuelson, payday loans, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, precariat, purchasing power parity, rent-seeking, Richard Florida, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, school choice, shareholder value, Silicon Valley, Simon Kuznets, six sigma, Skype, stakhanovite, stem cell, Steve Jobs, supply-chain management, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, Thomas Davenport, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, traveling salesman, universal basic income, unpaid internship, Vanguard fund, War on Poverty, Winter of Discontent, women in the workforce, working poor, young professional, zero-sum game

But it is a mistake to leap from these uncontested facts to the conclusion that deregulated elite finance workers’ immense incomes arise from exploitation or rent seeking. If the techniques employed by deregulated finance make super-skilled finance workers especially productive, then no increase in rent seeking is required to explain the increase in finance-sector wages. The figures, which show that relatively fewer, relatively more-skilled workers are taking the same cut from a relatively rising share of GDP explain rising finance-sector wages in this way, without needing to resort to rising rent seeking. None of this demonstrates, nor does it even assert, that finance workers extract no rents. They surely do, and the rents may even have increased in recent decades. But the greater part of rising finance-sector incomes neither requires nor in fact involves increased rent seeking. Philippon and Reshef, who have made the most careful study of finance sector rents, conclude that nonmeritocratic causes contributed little to rising finance-sector incomes from the 1970s through the early 1990s and that, since the 1990s, between 20 and 30 percent of finance’s risk-adjusted wages stems from sources besides skill.

Critics of inequality commonly attribute rising top incomes to personal vices rather than to economic structures, and to too little meritocracy rather than too much, arguing that superordinate workers get their extravagant incomes through nepotism and class snobbery, rent seeking that exploits economic power, or even outright fraud. These arguments resemble suggestions, discussed earlier, that top incomes must come from capital rather than labor. Like those suggestions, these charges have a point. Meritocrats retain all the familiar vices, and class snobbery, rent seeking, and fraud contribute—including outrageously—to the advantages that superordinate workers enjoy. But once again, the scale of the moral vices does not match (or even approach) the scale of the rise in elite incomes. Structural arguments are needed to account for rising inequality, and meritocracy provides the required arguments.

One common complaint, which figures prominently in popular politics on both the left and the right, alleges that the rich do not in fact owe their incomes to merit at all but rather to nepotism and opportunism—to legacies of old-fashioned aristocracy. According to this view, elite schools and universities admit students based on cultural capital, class background, or legacy status rather than intelligence or academic ability, elite employers hire based on social networks and pedigree rather than skill or talent, and superordinate workers command their immense incomes through rent seeking or outright fraud. A second familiar criticism, developed in great detail by Thomas Piketty, attributes increasing economic inequality to a shift of income away from labor and in favor of capital and, in the extreme, to a rising oligarchy. According to this view, economic and political forces are reconcentrating wealth, redistributing income to become both more capital-intensive and more concentrated at the top, and by these means rebuilding an old-fashioned rentier elite as the economically and politically dominant caste in a twenty-first-century version of patrimonial capitalism.


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, creative destruction, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, lateral thinking, liberal capitalism, Malacca Straits, Mark Zuckerberg, market bubble, mass immigration, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Paul Samuelson, Peter Thiel, pets.com, plutocrats, Plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Future of Employment, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

Rising Japanese billionaires like Hiroshi Mikitani, an e-commerce magnate known for adopting ideas from American corporate culture and criticizing his countrymen for their lack of English proficiency, get a lot of media attention precisely because they are so unusual. It’s not a good sign when dynamism is seen as offbeat. Quality: The Good versus Bad Billionaires Though new faces on the billionaire list can be a favorable sign for the economy, this holds true only if they are good billionaires, emerging outside what economists call “rent-seeking industries.” These industries include construction, real estate, gambling, mining, steel, aluminum and other metals, oil, gas, and other commodity industries that mainly involve digging natural resources out of the ground. The competition in these sectors is often focused on securing access to a greater share of the national wealth in natural resources, not on growing the wealth in fresh, innovative ways.

Since 2010 Dilip Shanghvi, who is the founder of Sun Pharmaceuticals and perhaps the most unassuming and least flashy billionaire I have ever met, has shot from number thirteen on India’s list to number two. These trends may have taken the edge off the anticorporate, antigrowth sentiment that had been building in Delhi over the prior decade. An Indian brokerage firm called Ambit started tracking the fate of crony capitalists through its “connected companies index,” which monitors seventy-five firms that operate in rent-seeking industries and are believed to have benefited significantly from close ties to government officials. The stock prices for these companies have collapsed with the growing backlash against political influence peddling and the public’s intense focus on corrupt deals. Between mid-2010 and mid-2015, India’s stock market rose 50 percent, while the connected companies’ index lost half its value, a sign that crony capitalism was in decline, along with the luster of making money on rising commodity prices.

The return of the good billionaires is hardly universal, however. Few new or good billionaires are to be found in nations where an aging regime has turned away from reform and cultivated a class of politically connected tycoons. Two of these regimes are in Putin’s Russia and Erdoan’s Turkey. The billionaire class in Turkey controls a rising share of the economy, and the share of wealth that comes from rent-seeking industries has spiked. Nine out of every ten Turkish billionaires live in Istanbul, long the commercial center of the country. Even billionaires who hail from the heartland of Anatolia tend to relocate to Istanbul, to be closer to the action. But no city rivals the concentration of wealth and power in Moscow. In Russia, 85 of the country’s 104 billionaires live in Moscow, which remains unrivaled as the world capital of bad billionaires.


pages: 95 words: 6,448

Mending the Net: Toward Universal Basic Incomes by Chris Oestereich

basic income, en.wikipedia.org, future of work, profit motive, rent-seeking, The Future of Employment, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, universal basic income

But while greatly curtailing poverty, I don’t think basic incomes should be expected to eliminate the condition. And plenty of other potential pitfalls may lie waiting in the road ahead. Thinking about what problems might lurk, and designing experiments with those possibilities in mind, should help us arrive at a workable starting point. A few potential obstacles I see are (1) the likelihood of rent seeking, (2) the curtailment of welfare programs, and (3) the financialization of basic incomes. The economy is already rife with rent seeking; the pursuit of economic gain without reciprocation. Imagine what those who already pursue such “opportunities” might try when they learn that everyone will start receiving regularly scheduled checks. What would cartoonishly rapacious capitalists like Turing Pharmaceuticals,[19] the EpiPen’s maker Mylan,[20] and all the garden-variety profiteers who keep their inequitable dealings under the radar do in those circumstances?


pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, business cycle, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low cost airline, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, plutocrats, Plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise

There is a distinction to be made between genuine entrepreneurship, invention and innovative leadership that create wealth, and being clever at capturing wealth that others have made and redistributing it to oneself – what economists call ‘rent’ or a return for inert property possession. Three leading theorists from Harvard and MIT – Kevin Murphy, Robert Vishny and Andrei Shleifer – argue in an important paper that countries in which talent pursues such rent-seeking activity rather than genuine entrepreneurship grow at a slower rate: ‘Pure entrepreneurial activities raise current income because resources are used more efficiently, contribute to growth because technology is improved, and take profits away from competitors.’19 Rent-seeking does the opposite. Moreover, as Schumpeter pointed out, the innovating entrepreneur who had to overcome the resistance of the conservative to change probably expended more energy and effort. No less an insightful commentator than Machiavelli agrees: ‘there is nothing more difficult to execute, nor more dubious of success, nor more dangerous to administer than to introduce a new system of things, for he who introduces it has all those who profit from the old system as his enemies and he has only lukewarm allies in all those who profit from the new system’.

Murphy, Shleifer and Vishny concede that ‘Trading probably raises efficiency since it brings security prices closer to their fundamental values. It might even indirectly contribute to growth if more efficient financial markets reduce the cost of capital. But the main gains from trading come from the transfer of wealth to the smart traders from the less astute who trade with them out of institutional needs or outright stupidity.’ Finance – along with the law and piracy – has always been a route to great wealth, a classic rent-seeking occupation. Today, it is even more so. In their defence, bankers and financiers usually point to ‘financial innovation’ as an attribute that society should desire and value, but their arguments are hamstrung by their own astonishing inability to distinguish between innovation that is economically and socially useful and that which is not. For example, James Kwak argues it was this blindness that lay behind the crisis in so-called ‘sub-prime’ mortgages – financing offered to ‘sub-prime’ borrowers.

The cases for inheritance tax – a tax on good luck – and social insurance – a means to counter bad luck – are both deeply rooted in human motivation. Moreover, fairness suggests that the operation of markets should be limited when they create economic ‘bads’. Fairness undermines the spurious justification for the explosion in executive pay and demands activism to ensure that entrepreneurship maximises genuine wealth-creation rather than rent-seeking. Obstacles to social mobility and self-improvement by the disadvantaged are similarly unfair. However, fairness poses a challenge to the political left in respect to need. The left has largely adopted a Rawlsian position on poverty: put simply, it believes that inequality is not driven by personal capacities, choices and values. Rather, it is the structure of the market economy, which creates class and status, that determines the distribution of both income and the majority of life chances.


pages: 346 words: 90,371

Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane

"Robert Solow", agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land reform, land tenure, land value tax, Landlord’s Game, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Second Machine Age, secular stagnation, shareholder value, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population

As David Ricardo (and later Henry George) identified, the ability to extract economic rent is so powerful it can effectively monopolise much of the growth created in an economy, the vast bulk of which will not have been created by the landowners themselves. In its simplest conception, as the economy grows, landowners can increase the rent they charge non-owners to absorb all the additional value that their tenants (such as workers, shopkeepers and industrialists) generate. Rent-seeking seems intuitively unfair to many, but it is also inefficient. If the worker, the shopkeeper or the industrialist cannot benefit from their own efforts, but must watch it being extracted in the form of rent, why would they exert themselves or innovate? As is often noted by studies of the divergent economic health of different cities, successful urban centres around the world experience soaring land and housing costs, which ultimately threaten the very economic success of those cities, as valuable workers choose to move to less dynamic places where lower wages are more than compensated by much lower housing costs (Hsieh and Moretti, 2015).

The allure of rent extraction encourages those who can to accumulate land, and the monopolistic nature of private ownership of land enables them to preserve and expand their holdings. Historical evidence suggests that markets in private property tend towards concentration, and to absorb a disproportionate share of growth (George, [1879] 1979; Ricardo, 1817). The result is growing wealth inequality, acute poverty for some, and inefficient capital allocation which dampens economic growth (which we explore in Chapter 6). As Joseph Stiglitz has put it, rent-seeking involves directing effort ‘toward getting a larger share of the pie rather than increasing the size of the pie’ (Stiglitz and Bilmes, 2012). 1.4 Summary of chapters The remainder of this book is laid out as follows. Chapter 2 describes the emergence of tradeable, privately owned landed property and the enclosure of previously common or feudal lands into private ownership. This is the key starting point for any understanding of the way in which land interacts with the economy in modern capitalist societies.

Despite the stated policy goal of extending the opportunities of homeownership to more people, when trade-offs between different interest groups have to be made, government policy has invariably entrenched the growing divide between those who own homes and those who do not (see Chapter 5), with the result that homeownership has been in absolute decline in the UK since 2003 (DCLG, 2016). Ultimately, in its policies towards land and property, the state has legitimised what would be described in economic terms as ‘rent-seeking’ behaviour. 2.5 Hypothesis: property is liberty, property is theft It would seem that the transformation of land into private property brings both economic advantages and disadvantages. Thinkers have wrestled with this problem since the birth of political economy (the forerunner to economics) as a subject of study. It is not just that the individual ownership of land can be seen to have both beneficial and damaging consequences for economies and societies.


pages: 322 words: 87,181

Straight Talk on Trade: Ideas for a Sane World Economy by Dani Rodrik

3D printing, airline deregulation, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bernie Sanders, blue-collar work, Bretton Woods, BRICs, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, central bank independence, centre right, collective bargaining, conceptual framework, continuous integration, corporate governance, corporate social responsibility, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Donald Trump, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, financial deregulation, financial innovation, financial intermediation, financial repression, floating exchange rates, full employment, future of work, George Akerlof, global value chain, income inequality, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Jean Tirole, Kenneth Rogoff, low skilled workers, manufacturing employment, market clearing, market fundamentalism, meta analysis, meta-analysis, moral hazard, Nelson Mandela, new economy, offshore financial centre, open borders, open economy, Pareto efficiency, postindustrial economy, price stability, pushing on a string, race to the bottom, randomized controlled trial, regulatory arbitrage, rent control, rent-seeking, Richard Thaler, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sam Peltzman, Silicon Valley, special economic zone, spectrum auction, Steven Pinker, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, total factor productivity, trade liberalization, transaction costs, unorthodox policies, Washington Consensus, World Values Survey, zero-sum game, éminence grise

But it is more accurate to think of mercantilism as a different way to organize the relationship between the state and the economy—a vision that holds no less relevance today than it did in the eighteenth century. Mercantilist theorists such as Thomas Mun were in fact strong proponents of capitalism; they just propounded a different model than liberalism. The liberal model views the state as necessarily predatory and the private sector as inherently rent-seeking. So, it advocates a strict separation between the state and private business. Mercantilism, by contrast, offers a corporatist vision in which the state and private business are allies and cooperate in pursuit of common objectives, such as domestic economic growth or national power. The mercantilist model can be derided as state capitalism or cronyism. But when it works, as it has so often in Asia, the model’s “government-business collaboration” or “pro-business state” quickly garners heavy praise.

Frustrated by the reality that much of our advice went unheeded (so many free-market solutions still waiting to be taken up!) we turned our analytical toolkit on the behavior of politicians and bureaucrats themselves. We began to examine political behavior using the same frameworks that we use for consumer and producer decisions in a market economy. Politicians became income-maximizing suppliers of policy favors; citizens became rent-seeking lobbies and special interests; and political systems became marketplaces in which votes and political influence are traded for economic benefits. Thus was born the field of rational-choice political economy and a style of theorizing that many political scientists readily emulated. The apparent payoff was that we could now explain why politicians did so many things that apparently violated economic rationality.

It may be used to provide aid donors with cover in case of failure, as a signal for new governments that they are the “good guys,” and by domestic lobbies to legitimize their own self-interested agenda.24 Paul DiMaggio and Walter Powell have coined the term “isomorphic mimicry” to denote the pressures that organizations face to become similar, even as they struggle to change.25 My colleague Matt Andrews documents how reform in poor countries through “isomorphic mimicry” results in the semblance of change, with little real progress achieved: a bureaucracy gets reorganized to look like those from advanced countries, but bureaucratic efficiency hardly improves.26 In a paper with Sharun Mukand, we develop a formal model of the incentives for governments to mimic other countries’ policies: implementing policies with a poor fit is costly, but so is experimentation—and an imperfectly informed electorate may be more likely to interpret domestic experimentation as an attempt at rent seeking, while being willing to accept emulation.27 What Do We Gain by Considering the Role of Ideas? I have tried to show that, for all the emphasis placed on them in political economy, vested interests play a considerably less significant role than appears at first sight. Indeed, because of their neglect of ideas, political-economy frameworks often do a poor job of accounting for policy change. There is frequently an after-the-fact feel to this brand of theorizing: if reform happens despite vested interests, it must be because those interests were not sufficiently well entrenched to begin with or reform didn’t hurt them.


pages: 1,014 words: 237,531

Escape From Rome: The Failure of Empire and the Road to Prosperity by Walter Scheidel

agricultural Revolution, barriers to entry, British Empire, colonial rule, conceptual framework, creative destruction, currency manipulation / currency intervention, dark matter, disruptive innovation, Eratosthenes, European colonialism, financial innovation, financial intermediation, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Johann Wolfgang von Goethe, Johannes Kepler, joint-stock company, Joseph Schumpeter, knowledge economy, mandelbrot fractal, means of production, Network effects, out of africa, Peace of Westphalia, peer-to-peer lending, plutocrats, Plutocrats, principal–agent problem, purchasing power parity, rent-seeking, Republic of Letters, secular stagnation, South China Sea, spinning jenny, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, trade route, transaction costs, zero-sum game

The mature Roman empire sustained a standing army deployed in and increasingly replenished from frontier regions and augmented by provincial auxiliaries, whereas the Han empire (the much longer-lived successor to the Qin regime) gradually came to rely on a mixture of convicts, colonists, mercenaries, and “barbarian” contingents. In both cases, territorial expansion slowed and then ceased altogether. At the same time, rent-seeking local elites increasingly constrained central authority and state control (figure 7.1).5 FIGURE 7.1   Empires of the Old World, c. 200 CE. The two empires even failed in a similar fashion. The third century CE witnessed temporary splits into three subimperial states: however, Rome experienced a more robust recovery (from the 270s to the 390s CE) than Jin China (where unity was chiefly limited to a quarter century after 265 CE).

The Confucian-Legalist system was first set up under unified rule. It was revived when state power recovered in the north during the later stages of the Period of Disunion. And it greatly gathered strength under the Song dynasty, which had established the strongest state in China thus far. This belief system did best when the state was strongest and the empire was intact—and thus able to provide sponsorship and material and status benefits to rent-seeking elites. It was at its most stable during the second millennium CE, when China was essentially either united or, at worst, split in two. All this speaks strongly in favor of explaining the success of this particular brand of elite Confucianism’s success with reference to the fortunes of empire, rather than the other way around. This, however, is not the whole story. In a series of fascinating studies, Yuri Pines has argued that the idea of imperial unity preceded actual political unity, and that it persevered also when China was more fragmented.

And as we will see in chapter 12, Parliament’s willingness to side with innovators against incumbents accelerated industrial development.95 All of this, to be sure, was very much a work in progress. The large volume of legislation betrays its incremental and piecemeal character, often enacted to grant special favors to proponents. By current standards, Parliament was corrupt, often favoring legislation that targeted specific constituencies in exchange for inducements. Even so, over the course of the eighteenth century, rent-seeking gave way to considerations of national interest: instead of pleasing the highest bidder, Parliament sought to arbitrate among competing interest groups. Moreover, the sheer volume of acts underlined their relevance and Parliament’s responsiveness to interest groups from across the country. These interactions strengthened the ties between center and regions, promoting integration.96 In Julian Hoppit’s words, parliamentary intervention in the aggregate represented “a commercialization of political power leading to an intensification of market relations within society.”


Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us About Economics and Life by Alan B. Krueger

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Airbnb, autonomous vehicles, bank run, Berlin Wall, bitcoin, Bob Geldof, butterfly effect, buy and hold, creative destruction, crowdsourcing, disintermediation, diversified portfolio, Donald Trump, endogenous growth, George Akerlof, gig economy, income inequality, index fund, invisible hand, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kickstarter, Live Aid, Mark Zuckerberg, Moneyball by Michael Lewis explains big data, moral hazard, Network effects, obamacare, offshore financial centre, Paul Samuelson, personalized medicine, pre–internet, price discrimination, profit maximization, random walk, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, Saturday Night Live, Skype, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, ultimatum game, winner-take-all economy, women in the workforce, Y Combinator, zero-sum game

As the team of economists wrote, “Term extension in existing works provides no additional incentive to create new works and imposes several kinds of additional costs.” The costs are higher prices for books, cartoons, T-shirts, costumes, and other products related to Mickey Mouse or Winnie the Pooh. Not surprisingly, owners of valuable copyrights have lobbied strongly for term extensions around the world, an activity that economists refer to as “rent-seeking.” Rent-seeking is an attempt to extract greater compensation without creating additional value for society. In other words, rent-seekers expend resources to obtain a larger slice of the pie, while doing nothing to increase the size of the pie. There is little evidence that copyright term extensions produce beneficial effects. Even Giorcelli and Moser, the economists who found that enforcing copyright protection increased the quality and output of Italian operas, concluded that increases in the duration of copyright protection did not improve output.

Figure 9.1 shows that music radio stations pay out a much smaller share of their revenues to music rights holders than do satellite music stations or streaming services.30 This creates a profitable business model for radio stations: music radio stations pay out only 4.6 percent of their operating budget for music, although music makes up two-thirds of their on-air content. And radio station owners, who are located in nearly every congressional district, and their trade group, the National Association of Broadcasters, have successfully lobbied to avoid paying performance royalties for decades, in a successful exercise of rent-seeking. Non-interactive streaming services, such as Sirius XM and Pandora, where users cannot select a specific song to play, qualify for a compulsory license with royalty rates set by the Copyright Royalty Board (CRB). But the neutrality principle is further muddied because the two services pay different royalty rates, as they are subject to different legal standards and different CRB rulings.

When President Clinton signed the DMCA, it was meant as a temporary measure, one that would allow the Internet to grow and evolve; the law was to serve as a stopgap until more thoughtful and appropriate regulation could be devised after the Internet had matured and it became more clear what shape platforms were taking. The Clinton administration did not anticipate that Google, which would later acquire YouTube, and other Internet service providers would become so large and powerful that it would be a Herculean task to unwind the temporary protection that DMCA afforded and legislate a more reasonable balance between content creators and Internet platforms. This is another example of the power of rent-seeking. Modernizing Copyright for a Digital World Early in this chapter I warned that music copyright rules can make your head spin. The lines that divide legitimate copyright protection from excessive copyright exploitation are blurred, the laws that dictate copyright fees and licensing requirements across different platforms are uneven, and the restrictions that govern the organizations that collect and distribute music royalties are antiquated.


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99%: Mass Impoverishment and How We Can End It by Mark Thomas

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, additive manufacturing, Albert Einstein, anti-communist, autonomous vehicles, bank run, banks create money, bitcoin, business cycle, call centre, central bank independence, complexity theory, conceptual framework, creative destruction, credit crunch, declining real wages, distributed ledger, Donald Trump, Erik Brynjolfsson, eurozone crisis, fiat currency, Filter Bubble, full employment, future of work, Gini coefficient, gravity well, income inequality, inflation targeting, Internet of things, invisible hand, Jeff Bezos, jimmy wales, job automation, Kickstarter, labour market flexibility, laissez-faire capitalism, light touch regulation, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, Nelson Mandela, North Sea oil, Occupy movement, offshore financial centre, Own Your Own Home, Peter Thiel, Piper Alpha, plutocrats, Plutocrats, profit maximization, quantitative easing, rent-seeking, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, smart cities, Steve Jobs, The Great Moderation, The Wealth of Nations by Adam Smith, wealth creators, working-age population

The process of manipulating public policy or economic conditions as a strategy for increasing profits is sometimes called ‘rent-seeking’ by economists because it enables one to appropriate the benefits of someone else’s work in the same way that a landlord can raise farm rents if farmers become more successful. There are so many different forms of rent-seeking – from exploiting tax loopholes to ensuring favourable privatizations; from creating monopolies to weakening the bargaining power of employees; from externalizing the costs of one’s business to society to capturing control of regulators; and, of course, literal rent on land or property – that it would be difficult to produce a comprehensive list. But if rent-seeking continues unchecked, so will mass impoverishment. Individuals with extreme wealth are able, if they choose, to have an impact on the dominant narrative in society disproportionate to their numbers but perhaps proportionate to their wealth, shaping public perceptions of reality in line with their own wishes and influencing the votes of thousands or even millions of their compatriots.

They would feel compelled to end mass impoverishment. The fourth proposal seems more contentious but even if enacted, it would still mean that ten firms or individuals between them could maintain absolute dominance over the principal media – and, to a large extent, over public discourse. Nevertheless, in many countries this would be a much better situation than currently exists. As Chapter Five pointed out, there are many ways of rent-seeking for those with their hands on the levers of power. Without the kind of democratic reform set out above, even if one government manages to pass effective legislation that reduces or even halts mass impoverishment, it will only be a matter of time until another government comes to power and undoes the good work. For this reason, constitutional reform is more important than any single policy, however carefully designed that policy may be.


pages: 453 words: 111,010

Licence to be Bad by Jonathan Aldred

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, availability heuristic, Ayatollah Khomeini, Benoit Mandelbrot, Berlin Wall, Black Swan, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, clean water, cognitive dissonance, corporate governance, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Snowden, Fall of the Berlin Wall, falling living standards, feminist movement, framing effect, Frederick Winslow Taylor, From Mathematics to the Technologies of Life and Death, full employment, George Akerlof, glass ceiling, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jeff Bezos, John Nash: game theory, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, meta analysis, meta-analysis, Mont Pelerin Society, mutually assured destruction, Myron Scholes, Nash equilibrium, Norbert Wiener, nudge unit, obamacare, offshore financial centre, Pareto efficiency, Paul Samuelson, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, race to the bottom, RAND corporation, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Skype, Social Responsibility of Business Is to Increase Its Profits, spectrum auction, The Nature of the Firm, The Wealth of Nations by Adam Smith, transaction costs, trickle-down economics, Vilfredo Pareto, wealth creators, zero-sum game

Another problem with excessive remuneration packages in finance is that they lure too many talented people into the sector – people who would make a greater economic contribution elsewhere. On top of this waste of human resources, there are the resources wasted solely on getting excessive remuneration – merely redistributing the pie, rather than enlarging it. More rent-seeking, in other words. A rough estimate of the scale of the waste comes from the classic rent-seeking activity, lobbying. In the US in 2011 alone over $3 billion was spent on lobbying.44 Turning to the other end of the income distribution, poverty is not just a tragedy for the poor. It is an appalling waste of productive capacity in the rest of the economy. The poor have little access to affordable long-term credit, so they cannot afford the education and training available to the better off, and they struggle to borrow enough to develop a business idea.

Holmström concluded that ‘bringing the market inside the firm is such a misguided idea, something I failed to understand [earlier] and advocates of market-like incentives in firms seem to miss today’.26 Better late than never, although the more inventive self-enrichment efforts of the top 1 per cent have now moved elsewhere. Most of these efforts involve changing the rules underpinning economic activity in their favour. Economists call it rent-seeking: any action undertaken with the principal purpose of redistributing income, wealth or resources in your favour – in contrast to most economic activity, which in some sense creates wealth or adds value to economy or society. The only objective of rent-seekers is grabbing a bigger slice of the pie; they do nothing to enlarge the pie for everyone. The telltale sign of rent-seekers at work is the appearance of some obscure or little-discussed rule or regulation which has no conceivable justification but turns out to be worth a fortune to the rent-seekers.

air travel, commercial, 63–4 Akerlof, George, 223, 237, 248 altruism, 150–51, 159, 162–4 game theory’s denial of, 31–2, 41, 42–3 misunderstanding of, 13–14, 25, 31–2, 41–3, 112, 178–9 as not depleted through use, 14 seen as disguised selfishness, 11–12, 25, 112, 178–9 Amazon, 155, 178, 208 American Economic Association, 257, 258 Angrist, Joshua, 249 antitrust regulation, 56–8 Apple, 222–3 Aristotle, 14 Arrow, Ken awarded Nobel Prize, 71 and blood donations, 14, 163 at City College, New York, 74–5, 91 collective preference, 73–4, 75–7, 78–82 and democracy, 72–4, 75–7, 78–83, 95, 97 framework presented as scientific, 81–2, 124–5 and free marketeers, 78–9, 82 Impossibility Theorem, 72, 73–4, 75–7, 78–83, 89, 97 and mathematics, 71, 72, 73–5, 76–7, 82–3, 97 and Mont Pèlerin Society, 9 preference satisfaction’, 80–82, 97, 124–5, 129 and Ramsey, 189 at RAND, 70–71, 72–3, 74, 75–6, 77, 78 top-secret-level security clearance, 71–2 ‘A Cautious Case for Socialism’ (1978), 83 ‘On the Optimal Use of Winds for Flight Planning’, 71 Social Choice and Individual Values (1951), 71, 72, 75–7, 78–80, 97 artificial intelligence, 214, 242 Atlas Economic Research Foundation, 7–8 Austen, Jane, 134 austerity policies, recent, 258 Axelrod, Robert, 41 Babbage, Charles, 222 baby-market idea, 61, 138, 145, 146 Bachelier, Louis, 193 Baird, Douglas, 58–9 bandwagon effect, 110 Bank of England, 96, 120, 185, 211–12, 258 bankers excuse/permission to be greedy, 1–2, 204, 238 and Keynesian economics, 5 performance as wholly relative, 204 quantification and recklessness, 213 rigged pay-for-performance contracts, 229–30, 238 role in 2007 crisis, 1–2, 57, 182, 192 as serial offenders over uncertainty, 201 see also financial markets Barro, Josh, 63, 64 Bateson, Gregory, 28 battery-chicken farming, 7 Baumol, William, 90–92, 93, 94 BBC, 48, 98 Beaverbrook, Lord, 157 Becker, Gary amoral understanding of crime, 137, 152 and citizenship rights, 146 and Coase, 69 Freakonomics followers of, 130, 134, 148–9, 156 and Friedman, 126, 131 hidden assumptions of, 130–31, 133–4 human capital idea, 149 and individualism, 134, 135–8 and maximization, 129–31, 133–4, 147 as outsider, 50 and Posner, 56 rejects need for realistic assumptions, 132, 133–4, 148 and sale of body parts, 147–8 sees poor health as just a preference, 135, 136, 140 sees values as mere tastes, 136–8, 140 theories as deeply controversial, 127–9, 130 theories as slippery, 129, 133–4 and ‘universality’ of economics, 125, 126–31, 133–4, 135–8, 147–8 version of ‘rational’ behaviour, 128–9, 135, 140, 151 De Gustibus Non Est Disputandum (with Stigler, 1977), 135–6 The Economic Approach to Human Behavior (1976), 130 The Economics of Discrimination (1957), 126–7 A Treatise on the Family (1981), 127–8, 130–31, 133 behaviourism, 154–8, 237 behavioural economics context and culture, 175–6 framing effects, 170–71, 259 and incentives, 160, 171, 175, 176–7 methods from psychology, 170–71 and Nudge, 171–2 and orthodox economics, 173, 174–5, 247, 255 and physics envy, 175–6 problems with, 173–5, 250–51 ‘self-command’ strategies, 140 theory of irrationality, 12, 171, 250–51 and welfare maximization, 149 Bell, Alexander Graham, 222 bell curve distribution, 191–4, 195, 196, 201, 203–4, 218–19, 257 Bentham, Jeremy, 102 Berlin, Isiah, 166, 167–8 Beveridge Report (1942), 4 Bezos, Jeff, 208 Black, Duncan, 77–8, 95 Blackstone (private equity firm), 235 black swans, 192, 194, 201, 203–4 Blinder, Alan, The Economics of Brushing Teeth (1974), 136 blood donors, 14, 112, 162–3, 164, 169, 176 Borel, Émile, 185* Brennan, William, 56 broadcasting, 48–50, 98 spectrum auctions, 39–40, 47, 49–50 Buchanan, James McGill, 8, 83–5, 87–8, 89, 95, 115 Buffett, Warren, 229, 230, 236 Calcraft, John, 120, 121 Cameron, David, 172 Caplan, Brian, The Myth of the Rational Voter, 245–6 carbon markets, 47, 65–7 Carlson, Jack, 141–2 Carroll, Lewis (Charles Lutwidge Dodgson), 72, 77 cartels and monopolies, 101, 102, 103–4 Cheney, Dick, 232–3 Chicago, University of, 2, 4, 34, 40, 49–51 antitrust ideas, 56–8 Buchanan at, 84 and Coase, 49–52, 53–4, 55, 56–7, 61, 68–9, 132 Friedman’s dominance, 50, 132 law and economics movement, 40, 55, 56–63, 64–7 revolution of 1968 at, 56, 58–9 zero-transaction-costs assumption, 51–2, 68–9 Chicago law school, 55, 56, 58–9 child labour, 124, 146 China, 65 City College, New York, 74–5, 91 climate change average temperature rises, 205–6, 207 and carbon markets, 47, 65–6 ‘cashing in’ on carbon markets, 67 Coasean worldview on pollution, 65–7, 68 denialists, 8 ‘discount rate’ on future costs, 208–9, 212 discrimination against future generations, 208–9 and free-riding theory, 2, 99, 113–17, 120 Intergovernmental Panel on, 207 measurement in numerical terms, 206–11, 213 and precautionary principle, 211–12 premature deaths due to, 207–9 and Prisoner’s Dilemma, 27 Stern Review, 206, 209–10 threat to economic growth, 209 Coase, Ronald argument given status of theorem, 51–2, 67 awarded Nobel Prize, 52 background of, 47–8 and Chicago School, 49–52, 53–4, 56–7, 61, 68–9, 132 and created markets, 47, 65–7 dismissal of ‘blackboard economics’, 48, 54, 64, 67–9 on Duncan Black, 77 evening at Director’s house (early 1960), 49–51, 132 fundamental misunderstanding of work of, 51, 52–3, 67–9 hypothetical world invoked by, 50–51, 52, 54–5, 62, 68 as Illinois resident, 46–7 and Mont Pèlerin Society, 8 and public-sector monopolies, 48–51 and transaction costs, 51–3, 54–5, 61, 62, 63–4, 68 ‘The Nature of the Firm’ (1932 paper), 48 The Problem of Social Cost’ (1960 paper), 47, 48, 50–51, 52, 54–5, 59 cognitive dissonance, 113–14 Cold War, 18–19, 20, 21–2, 24, 27, 181 Cuban Missile Crisis (1962), 33–4, 140 and Ellsberg, 184, 197, 198, 200 and game theory, 18, 20, 21–2, 24, 27, 33–4, 35, 70, 73, 198 and Impossibility Theorem, 75–6 RAND and military strategy, 18, 20, 21–2, 24, 27, 33–4, 70, 73, 75–6, 141, 200, 213 and Russell’s Chicken, 33 and Schelling, 138, 139–40 Washington–Moscow hotline installed, 139–40 collective preference and Ken Arrow, 73–4, 75–7, 78–82 Black’s median voter theorem, 77, 95–6 Sen’s mathematical framework, 80–81 communism, 82, 84, 101, 104, 237 Compass Lexecon, 58, 68 Condorcet Paradox, 76, 77 conspiracy theories, 3, 8, 9 cooperation cartels, monopolies, price-fixing, 101, 102, 103–4 and decision-making processes, 108–10 and free-riding theory, 2, 101, 102, 103–10 office teamwork, 109–10, 112 older perspective on, 100–102, 108, 111, 122 and Scandinavian countries, 103 view of in game theory, 21–2, 23, 25–32, 36–8, 41–3 corporate culture and antitrust regulation, 57–8 changes due to Friedman, 2, 152 Chicago approach to regulation, 40 and climate change, 113, 114, 115 executive pay, 215–16, 219, 224, 228–30, 234, 238 Jensen and Murphy’s article, 229 ‘optimal contracting’/pay-for-performance, 228–30, 238 predatory pricing, 57 and tax evasion/avoidance, 105–6 cost disease, 90–92, 93, 94 Cowles Commission in Chicago, 78 CP/M (Control Program for Microcomputers), 222 criminal responsibility, 111, 137, 152 Cuban Missile Crisis (1962), 33–4, 140 Damasio, Antonio, 14 data geeks, 248–50 ‘dead peasants insurance’, 124 decision-making processes, 108–10, 122, 170–71 ‘anchoring effect’, 212 authority figure–autonomy contradiction, 180 avoidance of pure uncertainty, 198–9 axioms (abstract mathematical assumptions), 198 Ellsberg Paradox, 184, 199–200 Ellsberg’s experiment (1961), 182–4, 187, 197, 198–200, 205 Linda Problem, 202–3 orthodox decision theory, 183–4, 185–6, 189–91, 193–4, 198–200, 201–2, 203–5, 211, 212–14 and the Savage orthodoxy, 190–91, 197, 198–200, 203 scenario planning as crucial, 251 Von Neumann’s theory of decision-making, 189, 190, 203 see also probability; risk and uncertainty democracy and Ken Arrow, 72–4, 75–7, 78–83, 95, 97 Black’s median voter theorem, 77, 95–6 and crises of the 1970s, 85–6 and economic imperialism, 145–7 equal citizenship principle at heart of, 145–6, 151 free-riding view of voting, 99, 110, 112, 115–16, 120–21 marketing by political parties, 95–6 modern cynicism about politics, 94–7 paradox of voter turnout, 88–9, 95–6, 115–16 paradox of voting, 75–7 politicians’ support for depoliticization, 96–7 post-war scepticism about, 78–9 and public choice theory, 85–6, 95–7 replacing of with markets, 79 Sen’s mathematical framework, 80–81 voter turnout, 88–9, 95–6, 115–16, 120–21 see also voting systems Dennison, Stanley, 13 dentistry, 258–9, 261 Depression (1930s), 3 digital technology, 68, 214, 222–3 data revolution, 247–50 and rising inequality, 215, 220, 242 Director, Aaron, 4–5, 49–51, 132 Disney World, 123 Dodd–Frank Act, 256 Dodgson, Charles Lutwidge (Lewis Carroll), 72, 77 dot.com bubble, 192, 201 Douglas Aircraft Corporation, 18 Downs, Anthony, An Economic Theory of Democracy (1957), 86, 89, 95 Dr Strangelove (Kubrick film, 1964), 19, 35, 139 DreamTours Florida, 123 Drucker, Peter, 153 Dulles, John Foster, 20 Dundee School of Economics, 48, 77–8 Dürrenmatt, Friedrich, The Visit of the Old Lady, 166 earthquakes, 194–5 Econometrica (journal), 77–8 economic imperialism arrogance of, 246–7 auctioning of university places, 124, 149–50 continuing damage wrought by, 151–2 and democracy, 145–7 emerges into the limelight, 130 Freakonomics, followers of, 130, 134, 148–9, 156 and inequality, 145–7, 148, 151, 207 markets in citizenship duties, 146 origins of term, 125 price as measure of value, 149, 150, 151 purchase of immigration rights, 125, 146 and sale of body parts, 123, 124, 145, 147–8 sidelining of moral questions, 125–9, 135–8, 141–5, 146–7, 148–9, 151–2, 207 value of human life (‘statistical lives’), 141–5, 207 welfare maximization, 124–5, 129–31, 133–4, 146–7, 148–9 see also Becker, Gary economic theory Arrow establishes benchmark for, 71 Baumol’s cost disease, 90–92, 93, 94 Coase Theorem, 45–7, 48–55, 56–7, 61, 63–6 and data revolution, 247–50 exclusion of by data geeks, 248–50 and financial markets, 9, 12–13, 182, 253 as focus of economics courses, 260 Kahneman and Tversky’s theory of irrationality, 12, 171, 250–51 of labour, 237 marginal productivity theory, 223–4, 228 Pareto efficiency, 217–18, 256* perfect competition, 103, 193–4 profit-maximizing firms, 228–9 rent-seeking, 230, 238 theory of motivation, 157–8, 164, 166–7, 168–70, 178–9 see also game theory; homo economicus; public choice theory; social choice theory economics accidental economists, 47–8 and Arrow’s framework, 78–9, 82 causes of growth, 223, 239 created markets, 47, 65–7 crises of the 1970s, 85–6 digital technology, 68, 214 efficiency as fundamental, 63, 64–5, 141, 153, 155, 193–4, 201, 211, 217–18, 255 empirical research as still rare, 247–8 extension into non-economic aspects of life, 40, 54–60, 65, 123–31, 132–4, 135–6, 145–50 gulf between reality and theory, 10–13, 31–2, 41–3, 51–3, 64–9, 86–9, 133, 136, 144–5, 228–30, 250–53, 260–61 history of, 260 lack of objective ‘facts’, 253 modern debate on, 9 and Olson’s analysis, 104 our love–hate relationship with, 3, 245 as partially self-fulfilling, 12–13, 14, 159, 253 percentage of GDP impact of climate change, 206–11, 213 positional goods, 239–41 Posner’s wealth-maximization principle, 57–63, 64–7, 137 predatory pricing, 57 principles for new relationship with, 251–61 privatization, 50, 54, 88, 93–4 rise of game theory, 40–41 Smith’s enlightened self-interest, 11 value of human life (‘statistical lives’), 141–5, 207 vocational role of, 260 see also behavioural economics; free-market economics economics, aims/pretensions to be science arrogance of, 205, 245–7, 258 Arrow’s framework presented as scientific, 72, 81–2, 124–5 attitude to value judgements, 10, 60–61, 64–9, 112, 136–8, 173–4, 204–5, 218, 247 claims of game theory, 21, 24–6, 28–9, 32, 34, 35, 38, 41 and data revolution, 247–50 desire for neutral science akin to physics, 9–10, 20–21, 34–5, 41, 116, 125, 132–3, 151, 175–6, 187–90, 212, 217–18, 246–56 desire for science of social control, 153, 154, 155, 164, 167 Friedman’s ‘The Methodology of Positive Economics’, 132–3 hidden political/ethical agendas, 10, 213, 253, 255–8 measurement of risk in numerical terms, 181–4, 187, 189, 190–94, 196–7, 201–2, 203–5, 212–13 natural experiments, 248–50 Pareto improvements, 217–18 and physics envy, 9, 20–21, 41, 116, 175–6, 212, 247 and public choice theorists, 88 quantification of all risks and values, 201–2, 203, 212–13 real world as problem for, 10–13, 31–2, 42–3, 51–3, 64–9, 86–9, 133, 136, 144–5, 228–30, 250–53, 260–61 ‘some number is better than no number’ mantra, 212–13 uncertainty as obstacle to, 190–91, 212–13 and use of mathematics, 9–10, 26, 72, 247, 248, 255, 259 use of term ‘rational’, 12 Von Neumann and Morgenstern’s grand project, 20–21, 24–5, 26, 35, 125, 151, 189 and wealth-maximization approach, 58, 60 economists advice to former Soviet Bloc nations, 257 conflicts of interest, 256–7, 258 data geeks, 248–50 economics curriculum reform needed, 259–60 errors and misjudgements, 13–14, 16, 132–3, 144–5, 256*, 257–8, 260–61 failure to explain ideas, 254–5 insularity of, 246–7 Keynes’ dentistry comparison, 258–9, 261 lack of ethics codes, 257–8 misunderstanding of altruism, 13–14, 25, 31–2, 41–3, 112, 178–9 need to show more humility, 258–9, 260–61 as not separate from economy, 251–3 and ordinary people, 245–6, 254–5, 258, 261 self-image as unsentimental and honest, 10 sneering descriptions of virtuous behaviour, 112 stating of the obvious by, 134, 259 education auctioning of university places, 124, 149–50 Baumol’s cost disease, 91, 92, 93, 94 incentivization as pervasive, 156, 169 value of, 150, 169, 170 ‘efficient market hypothesis’, 193–4, 201, 255 Einstein, Albert, 17, 22, 33, 213 Eisenhower, Dwight D., 19, 20, 231 Ellsberg, Daniel, 182–4, 187, 197–8 Ellsberg Paradox, 184, 199–200 and the ‘Pentagon Papers’, 200 probability experiment (1961), 182–4, 187, 197, 198–200 ‘Risk, Ambiguity and the Savage Axioms’ (paper, 1961), 198–9, 200 Engelbart, Douglas, 222–3 Engels, Friedrich, 223 English, Bill, 222–3 Enlightenment thinking, 11, 185 Epstein, Richard, 127 ethics and morality and autonomy, 164, 165–6, 168, 169–70, 180 bad behaviour redefined as rational, 12 and blame for accidents, 55, 60–61 and Coase Theorem, 46–7, 54–5, 56–7, 61, 63–6 Coasean worldview on pollution, 66–7, 68 as conditioned and limited by economics, 3, 10, 15, 43, 55, 60–61, 64–5, 179, 204–5, 218, 247 cooperative behaviour in game theory, 29, 30–32 core principles of current economic orthodoxy, 253 distinction between values and tastes, 136–8 economists’ language on virtuous behaviour, 112 inequality as moral issue, 242–3 influence of recent economic ideas, 1–3, 15–16 Keynes on economics as moral science, 252–3 law and economics movement, 40, 55, 56–63, 64–7 moral disengagement, 162, 163, 164, 166 morally wrong/corrupting incentives, 168–9 and Nash program, 25 Nudge economists, 173–4, 251 Posner’s wealth-maximization principle, 57–63, 64–7, 137 Puzzle of the Harmless Torturers, 118–19 Ramsey Rule on discounting, 208–9, 212 sale of body parts, 123, 124, 145, 147–8 sidelined by economic imperialism, 125–9, 135–8, 141–5, 146–7, 148–9, 151–2, 207 small contributions as important, 110, 114–15, 122 Smith’s enlightened self-interest, 11 value of human life (‘statistical lives’), 141–5, 207 see also altruism; free-riding behaviour European Commission, 96 Facebook UK, 99 fairness, 1, 149, 218, 228, 253 and Coase, 54, 55 and free-riding behaviour, 107 and game theory, 43 and incentives, 177, 179 and lucky geniuses, 221–3 and Posner’s wealth-maximization principle, 60, 61, 62 see also inequality family life, 127–8, 130–31, 133, 156 famine relief, 99, 114–15 Farmer, Roger, 259 Federal Communications Commission (FCC), 48–9 Ferdinand, Archduke Franz, 185 financial crisis, global (2007–10) Becker on, 128–9 and bell curve thinking, 192, 193–4, 196, 257 ‘blame the regulators’ argument, 1–2 and financial economists, 9, 88, 260–61 persuasive power of extreme numbers, 181–2 and Posner’s wealth-maximization principle, 57 underlying maths of, 194, 195–6 financial markets Bachelier’s theory of speculation, 193 bell curve thinking, 192, 193–4, 195, 196–7, 201, 203–4, 257 benchmarking against the market, 204 Black Monday (1987), 192 deregulation of US banks, 194 derivatives, 253 dot.com bubble, 192, 201 East Asian crisis (1997), 192 and economic theory, 9, 12–13, 182, 253 economists’ ignorance of, 260–61 and First World War, 185 and fractals (scale-invariance), 194, 195–6, 201 orthodox decision theory, 190–91, 193–4, 201 persuasive power of extreme numbers, 181–2, 191, 192 and rent-seekers, 230, 238 rigged pay-for-performance contracts, 229–30, 238 First World War, 185, 210, 211–12 Fisher, Antony, 6–8 Forster, E.


pages: 297 words: 84,009

Big Business: A Love Letter to an American Anti-Hero by Tyler Cowen

23andMe, Affordable Care Act / Obamacare, augmented reality, barriers to entry, Bernie Sanders, bitcoin, blockchain, Bretton Woods, cloud computing, cognitive dissonance, corporate governance, corporate social responsibility, correlation coefficient, creative destruction, crony capitalism, cryptocurrency, dark matter, David Brooks, David Graeber, don't be evil, Donald Trump, Elon Musk, employer provided health coverage, experimental economics, Filter Bubble, financial innovation, financial intermediation, global reserve currency, global supply chain, Google Glasses, income inequality, Internet of things, invisible hand, Jeff Bezos, late fees, Mark Zuckerberg, mobile money, money market fund, mortgage debt, Network effects, new economy, Nicholas Carr, obamacare, offshore financial centre, passive investing, payday loans, peer-to-peer lending, Peter Thiel, pre–internet, price discrimination, profit maximization, profit motive, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, Ronald Coase, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Nature of the Firm, Tim Cook: Apple, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, ultimatum game, WikiLeaks, women in the workforce, World Values Survey, Y Combinator

Is that high compensation the result of normal supply and demand—that is, there aren’t actually many people capable of leading large companies? Or are many of America’s top CEOs somehow ripping off their own companies? What we’ll see is actually a pretty positive picture about America’s corporate leaders. In particular, CEO pay mostly—not entirely—reflects the productive contributions of talented individuals to very important companies, rather than corruption, rent-seeking, and personal enrichment. The best model for understanding the growth of CEO pay is that of limited CEO talent in a world where business opportunities for the top firms are growing rapidly. The scarcity of top-rate candidates sometimes causes corporate boards to make or stick with hiring mistakes, but overall the process has worked pretty well in allocating talent to important jobs and keeping that talent motivated.

Until 1990, workers in finance earned about the same as workers outside of finance, adjusted for their educational backgrounds. By 2006, however, that premium rose to about 50 percent, and for top management it was about 250 percent. About half of that can be attributed to risk bearing, and another fifth follows from the greater size of financial firms. The rest is a mix of special talents for which educational degrees do not serve as a good proxy (ambition and drive?) and unproductive rent-seeking—in what proportions, we do not know.23 One likely possibility is that the highest-earning firms enjoy some economies of scale, due to the network effects of bringing together so many smart people. Those firms earn much more, and in turn they share some of those earnings by paying their employees more, most of all top management. Technologies that favor superfirms are also, to some extent, going to favor big finance.

For instance, if the top hedge fund manager earned $1 billion in a year, you might think that other individuals not in that field would spend about $1 billion in resources scrambling to get to this spot too, maybe by quitting their engineering studies and doing finance instead. That could become a wasteful drain of resources from the rest of the economy, as too much talent would pursue monopoly profits rather than useful production for consumers. But such clusters of financial talent are difficult to build, just as few local banks try to take on Goldman Sachs and few global cities try to rival New York and London as financial centers. And so the rent-seeking costs and the talent drain costs of the financial sector are much less than the size of the large rewards at the top might indicate. Furthermore, the best direct evidence we have suggests that, as things stand right now, finance is not draining away America’s best talent from science and engineering. Pian Shu, from the Harvard Business School, developed a systematic database of individuals graduating from MIT from 1994 to 2012.


pages: 272 words: 83,798

A Little History of Economics by Niall Kishtainy

"Robert Solow", Alvin Roth, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, central bank independence, clean water, Corn Laws, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, market clearing, market design, means of production, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

By giving privileges to special groups of people, politicians hope to gain political support, perhaps even money. The prospect of earning extra profits for doing very little encourages ‘rent-seeking’. Businesses spend money trying to persuade the government to give them privileges. They might take government officials out for expensive lunches to try to get them to do what they want. They might set up an organisation to help their case, the American Association of Umbrella Manufacturers, perhaps. Organisations like this are often defended on the grounds that in a healthy democracy they help to air the views of varied groups of people. In public choice theory, they’re rent-seekers whose activities use up resources that could have been employed more usefully in a different way. Rent-seeking hurts consumers because if the markets for cars and umbrellas are protected from foreign competition then people have fewer cars and umbrellas to choose from.

(i), (ii) Kerala (India) (i) Keynes, John Maynard (i), (ii), (iii), (iv), (v), (vi) Keynesian theory (i), (ii), (iii) Klemperer, Paul (i) Krugman, Paul (i), (ii) Kydland, Finn (i), (ii) labour (i) in ancient Greece (i) and market clearing (i) women as unpaid (i) labour theory of value (i), (ii) laissez-faire (i) landowners (i), (ii), (iii) Lange, Oskar (i) law of demand (i), (ii) leakage of spending (i) Lehman Brothers (i) leisure class (i) leisured, women as (i) Lenin, Vladimir Ilyich (i), (ii) Lerner, Abba (i) Lewis, Arthur (i) Lincoln, Abraham (i) List, Friedrich (i) loss aversion (i) Lucas, Robert (i), (ii) MacKay, Charles (i) Macmillan, Harold (i) macro/microeconomics (i) Malaysia, and speculators (i) Malthus, Thomas (i), (ii), (iii) Malynes, Gerard de (i), (ii) manufacturing (i), (ii) division of labour (i) see also Industrial Revolution margin (i) marginal costs (i), (ii) marginal principle (i), (ii), (iii) marginal revenue (i) marginal utility (i), (ii) market, the (i) market clearing (i) market design (i) market failure (i), (ii), (iii), (iv) ‘Market for Lemons, The’ (Akerlof) (i) market power (i) markets, currency (i), (ii) Marshall, Alfred (i), (ii), (iii), (iv), (v) Marx, Karl (i), (ii), (iii), (iv), (v), (vi), (vii) Marxism (i) mathematics (i), (ii), (iii) means of production (i) mercantilism (i), (ii) Mesopotamia (i) Mexico, pegged currency (i) micro/macroeconomics (i) Microsoft (i) Midas fallacy (i) minimum wage (i) Minsky, Hyman (i) Minsky moment (i), (ii) Mirabeau, Marquis de (i), (ii), (iii) Mises, Ludwig von (i), (ii), (iii), (iv) mixed economies (i), (ii) Mobutu Sese Seko (i) model villages (i) models (economic) (i), (ii), (iii), (iv) modern and traditional economies (i), (ii) monetarism (i) monetary policy (i), (ii) money (i), (ii), (iii), (iv), (v), (vi) see also coins; currency money illusion (i) money wages (i) moneylending see usury monopolies (i), (ii) monopolistic competition (i), (ii) monopoly, theory of (i) monopoly capitalism (i), (ii), (iii) monopsony (i) moral hazard (i), (ii) multiplier (i) Mun, Thomas (i), (ii), (iii) Muth, John (i) Nash, John (i), (ii) Nash equilibrium (i) national income (i), (ii), (iii), (iv), (v) National System of Political Economy (List) (i) Nelson, Julie (i) neoclassical economics (i) net product (i) Neumann, John von (i) New Christianity, The (Saint-Simon) (i) new classical economics (i) New Harmony (Indiana) (i) New Lanark (Scotland) (i) Nkrumah, Kwame (i), (ii) non-rival good (i) Nordhaus, William (i), (ii) normative economics (i), (ii) Obstfeld, Maurice (i) Occupy movement (i) oligopolies (i) opportunity cost (i), (ii) organ transplant (i) output per person (i) Owen, Robert (i) paper money (i), (ii) Pareto, Vilfredo (i) pareto efficiency (i), (ii) pareto improvement (i) Park Chung-hee (i) partial equilibrium (i) pegged exchange rate (i) perfect competition (i), (ii), (iii), (iv), (v) perfect information (i) periphery (i) phalansteries (i) Phillips, Bill (i) Phillips curve (i), (ii), (iii), (iv), (v), (vi), (vii) physiocracy (i), (ii) Pigou, Arthur Cecil (i), (ii), (iii) Piketty, Thomas (i), (ii), (iii) Plato (i), (ii), (iii) policy discretion (i) Ponzi, Charles (i) Ponzi finance (i) population and food supply (i), (ii), (iii) of women (i) positive economics (i) poverty (i), (ii), (iii), (iv), (v) in Cuba (i) Sen on (i) and utopian thinkers (i) Prebisch, Raúl (i) predicting (i) Prescott, Edward (i), (ii) price wars (i), (ii) primary products (i) prisoners’ dilemma (i) private costs and benefits (i) privatisation (i) productivity (i), (ii), (iii) profit (i), (ii), (iii), (iv) and capitalism (i), (ii) proletariat (i), (ii) property (private) (i), (ii), (iii), (iv), (v) and communism (i), (ii), (iii), (iv) protection (i), (ii), (iii) provisioning (i) public choice theory (i) public goods (i) quantity theory of money (i) Quesnay, François (i) Quincey, Thomas de (i), (ii) racism (i) Rand, Ayn (i) RAND Corporation (i), (ii) rate of return (i), (ii) rational economic man (i), (ii), (iii), (iv), (v) rational expectations (i), (ii), (iii), (iv), (v) real wages (i), (ii), (iii) recession (i) and governments (i), (ii), (iii) Great Recession (i) Keynes on (i), (ii) Mexican (i) redistribution of wealth (i) reference points (i) relative poverty (i) rent on land (i), (ii), (iii) rents/rent-seeking (i) resources (i), (ii) revolution (i), (ii), (iii), (iv) Cuban (i) French (i), (ii), (iii), (iv) Russian (i), (ii) Ricardo, David (i), (ii), (iii) risk aversion (i) Road to Serfdom, The (Hayek) (i) robber barons (i) Robbins, Lionel (i) Robinson, Joan (i) Roman Empire (i) Romer, Paul (i) Rosenstein-Rodan, Paul (i) Roth, Alvin (i), (ii) rule by nature (i) rules of the game (i) Sachs, Jeffrey (i) Saint-Simon, Henri de (i) Samuelson, Paul (i), (ii) savings (i), (ii) and Say’s Law (i) Say’s Law (i) scarcity (i), (ii), (iii), (iv), (v), (vi) Schumpeter, Joseph (i), (ii) sealed bid auction (i) second price auction (i) Second World War (i) securitisation (i) self-fulfilling crises (i) self-interest (i) Sen, Amartya (i), (ii) missing women (i), (ii), (iii) services (i) shading bids (i), (ii) shares (i), (ii), (iii), (iv), (v), (vi) see also stock market Shiller, Robert (i), (ii) signalling (i) in auctions (i) Smith, Adam (i), (ii), (iii), (iv), (v) social costs and benefits (i) Social Insurance and Allied Services (Beveridge) (i) social security (i), (ii) socialism (i), (ii), (iii), (iv), (v) socialist commonwealth (i) Socrates (i) Solow, Robert (i) Soros, George (i), (ii), (iii) South Africa, war with Britain (i) South Korea, and the big push (i) Soviet Union and America (i) and communism (i), (ii) speculation (i) speculative lending (i) Spence, Michael (i) spending government (fiscal policy) (i), (ii), (iii), (iv), (v), (vi), (vii) and recessions (i), (ii) and Say’s Law (i) see also investment stagflation (i), (ii) Stalin, Joseph (i) standard economics (i), (ii), (iii), (iv) Standard Oil (i) Stiglitz, Joseph (i) stock (i) stock market (i), (ii), (iii), (iv), (v) stockbrokers (i) Strassmann, Diana (i), (ii) strategic interaction (i), (ii) strikes (i) subprime loans (i) subsidies (i), (ii) subsistence (i) sumptuary laws (i) supply curve (i) supply and demand (i), (ii), (iii), (iv) and currencies (i) and equilibrium (i), (ii) in recession (i), (ii), (iii) supply-side economics (i) surplus value (i), (ii) Swan, Trevor (i) tariff (i) taxes/taxation (i) and budget deficit (i) carbon (i) and carbon emissions (i) and France (i) and public goods (i) redistribution of wealth (i) and rent-seeking (i) technology as endogenous/exogenous (i) and growth (i) and living standards (i) terms of trade (i) Thailand (i) Thaler, Richard (i) theory (i) Theory of the Leisure Class, The (Veblen) (i) Theory of Monopolistic Competition (Chamberlain) (i) Thompson, William Hale ‘Big Bill’ (i) threat (i) time inconsistency (i), (ii) time intensity (i) Tocqueville, Alexis de (i) totalitarianism (i) trade (i), (ii), (iii) and dependency theory (i) free (i), (ii), (iii) trading permit, carbon (i) traditional and modern economies (i), (ii) transplant, organ (i) Treatise of the Canker of England’s Common Wealth, A (Malynes) (i) Tversky, Amos (i), (ii) underdeveloped countries (i) unemployment in Britain (i) and the government (i) and the Great Depression (i) and information economics (i) and Keynes (i) and market clearing (i) and recession (i) unions (i), (ii) United States of America and free trade (i) and growth of government (i) industrialisation (i) and Latin America (i) Microsoft (i) recession (i), (ii) and the Soviet Union (i) and Standard Oil (i) stock market (i) wealth in (i) women in the labour force (i) unpaid labour, and women (i) usury (i), (ii), (iii) utility (i), (ii), (iii), (iv) utopian thinkers (i), (ii) Vanderbilt, Cornelius (i), (ii) Veblen, Thorstein (i), (ii), (iii) velocity of circulation (i), (ii) Vickrey, William (i) wage, minimum (i) Walras, Léon (i) Waring, Marilyn (i) wealth (i) and Aristotle (i), (ii) and Christianity (i) Piketty on (i) and Plato (i) Smith on (i) Wealth of Nations, The (Smith) (i), (ii) welfare benefits (i), (ii), (iii), (iv) welfare economics (i) Who Pays for the Kids?

(i), (ii) Kerala (India) (i) Keynes, John Maynard (i), (ii), (iii), (iv), (v), (vi) Keynesian theory (i), (ii), (iii) Klemperer, Paul (i) Krugman, Paul (i), (ii) Kydland, Finn (i), (ii) labour (i) in ancient Greece (i) and market clearing (i) women as unpaid (i) labour theory of value (i), (ii) laissez-faire (i) landowners (i), (ii), (iii) Lange, Oskar (i) law of demand (i), (ii) leakage of spending (i) Lehman Brothers (i) leisure class (i) leisured, women as (i) Lenin, Vladimir Ilyich (i), (ii) Lerner, Abba (i) Lewis, Arthur (i) Lincoln, Abraham (i) List, Friedrich (i) loss aversion (i) Lucas, Robert (i), (ii) MacKay, Charles (i) Macmillan, Harold (i) macro/microeconomics (i) Malaysia, and speculators (i) Malthus, Thomas (i), (ii), (iii) Malynes, Gerard de (i), (ii) manufacturing (i), (ii) division of labour (i) see also Industrial Revolution margin (i) marginal costs (i), (ii) marginal principle (i), (ii), (iii) marginal revenue (i) marginal utility (i), (ii) market, the (i) market clearing (i) market design (i) market failure (i), (ii), (iii), (iv) ‘Market for Lemons, The’ (Akerlof) (i) market power (i) markets, currency (i), (ii) Marshall, Alfred (i), (ii), (iii), (iv), (v) Marx, Karl (i), (ii), (iii), (iv), (v), (vi), (vii) Marxism (i) mathematics (i), (ii), (iii) means of production (i) mercantilism (i), (ii) Mesopotamia (i) Mexico, pegged currency (i) micro/macroeconomics (i) Microsoft (i) Midas fallacy (i) minimum wage (i) Minsky, Hyman (i) Minsky moment (i), (ii) Mirabeau, Marquis de (i), (ii), (iii) Mises, Ludwig von (i), (ii), (iii), (iv) mixed economies (i), (ii) Mobutu Sese Seko (i) model villages (i) models (economic) (i), (ii), (iii), (iv) modern and traditional economies (i), (ii) monetarism (i) monetary policy (i), (ii) money (i), (ii), (iii), (iv), (v), (vi) see also coins; currency money illusion (i) money wages (i) moneylending see usury monopolies (i), (ii) monopolistic competition (i), (ii) monopoly, theory of (i) monopoly capitalism (i), (ii), (iii) monopsony (i) moral hazard (i), (ii) multiplier (i) Mun, Thomas (i), (ii), (iii) Muth, John (i) Nash, John (i), (ii) Nash equilibrium (i) national income (i), (ii), (iii), (iv), (v) National System of Political Economy (List) (i) Nelson, Julie (i) neoclassical economics (i) net product (i) Neumann, John von (i) New Christianity, The (Saint-Simon) (i) new classical economics (i) New Harmony (Indiana) (i) New Lanark (Scotland) (i) Nkrumah, Kwame (i), (ii) non-rival good (i) Nordhaus, William (i), (ii) normative economics (i), (ii) Obstfeld, Maurice (i) Occupy movement (i) oligopolies (i) opportunity cost (i), (ii) organ transplant (i) output per person (i) Owen, Robert (i) paper money (i), (ii) Pareto, Vilfredo (i) pareto efficiency (i), (ii) pareto improvement (i) Park Chung-hee (i) partial equilibrium (i) pegged exchange rate (i) perfect competition (i), (ii), (iii), (iv), (v) perfect information (i) periphery (i) phalansteries (i) Phillips, Bill (i) Phillips curve (i), (ii), (iii), (iv), (v), (vi), (vii) physiocracy (i), (ii) Pigou, Arthur Cecil (i), (ii), (iii) Piketty, Thomas (i), (ii), (iii) Plato (i), (ii), (iii) policy discretion (i) Ponzi, Charles (i) Ponzi finance (i) population and food supply (i), (ii), (iii) of women (i) positive economics (i) poverty (i), (ii), (iii), (iv), (v) in Cuba (i) Sen on (i) and utopian thinkers (i) Prebisch, Raúl (i) predicting (i) Prescott, Edward (i), (ii) price wars (i), (ii) primary products (i) prisoners’ dilemma (i) private costs and benefits (i) privatisation (i) productivity (i), (ii), (iii) profit (i), (ii), (iii), (iv) and capitalism (i), (ii) proletariat (i), (ii) property (private) (i), (ii), (iii), (iv), (v) and communism (i), (ii), (iii), (iv) protection (i), (ii), (iii) provisioning (i) public choice theory (i) public goods (i) quantity theory of money (i) Quesnay, François (i) Quincey, Thomas de (i), (ii) racism (i) Rand, Ayn (i) RAND Corporation (i), (ii) rate of return (i), (ii) rational economic man (i), (ii), (iii), (iv), (v) rational expectations (i), (ii), (iii), (iv), (v) real wages (i), (ii), (iii) recession (i) and governments (i), (ii), (iii) Great Recession (i) Keynes on (i), (ii) Mexican (i) redistribution of wealth (i) reference points (i) relative poverty (i) rent on land (i), (ii), (iii) rents/rent-seeking (i) resources (i), (ii) revolution (i), (ii), (iii), (iv) Cuban (i) French (i), (ii), (iii), (iv) Russian (i), (ii) Ricardo, David (i), (ii), (iii) risk aversion (i) Road to Serfdom, The (Hayek) (i) robber barons (i) Robbins, Lionel (i) Robinson, Joan (i) Roman Empire (i) Romer, Paul (i) Rosenstein-Rodan, Paul (i) Roth, Alvin (i), (ii) rule by nature (i) rules of the game (i) Sachs, Jeffrey (i) Saint-Simon, Henri de (i) Samuelson, Paul (i), (ii) savings (i), (ii) and Say’s Law (i) Say’s Law (i) scarcity (i), (ii), (iii), (iv), (v), (vi) Schumpeter, Joseph (i), (ii) sealed bid auction (i) second price auction (i) Second World War (i) securitisation (i) self-fulfilling crises (i) self-interest (i) Sen, Amartya (i), (ii) missing women (i), (ii), (iii) services (i) shading bids (i), (ii) shares (i), (ii), (iii), (iv), (v), (vi) see also stock market Shiller, Robert (i), (ii) signalling (i) in auctions (i) Smith, Adam (i), (ii), (iii), (iv), (v) social costs and benefits (i) Social Insurance and Allied Services (Beveridge) (i) social security (i), (ii) socialism (i), (ii), (iii), (iv), (v) socialist commonwealth (i) Socrates (i) Solow, Robert (i) Soros, George (i), (ii), (iii) South Africa, war with Britain (i) South Korea, and the big push (i) Soviet Union and America (i) and communism (i), (ii) speculation (i) speculative lending (i) Spence, Michael (i) spending government (fiscal policy) (i), (ii), (iii), (iv), (v), (vi), (vii) and recessions (i), (ii) and Say’s Law (i) see also investment stagflation (i), (ii) Stalin, Joseph (i) standard economics (i), (ii), (iii), (iv) Standard Oil (i) Stiglitz, Joseph (i) stock (i) stock market (i), (ii), (iii), (iv), (v) stockbrokers (i) Strassmann, Diana (i), (ii) strategic interaction (i), (ii) strikes (i) subprime loans (i) subsidies (i), (ii) subsistence (i) sumptuary laws (i) supply curve (i) supply and demand (i), (ii), (iii), (iv) and currencies (i) and equilibrium (i), (ii) in recession (i), (ii), (iii) supply-side economics (i) surplus value (i), (ii) Swan, Trevor (i) tariff (i) taxes/taxation (i) and budget deficit (i) carbon (i) and carbon emissions (i) and France (i) and public goods (i) redistribution of wealth (i) and rent-seeking (i) technology as endogenous/exogenous (i) and growth (i) and living standards (i) terms of trade (i) Thailand (i) Thaler, Richard (i) theory (i) Theory of the Leisure Class, The (Veblen) (i) Theory of Monopolistic Competition (Chamberlain) (i) Thompson, William Hale ‘Big Bill’ (i) threat (i) time inconsistency (i), (ii) time intensity (i) Tocqueville, Alexis de (i) totalitarianism (i) trade (i), (ii), (iii) and dependency theory (i) free (i), (ii), (iii) trading permit, carbon (i) traditional and modern economies (i), (ii) transplant, organ (i) Treatise of the Canker of England’s Common Wealth, A (Malynes) (i) Tversky, Amos (i), (ii) underdeveloped countries (i) unemployment in Britain (i) and the government (i) and the Great Depression (i) and information economics (i) and Keynes (i) and market clearing (i) and recession (i) unions (i), (ii) United States of America and free trade (i) and growth of government (i) industrialisation (i) and Latin America (i) Microsoft (i) recession (i), (ii) and the Soviet Union (i) and Standard Oil (i) stock market (i) wealth in (i) women in the labour force (i) unpaid labour, and women (i) usury (i), (ii), (iii) utility (i), (ii), (iii), (iv) utopian thinkers (i), (ii) Vanderbilt, Cornelius (i), (ii) Veblen, Thorstein (i), (ii), (iii) velocity of circulation (i), (ii) Vickrey, William (i) wage, minimum (i) Walras, Léon (i) Waring, Marilyn (i) wealth (i) and Aristotle (i), (ii) and Christianity (i) Piketty on (i) and Plato (i) Smith on (i) Wealth of Nations, The (Smith) (i), (ii) welfare benefits (i), (ii), (iii), (iv) welfare economics (i) Who Pays for the Kids?


pages: 261 words: 86,905

How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, commoditize, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, negative equity, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, plutocrats, Plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Right to Buy, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Jobs, survivorship bias, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, wealth creators, working poor, yield curve

This is true for big companies engaged in takeovers and mergers and share offerings and other large-scale financial engineering, which have to deal with the big investment banks; it’s also true for the rest of us, who have nowhere else to go except the banks when it comes to taking our deposits, lending us money for mortgages, and so on. In the opinion of some observers, one of the reasons why the current growing gap between the rich and the poor is especially dangerous is that it is being accompanied by a growth in “rent seeking” behavior. A typical feature of such behavior is the attempt to take a bigger piece of the existing pie, rather than to make the pie bigger. A useful definition of rent seeking was given by Matthew Taylor of the RSA: “using market position to make money without adding value.” When the rich lobby for tax breaks at a time of no economic growth, they are indulging in rent seeking. All corruption is a form of rent seeking. repo A repurchase agreement, in which A sells B something, while simultaneously promising to buy it back at a specified future date. It’s a bit like selling something to a pawnshop.


pages: 182 words: 53,802

The Production of Money: How to Break the Power of Banks by Ann Pettifor

Ben Bernanke: helicopter money, Bernie Madoff, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, clean water, credit crunch, Credit Default Swap, cryptocurrency, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, distributed ledger, Donald Trump, eurozone crisis, fiat currency, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, interest rate derivative, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, light touch regulation, London Interbank Offered Rate, market fundamentalism, Martin Wolf, mobile money, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, pushing on a string, quantitative easing, rent-seeking, Satyajit Das, savings glut, secular stagnation, The Chicago School, the market place, Thomas Malthus, Tobin tax, too big to fail

Acting consciously or unconsciously on behalf of creditor interests, they effectively provide justification for ‘easy’ (that is unregulated) but ‘dear’ (at high, real rates of interest) credit. This, I will argue, is the worst possible combination for society and the ecosystem as high and rising real rates of interest require high and rising rates of return from investment, from labour and from the earth’s finite assets. Most orthodox economists also have an unhealthy dislike of the state, which they accuse of ‘rent-seeking’ while simultaneously ignoring the rent-seeking of the private sector. As recently as October 2008 former governor of the US Federal Reserve Alan Greenspan made the orthodoxy explicit under cross-examination by a Congressional committee, chaired by Henry Waxman.7 The chairman reminded Mr Greenspan that he had once said, ‘I do have an ideology. My judgement is that free, competitive markets are by far the unrivalled way to organise economies.

Gillian Tett, one of the few journalists bold enough to explore and challenge the world of international financiers and creditors, blames a ‘pattern of “social silence” … which ensured that the operations of complex credit were deemed too dull, irrelevant or technical to attract interest from outsiders, such as journalists and politicians.’8 Finance was indeed too dull and arcane to attract the interest of mainstream feminism and environmentalism. As a result of this ‘social silence’ citizens were unprepared for the crisis, and they remain on the whole ignorant of the workings of the financial system and its operations. The experience of financial deregulation has shown that capitalism insulated from popular democracy degenerates into rent-seeking, criminality and grand corruption. As Karl Polanyi predicted in his famous book The Great Transformation, societies are building resistance to the ‘self-regulating market comprising labour, land and money’ – or market fundamentalism, even when blind resistance appears irrational.9 In the US, as I write, the voters of the United States have sought protection from a demagogic president-elect who promised to defend them by erecting a wall between the United States and Mexico.


Falling Behind: Explaining the Development Gap Between Latin America and the United States by Francis Fukuyama

Andrei Shleifer, Atahualpa, barriers to entry, Berlin Wall, British Empire, business climate, Cass Sunstein, central bank independence, collective bargaining, colonial rule, conceptual framework, creative destruction, crony capitalism, European colonialism, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, Francisco Pizarro, Hernando de Soto, income inequality, income per capita, land reform, land tenure, Monroe Doctrine, moral hazard, New Urbanism, oil shock, open economy, purchasing power parity, rent-seeking, Ronald Reagan, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, upwardly mobile, Washington Consensus, zero-sum game

The rise of industrial Asia suggests that the key to uninterrupted growth was, as Campos and Root argue, the states’ success in convincing their constituents that a sacrifice in the present would yield gains in the future; in their own words: “Making the promise of shared growth credible allowed East Asian leaders to alter the risk-reward calculations that motivate economic behavior, so that the compensation for taking smaller benefits in the present was greater gains over time.”43 To establish this partnership between civil society and the regime required trust. It also needed sustained public sector policies to reduce asset inequality through carefully planned investments in health, education, and public housing. As Campos and Root note, “Wealth sharing insured broad social support, thereby reducing the threat that the regime would fall to destructive rent seeking or insurgency. It encouraged the belief that the government was acting on behalf of citizens’ interests.”44 All too often, it is the “destructive rent seeking” among Latin America’s economic and political elites that preclude confidencebuilding strategies and set citizens against political authority. Creating a consensus about growth and development requires mutual trust and shared goals. These are in short supply in most of the countries of Latin America and the Caribbean.

From this perspective, and as we explained in the previous section, even though there has been dramatic institutional change in Latin America since 1982, characterized by transitions from authoritarian to democratic rule and from relatively closed, state-led economies to open, market-driven economies, weak states whose jurisdiction and enforcement capacities have remained weak and open to traditional capacity-draining activities, such as rent seeking and moral hazard, have helped to reproduce the conditions that allow the survival and growth of high-stakes politics. To this element, we have to add others, namely, the persistence of dramatic socioeconomic inequality and widespread poverty, which have nurtured the zero-sum conditions that allow high-stakes politics to thrive and dominate in Latin America at the beginning of the twenty-first century.

Uncompetitive protected industries were made even more uncompetitive by overvalued exchange rates; this, combined with unconstrained fiscal spending, led to currency crises, devaluation, rising real interest rates, and a reversal of economic growth in a seemingly endless cycle. The package of liberal economic policies recommended by the International Monetary Fund and other multilateral lenders sought to break several links in this cycle by encouraging competition and openness, improving fiscal discipline, reducing opportunities for rent seeking, and eliminating the discretionary use of monetary policy to resolve fiscal problems via inflation. 272 Conclusion This medicine by and large worked: the runaway inflation that characterized Bolivia, Peru, Argentina, Brazil, and other countries during the 1980s was tamed by the 1990s.6 Elimination of the regressive tax represented by inflation then encouraged the return of flight capital and, indeed, increasing levels of foreign investment.


pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

Airbnb, Akira Okazaki, big-box store, Black Swan, book scanning, British Empire, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbian Exchange, conceptual framework, correlation does not imply causation, Costa Concordia, creative destruction, crony capitalism, dark matter, Dava Sobel, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, double entry bookkeeping, en.wikipedia.org, epigenetics, Erik Brynjolfsson, experimental economics, Ferguson, Missouri, fundamental attribution error, Georg Cantor, George Akerlof, George Gilder, germ theory of disease, Gini coefficient, God and Mammon, greed is good, Gunnar Myrdal, Hans Rosling, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, immigration reform, income inequality, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, Islamic Golden Age, James Watt: steam engine, Jane Jacobs, John Harrison: Longitude, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labor-force participation, lake wobegon effect, land reform, liberation theology, lone genius, Lyft, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, means of production, Naomi Klein, new economy, North Sea oil, Occupy movement, open economy, out of africa, Pareto efficiency, Paul Samuelson, Pax Mongolica, Peace of Westphalia, peak oil, Peter Singer: altruism, Philip Mirowski, pink-collar, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, purchasing power parity, race to the bottom, refrigerator car, rent control, rent-seeking, Republic of Letters, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scientific racism, Scramble for Africa, Second Machine Age, secular stagnation, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, spinning jenny, stakhanovite, Steve Jobs, The Chicago School, The Market for Lemons, the rule of 72, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, total factor productivity, Toyota Production System, transaction costs, transatlantic slave trade, Tyler Cowen: Great Stagnation, uber lyft, union organizing, very high income, wage slave, Washington Consensus, working poor, Yogi Berra

Merchant guilds and associations were so widespread and so tenacious not because they efficiently solved economic problems, making everyone better off, but because they efficiently distributed resources to a powerful urban elite, with side benefits for rulers.11 People in the poorest countries nowadays, who assume not unreasonably that their economies are zero-sum, reckon that they can best advance by theft, graft, influence, corruption, rent-seeking. People in rich countries reckon, on the contrary, that the best way to advance is invention and betterment, which is why such countries became wealthy, at any rate until government expenditures got large enough to encourage rent-seeking to take over again.12 But anyway the “major growth phases” were periods in which income per person rose by factors of 2 or at most 3, not factors of 10 or 30 or 100. Economic history needs, in other words, to deemphasize, as Jones sometimes does not, in deference to the Continuists, the manufacturing-cum-regional-specialization that we call loosely “industrialization.”

Albert Hirschman quotes, and applies to the antibourgeois Spaniards of Castile, the backward-looking opinion of the Marquis de Vauvenargues (1715–1747) that “a man of quality, by fighting, acquires wealth more honorably and quickly than a meaner man by work.”1 It was the antique sentiment of the nobility. According to Tacitus the ancient German warrior thought it “tame and spiritless to accumulate slowly by the sweat of his brow what can be got quickly by the loss of a little blood.”2 In such a society the incentives to zero-sum rent seeking, as the economists put it nowadays, are plain enough. By contrast the Portuguese merchant and the “merchant knight” (cavaleiro-mercador, an impossible juxtaposition in most of Europe at the time) encouraged by Prince Henry the Navigator (1396–1460) and others in its vigorous royal family gave little Portugal the third European empire of trade, after those three centuries earlier of Venice and Genoa.

(Yet putting Amsterdam in the category of failure is a scientific mistake: I have noted that the place merely changed, as London did, from being chiefly manufacturing and merchanting to being chiefly banking and merchanting; and Florence is to this day a substantial industrial city; and Genoa is still the port of northern Italian industrialization.) Jones opines that “what kept growth episodes so few was mainly excessive rent-seeking on the part of the holders of political power.”10 Probably. The economic historian Sheilagh Ogilvie, for instance, presents evidence that medieval guilds of merchants were growth-killers—not the growth-makers that some recent theorists and historians of the neo-institutionalist school have posited. She writes: The “conflict” view [as against the rosy neo-institutional view of guilds] would agree that there is a good economic reason why guild-like merchant associations existed so widely from the twelfth to—in some societies—the nineteenth century.


The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us by Robert H. Frank, Philip J. Cook

accounting loophole / creative accounting, air freight, Alvin Roth, Apple's 1984 Super Bowl advert, business cycle, Daniel Kahneman / Amos Tversky, delayed gratification, global village, haute couture, income inequality, invisible hand, labor-force participation, longitudinal study, Marshall McLuhan, medical malpractice, Network effects, positional goods, prisoner's dilemma, rent-seeking, rising living standards, Ronald Reagan, school choice, Shoshana Zuboff, Stephen Hawking, transaction costs, trickle-down economics, winner-take-all economy

.: Rutgers University Press, 1966. Bound, John, and George Johnson. "Changes in the Structure of Wages in the 1980s: An Evaluation of Alternative Explanations," American Econom­ ic Review 82 (June 1992): 371-92. Brimelow, Peter, and Leslie Spencer. "The Plaintiff's Attorney's Great Honey Rush," Forbes, October 16, 1989, pp. 197 ff. Buchanan, James, Robert Tollison, and Gordon Tullock, eds. Toward a Theo­ ry o/the Rent-Seeking Society, College Station: Texas A&M Press, 1 980. Burrough, Bryan, and John Hellyar. Barbarians at the Gate. New York: Harper & Row, 1990. Bibliography 249 Byrne, John A. "The Craze for Consultants." Business Week, July 25, 1994, pp. 60-66. . "That's Some Pay Cap, Bill." Business �ek, April 25, 1994, p. 57. Caen, Herb. "One Thing After Another." San Francisco Chronicle, January 26, 1993, p.

"Honey I Warped the Kids: Television, Violence, and Chil­ dren." Mother Jones, July 1993, pp. 16ff. Celis, William. "The Big Stars on Campus Are Now Research Labs." New York Times, December 4, 1994, pp. 1 , 38. Chass, Murray. "Motivation Upon Arrival for Henderson." New York Times, March 3 , 1 993, p. B lO. Chi, Victor. "Football Abolished at Santa Clara." San Jose Mercury News. Feb­ ruary 4, 1993 , pp. 1 G, 9G. Chung, Tai-Yeong. "Rent-Seeking Contest When the Prize Increases with Ag­ gregate Efforts." University of Western Ontario Department of Econom­ ics Research Report 9407, 1994. Clotfelter, Charles T. "Demand for Undergraduate Education." In Charles T. Clotfelter, Ronald G. Ehrenberg, Malcolm Getz, and John J. Siegfried, Economic Challenges in Higher Education. Chicago: University of Chicago Press, 1991, pp. 19-139. . Buying the Best: Cost Escalation in the Arts and Sciences.

Power and the Structure 0/ Society. New York: Norton, 1973. College Board. Student Descriptive Questionnaire. Princeton, N.}.: Education­ al Testing Service, 1976-77. Comstock, G., and H. Paik. Television and the Amen'can Child. San Diego, CA: Academic Press, 1 99 1 . Congleton, Roger. "Competitive Process, Competitive Waste, and Institu­ tions." In J. Buchanan, R. Tollison, and G. Tullock, eds. Toward a Theory 0/ the Rent-Seeking Society. College Station: Texas A&M Press, 1 980, pp. 153-79. Conover, Carole. Conover Cover Girls. Englewood Cliffs, NJ: Prentice-Hall, 1 978. Cook, Philip J., and Robert H. Frank, "The Growing Concentration of Top Students at Elite Schools." In Charles Clotfelter and Michael Rothschild, eds. Studies in Supply and Demand in Higher Education. Chicago: Universi­ ty of Chicago Press, 1993, pp. 12 1-40. -- --- 250 Bibliography Cook, Philip J., and Daniel A.


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The Clash of the Cultures by John C. Bogle

asset allocation, buy and hold, collateralized debt obligation, commoditize, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, Flash crash, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, market bubble, market clearing, money market fund, mortgage debt, new economy, Occupy movement, passive investing, Paul Samuelson, Ponzi scheme, post-work, principal–agent problem, profit motive, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, short selling, South Sea Bubble, statistical arbitrage, survivorship bias, The Wealth of Nations by Adam Smith, transaction costs, Vanguard fund, William of Occam, zero-sum game

Resisting this new dominance of speculation over investment might seem to fly in the face of our ever more scientific and technological world. After all, innovation, information, instant communications, and competition have brought great benefits to our society. But I see our financial system as somehow separate and distinct from the other business and commercial systems that permeate our world. “Value-Creating” and “Rent-Seeking” There is a difference—a difference in kind—between what economists describe as “value-creating” activities that add value to society and “rent-seeking” activities that subtract value from society on balance. One provides new and improved products and services, delivered through ever more efficient channels and at prices that are more competitive, and the other simply shifts economic claims from one set of participants to another. Think of the law: one side wins, the other loses, but the lawyers and the legal system profit, and diminish the amount of money that changes hands between the actual litigants.

Creating Value versus Subtracting Value In yet another distortion aided and abetted by our financial system, too many of the best and brightest young people in our land, instead of becoming scientists, physicians, educators, or public servants, are attracted by the staggering financial incentives offered in the investment industry. These massive rewards serve to divert vital human resources from other, often more productive and socially useful, pursuits. Even in the field of engineering, “financial” engineering, which is essentially rent-seeking in nature, holds sway over “real” engineering—civil, electrical, mechanical, aeronautical, and so on—which is essentially value-creating. The long-term consequences of these trends simply cannot be favorable to our nation’s wealth, growth, productivity, and global competitiveness. Finally, the dominance of speculation in our financial affairs shifts our society’s focus from the enduring reality of corporate value creation, on which our nation ultimately depends, to the momentary illusion of stock prices.

Develop Limits on Leverage, Transparency for Derivatives, and Stricter Punishments for Financial Crimes We need stronger, smarter, and wiser regulation that is principles-based where possible, and rules-based in all other cases. No, I do not believe that our government should run our financial sector. But I would be willing to accept the cost of its inevitable bureaucratic drag on the system since, after all, most government activity itself is also rent-seeking rather than value-adding. Regulation is needed in order to: Establish and enforce sterner limits, as appropriate, on leverage and portfolio quality. Bring the opacity of today’s derivatives trading into the bright sunlight of transparency and openness, with public reporting of all transactions. Develop much stronger rules that would preclude—or at least minimize—obvious malfeasance such as insider trading, conflicts of interest, and the remarkably widespread Ponzi schemes that we’ve recently witnessed.


pages: 462 words: 150,129

The Rational Optimist: How Prosperity Evolves by Matt Ridley

"Robert Solow", 23andMe, agricultural Revolution, air freight, back-to-the-land, banking crisis, barriers to entry, Bernie Madoff, British Empire, call centre, carbon footprint, Cesare Marchetti: Marchetti’s constant, charter city, clean water, cloud computing, cognitive dissonance, collateralized debt obligation, colonial exploitation, colonial rule, Corn Laws, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, dematerialisation, demographic dividend, demographic transition, double entry bookkeeping, Edward Glaeser, en.wikipedia.org, everywhere but in the productivity statistics, falling living standards, feminist movement, financial innovation, Flynn Effect, food miles, Gordon Gekko, greed is good, Hans Rosling, happiness index / gross national happiness, haute cuisine, hedonic treadmill, Hernando de Soto, income inequality, income per capita, Indoor air pollution, informal economy, Intergovernmental Panel on Climate Change (IPCC), invention of agriculture, invisible hand, James Hargreaves, James Watt: steam engine, Jane Jacobs, John Nash: game theory, joint-stock limited liability company, Joseph Schumpeter, Kevin Kelly, Kickstarter, knowledge worker, Kula ring, Mark Zuckerberg, meta analysis, meta-analysis, mutually assured destruction, Naomi Klein, Northern Rock, nuclear winter, oil shale / tar sands, out of africa, packet switching, patent troll, Pax Mongolica, Peter Thiel, phenotype, plutocrats, Plutocrats, Ponzi scheme, Productivity paradox, profit motive, purchasing power parity, race to the bottom, Ray Kurzweil, rent-seeking, rising living standards, Silicon Valley, spice trade, spinning jenny, stem cell, Steve Jobs, Steven Pinker, Stewart Brand, supervolcano, technological singularity, Thales and the olive presses, Thales of Miletus, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, ultimatum game, upwardly mobile, urban sprawl, Vernor Vinge, Vilfredo Pareto, wage slave, working poor, working-age population, Y2K, Yogi Berra, zero-sum game

Had I only known it, experiments in laboratories by the economist Vernon Smith and his colleagues have long confirmed that markets in goods and services for immediate consumption – haircuts and hamburgers – work so well that it is hard to design them so they fail to deliver efficiency and innovation; while markets in assets are so automatically prone to bubbles and crashes that it is hard to design them so they work at all. Speculation, herd exuberance, irrational optimism, rent-seeking and the temptation of fraud drive asset markets to overshoot and plunge – which is why they need careful regulation, something I always supported. (Markets in goods and services need less regulation.) But what made the bubble of the 2000s so much worse than most was government housing and monetary policy, especially in the United States, which sluiced artificially cheap money towards bad risks as a matter of policy and thus also towards the middlemen of the capital markets.

Most past bursts of human prosperity have come to naught because they allocated too little money to innovation and too much to asset price inflation or to war, corruption, luxury and theft. In the Spain of Charles V and Philip II, the gigantic wealth of the Peruvian silver mines was wasted. The same ‘curse of resources’ has afflicted countries with windfalls ever since, especially those with oil (Russia, Venezuela, Iraq, Nigeria) that end up run by rent-seeking autocrats. Despite their windfalls, such countries experience lower economic growth than countries that entirely lack resources but get busy trading and selling – Holland, Japan, Hong Kong, Singapore, Taiwan, South Korea. Even the Dutch, those epitomes of seventeenth-century enterprise, fell under the curse of resources in the late twentieth century when they found too much natural gas: the Dutch disease, they called it, as their inflated currency hurt their exporters.

Like all the best entrepreneurs, they thrived despite, rather than because of their government. And it was they who began to trade with the ports of Italy. Italian peasants started to discover that instead of dividing their land among impoverished heirs they could send sons to town to trade with Maghribi Jews. Northern Italy, because of a stand-off between the Holy Roman emperor and the pope, was temporarily favoured by an absence of greedy rent-seeking kings. When Arab piracy and papal plunder paused under the influence of the first Otto, the towns of Lombardy and Tuscany found themselves free to set up their own governments, and since towns were there because of trade, these governments became dominated by the interests of merchants. Amalfi, Pisa, and above all Genoa began to flourish on the back of the Maghribi trade. It was a Pisan trader living in north Africa, Fibonacci, who brought Indian–Arabic decimals, fractions and the calculation of interest to Europe’s notice in his book Liber Abaci, published in 1202.


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The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It by Paul Collier

air freight, Asian financial crisis, Bob Geldof, British Empire, business cycle, Doha Development Round, failed state, falling living standards, income inequality, mass immigration, out of africa, rent-seeking, Ronald Reagan, structural adjustment programs, trade liberalization, zero-sum game

Reformers do not have it easy. When Charles Soludo became governor of the Central Bank of Nigeria, his priority was to reform the banking sector, a notorious epicenter of rent seeking. Unsurprisingly, this was not popular with the rent seekers among the banks. They organized a fighting fund of around $2 million to campaign against him. Among other tactics, this enabled them to buy allies in the media. Charles did not have $2 million to oppose them; he just had guts and intelligence and the right arguments. As I write, he seems to have won, closing and merging sixty-four banks. Reform is tough, but it can triumph. The day after President Mwai Kibaki replaced the rent-seeking Daniel arap Moi in Kenya in 2002, ordinary Kenyan citizens frog-marched police officers who demanded the usual bribes to their own police stations to be arrested.

There is now a huge amount of money being directed by the Nigerian federal government to the delta region, and the oil companies are desperately spreading protection money—paying ransoms to free kidnapped workers is pretty well a daily occurrence. Within the region local politicians are fighting it out for control of all this money, and violent protest has become an orchestrated part of this political rent seeking. Grievance has evolved, over the course of a decade, into greed. Let us get back to the costs of conflict. Many of the costs are borne by neighboring countries. Diseases don’t respect frontiers, and the economic collapse also spreads. Since most countries are bordered by several others, the overall cost to neighbors can easily exceed the cost to the country itself. And the costs are not limited to the immediate geographic region.


pages: 290 words: 76,216

What's Wrong with Economics? by Robert Skidelsky

"Robert Solow", additive manufacturing, agricultural Revolution, Black Swan, Bretton Woods, business cycle, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, disruptive innovation, Donald Trump, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

Nobel Laureate Amartya Sen (b.1933) has pointed out that famines in poor countries are as much the consequence of a politically determined distribution of food as of natural shortage.16 Eradicable diseases like malaria and leprosy fail to be eradicated not because nature is niggardly but because some rulers prefer to spend the money buying arms and enriching themselves and their families. Economists may reasonably point out that such artificial scarcity is produced by bad politics, not by bad economics; and indeed they have been persistent critics of ‘rent-seeking’ by governments. However, they have been relatively blind to the ability of big private corporations to extract rent. Today the biggest rent-extractor is the cartel of big banks, which controls the means of financing production. The method of mainstream economists has blunted criticism of actual market distributions by setting out to ‘prove’ that in fully competitive markets consumers are sovereign and all the factors of production are paid what they produce.

This was the malady against which Hayek inveighed in his classic The Road to Serfdom (1944). The attempt in the 1970s to control inflation by wage and price controls led directly to a ‘crisis of governability’, as trade unions, particularly in Britain, refused to accept them. Large state subsidies to producer groups, both public and private, fed the typical corruptions of behaviour identified by the new right: rent-seeking, moral hazard, free-riding. Palpable evidence of government failure obliterated memories of market failure. The new generation of economists abandoned Keynes and, with the help of sophisticated mathematics, reinvented the classical economics of the self-regulating market. Battered by the inflationary crises of the 1970s, governments caved in to the ‘inevitability’ of free market forces. The swing back became world-wide with the collapse of communism.

The Development of Underdevelopment, Boston: New England Free Press. Hirschman, Albert (1958). The Strategy of Economic Development, New Haven: Yale University Press. Johnson, Harry (1977). ‘Keynes and the Developing World’, in Robert Skidelsky (ed.), The End of the Keynesian Era: Essays on the Disintegration of the Keynesian Political Economy, London: Macmillan. Krueger, Anne (1974). ‘The Political Economy of the Rent-Seeking Society’, American Economic Review, Vol. 64 (3): 291–303. Krugman, Paul (1987). ‘Is Free Trade Passé?’, Journal of Economic Perspectives, Vol. 1 (2): 131–44. Lewis, W. Arthur (1954). ‘Economic Development with Unlimited Supplies of Labour’, The Manchester School, Vol. 22 (2): 129–91. List, Friedrich (1909 [1841]). The National System of Political Economy, London: Longmans, Green and Co. Malthus, Thomas (1798).


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The Social Life of Money by Nigel Dodd

accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, business cycle, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kickstarter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, negative equity, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

Meanwhile, the Fed faces an interest rate quandary: if it keeps rates low, the financial sector will be forced to gamble to achieve the growth in asset values it needs; if rates rise, real estate values will fall and the banks and pension funds will be forced even further into negative equity. If Hudson is right, we ought to be witnessing the end of two myths. The first is about free markets. We cannot continue to believe that they are free when they support rent seeking rather than real GDP, reward banks for pushing junk mortgages, and use credit rating agencies to make predatory finance look like sound wealth creation. Free markets need to be protected from fraud and rent seeking. The second myth is that central banks cause inflation by monetizing public spending. They do not cause inflation if the spending in question goes toward new production and employment. Instead, such spending is being diverted to support inflated asset prices and continued financial speculation.

Second, Marx’s remarks on the significance of primitive accumulation for gold suggest that the hard cash that underwrites money in his theory is endowed with is own sociopolitical history: even “real” money is not a mere thing. Moreover, the state played a crucial role in that history—just as it continues doing so today.27 Third, Marx’s analysis of the role of the “modern bankocracy” opens up an analytical space in which finance can be understood in relation to a particular kind of accumulation, more akin to mercantilism and rent seeking than more conventional forms of capitalist production.28 Financial derivatives did not exist in Marx’s day. Nor did hedge funds or sovereign wealth funds. Nonetheless, his analysis of primitive accumulation provides a powerfully suggestive means of framing these forms of financial capitalism (McNally 2009; Ekman 2012). Although Marx’s arguments soon became outdated empirically, in theoretical terms his analysis of money and finance, and especially the distinction between them, are as resonant today as they ever were.

Of greatest interest to us here is Harvey’s attempt to produce a full-fledged Marxist theory of money and credit that can be applied to the present day, taking account of developing connections between finance and the state, the near-disappearance of gold from the world’s monetary system, and the recent huge expansion of financial services as a major force in the dynamics of contemporary capitalism. In light of our discussion so far, Harvey’s approach is particularly interesting because he draws out the theme of primitive accumulation in Marx and applies it to key aspects of financial capitalism, such as rent seeking and debt. Harvey’s analysis is underpinned by the crucial assumption that capitalism needs to sustain an average compound growth rate of around 3 percent in order for most capitalists to make a reasonable profit (Harvey 2010b: 27). Anything less is problematic, and zero or negative growth defines a depression. The problem for capital is to find a way to achieve such growth in perpetuity. This achievement is becoming increasingly difficult.


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A Pelican Introduction: Basic Income by Guy Standing

bank run, basic income, Bernie Sanders, Bertrand Russell: In Praise of Idleness, Black Swan, Boris Johnson, British Empire, centre right, collective bargaining, cryptocurrency, David Graeber, declining real wages, deindustrialization, Donald Trump, Elon Musk, Fellow of the Royal Society, financial intermediation, full employment, future of work, gig economy, Gunnar Myrdal, housing crisis, hydraulic fracturing, income inequality, intangible asset, job automation, job satisfaction, Joi Ito, labour market flexibility, land value tax, libertarian paternalism, low skilled workers, lump of labour, Mark Zuckerberg, Martin Wolf, mass immigration, mass incarceration, moral hazard, Nelson Mandela, offshore financial centre, open economy, Panopticon Jeremy Bentham, Paul Samuelson, plutocrats, Plutocrats, precariat, quantitative easing, randomized controlled trial, rent control, rent-seeking, Sam Altman, self-driving car, shareholder value, sharing economy, Silicon Valley, sovereign wealth fund, Stephen Hawking, The Future of Employment, universal basic income, Wolfgang Streeck, women in the workforce, working poor, Y Combinator, Zipcar

Moreover, a third of those who do receive them need to go to food banks as well, while others skip meals and do without, because the stamps are estimated to finance food needs for only about three weeks in the month.18 Fifth, vouchers or aid-in-kind stigmatize recipients, whether deliberately or not, and induce a visible supplicant status and mentality. Sixth, they encourage the provision of low-quality goods and services and disdain on the part of those delegated to administer or provide them. In the US, housing vouchers have been associated with increased concentration of impoverished people in poor neighbourhoods where the vouchers are more widely accepted by landlords.19 Seventh, they are prone to corruption and/or rent seeking by special interests. In the US, food stamps have been vigorously promoted by farm-state Republicans. In India, less than 10 per cent of the food the government buys for its Public Distribution System reaches the poor; almost half mysteriously disappears between warehouse and ration shop, and most of the rest is left to rot in government storage.20 Moving to a basic income scheme, based on direct provision of cash to the intended beneficiaries, would remove layers of intermediaries and their lobbying potential at a stroke.

In India, less than 10 per cent of the food the government buys for its Public Distribution System reaches the poor; almost half mysteriously disappears between warehouse and ration shop, and most of the rest is left to rot in government storage.20 Moving to a basic income scheme, based on direct provision of cash to the intended beneficiaries, would remove layers of intermediaries and their lobbying potential at a stroke. Although food and other subsidies may seem to satisfy the Security Difference Principle by reaching out to the most insecure groups in society, some of the most vulnerable are locked out of such schemes. They surely fail the Paternalism Test Principle and the Rights-not-Charity Principle. They are also costly to administer, inefficient and prone to corruption and rent seeking. An experiment in Ecuador that ran simultaneous trials of cash assistance, food vouchers and in-kind food aid found that less than 10 per cent of those receiving cash would have preferred another form of assistance, whereas a quarter to a third of the others wanted to change.21 Those who received cash valued being able to use some of the money for other essentials, including savings. It was one of many studies that have found a preference for cash over what bureaucrats think people want and need.

In the Indian case, and probably elsewhere as well, there would be no need to introduce a basic income as an alternative to existing social programmes. A third method of funding is through the sovereign wealth fund, social dividend route mentioned in Chapter 7. This is eminently suited to developing countries rich in oil and other minerals, or valuable commodities such as timber, the revenues from which go mainly to rent-seeking elites. Many have already set up sovereign wealth funds, but these have been used mainly as investment vehicles to help stabilize future government finances. In Goa, India, the Goenchi Mati Movement is pressing for the proceeds of iron ore mining to go into a permanent fund, similar to Alaska’s Permanent Fund, which would be used to finance a citizen’s dividend. Bolivia, Zambia and Mongolia are already using taxes on natural resources to pay for social benefits.


pages: 286 words: 87,168

Less Is More: How Degrowth Will Save the World by Jason Hickel

air freight, Airbnb, basic income, Bernie Sanders, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, capital controls, cognitive dissonance, coronavirus, corporate governance, corporate personhood, COVID-19, David Graeber, decarbonisation, declining real wages, deindustrialization, dematerialisation, Elon Musk, energy transition, Fellow of the Royal Society, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, gender pay gap, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the steam engine, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, land reform, liberal capitalism, longitudinal study, Mahatma Gandhi, Mark Zuckerberg, McMansion, means of production, meta analysis, meta-analysis, microbiome, moral hazard, mortgage debt, Naomi Klein, new economy, offshore financial centre, oil shale / tar sands, out of africa, passive income, planetary scale, plutocrats, Plutocrats, quantitative easing, rent control, rent-seeking, Ronald Reagan, Scramble for Africa, secular stagnation, shareholder value, sharing economy, Simon Kuznets, structural adjustment programs, the scientific method, The Spirit Level, transatlantic slave trade, trickle-down economics, universal basic income

It’s not earned, it’s extracted: from underpaid workers, from cheap nature, from rent-seeking, from political capture and so on. Extreme wealth has a corrosive effect on our society, on our political system, and on the living world. We should have a democratic conversation about this: at what point does hoarding become destructive and unacceptable? $100 million? $10 million? $5 million? As we saw in the previous chapter, reducing inequality is a powerful way to reduce ecological pressure. It cuts high-impact luxury consumption by the rich, and reduces competitive consumption across the rest of society. But it also removes pressures for unnecessary growth. The policies I’ve proposed here would lead to a disaccumulation of capital. This would cut rent-seeking behaviour, and the rich would lose their power to force us to extract and produce more than we need.

When capital has bumped up against limits to profit-growth in the past, it has found fixes in things like colonisation, structural adjustment programmes, wars, restrictive patent laws, nefarious debt instruments, land grabs, privatisation, and enclosing commons like water and seeds. Why would it be any different this time? Indeed, a study by the ecological economist Beth Stratford finds that when capital faces resource constraints, this is exactly what happens: it turns to aggressive rent-seeking behaviour. It seeks to grab existing value wherever it can, with clever mechanisms to suck income and wealth from the public domain into private hands, and from the poor to the rich, exacerbating inequality. Now, some might argue that capitalism could theoretically find growth opportunities in completely immaterial goods. That might sound nice on the face of it. But the thing about immaterial goods is that they tend already to be abundant and freely available, or are otherwise very easy to share.


pages: 420 words: 124,202

The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention by William Rosen

"Robert Solow", Albert Einstein, All science is either physics or stamp collecting, barriers to entry, collective bargaining, computer age, Copley Medal, creative destruction, David Ricardo: comparative advantage, decarbonisation, delayed gratification, Fellow of the Royal Society, Flynn Effect, fudge factor, full employment, invisible hand, Isaac Newton, Islamic Golden Age, iterative process, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, Joseph Schumpeter, Joseph-Marie Jacquard, knowledge economy, moral hazard, Network effects, Panopticon Jeremy Bentham, Paul Samuelson, Peace of Westphalia, Peter Singer: altruism, QWERTY keyboard, Ralph Waldo Emerson, rent-seeking, Ronald Coase, Simon Kuznets, spinning jenny, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, transcontinental railway, zero-sum game, éminence grise

Economists have studied the human predilection for shutting out competitors once they have achieved a position of prosperity, and they refer to the behavior that follows as “rent seeking.” Rent-seeking behavior is simply the practice of earning income from an asset without currently working at it. Landlords are rent seekers, particularly to the degree that the land in question is unimproved, and inherited. So are monopolists. And so, indeed, are owners of copyrights and patents, so much so that one of the head-spinning challenges faced by Enlightenment thinkers like Adam Smith was to reconcile their antipathy to all forms of rent seeking, particularly in the form of state-chartered monopolies, with their enthusiasm for inventors and technological innovation. The British Society of Arts,11 whose mission was “to embolden enterprise, to enlarge science, to refine art, to improve manufacture, and to extend our commerce,” granted more than six thousand prizes to successful inventors between 1754 and 1784—but still refused to consider patent-holders for prizes until 1845.

In the first spinning machines, the operator had to simultaneously shape the winding and turn the spindles at precisely the same rate, so as to wind up the yarn—the term of art is “winding the cop”—without either stretching the yarn or allowing it to go slack. The craft was difficult enough that spinners became not only indispensable to the process, but highly protective of their place in it, exhibiting all the rent-seeking mania of a medieval guild. Along the way they transformed themselves from independent contractors into the nation’s most powerful and highly organized craft union. At one union meeting, a spinner argued violently against allowing “piecers” (the subordinates on the spinning line, who tie together threads when they break) to actually put up a cop of cotton yarn unless he was “a son, brother, or orphan nephew.”51 In the industry’s Lancashire heartland,52 mule spinners developed work rules in 1780 that remained in force until the 1960s, and partly in consequence, the new and improved ring-spinning machines, invented by the American John Thorp in 1828, which operated continuously and twisted fibers into yarn by attaching them to a rotating ring, didn’t catch on in Britain53 until the end of the nineteenth century.


pages: 504 words: 126,835

The Innovation Illusion: How So Little Is Created by So Many Working So Hard by Fredrik Erixon, Bjorn Weigel

"Robert Solow", Airbnb, Albert Einstein, American ideology, asset allocation, autonomous vehicles, barriers to entry, Basel III, Bernie Madoff, bitcoin, Black Swan, blockchain, BRICs, Burning Man, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, Clayton Christensen, Colonization of Mars, commoditize, corporate governance, corporate social responsibility, creative destruction, crony capitalism, dark matter, David Graeber, David Ricardo: comparative advantage, discounted cash flows, distributed ledger, Donald Trump, Elon Musk, Erik Brynjolfsson, fear of failure, first square of the chessboard / second half of the chessboard, Francis Fukuyama: the end of history, George Gilder, global supply chain, global value chain, Google Glasses, Google X / Alphabet X, Gordon Gekko, high net worth, hiring and firing, Hyman Minsky, income inequality, income per capita, index fund, industrial robot, Internet of things, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kevin Kelly, knowledge economy, laissez-faire capitalism, Lyft, manufacturing employment, Mark Zuckerberg, market design, Martin Wolf, mass affluent, means of production, Mont Pelerin Society, Network effects, new economy, offshore financial centre, pensions crisis, Peter Thiel, Potemkin village, price mechanism, principal–agent problem, Productivity paradox, QWERTY keyboard, RAND corporation, Ray Kurzweil, rent-seeking, risk tolerance, risk/return, Robert Gordon, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, Steve Ballmer, Steve Jobs, Steve Wozniak, technological singularity, telemarketer, The Chicago School, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, transportation-network company, tulip mania, Tyler Cowen: Great Stagnation, uber lyft, University of East Anglia, unpaid internship, Vanguard fund, Yogi Berra

While such an investment profile can occasionally be explained by firms making long-term bets on future value – many investments perform weakly before they start to pay off – the general view is rather that agency problems inside a firm spawn inefficient use of capital and investment spending.34 The exact nature of these agency problems varies, but the usual suspect is a misalignment of interests between owners, board executives, and management. Misalignment permeates most large organizations and helps to explain many of the unproductive habits of a firm. Rent-seeking behavior – for example, the desire to maximize the budget for a division even if it would be better to allocate resources to other parts of the firm to create value – preoccupies management. Sometimes executives can correct misallocation. However, quite often they, and perhaps even the owners, conform to rent-seeking bids and behavior because – to continue with the example – they need to “bribe” division heads or other key managers in the firm. In this way, misalignment of interests makes organizations succumb to the process of internal politics. Those of you who have worked in a big company probably recognize the habit.

Federal Reserve Bank of St. Louis, Jan. 2013. At https://www.stlouisfed.org/Publications/Regional-Economist/January-2013/Why-Are-Corporations-Holding-So-Much-Cash. Santos, Filipe M., and Kathleen M. Eisenhardt, “Organizational Boundaries and Theories of Organization.” Organization Science, 16.5 (2005): 491–508. Scharfstein, David S., and Jeremy C. Stein, “The Dark Side of Internal Capital Markets: Divisional Rent-seeking and Inefficient Investment.” NBER Working Paper No. 5969. National Bureau of Economic Research, Mar. 1997. Schmitz, Robert, “Why Can’t China Make a Good Ballpoint Pen?” Marketplace, Dec. 14, 2015. At http://www.marketplace.org/2015/12/10/world/why-cant-china-make-good-ballpoint-pen. Schoen, John W., “$2 Trillion Deficit for Public Pension Funds.” Fiscal Times, Sept. 27, 2014. At http://www.thefiscaltimes.com/Articles/2014/09/27/2-Trillion-Deficit-Public-Pension-Funds.

Chance (Being There character) (i), (ii) multinational (global) companies characteristics of (i), (ii) and competition (i) and corporate cash savings (i) and dispersed ownership (i) and firm boundaries (i), (ii) and foreign direct investment (FDI) (i), (ii) and global trade (i), (ii) vs. home-market firms (i) and innovation (i) as logistics hubs (i) and market concentration (i), (ii) and market contestability (i) and private standards (i) and productivity (i), (ii) and R&D (i) and regionalization of Asia’s trade growth (i) and regulation (i) reputation of (i) and “slicing up” of value chains (i) and specialization (i), (ii) and supply chains (i) and transaction costs (i) see also big firms; globalization; globalization (overview) Musk, Elon (i), (ii), (iii) mutual funds (i), (ii) nanotechnology (i), (ii), (iii) NASA (i) Nasdaq, and sovereign wealth funds (i) national accounts (recorded data), vs. real value of improvements (i), (ii) National Science Foundation (US) (i) neoconservatism (i) neoliberalism (i) nepotism (i) net lending see corporate net lending Netherlands exports to China (i) taxi services and regulation (i) “new economy” (i) New England Journal of Medicine, medical devices study (i) New Machine Age thesis background: economic realities vs. technological blitz vision (i), (ii), (iii), (iv), (v), (vi), (vii); historical perspective (i) criticism of thesis: cyclical effects on productivity argument (i); jobs and technology issue (i); productivity/income decoupling issue (i), (ii); recorded data vs. real improvements argument (i), (ii); summary (i) and fear of artificial intelligence (i) and planning machine economic philosophy (i) and Robert Gordon on US labor productivity growth (i) see also The Second Machine Age (Brynjolfsson and McAfee) New York City dockers and containerization (i) taxi services and regulation (i), (ii) New York Stock Exchange (i), (ii), (iii), (iv), (v) see also Wall Street New York Times, on Bell’s telephone invention (i) NICs (newly industrialized countries) (i) Nietzsche, Friedrich (i), (ii) nimby (not-in-my-backyard) attitude (i) NM Electronics (Intel) (i), (ii), (iii) Nobel Peace Prize, and Twitter (i) “noise” (at work) (i) Nokia and corporate managerialism (i), (ii), (iii), (iv), (v), (vi) and Foxconn (i) and specialization (i) and tablet market (i) non-entrepreneurial planning (i) North American Free Trade Agreement (i) Norway, sovereign wealth fund (i), (ii), (iii) not-in-my-backyard (nimby) attitude (i) Obama, Barack (i), (ii) obsolescence see knowledge obsolescence occupational licenses (i), (ii), (iii), (iv) OECD (Organisation for Economic Co-operation and Development) on aging firms and innovation (i) on corporate savings (i) on “diffusion machine” and productivity (i) GDP forecasts (i) on intermediaries and shareholders’ income (i) on pension funds and PPRFs (i) on R&D skill deficiencies (i) on regulatory administration costs (i) on sovereign wealth funds (i) on taxi services (i) OECD countries product market regulation (PMR) indicators (i), (ii) R&D spending (i) start-ups (i) total assets by types of institutional investors (2001–13) (i), (ii) “off-license” sectors (i) “offshore” pattern of innovation (i) oligopolistic (or monopolistic) competition (i) Ollila, Jorma (i), (ii) Olson, Mancur (i) “one percent” (wealthiest group) (i) online services and diffusion of innovations (i), (ii) and recorded economic data (i) and regulation (i) see also internet open source technology, and socialism (i) organic cognition (i) Organisation for Economic Co-operation and Development see OECD; OECD countries organization industrial organization (i), (ii) vs. managerialism/technostructure (i) and multinationals (i) and specialization (i) Organization Man (i), (ii) organizational diversification (i), (ii) Osborne, Michael (i) outsourcing (i) ownership see capitalist ownership; institutional owners Palo Alto Research Center (PARC, Xerox) (i) “Panama Papers” story (i) Parisian taxis, and regulation (i) patents, and knowledge obsolescence (i) pay see incomes payment cycles (i) payment technologies (i) pensions and asset management industry (i) and gray capitalism (i), (ii), (iii), (iv) need for reform (i) pension crisis (i) pensioners vs. working-age households incomes (i) and principal–agent debate (i) private pensions (i), (ii) public/state pensions (i), (ii), (iii), (iv), (v); public pension funds and reserve funds (OECD, 2001–13) (i), (ii); public pension return funds (PPRFs) (i) see also retirement Pepsi (i) performance imperatives (i) performance measurements (i) performance tools (i), (ii) permission-based regulatory culture (i), (ii) permissionless innovation (i) pessimism, and capitalist decline (i) Pessoa, João Paolo (i) Pfleiderer, Paul (i) pharmaceutical sector and price regulations (i)n28 R&D investment (i), (ii) and regulation (i), (ii) Phelps, Edmund (i)n41 Mass Flourishing (i), (ii) Piketty, Thomas (i), (ii) PillCam digestive tract sensor (i) Pippi Longstocking (i) planning and corporate managerialism: planning machines (i), (ii), (iii); strategy (i); uncertainty and risk (i) Cybersyn project (i) and failing companies (i) and globalization (i) non-entrepreneurial planning (i) and regulation (i) and “scientific civilization” thinking (i) and spirit of bureaucracy (i) and Swedish economy (i) plastic cards (i) Pliny the Elder, Naturalis Historia (i) Plouffe, David (i) PMR (product market regulation) indicators (i), (ii) policy uncertainty, and investment (i), (ii) political romanticism (i) political world and capitalism as borderless space (i) cronyism , (i), (ii), (iii), (iv) dirigisme (France) (i) government intervention vs. liberalism (i) governments and globalization (i) governments and mobile technology (i) gray-haired voters (i) lobbying (i), (ii), (iii), (iv), (v) and regulation: 1980s–1990s policy changes (i); case of taxi services and Uber (i); political romanticism (i); social regulation (i); trend on the rise (i) and sovereign wealth funds (i), (ii), (iii) see also policy uncertainty; politics politics corporate politics (i), (ii), (iii), (iv) end of and digital age (i) populism (i), (ii), (iii), (iv), (v) see also political world populations aging (i), (ii), (iii) decline (i) populism (i), (ii), (iii), (iv) Porter, Michael (i), (ii) portfolio theory (i) Portugal, lesser dependence on larger enterprises (i) positioning (i), (ii), (iii), (iv) poverty, and globalization (i) PPRFs (public pension return funds) (i) see also pensions precautionary regulations (i), (ii), (iii), (iv) predictability (i), (ii), (iii), (iv), (v), (vi), (vii) see also uncertainty; volatility premature scaling (i), (ii) price index bias (i) Pricewaterhouse Coopers (PwC) on asset management industry (i) on compliance officers in US (i) productivity growth survey (i) on sovereign wealth funds (i) principal–agent problem (i) principal–agent theory (i) prioritizing, and strategy (i) private standards (i) probabilistic decision-making (i), (ii) product market regulation (PMR) indicators (i), (ii) production and computer technology (i) geography of production (i) lean production (i), (ii) and multinationals (i) production costs (i), (ii), (iii) unbundling of: first (i); second (i), (ii), (iii), (iv) see also specialization; supply chains; value chains productivity and containerization (of global trade) (i) and cyclical effects (i) and data economy (i) downward trend (i), (ii) and employment (i) and financial sector growth (i) and foreign operations (i)n46 and globalization (i), (ii), (iii) and ICT intensity (i), (ii) and incomes (decoupling thesis) (i), (ii) key to prosperity (i) low productivity and innovation diffusion problems (i) and market contestability (i), (ii) and multinationals (i), (ii) and regulation (i) and robots (i) total factor productivity (TFP) growth (i), (ii), (iii) and transaction costs (i) UK productivity puzzle (i) professional investment/investors (i), (ii), (iii) see also asset managers professions regulation of (i), (ii) see also occupational licenses profit margins and decoupling (productivity/incomes) thesis (i) and globalization (i), (ii) protectionism (i), (ii), (iii), (iv), (v) public markets and financialization of the economy (i) and mergers and acquisitions (i) public pension return funds (PPRFs) (i) see also pensions public relations campaigns (i), (ii) “put option” (i) PwC see Pricewaterhouse Coopers (PwC) quantitative valuation methods (i) quantum dots (QD) technology (i) R&D (research and development) and corporate net lending (i) and firm boundaries (i), (ii) and multinationals (i) and pharmaceutical products (i), (ii) and policy uncertainty (i) and productivity (i) R&D scoreboards (European Commission) (i), (ii) and regulation (i), (ii), (iii) vs. share buybacks at IBM (i) spending issues (i), (ii), (iii) and sunk costs (i) US R&D investment (i), (ii), (iii) and vertical specialization (i) see also incremental development Rajan, Raghuram (i) rating agencies (i), (ii), (iii) rationalism and globalist worldview (i), (ii) and societal change (i) Reagan, Ronald (i), (ii) real economy, vs. financial economy (i), (ii), (iii), (iv) reallocation of business, and deregulation (i) recorded data (national accounts) vs. real value of improvements (i), (ii) regulation after 1980s–1990s deregulation wave (i), (ii) and bureaucracy brake (Germany) (i) and compliance officers (i) and costs and time lags (i) and decline of capitalism (i), (ii) economic regulation (i), (ii) financial regulations (i), (ii), (iii), (iv) and globalization (i) and gray capitalism (i) and healthcare sector (i), (ii), (iii), (iv) index of regulatory freedom (i), (ii) and industrial policy (i), (ii) and innovation (i), (ii), (iii), (iv), (v), (vi) and labor (i), (ii), (iii), (iv), (v) and lobbying (i) and managerialism (i), (ii) and market contestability (i), (ii) moving-target regulations (i) and multinationals (i) and pensions (i) permission-based regulatory culture (i), (ii) and permissionless innovation (i) and planning (i) and political romanticism (i) and political world (i), (ii) prescriptive vs. proscriptive (i), (ii) private standards (i) and R&D (i), (ii), (iii) and size of companies (i) social regulation (i), (ii) and trade (i), (ii), (iii) see also deregulation; legislation; regulatory complexity/uncertainty regulatory accumulation (i) regulatory bodies (i) regulatory complexity/uncertainty cadmium example (i), (ii) energy sector case (i), (ii) impact on economic growth (i) impact on innovation (i), (ii), (iii), (iv), (v) precautionary regulations (i), (ii), (iii), (iv) regulatory conflicts (i) regulatory/policy uncertainty and investment allocation (i), (ii) rise of regulatory uncertainty (i) see also deregulation; regulation renewable energy see green/renewable energy rent-seeking (i), (ii), (iii) rentier capitalism (i), (ii), (iii), (iv), (v), (vi) rentier formula, resource allocation according to (i) rentiers (i), (ii) reputation management (i) research concept of in corporate world (i), (ii) scientific research (i) see also cancer research; incremental development; R&D Research in Motion (RiM) (i), (ii) retail, and globalization (i) retirement age of (i) savings (i), (ii), (iii), (iv), (v), (vi), (vii) see also pensions Ricardo, David, wine-for-cloth thesis (i) rich people vs. capitalists (i), (ii) high-net-worth individuals (i) mass affluent (i) “one percent” (wealthiest group) (i) risk banks’ proneness to (i) and globalist worldview (i), (ii) and uncertainty (i), (ii) Robertson, Dennis (i) Robinson, James (i) robotics/robots and Asimov/science fiction (i) impact of on society (i) and labor (i), (ii), (iii), (iv), (v); Foxconn example (i) and technology-frustrated generation (i) see also artificial intelligence; automation; driverless vehicles; New Machine Age thesis; technology Rodman, Dennis (i) Rolling Stone (magazine), “Why Isn’t Wall Street in Jail?”


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"Robert Solow", bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

Rather than abandoning hope in regulation and simply giving free rein to markets, Capitalism 4.0 will seek more intelligent policies that take account of known dysfunctions of government such as regulatory capture, rent-seeking,6 the political influence of special interests, and single-issue lobbies. It would be overoptimistic to imagine that such effort will be entirely successful. No one is likely to discover perfect answers to some of the deepest questions of social organization that have troubled political theorists since Plato and Aristotle,7 but an important part of any new approach will be to increase the flexibility of public policy and try to weaken the hold of the special interests that regulations create, some of which are found in the government itself. One small way to soften the rigidities of regulation and limit the unproductive rent-seeking that tends to be created by government is to use sunset clauses on government rules of all kinds.8 Suppose, for example, that bank solvency regulations, employment laws, and even health and safety rules lapsed automatically and had to be redrawn every ten years.

The reversal or modification of many of the Bush administration’s unilateral foreign, social, and environmental policies will send the signal that Americans no longer live in a different mental universe from the rest of the world. Third, for Europe, an intellectual convergence with America will require policymakers and electorates to acknowledge some of the dysfunctional features of the European socio-economic system that have allowed special interests, such as agricultural lobbies and trade unions, to disguise what is essentially exploitative rent-seeking economic behavior, as culturally unique characteristics of the European model. The aftermath of the financial crisis will force Europe to adopt more market-oriented policies for trade, labor, and agriculture, and these policies will make its economic interactions with emerging economies more mutually beneficial and economically constructive. The EU will thus become an even more effective motor for the expansion of democratic capitalism, especially in Africa and the Middle East.

Arthur Laffer on CNN Newsroom, August 4, 2009. Clip available from Media Matters at http://mediamatters.org/mmtv/200908040014. 3 James Buchanan, Public Choice: The Origins and Development of a Research Program. 4 See, for example Kenneth Arrow, Social Choice and Individual Values, and Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups. 5 Buchanan, Public Choice, 8-9. 6 Rent seeking is the economic term used to describe behavior that extracts unearned value from other participants in the economy, without making any contribution to productivity, for example by gaining control of land and natural resources or by taking advantage of regulations that may affect consumers or businesses. 7 Such questions are prevalent throughout both Plato’s Republic and Aristotle’s Politics. 8 A sunset clause creates an expiration date, at which point a law will go off the books unless it is renewed.


pages: 457 words: 128,838

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order by Paul Vigna, Michael J. Casey

Airbnb, altcoin, bank run, banking crisis, bitcoin, blockchain, Bretton Woods, buy and hold, California gold rush, capital controls, carbon footprint, clean water, collaborative economy, collapse of Lehman Brothers, Columbine, Credit Default Swap, cryptocurrency, David Graeber, disintermediation, Edward Snowden, Elon Musk, Ethereum, ethereum blockchain, fiat currency, financial innovation, Firefox, Flash crash, Fractional reserve banking, hacker house, Hernando de Soto, high net worth, informal economy, intangible asset, Internet of things, inventory management, Joi Ito, Julian Assange, Kickstarter, Kuwabatake Sanjuro: assassination market, litecoin, Long Term Capital Management, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, McMansion, means of production, Menlo Park, mobile money, money: store of value / unit of account / medium of exchange, Nelson Mandela, Network effects, new economy, new new economy, Nixon shock, offshore financial centre, payday loans, Pearl River Delta, peer-to-peer, peer-to-peer lending, pets.com, Ponzi scheme, prediction markets, price stability, profit motive, QR code, RAND corporation, regulatory arbitrage, rent-seeking, reserve currency, Robert Shiller, Robert Shiller, Ross Ulbricht, Satoshi Nakamoto, seigniorage, shareholder value, sharing economy, short selling, Silicon Valley, Silicon Valley startup, Skype, smart contracts, special drawing rights, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, supply-chain management, Ted Nelson, The Great Moderation, the market place, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, Turing complete, Tyler Cowen: Great Stagnation, Uber and Lyft, uber lyft, underbanked, WikiLeaks, Y Combinator, Y2K, zero-sum game, Zimmermann PGP

Since strangers could not do business with each other without the banks, the world’s increasingly complex and interconnected economies became utterly dependent on the bankers’ intermediation. The ledgers they kept inside their institutions became the vital means through which societies kept track of the debts and payments that arose among their citizens. Thus the banks created the ultimate rent-seeking business, positioning themselves as fee-charging gatekeepers, managers of the financial traffic that made economies tick. Anyone sitting at the sending or receiving end of that traffic had no choice but to deal with a bank—much as Parisa Ahmadi did before the Film Annex changed its payment policy. As this new finance business grew and became more complex, other rent-seeking middlemen installed themselves as specialized providers of intermediated trust—from early bond and securities brokers, to insurance agents, to financial lawyers, to the payment processors and credit-card companies of our modern day.

Members of Rosen’s team describe the decision to shutter the Electronic Monetary System project as mostly bureaucratic, a way to save money on a project that simply didn’t interest Weill. But it also reflected a philosophical difference between believers in innovative projects who seek to profit by being first to market with new, cost-cutting business models, and believers in the prevailing ethos of Wall Street that Sandy Weill embodied. Wall Street banking is, if nothing else, a rent-seeking exercise. It would be inclined to preserve and strengthen centralized revenue streams such as credit-card transaction fees rather than expunge them. With the repeal of Glass-Steagall, and the waves of commercial-and-investment-bank mergers that followed Citigroup’s lead—Chase Manhattan with JP Morgan, Bank Boston with Fleet Bank and later with Bank of America—this ethos was now seizing control of the American financial system.

* * * On the Wednesday after the September 15 collapse of Lehman Brothers in 2008, Mohamed El-Erian, then co-CEO of the massive asset manager Pacific Investment Management Co. and at that time working around the clock to try to extract his firm from the swirling financial maelstrom, took the time to call his wife from PIMCO’s headquarters in Newport Beach, California. She should go to an ATM and withdraw as much money as she could. She didn’t understand why. Because, he told her, there was a chance U.S. banks wouldn’t open the next day. That frightening prospect—complete paralysis of the most important financial system in the world—was the price we paid for letting Wall Street deepen its model of centralized, rent-seeking power. The final social tab is still being tallied, but its costs go beyond what any bookkeeper can put into dollars and cents. One place it is felt is in the bitter taste that’s left in the mouths of citizens forced to prop up these banks. That has translated into a loss of trust in institutions generally, those of both Wall Street and Washington. Into this world of broken trust Satoshi Nakamoto placed his bitcoin project, just one month after the Lehman collapse.


Science Fictions: How Fraud, Bias, Negligence, and Hype Undermine the Search for Truth by Stuart Ritchie

Albert Einstein, anesthesia awareness, Bayesian statistics, Carmen Reinhart, Cass Sunstein, citation needed, Climatic Research Unit, cognitive dissonance, complexity theory, coronavirus, correlation does not imply causation, COVID-19, Covid-19, crowdsourcing, deindustrialization, Donald Trump, double helix, en.wikipedia.org, epigenetics, Estimating the Reproducibility of Psychological Science, Growth in a Time of Debt, Kenneth Rogoff, l'esprit de l'escalier, meta analysis, meta-analysis, microbiome, Milgram experiment, mouse model, New Journalism, p-value, phenotype, placebo effect, profit motive, publication bias, publish or perish, race to the bottom, randomized controlled trial, recommendation engine, rent-seeking, replication crisis, Richard Thaler, risk tolerance, Ronald Reagan, Scientific racism, selection bias, Silicon Valley, Silicon Valley startup, Stanford prison experiment, statistical model, stem cell, Steven Pinker, Thomas Bayes, twin studies, University of East Anglia

Rather, Elsevier and other for-profit publishers are engaging in what economists call rent-seeking: gaining more profits without providing more value.68 One highly critical investigation of the scientific publication system noted its absurdities: It is as if the New Yorker or the Economist demanded that journalists write and edit each other’s work for free, and asked the government to foot the bill. Outside observers tend to fall into a sort of stunned disbelief when describing this setup … A 2005 Deutsche Bank report referred to it as a ‘bizarre’ ‘triplepay’ system, in which ‘the state funds most research, pays the salaries of most of those checking the quality of research, and then buys most of the published product’.69 Once you remember that the fees universities pay to rent-seeking companies such as Elsevier are largely public funds, the whole thing begins to seem immoral: shouldn’t universities be making more efficient use of taxpayer money?

ABC News abortion Abu Ghraib prison abuse (2003) accidental discoveries Acta Crystallographica Section E acupuncture Afghan hounds Agence France-Presse AIDS (acquired immune deficiency syndrome) Alchemist, The (Bega) Alexander, Benita Alexander, Scott algorithms allergies Alzheimer, Aloysius Alzheimer’s Disease Amazon American Journal of Potato Research Amgen amygdala amyloid cascade hypothesis anaesthesia awareness Fujii affair (2012) outcome switching Anaesthesia & Analgesia animal studies antidepressants antipsychotics archaeology Arnold, Frances arsenic artificial tracheas asthma austerity Australia Austria autism aviation Babbage, Charles Bacon, Francis bacteria Bargh, John Bayer Bayes, Thomas Bayesian statistics BDNF gene Before You Know It (Bargh) Bega, Cornelis Begley, Sharon Belgium Bell Labs Bem, Daryl benzodiazepines bias blinding and conflict of interest De Vries’ study (2018) funding and groupthink and meaning well bias Morton’s skull studies p-hacking politics and publication bias randomisation and sexism and Bik, Elisabeth Bill & Melinda Gates Foundation Biomaterials biology amyloid cascade hypothesis Bik’s fake images study (2016) Boldt affair (2010) cell lines China, misconduct in Hwang affair (2005–6) Macchiarini affair (2015–16) meta-scientific research microbiome studies Morton’s skull studies Obokata affair (2014) outcome switching preprints publication bias replication crisis Reuben affair (2009) spin and statistical power and Summerlin affair (1974) Wakefield affair (1998–2010) biomedical papers bird flu bispectral index monitor black holes Black Lives Matter blinding blotting BMJ, The Boldt, Joachim books Borges, Jorge Luis Boulez, Pierre Boyle, Robert brain imaging Brass Eye vii British Medical Journal Brock, Jon bronchoscopy Broockman, David Brown, Nick Bush, George Walker business studies BuzzFeed News California Walnut Commission California wildfires (2017) Canada cancer cell lines collaborative projects faecal transplants food and publication bias and replication crisis and sleep and spin and candidate genes carbon-based transistors Cardiff University cardiovascular disease Carlisle, John Carlsmith, James Carney, Dana cash-for-publication schemes cataracts Cell cell lines Cell Transplantation Center for Open Science CERN (Conseil Européen pour la Recherche Nucléaire) chi-squared tests childbirth China cash-for-publication schemes cell line mix-ups in Great Famine (1959–1961) misconduct cases in randomisation fraud in chrysalis effect Churchill, Winston churnalism Cifu, Adam citations clickbait climate change cloning Clostridium difficile cochlear implants Cochrane Collaboration coercive citation coffee cognitive dissonance cognitive psychology cognitive tests coin flipping Colbert Report, The Cold War collaborative projects colonic irrigation communality COMPare Trials COMT gene confidence interval conflict of interest Conservative Party conspicuous consumption Cooperative Campaign Analysis Project (CCAP) ‘Coping with Chaos’ (Stapel) Cornell University coronavirus (COVID-19) Corps of Engineers correlation versus causation corticosteroids Cotton, Charles Caleb creationism Crowe, Russell Csiszar, Alex Cuddy, Amy CV (curriculum vitae) cyber-bullying cystic fibrosis Daily Mail Daily Telegraph Darwin Memorial, The’ (Huxley) Darwin, Charles Das, Dipak datasets fraudulent Observational publication bias Davies, Phil Dawkins, Richard De Niro, Robert De Vries, Ymkje Anna debt-to-GDP ratio Deer, Brian democratic peace theory Denmark Department of Agriculture, US depression desk rejections Deutsche Bank disabilities discontinuous mind disinterestedness DNA (deoxyribonucleic acid) domestication syndrome doveryai, no proveryai Duarte, José Duke University duloxetine Dutch Golden Age Dutch Organisation for Scientific Research Dweck, Carol economics austerity preprints statistical power and effect size Einstein, Albert Elmo Elsevier engineering epigenetics euthanasia evolutionary biology exaggeration exercise Experiment, The exploratory analyses extrasensory perception faecal transplants false-positive errors Fanelli, Daniele Festinger, Leon file-drawer problem financial crisis (2007–8) Fine, Cordelia Fisher, Ronald 5 sigma evidence 5-HT2a gene 5-HTTLPR gene fixed mindset Food and Drug Administration (FDA) Food Frequency Questionnaires food psychology Formosus, Pope foxes France Francis, Pope Franco, Annie fraud images investigation of motives for numbers Open Science and peer review randomisation Freedom of Information Acts French, Chris Fryer, Roland Fujii, Yoshitaka funding bias and fraud and hype and long-term funding perverse incentive and replication crisis and statistical power and taxpayer money funnel plots Future of Science, The (Nielsen) gay marriage Gelman, Andrew genetically modified crops genetics autocorrect errors candidate genes collaborative projects gene therapy genome-wide association studies (GWASs) hype in salami-slicing in Geneva, Switzerland geoscience Germany Getty Center GFAJ-1 Giner-Sorolla, Roger Glasgow Effect Goldacre, Ben Goldsmiths, University of London Golgi Apparatus good bacteria Good Morning America good scientific citizenship Goodhart’s Law Goodstein, David Google Scholar Górecki, Henryk Gould, Stephen Jay Gran Sasso, Italy grants, see funding Granularity-Related Inconsistency of Means (GRIM) grapes Great Recession (2007–9) Great Red Spot of Jupiter Green, Donald Gross Domestic Product (GDP) Gross, Charles ground-breaking results groupthink ‘Growth in a Time of Debt’ (Reinhart and Rogoff) growth mindset Guzey, Alexey gynaecology h-index H5N1 Haldane, John Burdon Sanderson Hankins, Matthew HARKing Harris, Sidney Harvard University headache pills heart attacks heart disease Heathers, James height Heilongjiang University Heino, Matti Henry IV (Shakespeare) Higgs Boson Hirsch, Jorge HIV (human immunodeficiency viruses) homosexuality Hong Kong Hooke, Robert Hossenfelder, Sabine Houston, Texas Hume, David Huxley, Thomas Henry Hwang, Woo-Suk hydroxyethyl starch hype arsenic life affair (2010) books correlation versus causation cross-species leap language and microbiome studies news stories nutrition and press releases spin unwarranted advice hypotheses Ig Nobel Prize images, fraudulent impact factor India insomnia International Journal of Advanced Computer Technology Ioannidis, John IQ tests Iraq War (2003–11) Italy Japan John, Elton Journal of Cognitive Education and Psychology Journal of Environmental Quality Journal of Negative Results in Biomedicine Journal of Personality and Social Psychology journals conflict of interest disclosure fraud and hype and impact factor language in mega-journals negligence and Open Science and peer review, see peer review predatory journals preprints publication bias rent-seeking replication studies retraction salami slicing subscription fees Jupiter Kahneman, Daniel Kalla, Joshua Karolinska Institute Krasnodar, Russia Krugman, Paul Lacon, or Many Things in Few Words (Cotton) LaCour, Michael Lancet Fine’s ‘feminist science’ article (2018) Macchiarini affair (2015–16) Wakefield affair (1998–2010) language Large Hadron Collider Le Texier, Thibault Lewis, Jason Lexington Herald-Leader Leyser, Ottoline Lilienfeld, Scott Loken, Eric Lost in Math (Hossenfelder) low-fat diet low-powered studies Lumley, Thomas Lysenko, Trofim Macbeth (Shakespeare) Macbeth effect Macchiarini, Paolo MacDonald, Norman machine learning Macleod, Malcolm Macroeconomics major depressive disorder Malaysia Mao Zedong MARCH1 Marcus, Adam marine biology Markowetz, Florian Matthew Effect Maxims and Moral Reflections (MacDonald) McCartney, Gerry McCloskey, Deirdre McElreath, Richard meaning well bias Measles, Mumps & Rubella (MMR) measurement errors Medawar, Peter medical research amyloid cascade hypothesis Boldt affair (2010) cell lines China, misconduct in collaborative projects Fujii affair (2012) Hwang affair (2005–6) Macchiarini affair (2015–16) meta-scientific research Obokata affair (2014) outcome switching pharmaceutical companies preprints pre-registration publication bias replication crisis Reuben affair (2009) spin and statistical power and Summerlin affair (1974) Wakefield affair (1998–2010) medical reversal Medical Science Monitor Mediterranean Diet Merton, Robert Mertonian Norms communality disinterestedness organised scepticism universalism meta-science Boldt affair (2010) chrysalis effect De Vries’ study (2018) Fanelli’s study (2010) Ioannidis’ article (2005) Macleod’s studies mindset studies (2018) saturated fats studies spin and stereotype threat studies mice microbiome Microsoft Excel Milgram, Stanley Mill, John Stuart Mindset (Dweck) mindset concept Mismeasure of Man, The (Gould) Modi, Narendra money priming Mono Lake, California Moon, Hyung-In Morton, Samuel Motyl, Matt multiverse analysis nanotechnology National Academy of Sciences National Aeronautics and Space Administration (NASA) National Institutes of Health National Science Foundation Nature cash-for-publication and cell line editorial (1981) impact factor language in Obokata affair (2014) Open Access and open letter on statistical significance (2019) replication research Schön affair (2002) Stapel affair (2011) Nature Neuroscience Nature Reviews Cancer NBC negligence cell line mix-ups numerical errors statistical power typos Netflix Netherlands replication studies in Stapel’s racism studies statcheck research neuroscience amyloid cascade hypothesis collaborative projects Macleod’s animal research studies replication crisis sexism and statistical significance and Walker’s sleep studies neutrinos New England Journal of Medicine New York Times New Zealand news media Newton, Isaac Nielsen, Michael Nimoy, Leonard No Country for Old Men Nobel Prize northern blots Nosek, Brian Novella, Steven novelty Novum Organum (Bacon) Nuijten, Michèle nullius in verba, numerical errors nutrition Obama, Barack obesity Obokata, Haruko observational datasets obstetrics ocean acidification oesophagus ‘Of Essay-Writing’ (Hume) Office for Research Integrity, US Oldenburg, Henry Open Access Open Science OPERA experiment (2011) Oransky, Ivan Orben, Amy Organic Syntheses organised scepticism Osborne, George outcome-switching overfitting Oxford University p-value/hacking alternatives to Fine and low-powered studies and microbiome studies and nutritional studies and Open Science and outcome-switching perverse incentive and pre-registration and screen time studies and spin and statcheck and papers abstracts citations growth rates h-index introductions method sections results sections salami slicing self-plagiarism university ranks and Parkinson’s disease particle-accelerator experiments peanut allergies peer review coercive citation fraudulent groupthink and LaCour affair (2014–15) Preprints productivity incentives and randomisation and toxoplasma gondii scandal (1961) volunteer Wakefield affair (1998–2010) penicillin Peoria, Illinois Perspectives in Psychological Science perverse incentive cash for publications competition CVs and evolutionary analogy funding impact factor predatory journals salami slicing self-plagiarism Pett, Joel pharmaceutical companies PhDs Philosophical Transactions phlogiston phosphorus Photoshop Physical Review physics placebos plagiarism Plan S Planck, Max plane crashes PLOS ONE pluripotency Poehlman, Eric politics polygenes polyunsaturated fatty acids Popper, Karl populism pornography positive feedback loops positive versus null results, see publication bias post-traumatic stress disorder (PTSD) power posing Prasad, Vinay pre-registration preclinical studies predatory journals preprints Presence (Cuddy) press releases Prevención con Dieta Mediterránea (PREDIMED) priming Princeton University Private Eye probiotics Proceedings of the National Academy of Sciences prosthetic limbs Przybylski, Andrew psychic precognition Psychological Medicine psychology Bargh’s priming study (1996) Bem’s precognition studies books Carney and Cuddy’s power posing studies collaborative projects data sharing study (2006) Dweck’s mindset concept Festinger and Carlsmith’s cognitive dissonance studies Kahneman’s priming studies LaCour’s gay marriage experiment politics and preprints publication bias in Shanks’ priming studies Stanford Prison Experiment Stapel’s racism studies statistical power and Wansink’s food studies publication bias publish or perish Pubpeer Pythagoras’s theorem Qatar quantum entanglement racism Bargh’s priming studies Morton’s skull studies Stapel’s environmental studies randomisation Randy Schekman Reagan, Ronald recommendation algorithms red grapes Redfield, Rosemary Reflections on the Decline of Science in England (Babbage) Reinhart, Carmen Rennie, Drummond rent-seeking replication; replication crisis Bargh’s priming study Bem’s precognition studies biology and Carney and Cuddy’s power posing studies chemistry and economics and engineering and geoscience and journals and Kahneman’s priming studies marine biology and medical research and neuroscience and physics and Schön’s carbon-based transistor Stanford Prison Experiment Stapel’s racism studies Wolfe-Simon’s arsenic life study reproducibility Republican Party research grants research parasites resveratrol retraction Arnold Boldt Fujii LaCour Macchiarini Moon Obokata Reuben Schön Stapel Wakefield Wansink Retraction Watch Reuben, Scott Reuters RIKEN Rogoff, Kenneth romantic priming Royal Society Rundgren, Todd Russia doveryai, no proveryai foxes, domestication of Macchiarini affair (2015–16) plagiarism in salami slicing same-sex marriage sample size sampling errors Sanna, Lawrence Sasai, Yoshiki saturated fats Saturn Saudi Arabia schizophrenia Schoenfeld, Jonathan Schön, Jan Hendrik School Psychology International Schopenhauer, Arthur Science acceptance rate Arnold affair (2020) arsenic life affair (2010) cash-for-publication and Hwang affair (2005) impact factor LaCour affair (2014–15) language in Macbeth effect study (2006) Open Access and pre-registration investigation (2020) replication research Schön affair (2002) Stapel affair (2011) toxoplasma gondii scandal (1961) Science Europe Science Media Centre scientific journals, see journals scientific papers, see papers Scientific World Journal, The Scotland Scottish Socialist Party screen time self-citation self-correction self-plagiarism self-sustaining systems Seoul National University SEPT2 Sesame Street sexism sexual selection Shakespeare, William Shanks, David Shansky, Rebecca Simmons, Joseph Simonsohn, Uri Simpsons, The skin grafts Slate Star Codex Sloan-Kettering Cancer Institute Smaldino, Paul Smeesters, Dirk Smith, Richard Snuppy social media South Korea Southern blot Southern, Edwin Soviet Union space science special relativity specification-curve analysis speed-accuracy trade-off Spies, Jeffrey spin Springer Srivastava, Sanjay Stalin, Joseph Stanford University Dweck’s mindset concept file-drawer project (2014) Prison Experiment (1971) Schön affair (2002) STAP (Stimulus-Triggered Acquisition of Pluripotency) Stapel, Diederik statcheck statistical flukes statistical power statistical significance statistical tests Status Quo stem cells Stephen VI, Pope stereotype threat Sternberg, Robert strokes subscription fees Summerlin, William Sweden Swift, Jonathan Swiss Federal Institute of Technology Sydney Morning Herald Symphony of Sorrowful Songs (Górecki) t-tests Taiwan taps-aff.co.uk tax policies team science TED (Technology, Entertainment, and Design) Texas sharpshooter analogy Thatcher, Margaret theory of special relativity Thinking, Fast and Slow (Kahneman) Thomson Reuters Tilburg University Titan totalitarianism toxoplasma gondii trachea translational research transparency Tribeca Film Festival triplepay system Trump, Donald trust in science ‘trust, but verify’ Tumor Biology Turkey Tuulik, Julia Twitter typos UK Reproducibility Network Ulysses pact United Kingdom austerity cash-for-publication schemes image duplication in multiverse analysis study (2019) National Institute for Health Research pre-registration in Royal Society submarines trust in science university ranks in Wakefield affair (1998–2010) United States Arnold affair (2020) arsenic life affair (2010) austerity Bargh’s priming study (1996) Bem’s precognition studies California wildfires (2017) Carney and Cuddy’s power posing studies Center for Nutrition Policy and Promotion climate science in creationism in Das affair (2012) De Vries’ drug study (2018) Department of Agriculture Dweck’s mindset concept Fryer’s police brutality study (2016) image duplication in Kahneman’s priming studies LaCour affair (2014–15) Morton’s skull studies Office for Research Integrity Poehlman affair (2006) pre-registration in public domain laws Reuben affair (2009) Stanford Prison Experiment Summerlin affair (1974) tenure Walker’s sleep studies Wansink affair (2016) universalism universities cash-for-publication schemes fraud and subscription fees and team science University College London University of British Columbia University of California Berkeley Los Angeles University of Connecticut University of East Anglia University of Edinburgh University of Hertfordshire University of London University of Pennsylvania unsaturated fats unwarranted advice vaccines Vamplew, Peter Vanity Fair Vatican Vaxxed Viagra vibration-of-effects analysis virology Wakefield, Andrew Walker, Matthew Wansink, Brian Washington Post weasel wording Weisberg, Michael Wellcome Trust western blots Westfall, Jake ‘Why Most Published Research Findings Are False’ (Ioannidis) Why We Sleep (Walker) Wiley Wiseman, Richard Wolfe-Simon, Felisa World as Will and Presentation, The (Schopenhauer) World Health Organisation (WHO) Yale University Yarkoni, Tal Yes Men Yezhov, Nikolai Z-tests Ziliak, Stephen Zimbardo, Philip Zola, Émile About the Author Stuart Ritchie is a lecturer in the Social, Genetic and Developmental Psychiatry Centre at King’s College London.

ABC News abortion Abu Ghraib prison abuse (2003) accidental discoveries Acta Crystallographica Section E acupuncture Afghan hounds Agence France-Presse AIDS (acquired immune deficiency syndrome) Alchemist, The (Bega) Alexander, Benita Alexander, Scott algorithms allergies Alzheimer, Aloysius Alzheimer’s Disease Amazon American Journal of Potato Research Amgen amygdala amyloid cascade hypothesis anaesthesia awareness Fujii affair (2012) outcome switching Anaesthesia & Analgesia animal studies antidepressants antipsychotics archaeology Arnold, Frances arsenic artificial tracheas asthma austerity Australia Austria autism aviation Babbage, Charles Bacon, Francis bacteria Bargh, John Bayer Bayes, Thomas Bayesian statistics BDNF gene Before You Know It (Bargh) Bega, Cornelis Begley, Sharon Belgium Bell Labs Bem, Daryl benzodiazepines bias blinding and conflict of interest De Vries’ study (2018) funding and groupthink and meaning well bias Morton’s skull studies p-hacking politics and publication bias randomisation and sexism and Bik, Elisabeth Bill & Melinda Gates Foundation Biomaterials biology amyloid cascade hypothesis Bik’s fake images study (2016) Boldt affair (2010) cell lines China, misconduct in Hwang affair (2005–6) Macchiarini affair (2015–16) meta-scientific research microbiome studies Morton’s skull studies Obokata affair (2014) outcome switching preprints publication bias replication crisis Reuben affair (2009) spin and statistical power and Summerlin affair (1974) Wakefield affair (1998–2010) biomedical papers bird flu bispectral index monitor black holes Black Lives Matter blinding blotting BMJ, The Boldt, Joachim books Borges, Jorge Luis Boulez, Pierre Boyle, Robert brain imaging Brass Eye vii British Medical Journal Brock, Jon bronchoscopy Broockman, David Brown, Nick Bush, George Walker business studies BuzzFeed News California Walnut Commission California wildfires (2017) Canada cancer cell lines collaborative projects faecal transplants food and publication bias and replication crisis and sleep and spin and candidate genes carbon-based transistors Cardiff University cardiovascular disease Carlisle, John Carlsmith, James Carney, Dana cash-for-publication schemes cataracts Cell cell lines Cell Transplantation Center for Open Science CERN (Conseil Européen pour la Recherche Nucléaire) chi-squared tests childbirth China cash-for-publication schemes cell line mix-ups in Great Famine (1959–1961) misconduct cases in randomisation fraud in chrysalis effect Churchill, Winston churnalism Cifu, Adam citations clickbait climate change cloning Clostridium difficile cochlear implants Cochrane Collaboration coercive citation coffee cognitive dissonance cognitive psychology cognitive tests coin flipping Colbert Report, The Cold War collaborative projects colonic irrigation communality COMPare Trials COMT gene confidence interval conflict of interest Conservative Party conspicuous consumption Cooperative Campaign Analysis Project (CCAP) ‘Coping with Chaos’ (Stapel) Cornell University coronavirus (COVID-19) Corps of Engineers correlation versus causation corticosteroids Cotton, Charles Caleb creationism Crowe, Russell Csiszar, Alex Cuddy, Amy CV (curriculum vitae) cyber-bullying cystic fibrosis Daily Mail Daily Telegraph Darwin Memorial, The’ (Huxley) Darwin, Charles Das, Dipak datasets fraudulent Observational publication bias Davies, Phil Dawkins, Richard De Niro, Robert De Vries, Ymkje Anna debt-to-GDP ratio Deer, Brian democratic peace theory Denmark Department of Agriculture, US depression desk rejections Deutsche Bank disabilities discontinuous mind disinterestedness DNA (deoxyribonucleic acid) domestication syndrome doveryai, no proveryai Duarte, José Duke University duloxetine Dutch Golden Age Dutch Organisation for Scientific Research Dweck, Carol economics austerity preprints statistical power and effect size Einstein, Albert Elmo Elsevier engineering epigenetics euthanasia evolutionary biology exaggeration exercise Experiment, The exploratory analyses extrasensory perception faecal transplants false-positive errors Fanelli, Daniele Festinger, Leon file-drawer problem financial crisis (2007–8) Fine, Cordelia Fisher, Ronald 5 sigma evidence 5-HT2a gene 5-HTTLPR gene fixed mindset Food and Drug Administration (FDA) Food Frequency Questionnaires food psychology Formosus, Pope foxes France Francis, Pope Franco, Annie fraud images investigation of motives for numbers Open Science and peer review randomisation Freedom of Information Acts French, Chris Fryer, Roland Fujii, Yoshitaka funding bias and fraud and hype and long-term funding perverse incentive and replication crisis and statistical power and taxpayer money funnel plots Future of Science, The (Nielsen) gay marriage Gelman, Andrew genetically modified crops genetics autocorrect errors candidate genes collaborative projects gene therapy genome-wide association studies (GWASs) hype in salami-slicing in Geneva, Switzerland geoscience Germany Getty Center GFAJ-1 Giner-Sorolla, Roger Glasgow Effect Goldacre, Ben Goldsmiths, University of London Golgi Apparatus good bacteria Good Morning America good scientific citizenship Goodhart’s Law Goodstein, David Google Scholar Górecki, Henryk Gould, Stephen Jay Gran Sasso, Italy grants, see funding Granularity-Related Inconsistency of Means (GRIM) grapes Great Recession (2007–9) Great Red Spot of Jupiter Green, Donald Gross Domestic Product (GDP) Gross, Charles ground-breaking results groupthink ‘Growth in a Time of Debt’ (Reinhart and Rogoff) growth mindset Guzey, Alexey gynaecology h-index H5N1 Haldane, John Burdon Sanderson Hankins, Matthew HARKing Harris, Sidney Harvard University headache pills heart attacks heart disease Heathers, James height Heilongjiang University Heino, Matti Henry IV (Shakespeare) Higgs Boson Hirsch, Jorge HIV (human immunodeficiency viruses) homosexuality Hong Kong Hooke, Robert Hossenfelder, Sabine Houston, Texas Hume, David Huxley, Thomas Henry Hwang, Woo-Suk hydroxyethyl starch hype arsenic life affair (2010) books correlation versus causation cross-species leap language and microbiome studies news stories nutrition and press releases spin unwarranted advice hypotheses Ig Nobel Prize images, fraudulent impact factor India insomnia International Journal of Advanced Computer Technology Ioannidis, John IQ tests Iraq War (2003–11) Italy Japan John, Elton Journal of Cognitive Education and Psychology Journal of Environmental Quality Journal of Negative Results in Biomedicine Journal of Personality and Social Psychology journals conflict of interest disclosure fraud and hype and impact factor language in mega-journals negligence and Open Science and peer review, see peer review predatory journals preprints publication bias rent-seeking replication studies retraction salami slicing subscription fees Jupiter Kahneman, Daniel Kalla, Joshua Karolinska Institute Krasnodar, Russia Krugman, Paul Lacon, or Many Things in Few Words (Cotton) LaCour, Michael Lancet Fine’s ‘feminist science’ article (2018) Macchiarini affair (2015–16) Wakefield affair (1998–2010) language Large Hadron Collider Le Texier, Thibault Lewis, Jason Lexington Herald-Leader Leyser, Ottoline Lilienfeld, Scott Loken, Eric Lost in Math (Hossenfelder) low-fat diet low-powered studies Lumley, Thomas Lysenko, Trofim Macbeth (Shakespeare) Macbeth effect Macchiarini, Paolo MacDonald, Norman machine learning Macleod, Malcolm Macroeconomics major depressive disorder Malaysia Mao Zedong MARCH1 Marcus, Adam marine biology Markowetz, Florian Matthew Effect Maxims and Moral Reflections (MacDonald) McCartney, Gerry McCloskey, Deirdre McElreath, Richard meaning well bias Measles, Mumps & Rubella (MMR) measurement errors Medawar, Peter medical research amyloid cascade hypothesis Boldt affair (2010) cell lines China, misconduct in collaborative projects Fujii affair (2012) Hwang affair (2005–6) Macchiarini affair (2015–16) meta-scientific research Obokata affair (2014) outcome switching pharmaceutical companies preprints pre-registration publication bias replication crisis Reuben affair (2009) spin and statistical power and Summerlin affair (1974) Wakefield affair (1998–2010) medical reversal Medical Science Monitor Mediterranean Diet Merton, Robert Mertonian Norms communality disinterestedness organised scepticism universalism meta-science Boldt affair (2010) chrysalis effect De Vries’ study (2018) Fanelli’s study (2010) Ioannidis’ article (2005) Macleod’s studies mindset studies (2018) saturated fats studies spin and stereotype threat studies mice microbiome Microsoft Excel Milgram, Stanley Mill, John Stuart Mindset (Dweck) mindset concept Mismeasure of Man, The (Gould) Modi, Narendra money priming Mono Lake, California Moon, Hyung-In Morton, Samuel Motyl, Matt multiverse analysis nanotechnology National Academy of Sciences National Aeronautics and Space Administration (NASA) National Institutes of Health National Science Foundation Nature cash-for-publication and cell line editorial (1981) impact factor language in Obokata affair (2014) Open Access and open letter on statistical significance (2019) replication research Schön affair (2002) Stapel affair (2011) Nature Neuroscience Nature Reviews Cancer NBC negligence cell line mix-ups numerical errors statistical power typos Netflix Netherlands replication studies in Stapel’s racism studies statcheck research neuroscience amyloid cascade hypothesis collaborative projects Macleod’s animal research studies replication crisis sexism and statistical significance and Walker’s sleep studies neutrinos New England Journal of Medicine New York Times New Zealand news media Newton, Isaac Nielsen, Michael Nimoy, Leonard No Country for Old Men Nobel Prize northern blots Nosek, Brian Novella, Steven novelty Novum Organum (Bacon) Nuijten, Michèle nullius in verba, numerical errors nutrition Obama, Barack obesity Obokata, Haruko observational datasets obstetrics ocean acidification oesophagus ‘Of Essay-Writing’ (Hume) Office for Research Integrity, US Oldenburg, Henry Open Access Open Science OPERA experiment (2011) Oransky, Ivan Orben, Amy Organic Syntheses organised scepticism Osborne, George outcome-switching overfitting Oxford University p-value/hacking alternatives to Fine and low-powered studies and microbiome studies and nutritional studies and Open Science and outcome-switching perverse incentive and pre-registration and screen time studies and spin and statcheck and papers abstracts citations growth rates h-index introductions method sections results sections salami slicing self-plagiarism university ranks and Parkinson’s disease particle-accelerator experiments peanut allergies peer review coercive citation fraudulent groupthink and LaCour affair (2014–15) Preprints productivity incentives and randomisation and toxoplasma gondii scandal (1961) volunteer Wakefield affair (1998–2010) penicillin Peoria, Illinois Perspectives in Psychological Science perverse incentive cash for publications competition CVs and evolutionary analogy funding impact factor predatory journals salami slicing self-plagiarism Pett, Joel pharmaceutical companies PhDs Philosophical Transactions phlogiston phosphorus Photoshop Physical Review physics placebos plagiarism Plan S Planck, Max plane crashes PLOS ONE pluripotency Poehlman, Eric politics polygenes polyunsaturated fatty acids Popper, Karl populism pornography positive feedback loops positive versus null results, see publication bias post-traumatic stress disorder (PTSD) power posing Prasad, Vinay pre-registration preclinical studies predatory journals preprints Presence (Cuddy) press releases Prevención con Dieta Mediterránea (PREDIMED) priming Princeton University Private Eye probiotics Proceedings of the National Academy of Sciences prosthetic limbs Przybylski, Andrew psychic precognition Psychological Medicine psychology Bargh’s priming study (1996) Bem’s precognition studies books Carney and Cuddy’s power posing studies collaborative projects data sharing study (2006) Dweck’s mindset concept Festinger and Carlsmith’s cognitive dissonance studies Kahneman’s priming studies LaCour’s gay marriage experiment politics and preprints publication bias in Shanks’ priming studies Stanford Prison Experiment Stapel’s racism studies statistical power and Wansink’s food studies publication bias publish or perish Pubpeer Pythagoras’s theorem Qatar quantum entanglement racism Bargh’s priming studies Morton’s skull studies Stapel’s environmental studies randomisation Randy Schekman Reagan, Ronald recommendation algorithms red grapes Redfield, Rosemary Reflections on the Decline of Science in England (Babbage) Reinhart, Carmen Rennie, Drummond rent-seeking replication; replication crisis Bargh’s priming study Bem’s precognition studies biology and Carney and Cuddy’s power posing studies chemistry and economics and engineering and geoscience and journals and Kahneman’s priming studies marine biology and medical research and neuroscience and physics and Schön’s carbon-based transistor Stanford Prison Experiment Stapel’s racism studies Wolfe-Simon’s arsenic life study reproducibility Republican Party research grants research parasites resveratrol retraction Arnold Boldt Fujii LaCour Macchiarini Moon Obokata Reuben Schön Stapel Wakefield Wansink Retraction Watch Reuben, Scott Reuters RIKEN Rogoff, Kenneth romantic priming Royal Society Rundgren, Todd Russia doveryai, no proveryai foxes, domestication of Macchiarini affair (2015–16) plagiarism in salami slicing same-sex marriage sample size sampling errors Sanna, Lawrence Sasai, Yoshiki saturated fats Saturn Saudi Arabia schizophrenia Schoenfeld, Jonathan Schön, Jan Hendrik School Psychology International Schopenhauer, Arthur Science acceptance rate Arnold affair (2020) arsenic life affair (2010) cash-for-publication and Hwang affair (2005) impact factor LaCour affair (2014–15) language in Macbeth effect study (2006) Open Access and pre-registration investigation (2020) replication research Schön affair (2002) Stapel affair (2011) toxoplasma gondii scandal (1961) Science Europe Science Media Centre scientific journals, see journals scientific papers, see papers Scientific World Journal, The Scotland Scottish Socialist Party screen time self-citation self-correction self-plagiarism self-sustaining systems Seoul National University SEPT2 Sesame Street sexism sexual selection Shakespeare, William Shanks, David Shansky, Rebecca Simmons, Joseph Simonsohn, Uri Simpsons, The skin grafts Slate Star Codex Sloan-Kettering Cancer Institute Smaldino, Paul Smeesters, Dirk Smith, Richard Snuppy social media South Korea Southern blot Southern, Edwin Soviet Union space science special relativity specification-curve analysis speed-accuracy trade-off Spies, Jeffrey spin Springer Srivastava, Sanjay Stalin, Joseph Stanford University Dweck’s mindset concept file-drawer project (2014) Prison Experiment (1971) Schön affair (2002) STAP (Stimulus-Triggered Acquisition of Pluripotency) Stapel, Diederik statcheck statistical flukes statistical power statistical significance statistical tests Status Quo stem cells Stephen VI, Pope stereotype threat Sternberg, Robert strokes subscription fees Summerlin, William Sweden Swift, Jonathan Swiss Federal Institute of Technology Sydney Morning Herald Symphony of Sorrowful Songs (Górecki) t-tests Taiwan taps-aff.co.uk tax policies team science TED (Technology, Entertainment, and Design) Texas sharpshooter analogy Thatcher, Margaret theory of special relativity Thinking, Fast and Slow (Kahneman) Thomson Reuters Tilburg University Titan totalitarianism toxoplasma gondii trachea translational research transparency Tribeca Film Festival triplepay system Trump, Donald trust in science ‘trust, but verify’ Tumor Biology Turkey Tuulik, Julia Twitter typos UK Reproducibility Network Ulysses pact United Kingdom austerity cash-for-publication schemes image duplication in multiverse analysis study (2019) National Institute for Health Research pre-registration in Royal Society submarines trust in science university ranks in Wakefield affair (1998–2010) United States Arnold affair (2020) arsenic life affair (2010) austerity Bargh’s priming study (1996) Bem’s precognition studies California wildfires (2017) Carney and Cuddy’s power posing studies Center for Nutrition Policy and Promotion climate science in creationism in Das affair (2012) De Vries’ drug study (2018) Department of Agriculture Dweck’s mindset concept Fryer’s police brutality study (2016) image duplication in Kahneman’s priming studies LaCour affair (2014–15) Morton’s skull studies Office for Research Integrity Poehlman affair (2006) pre-registration in public domain laws Reuben affair (2009) Stanford Prison Experiment Summerlin affair (1974) tenure Walker’s sleep studies Wansink affair (2016) universalism universities cash-for-publication schemes fraud and subscription fees and team science University College London University of British Columbia University of California Berkeley Los Angeles University of Connecticut University of East Anglia University of Edinburgh University of Hertfordshire University of London University of Pennsylvania unsaturated fats unwarranted advice vaccines Vamplew, Peter Vanity Fair Vatican Vaxxed Viagra vibration-of-effects analysis virology Wakefield, Andrew Walker, Matthew Wansink, Brian Washington Post weasel wording Weisberg, Michael Wellcome Trust western blots Westfall, Jake ‘Why Most Published Research Findings Are False’ (Ioannidis) Why We Sleep (Walker) Wiley Wiseman, Richard Wolfe-Simon, Felisa World as Will and Presentation, The (Schopenhauer) World Health Organisation (WHO) Yale University Yarkoni, Tal Yes Men Yezhov, Nikolai Z-tests Ziliak, Stephen Zimbardo, Philip Zola, Émile About the Author Stuart Ritchie is a lecturer in the Social, Genetic and Developmental Psychiatry Centre at King’s College London.


pages: 372 words: 92,477

The Fourth Revolution: The Global Race to Reinvent the State by John Micklethwait, Adrian Wooldridge

Admiral Zheng, affirmative action, Affordable Care Act / Obamacare, Asian financial crisis, assortative mating, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bernie Madoff, Boris Johnson, Bretton Woods, British Empire, cashless society, central bank independence, Chelsea Manning, circulation of elites, Clayton Christensen, Corn Laws, corporate governance, credit crunch, crony capitalism, Deng Xiaoping, Detroit bankruptcy, disintermediation, Edward Snowden, Etonian, failed state, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, income inequality, Khan Academy, Kickstarter, knowledge economy, Kodak vs Instagram, labor-force participation, laissez-faire capitalism, land reform, liberal capitalism, Martin Wolf, means of production, minimum wage unemployment, mittelstand, mobile money, Mont Pelerin Society, Nelson Mandela, night-watchman state, Norman Macrae, obamacare, oil shale / tar sands, old age dependency ratio, open economy, Parag Khanna, Peace of Westphalia, pension reform, pensions crisis, personalized medicine, Peter Thiel, plutocrats, Plutocrats, popular capitalism, profit maximization, rent control, rent-seeking, ride hailing / ride sharing, road to serfdom, Ronald Coase, Ronald Reagan, school choice, school vouchers, Silicon Valley, Skype, special economic zone, too big to fail, total factor productivity, War on Poverty, Washington Consensus, Winter of Discontent, working-age population, zero-sum game

Some of the most far-seeing Chinese bureaucrats argue that SOEs will die a natural death as the Chinese economy matures: They should be understood as staging points on the road to full-blooded capitalism rather than ends in their own right.41 The reckoning in the rest of the world is even worse. Authoritarian modernization may have a successful record in Singapore and South Korea. But look at the Arab world: Egypt’s state capitalism was an excuse for rent seeking and incompetence (not least on the part of the dozens of companies, accounting for 10 percent of the economy, run by the military). Or look at sub-Saharan Africa: Crony capitalism is lowering growth and increasing inequality. For the state to direct capitalism, you need a strong and competent state—and sadly, most countries that are attracted to it have weak and incompetent ones. But the Chinese will stick with it.

Luigi Zingales of the University of Chicago’s Booth School of Business (who left Italy in 1988 because he felt his country was being destroyed by cronyism) calculates that the implicit subsidy that comes from banks being too big to fail is worth $34 billion a year.9 Two other economists, Thomas Philippon and Ariell Reshef, argue that between a third and a half of the huge increase in Wall Street pay has come from rents rather than productivity improvements.10 The fact that private-equity people can treat their income as capital gains is particularly disgraceful. And like agriculture, all this special treatment for finance creates red tape (witness Dodd-Frank) and distorts capitalism: Ever more finance is now being constructed in “dark pools” beyond the reach of regulators. There are innumerable other examples of rent-seeking special interests. If the government stopped subsidizing the production of fossil fuels, it could save $40 billion over the next decade.11 Spending on lobbying in Washington has more than doubled in the past fifteen years. The Supreme Court’s 2010 Citizens United decision has given companies carte blanche to spend freely on influencing elections. And America is hardly unique. Whitehall is also becoming far too close to various industries.

., 1906), 72 Putin, Vladimir, 144, 153, 253 Pythagorean theorem, 31 Qianlong, Emperor of China, 41 racism, 88 Rauch, Jonathan, 231 Reagan, Ronald, 8, 28, 88, 91–92, 97, 198 Friedman and, 86 small-government ideology of, 95 see also Thatcher-Reagan revolution reason, religion as opponent of, 48 Reform, 203 Reformation, 48–49 Reinfeldt, Fredrik, 184 religion: freedom of, 224 reason as opponent of, 48 rent control, 82 rent seeking, 239 “Report on Manufacturers” (Hamilton), 150 Republic, The (Plato), 250 Republican Party, U.S., 123, 236–37 increased taxes opposed by, 100, 255 tax rises approved by, 12 Reshef, Ariell, 239 retirement age, 184–85, 242 Reykjavik City Council, 261 Ricardo, David, 49 Richelieu, Cardinal, 37 Right, 82, 93 government bloat and, 10–11, 98 government efficiency and, 187 and growth of big government, 10, 95, 98, 228, 230–31 privatization and, 234, 236–37 welfare services opposed by, 88, 185 rights: Fourth Revolution and, 270 liberal state’s expansion of, 7, 48, 49, 51 in nation-state, 30, 43–44 of property, 40, 43, 224 protection of, as primary role of liberal state, 45 see also freedom Rights of Man, The (Paine), 44 Ripley, Amanda, 206–7 road pricing, 217 Road to Serfdom, The (Hayek), 10, 83, 86 Rodrik, Dani, 262 Romney, Mitt, 217 “Roofs or Ceilings” (Friedman), 82 Roosevelt, Franklin Delano, 72–73, 252 Roosevelt, Theodore, 71–72, 258 rotten boroughs, 51, 125, 227, 251, 257, 269 see also gerrymandering Rousseau, Jean-Jacques, 44, 45 Rousseff, Dilma, 153 Royal Society, 42 Rumsfeld, Donald, 77, 253 Russia, 71 China and, 152 corruption in, 186 failure of democracy in, 253, 262 privatization in, 96 Singapore model admired by, 144 state capitalism in, 153, 154 Russian Revolution, 45 Rwanda, 144 Sacramento, Calif., 105, 106, 127 Sahni, Nikhil, 200 St.


pages: 831 words: 98,409

SUPERHUBS: How the Financial Elite and Their Networks Rule Our World by Sandra Navidi

activist fund / activist shareholder / activist investor, assortative mating, bank run, barriers to entry, Bernie Sanders, Black Swan, Blythe Masters, Bretton Woods, butterfly effect, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, commoditize, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, diversification, East Village, Elon Musk, eurozone crisis, family office, financial repression, Gini coefficient, glass ceiling, Goldman Sachs: Vampire Squid, Google bus, Gordon Gekko, haute cuisine, high net worth, hindsight bias, income inequality, index fund, intangible asset, Jaron Lanier, John Meriwether, Kenneth Arrow, Kenneth Rogoff, knowledge economy, London Whale, Long Term Capital Management, longitudinal study, Mark Zuckerberg, mass immigration, McMansion, mittelstand, money market fund, Myron Scholes, NetJets, Network effects, offshore financial centre, old-boy network, Parag Khanna, Paul Samuelson, peer-to-peer, performance metric, Peter Thiel, plutocrats, Plutocrats, Ponzi scheme, quantitative easing, Renaissance Technologies, rent-seeking, reserve currency, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, rolodex, Satyajit Das, shareholder value, Silicon Valley, social intelligence, sovereign wealth fund, Stephen Hawking, Steve Jobs, The Future of Employment, The Predators' Ball, The Rise and Fall of American Growth, too big to fail, women in the workforce, young professional

It is now at an all-time high and set to increase further: Today eighty people hold the same amount of wealth as the world’s 3.6 billion poorest, and the combined wealth of the richest 1 percent will soon overtake that of the other 99 percent.7 Many in this group of super-elites are financiers. This development has been exacerbated by the fact that the wealthy can capitalize on returns on ownership rather than solely on labor, a practice known as “rent-seeking.” In other words, they can let their money work for them, and over time these investments yield a higher rate of return than the economy’s rate of growth. In contrast, salaries derived from labor don’t rise as quickly as the returns on capital.8 The opportunity gap has also increased. Rather than perfect competition, our system creates superstars—or superhubs—and amplifies their rewards in a reinforcing feedback loop where the winners of the competition receive the means to win further competitions, so that all but a few competitors are eliminated.9 Tight interpersonal networks contribute to the unequal access to opportunities, and—as a consequence—people lose trust in the system.

During the course of the debt-fueled global growth over the last thirty years, the status resulting from jobs that carry a social value—such as the medical or educational professions—has been overtaken by the status money provides. People in finance have made increasingly more money and seen their status rise as a result. Salaries in the financial industry are typically significantly higher than salaries in other sectors. Executives can capitalize on those salaries through rent-seeking—returns on ownership rather than from labor or production—as they have access to investment opportunities to put that money to work for them. Location: Reputation Matters Reputation is an important facet of status, reflecting integrity and competence. We automatically assess other people based on their reputations and consider good character a precondition for doing business. In the world of high finance, a stellar reputation within the industry is an indispensable requirement to becoming a superhub.

See Network power undue concentration of, 164 Power lunches, 124–125 Power of Alumni Networks, The, 42 “Power-law distribution,” 20 “Predators’ Ball,” 192 Predictions, 50 Preferential attachment, xxvi “Pricelings,” 103 Prince, Chuck, 56, 139–140, 203 Princeton University, 36, 50, 157, 199 Principles, 63, 71 Printing money, 178, 211 Private banks, 37 Private equity firms, 61, 144 Private parties, 126–128 Private sector, 164–165 Prostitution, 194 Protectionism, 212 Psychological detachment, 223–224 Psychopaths, 66 Public sector, 164–165, 168 Purcell, Philip, 139 Putin, Vladimir, 114–116, 219 Q Qatari ruling family, 171 R Racial discrimination, 198, 200, 201, 203 “Radical truth,” 71 Rainbow Room, 109–110 Rama, Edi, 27 Rand, Ayn, 71 Rania, Queen, 114 Reddit, 203 Reflexivity theory, 63 Regular banks, 37 Regulatory capture, 164, 217–218 Reinhart, Carmen, 107 Relational capital, 97 Relational capture, 163, 217 Renaissance Technologies, 87–88 Renova Group, 144 “Rent-seeking,” 12, 22 Renumeration, 87 Reputation integrity as source of, 59 methods of bolstering, 40 status and, 22–23 Research firms, 43 Reset, 203 Residences, 89–92 Residential mortgages, 12 Resilience gap, 156–158 “Revolving door” phenomenon description of, 10–11, 163, 218 Robert Rubin as example of, 163–170 Tony Blair as example of, 170–172 Rhodes, Bill, 131 Rice, Condoleezza, 172 “Rich-get-richer phenomenon,” xxvii, 19, 77, 92 Rikers Island, 39, 193 “Rise of the Overclass, The,” 80 Risk, 30 Risk management systems, 30, 64 Risk taking, 66, 225 Ritz Hotel, 132 Robbins, Tony, 23 Robertson, Julian, 27 Robin Hood charity gala, 75–76 Robin Hood Foundation, 75–76, 103 Robinson, James D.


pages: 463 words: 105,197

Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric Posner, E. Weyl

3D printing, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, anti-communist, augmented reality, basic income, Berlin Wall, Bernie Sanders, Branko Milanovic, business process, buy and hold, carbon footprint, Cass Sunstein, Clayton Christensen, cloud computing, collective bargaining, commoditize, Corn Laws, corporate governance, crowdsourcing, cryptocurrency, Donald Trump, Elon Musk, endowment effect, Erik Brynjolfsson, Ethereum, feminist movement, financial deregulation, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, guest worker program, hydraulic fracturing, Hyperloop, illegal immigration, immigration reform, income inequality, income per capita, index fund, informal economy, information asymmetry, invisible hand, Jane Jacobs, Jaron Lanier, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, labor-force participation, laissez-faire capitalism, Landlord’s Game, liberal capitalism, low skilled workers, Lyft, market bubble, market design, market friction, market fundamentalism, mass immigration, negative equity, Network effects, obamacare, offshore financial centre, open borders, Pareto efficiency, passive investing, patent troll, Paul Samuelson, performance metric, plutocrats, Plutocrats, pre–internet, random walk, randomized controlled trial, Ray Kurzweil, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Rory Sutherland, Second Machine Age, second-price auction, self-driving car, shareholder value, sharing economy, Silicon Valley, Skype, special economic zone, spectrum auction, speech recognition, statistical model, stem cell, telepresence, Thales and the olive presses, Thales of Miletus, The Death and Life of Great American Cities, The Future of Employment, The Market for Lemons, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, trickle-down economics, Uber and Lyft, uber lyft, universal basic income, urban planning, Vanguard fund, women in the workforce, Zipcar

We benefited from discussions with Michael Clemens, who shared some of his unpublished research with us. See also Michael Clemens, Economics and Emigration: Trillion Dollar Bills on the Sidewalk?, 25 Journal of Economic Perspectives 3 (2011). 4. Barry Baysinger, Robert B. Eckelund, Jr., & Robert D. Tollison, Mercantilism as a Rent-Seeking Society, in Roger D. Congleton, Arye L. Hillman, & Kai A. Konrad, eds., 40 Years of Research on Rent-Seeking 2: Applications: Rent-Seeking in Practice (Springer, 2008). 5. Furniss, Position of the Laborer in a System of Nationalism. 6. François Bourguignon & Christian Morrisson, Inequality Among World Citizens: 1820–1992, 92 American Economic Review 727 (2002). 7. Technically this measure is only an approximation, as the actual measure uses continuously compounded percentage increases, so that this interpretation is accurate only for relatively modest changes.


Lectures on Urban Economics by Jan K. Brueckner

affirmative action, Andrei Shleifer, congestion charging, Edward Glaeser, invisible hand, market clearing, mortgage tax deduction, negative equity, New Economic Geography, profit maximization, race to the bottom, rent control, rent-seeking, Ronald Coase, The Nature of the Firm, transaction costs, urban sprawl

Local Public Goods and Services 185 8.6.3 Interjurisdictional competition as a disciplinary device Although local governments have so far been portrayed as acting in the best interests of their residents, other types of behavior are possible. Local governments could produce public goods inefficiently as a result of inattention or laziness. Alternatively, local governments could be efficient producers, but they could engage in “rent seeking,” in which some tax revenue is diverted to uses that benefit local officials (nice offices, generous pensions, and so on) without helping consumers. Competition between jurisdictions might help to limit such undesirable behavior. Jurisdictions in which inefficiency or rent seeking leads to excessive taxes relative to the public goods provided will fail to attract residents who are voting with their feet. They will also fail to attract housing developers, who will build projects in jurisdictions with lower tax burdens. These losses will tend to punish and thus eliminate undesirable governmental behavior, reinforcing the positive side of interjurisdictional competition.23 8.7 Summary At the socially optimal level of a public good, the marginal social benefit of an additional unit is equal to the unit’s cost.

., 179 Price elasticity, 117 Price function, hedonic, 33, 115–118, 136, 179, 180, 204, 242, 244 Pride of ownership, 129, 136 Prisons, 207, 209, 212–215, 219, 220 Production, centralized vs. dispersed, 16–18 Production function, 3, 7, 8, 34, 35 Production processes weight-gaining, 15 weight-losing, 14, 15 Productivity, 2, 5, 9, 10, 20, 66, 222–229 Property, abuse of, 133–136 Property rights, 196–199, 205 Property tax, 77, 78, 119–124, 127, 128, 134, 136, 169–172, 179–184 Property value, maximization of, 161, 182 Proportional rent subsidies, 146–155 Public-good congestion, 174, 176, 215, 216n Public transit, 26, 54, 70n, 107, 108 Pure public good, 174, 176n Quality of life, 84, 152, 187, 207, 231, 232, 241–245 Quigley, J., 118n, 154 Radial roads, 25, 56n, 68, 72n Raphael, S., 157 Rappaport, J., 54n, 245 Redevelopment, 62, 64, 69, 79 Rent control, 137, 138, 141–145, 157 Rent seeking, 185 Retail agglomeration, 18–21 Rhee, H.-J., 61n Rhode, P., 169n Index Ridker, R., 204 Roback J., 232, 233, 241 Rosen, S., 118 Rosenthal, S., 10, 55, 243, 244 Sacerdote, B., 219 Saks, R., 89 Savageau, D., 243 Scale constant returns to, 35, 112, 235 economies of, 1–5, 8, 16–21, 35 Scheinkman, J., 219 Schools, 77, 78, 160, 169, 172 Scotchmer, S., 177n Section 236 program, 152 Self-financing, 112 Self-selection, 80, 153, 205n Selod, H., 61n Sewage and sanitation districts, 178 Shipping, cost of, 6, 7, 11, 13 Shopping, 19 Shopping malls, 18, 19 Shoup, C., 221n Shoup, D., 108 Sinai, T., 129n Singapore, 77, 107 Sjoquist, D., 61n Slums, 145–153, 157 Small, K., 24n, 59n, 76n, 92n, 112n Smith, V., 204 Smolensky, E., 157 Social interaction, 69, 80 Social networks, 208, 218, 219, 230 Social planners, 73, 101, 104, 105, 163, 165 Social surplus, 192, 194, 198, 199 Sonstelie, J., 54n, 126, 128n, 179, 180 Souleles, N., 129n Spatial mismatch, 60, 61 Spatial structure, 23, 24, 27, 28, 31, 37, 43–45, 49–55, 76, 81 Special districts, 159, 177 State aid to localities, 172, 173 St.


pages: 172 words: 54,066

The End of Loser Liberalism: Making Markets Progressive by Dean Baker

Asian financial crisis, banking crisis, Bernie Sanders, business cycle, collateralized debt obligation, collective bargaining, corporate governance, currency manipulation / currency intervention, Doha Development Round, financial innovation, full employment, Home mortgage interest deduction, income inequality, inflation targeting, invisible hand, manufacturing employment, market clearing, market fundamentalism, medical residency, patent troll, pets.com, pirate software, price stability, quantitative easing, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Silicon Valley, too big to fail, transaction costs

The result is that the dead peasant policy is in effect another financial instrument that allows corporations to adjust earnings in ways that minimize their tax liability.[85] And of course some brilliant finance people thought this one up, making themselves and their employer large amounts of money as a result. This is the sort of activity that has quadrupled the financial sector’s share of the economy. It is not about allocating capital to its best uses or making savings more secure, it’s about finding clever ways to rip off taxpayers, productive businesses, and other actors. The economy will benefit from having less of this sort of inefficient rent-seeking behavior. While this may have seemed like a radical assessment a decade ago, even the IMF now recognizes that there are substantial rents in the financial sector and that governments should adopt policies to reduce the sector’s size.[86] Tremendous waste in the financial sector is not the only justification for reducing its size. The sector has also been a major cause of instability. It fueled both the stock and housing bubbles, and restructuring it to make it less bubble-prone would be a huge boost to the economy.

It is worth noting that a much higher share of doctors in the U.S. are specialists, who require more years of training, and therefore command higher salaries than family practitioners, than in most other wealthy countries. It is not clear that the greater number of specialists improves the quality of care, but it is likely that they are used in the United States in instances in which family practitioners would suffice. This sort of rent-seeking, with specialists inserting themselves into situations where their skills are not necessary, is exactly what would be expected when government interventions obstruct the normal workings of the market. [77] Once while on a panel discussing trade policy, I made a reference to the effort in the 1990s to tighten industry requirements in order to reduce the number of foreign-born doctors who could practice in this country.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, Gini coefficient, glass ceiling, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, urban sprawl, Washington Consensus, working-age population

The challenge to policymakers is therefore to direct entrepreneurial talent towards manufacturing rather than services, and in particular towards large-scale manufacturing with the heft to compete globally. Manufacturing firms are nurtured by the state in two ways: through protection and through subsidy. These interventions create breathing space for entrepreneurs while they learn to manufacture competitively. Unfortunately, protection and subsidy also bring with them a well-known risk – one which economists call ‘rent seeking’. In a developing country, rent seeking refers to the propensity of entrepreneurs to concentrate their efforts on obtaining protection and subsidies (rents) from the state without delivering the technological progress and competitiveness that economic development requires. The problem is a very real one and has undermined industrial development efforts in many poor countries. The solution to the problem is to find mechanisms that force manufacturing entrepreneurs to become globally competitive at the same time as they are allowed to make profits for themselves.

What created the Canons, the Samsungs, the Acers and so on in Japan, Korea and Taiwan was the marriage of infant industry protection and market forces, involving (initially) subsidised exports and competition between manufacturers that vied for state support. The north-east Asian states found ways to overcome the problems that afflicted the ISI policies that were promoted in the 1950s (including by the World Bank in its early, ‘left-wing’ incarnation). Contrary to the claims of many economists, rent-seeking and crony capitalism did not inevitably undermine industrial policy so long as sufficient discipline could be wrapped around infant industry promotion. The mix of plan and market recalls the British development economist Ronald Dore’s contemporary observation about foreign perceptions of Japan at the height of its industrialisation: ‘Left-wing … observers come back from Japan convinced they have seen a shining example of state planning,’ he wrote.

Pierpont 171 Multimedia Super Corridor (MSC) 134, 306n157 MV Agusta 149, 150 Myanmar xx, 246 Nadzmi Mohd Salleh 149, 311n203 Nasser, Gamal Abdel 93 National Development and Reform Commission (NDRC) 97, 240, 255 National Resources Commission (NRC) 96–7 Naughton, Barry 255 Negros Occidental 34, 40–7 neo-classical economists 101–2, 103, 267 Netherlands 290n10 New People’s Army (NPA) 36–7, 38, 41, 45 New Zealand 61, 81 nihonjinron 179 Niigata 14 Nippon Kangyo 176 Nippon Steel 117, 142, 300n108 Nishiyama Kōichi 63, 178, 230 Nissan 8, 160, 276n8 Nolan, Peter 316n248 non-bank financial institutions (NBFIs) Korea 184–5, 319n27 Thailand 200, 201 non-government organisations (NGOs) 44–6 North Korea xviii agriculture 4 land reform xvi, 21, 22, 28 Nursalim 326n92 Ohkawa, Kazushi 100 Ohmae, Kenichi 131, 133 oil palm 68, 141 oligopolies, China 235, 236–7 Pakistan 66, 242 Papua New Guinea xx, 113 Park Chung Hee xxv, 65 agriculture 28–9, 66, 296n75 assassination 108, 122 Blue House 109–11 books 93, 129, 131 car industry 114, 121 and Chung Ju Yung 112, 137 coup 93, 298–9n96 finance 102, 179–82, 195, 327n96 HCI drive 95 and Japan 94, 101, 127 liberation aristocrats 111, 132 and Mahathir 304n142 manufacturing 92–5, 104 POSCO 95, 115, 116, 118 Seodaemun 111 and US 294–5n57 Park Tae Joon 116, 119 Paron Issarasena 314n230 Pasuk Phongpaichit 58 Perodua 146, 150, 313n216, 314n227 Perwaja 140, 141–5, 147, 308n183, 309n187, 309–10n191–2, 310n196 PetroChina 234, 235 Petronas 139, 141 Petronas Twin Towers 139 Pheng Yin Huah 144 Pheng family 144 Philippines 270 agriculture 6, 8 crony capitalism 108 democracy xxiv education xxii finance 169, 183, 188–93, 217, 218, 317n7 land reform xvii, 33–47, 56, 281n56, 281n61, 282n68, 283n74 manufacturing 106, 154–5, 163 rule of law xxv and US 69, 297n83 photovoltaic cells 252–3 Pitt, William 290n18 plantations 7, 52–5, 67–8, 284n87 population xxi China 264–5 POSCO (Pohang Iron and Steel Company) 95, 115–18, 119, 141, 145, 300n108 power equipment 242 Prawiro, Radius 211 Preston, Lewis T. 273n2 pribumi 207 Princip, Gavrilo 3 private sector 108, 157 China 235–6, 249–53 Korea 94 Malaysia 131, 132, 141, 152 Taiwan 186 protectionism 79–81, 82–3, 130, 134, 290–1n19, 20, 315n234 Proton 134, 143–49, 306n159, 310n198, 311n203, 312n204–5, 312n212 Prussia 79, 83, 85, 86, 101, 290n17, 291n25 Pusan 113 Pyle, Kenneth 85 Quek Leng Chan 138 Rahardja, Hendra 215, 328n108 railways 248, 260 Razak, Abdul 128, 141 Razak, Najib 307n163, 312n213 Razaleigh Hamzah 307n169, 308n172 Reden, Graf von 291n25 rediscounting 218 Indonesia 214 Japan 177, 178 Korea 179 Malaysia 195 Philippines 192, 193, 322n50 Thailand 199 Ren Zhengfei 246 Renault-Nissan 127, 302n127 rent seeking 75, 108, 156 Rhee, Syngman 22, 27, 28, 69, 99, 105, 110, 136 Riady, Mochtar 205, 325n85, 86 Ricardo, David 83, 101 rice China 226 Indonesia 50 Japan 62 Korea 63 Philippines 48–9 Thailand 57–8 Rin Kei Mei 311n203 Rizhao Steel 237 Roh Tae Woo 302n126 Rosovsky, Henry 100 Rostow, W.W. xv, 102, 172, 297n82, 316n6 rubber 6, 52–3, 55, 57, 67, 68, 141, 285n97 rule of law xxv Russia agriculture 4 banks xix, 317n8 and China 96 education xxiii financial deregulation 172 land reform 21, 24 manufacturing 81, 232 see also Soviet Union Sahashi Shigeru 78 Salim, Emil 214, 313n225, 328n105 Samsung 100, 105, 155, 246, 296n71, 300n110 car industry 126, 302n127 finance 93, 183 sangyō gōrika 90 Sany 244, 255, 333n38 Saudi Arabia 300–1n115 savings 317n7 Korea 182, 319n30 Malaysia 197 Philippines 188 Taiwan 319–20n30 Thailand 201 Schumpeter, Joseph 328n114 Sen, Amartya xxvi Seoul 108–9, 110 service sector 74, 288–9n3 India 164 Japan 161 shadow banking 258–9 Shanghai Automotive Industry Corp (SAIC) 127 Shanghai Electric 242 Shenhua Energy 234 Shibusawa Eiichi 87 Shih, Stan 251 Shin, Jang-Sup 162–3 Shinjin 126, 302n125 shipbuilding China 243 Korea 122 Singapore xiv, xix–xxi, 79, 270 casino resort 137, 307n164 and Malaysia 195 manufacturing xviii, 289n3 stock exchange 198 Sinopec 234 Smith, Adam 83, 95, 101, 290n18 social mobility 66, 288n125 Soedradjad Djiwandono 153, 213, 214, 326n95 Soeryadjaya, Edward 214, 215 Soeryadjaya, Edwin 153, 314n227 sogo shosha 130 solar power 240 Sony 78 South Korea see Korea Soviet Union xix economic development 75 education xxii, xxiii manufacturing 158 see also Russia soybeans 227 Spain 171, 316n4 Sri Lanka 53 SsangYong 126, 302n127 State Asset Supervision and Administration Commission (SASAC) 234, 240 state enterprises 158 China 82, 233–4, 239–50, 254, 264 Taiwan 82, 96, 97, 98–100, 102, 153, 239 steel 106–7, 300n108 Japan 159, 294n43 Korea 95, 116–17, 141–2, 145 Malaysia 140, 141–5, 149, 151, 308n183, 187, 309–10n191–2, 310n196 Stevenson, Sir James 53 Stevenson Restriction Scheme 53 stock markets 174, 218 China 254 Indonesia 212 Japan 177–8 Korea 184, 319n27 Malaysia 196, 197 Taiwan 187 Thailand 202 Sudirman Central Business District (SCBD) 212 Suehiro Akira 154 sugar 6, 67 China 227 Indonesia 51 Philippines 35, 43, 44–5, 46, 47 Taiwan 32, 276n5, 280n52 Suharto 56, 325n84 agriculture 51 finance 103, 203, 209–11, 313n225, 326n96 and Liem 204, 205 manufacturing 153 Suharto, Tommy 210, 215, 270, 326n96 Suji Kōji 81 Sukarno xxv, 69, 203, 326n89 agriculture 49 finance 203, 208 Sumarlin, Johannes 211, 212 Sumatra 51 Sumitomo 88 Sun Yat-sen 82, 93, 96, 290n16 Suntech 252–3 Sutowo, Ibnu 213, 327n101 Suzuki, Kazumasa 130, 304n140 Sweden 164 Syed Mokhtar al-Bukhary 138 Taipei 196 Taiwan xiii–xvi, xx, xxvii agriculture 3–4, 6–7, 8, 12, 47, 48, 62, 63 authoritarianism xxiv bureaucracy 97–8, 101, 290n10 capital controls 173 car ownership 310n197 economic development 69 education xxii–xxiii exchange rate 262–3 finance xvii–xviii, 157, 169, 170, 174, 185–8, 218–19 and Japan 82, 87 land reform xvi, xxvi, 3, 7–8, 9, 22, 26, 28, 30–3, 61, 68, 280n52 manufacturing xvi–xvii, 33, 69, 77, 78, 98–101, 103–4, 153, 158, 249, 251, 295n66 social mobility 65 state enterprises 83, 96, 97, 98–9, 239 steel 106, 107 and US 165, 297n83 Tan, Vincent 140, 308n176 Tan Tat Wai 142 Tanin 154 Tansil, Eddy 215 Task Force Mapalad 47 Tata Consultancy Services (TCS) 163 Tawney, R.H. 17 tea-housing 110 technological learning xiii, 74, 156, 223 China 223–4, 249 Korea 123, 126–7, 151, 181 Malaysia 129, 134, 136, 143, 144, 147 Philippines 155 Thailand 154 telecommunications 99, 244–5, 246 textile industry Japan 86, 87 Korea 94, 294n48 Thailand xiv, xv, 174, 270, 317n7 agriculture xvi, 56–60 finance 169, 188, 194, 198–201, 218 Hyundai 113 manufacturing xvii, 154, 157, 163, 302n131, 314n230 and US 69, 297n83 Thaksin Shinawatra 60, 287n114 Thieu, Nguyen Van 37, 281n62 Tokyo 14 Toyoda, Sakichi 292n27 Toyota 8, 127, 146, 153, 276n8, 288n125, 292n27, 302n129, 314n227 trade 84, 214 and agriculture 7–8 China 224 and manufacturing 74, 75–6, 77–8 and services 74 surpluses 158–9 Trebilcock, Clive 89 Tunku 128–9, 137, 303n134 Turkey 93 Turnbull, George 124 Ulsan 108–9, 114, 115, 120, 146 United Kingdom agriculture 9 and Malaysia 52–5, 105, 128 manufacturing 75, 84, 86 protectionism 80, 81, 83–4, 291n20 Proton 143 steel 106 and Thailand 200 trade surplus 158 United States agriculture 5, 61 banks 176, 177 and east Asian development 165–6, 316n249 finance 172, 173, 217 free market economics xiv, 268 grants and aid 297n83 Huawei 246–7 Hyundai 123, 124–5, 302n124 and Indonesia 69 interest rates 189 and Japan 90–1, 101–2, 291n22 and Korea 180, 181, 183, 318n22 and land reform 9, 22–5, 27, 30, 31, 32, 33, 34, 66–7, 68, 102, 165, 279n33, 279n38 manufacturing 101, 161, 170 and Philippines 33, 34, 48, 69, 190–1, 280n55, 322n46 protectionism 79, 80, 84, 291n19 Proton 142 rail network 247 steel 106, 117 and Taiwan 103–4 and Thailand 69, 201 trade surplus 158 Vajiravudh, King 57 Venezuela 242 Vietnam xix, xxvi, 166, 270 agriculture 4 Hyundai 113, 299n100, 101 land reform xvi, 4, 23, 36, 66, 281n62 Volvo 253 VW 302n129 Wada, Hiroo 69 Wade, Robert 85, 95, 103, 196 Wahaha 232 Wain, Barry 303n134 Wan Azmi Wan Hamzah 138, 308n170 Wang Chuanfu 252 Wang Yung-ching 66 Wanxiang 232 Washington Consensus xiv, 172–3, 174, 217, 274n3 Wealth of Nations, The (Smith) 290–1n19 West Germany 92, 152–3 Westinghouse 242, 333n37 wheat 226 Widjojo Nitisastro 209 Wilkinson, John 291n25 Williamson, John 274n3 Winata, Tomy 212, 327n98 wind turbines 240 Woo, Jung-en 103, 173, 186 World Bank xiv, 82, 104, 157, 271, 273n1–2 China 224, 329n3 deregulation 172, 217 Hong Kong and Singapore xiv, xix Indonesia 203, 212, 213 ISI policies 156 Korea 95, 96, 116, 118, 182, 184 macro-economic stability 156 microfinance 269 Philippines 191, 193, 322n52 private enterprise 157 Thailand 199, 200, 201 World is Flat, The (Friedman) 134 World Trade Organisation (WTO), China 228, 241 XCMG 244 Yahaya Ahmad 148 Yasuda 88 Year of Living Dangerously, The 203, 207 Yeoh, Francis 135 Yeoh family 135–6, 306n160–1 Yin, K.Y. 101, 102 Yingluck Shinawatra 287n114 Yokohama Specie 176 Yoshida Shigeru 91 Yoshihara Kunio xvi Yoshino Shinji 101 YTL 136, 306–7n160–1 zaibatsu 88, 90, 91, 94, 293n40 finance 170, 175, 177 Zhao Ziyang 232, 331n21 Zhou Yimin 248 Zhu Rongji 233, 235, 236–9, 249, 256, 331n21 Zimbabwe 7, 276n6 Zoomlion 244 ZTE 244–5, 246


pages: 775 words: 208,604

The Great Leveler: Violence and the History of Inequality From the Stone Age to the Twenty-First Century by Walter Scheidel

agricultural Revolution, assortative mating, basic income, Berlin Wall, Bernie Sanders, Branko Milanovic, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, colonial rule, Columbian Exchange, conceptual framework, corporate governance, cosmological principle, crony capitalism, dark matter, declining real wages, demographic transition, Dissolution of the Soviet Union, Downton Abbey, Edward Glaeser, failed state, Fall of the Berlin Wall, financial deregulation, fixed income, Francisco Pizarro, full employment, Gini coefficient, global pandemic, hiring and firing, income inequality, John Markoff, knowledge worker, land reform, land tenure, low skilled workers, means of production, mega-rich, Network effects, nuclear winter, offshore financial centre, plutocrats, Plutocrats, race to the bottom, recommendation engine, rent control, rent-seeking, road to serfdom, Robert Gordon, Ronald Reagan, Second Machine Age, Simon Kuznets, The Future of Employment, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, transatlantic slave trade, universal basic income, very high income, working-age population, zero-sum game

In some cases, it may well be possible to estimate how much elite fortunes owed to income from sources other than economic activity: if we are able to tell that Roman aristocrats of the second and first centuries BCE were simply too rich to have built up their wealth by farming and commerce alone, then more specific breakdowns ought to be feasible for more recent historical societies. Ancien régime France, which I briefly discuss later in this section, is merely one example. In the most general terms, there can be little doubt that personalized political connections and favors made a much larger contribution to elite wealth than they do in developed countries today. Rent-seeking elites in Latin America or Africa may come somewhat closer to what in global historical terms must count as traditional and indeed “normal” strategies of wealth appropriation and concentration. So do contemporary Russian “oligarchs,” who resemble some premodern elite groups in the extent to which both the creation and the preservation of their fortunes have depended on personalized political power relations.

Simple estimates of the likely scale of supply and demand suggest that landownership and related commercial activities could not have generated nearly enough income to make the Roman elite as rich as we know it became. And indeed, our sources emphasize the paramount significance of coercion as a source of top incomes and fortunes. Great wealth accrued from state administration outside Italy, and Roman-style governance was highly conducive to exploitation. Provincial administration was highly lucrative, and rent-seeking behavior was only weakly constrained by laws and courts set up to prosecute extortion; alliance-building and rent-sharing among the powerful provided insurance against indictment. Moreover, at a time when annual interest rates of 6 percent were common in Rome itself, wealthy Romans imposed rates of up to 48 percent on provincial cities, which were in desperate need of money to satisfy the demands of their governors.

For some professions, such as surgeons, this may reflect the attachment of greater importance to their skills, even though skill premiums for workers did not generally increase during this period. However, generous raises for government officials and cognate knowledge workers such as schoolmasters may well have been driven in the first instance by a desire to keep up with those in the same bourgeois stratum who benefited from growing capital income. Thus commercial capital income seems to have had a striking knock-on effect on wages for certain socially privileged groups. Rent-seeking by elites had a polarizing effect on the income distribution.14 In the territory (contado) of Florence, wealth inequality documented by property registers grew from a low of 0.5 in the mid-fifteenth century to 0.74 around 1700. In the city of Arezzo, it rose from 0.48 in 1390 to 0.83 in 1792, and it grew from 0.58 to 0.83 in Prato between 1546 and 1763. This concentration was very much driven by the growth of top wealth shares: between the late fifteenth or early sixteenth century and the early eighteenth century, the share of reported assets owned by the richest 1 percent of households rose from 6.8 percent to 17.5 percent in the contado of Florence, from 8.9 percent to 26.4 percent in Arezzo, and from 8.1 percent to 23.3 percent in Prato.


pages: 214 words: 57,614

America at the Crossroads: Democracy, Power, and the Neoconservative Legacy by Francis Fukuyama

affirmative action, Ayatollah Khomeini, Berlin Wall, Bretton Woods, cuban missile crisis, David Brooks, European colonialism, failed state, Francis Fukuyama: the end of history, Internet Archive, Mikhail Gorbachev, Monroe Doctrine, mutually assured destruction, New Journalism, race to the bottom, RAND corporation, rent-seeking, road to serfdom, Ronald Reagan, Ronald Reagan: Tear down this wall, transaction costs, uranium enrichment, War on Poverty, Washington Consensus

But it needs to be discriminating in the use of its money and should focus its efforts on building stronger institutions and governance in poor countries. Long-term attention to institutions and politics will have two benefits, given the convergence between the economic and political development agendas. The rule of law is extremely important for creating a climate in which investment and economic growth can take place; it also constitutes the "liberal" part of a liberal democracy. Controlling rent-seeking and clientelism, ensuring that public monies are spent on public goods and not on patronage, and reining in rapacious corruption simultaneously Social Engineering and Development promote development and help legitimate democratic political systems. Since the 1980s, international financial institutions like the IMF and World Bank have sought to use conditionality in structural adjustment loans as a means of artificially stimulating demand for reform in countries where it is low.

This reality has led Krasner and other observers to argue that we ought to move in the opposite direction, toward models of shared sovereignty in which states accept long-term help from the international community to provide certain basic governance services—importing good governance, in effect, from jurisdictions where it exists. 16 The most striking recent example of shared sovereignty is the Chad-Cameroon gas pipeline, in which the government of Chad agreed to put expected energy revenues from natural gas into a trust fund to be administered by the World Bank and other international trustees. Chad in effect agreed with Rethinking Institutions for World Order the international community that it could not be trusted to use its own energy revenues properly and needed external help to avoid being dragged into a morass of corruption and rent-seeking. The Chad-Cameroon pipeline was hugely controversial not only in Chad but in the rest of Africa, where many believed that it set a bad precedent for sovereignty. It is clear that if shared sovereignty is ever to become a more broadly accepted model, it will take place only under conditions where the external actor with M'hom governance functions are divided is regarded as legitimate. Those jurisdictions with good governance, in other words, will need to export governance to other jurisdictions that lack it.


pages: 261 words: 57,595

China's Future by David Shambaugh

Berlin Wall, capital controls, demographic dividend, demographic transition, Deng Xiaoping, facts on the ground, financial intermediation, financial repression, Gini coefficient, high net worth, Kickstarter, knowledge economy, low skilled workers, market bubble, megacity, Mikhail Gorbachev, New Urbanism, offshore financial centre, open economy, Pearl River Delta, rent-seeking, secular stagnation, short selling, South China Sea, special drawing rights, too big to fail, urban planning, Washington Consensus, working-age population, young professional

Deregulation and streamlining of a wide range of central, provincial, and local administrative regulations has been a priority, with a large number of previously needed government approvals abolished. The State Council has cancelled administrative approvals on 246 items. This is very positive as it keeps with the Third Plenum pledge to “allow the market to play the decisive factor in the economy,” and also reduces opportunities for bribes and rent-seeking by officials. The National Development and Reform Commission (NDRC), which previously exercised a stranglehold over economic planning, is being downsized and perhaps even broken up. It is also a main target of the anti-corruption campaign. An explicit bank deposit insurance system has been created for the first time, and pilot programs for issuance of local bonds have been set up in ten provinces and cities.

In other words, while necessary and welcome, the anti-corruption campaign is seriously stressing the system that has very much come to depend on it. Moreover, the campaign is targeting the behavioral manifestations of corruption (bribery, private villas, lavish lifestyles, luxury goods, mistresses)—not the systemic sources of corruption (lack of transparency, lack of autonomous media, lack of autonomous judiciary, rent-seeking, slack auditing and tax systems, and lack of political competition). But Xi’s hard personality and assertive policies belie a Party and political system that is extremely fragile on the inside, in my view. Chinese use the proverb waiying, neiruan ()—hard on the outside, soft on the inside—which is a fitting description of the condition of the Chinese communist regime today. The regime’s repression is symptomatic of its deep and profound insecurity.


pages: 430 words: 109,064

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson, James Kwak

American ideology, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bernie Madoff, Bonfire of the Vanities, bonus culture, break the buck, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, Charles Lindbergh, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Gordon Gekko, greed is good, Home mortgage interest deduction, Hyman Minsky, income per capita, information asymmetry, interest rate derivative, interest rate swap, Kenneth Rogoff, laissez-faire capitalism, late fees, light touch regulation, Long Term Capital Management, market bubble, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage tax deduction, Myron Scholes, Paul Samuelson, Ponzi scheme, price stability, profit maximization, race to the bottom, regulatory arbitrage, rent-seeking, Robert Bork, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, Satyajit Das, sovereign wealth fund, The Myth of the Rational Market, too big to fail, transaction costs, value at risk, yield curve

On the nature and value of political connections in Indonesia, see Ray Fisman, “Estimating the Value of Political Connections,” American Economic Review 91 (2001): 1095–1102. See also Michael Backman, Asian Eclipse: Exposing the Dark Side of Business in Asia (Singapore: John Wiley & Sons [Asia], 2001); chapter 14 has details on how the Suharto regime interacted with the private sector. On how subsidies were provided, see Andrew McIntyre, “Funny Money: Fiscal Policy, Rent-Seeking and Economic Performance in Indonesia,” in Mustaq H. Khan and Jomo Kwame Sundaram, eds., Rents, Rent-Seeking and Economic Development (Cambridge: Cambridge University Press, 2000). See also Adam Schwarz, A Nation in Waiting: Indonesia in the 1990s (Boulder, CO: Westview, 1994), chapter 6. 30. Real GDP per capita (constant prices: chain series), from Alan Heston, Robert Summers, and Bettina Aten, Penn World Table Version 6.3, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, August 2009.

Claudia Goldin and Lawrence Katz have examined data on Harvard undergraduates and found that while only 5 percent of men in classes around 1970 were in finance fifteen years after graduation, that figure tripled to 15 percent for classes around 1990.79 The share of each class entering banking and finance careers grew from under 4 percent in the 1960s to 23 percent in recent years.80 At Princeton’s School of Engineering and Applied Science, “Operations Research and Financial Engineering” became the most popular undergraduate major.81 The banks thus became major beneficiaries of the American educational system. Whether society benefited is another question. Kevin Murphy, Andrei Shleifer, and Robert Vishny have argued that society benefits more when talented people become entrepreneurs who start companies and create real innovations than when they go into rent-seeking activities that redistribute rather than increase wealth.82 If this is true, then this diversion of talent to Wall Street constituted a real tax on economic growth over the last two decades. Among the economic and intellectual elites, finance became a highly prestigious and desirable profession. Working on Wall Street became a widely acknowledged marker for educational pedigree, intelligence, ambition, and wealth.


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The Great Escape: Health, Wealth, and the Origins of Inequality by Angus Deaton

"Robert Solow", Admiral Zheng, agricultural Revolution, Branko Milanovic, BRICs, British Empire, call centre, clean water, colonial exploitation, Columbian Exchange, creative destruction, declining real wages, Downton Abbey, end world poverty, financial innovation, germ theory of disease, Gini coefficient, illegal immigration, income inequality, invention of agriculture, invisible hand, John Snow's cholera map, knowledge economy, Louis Pasteur, low skilled workers, new economy, purchasing power parity, randomized controlled trial, rent-seeking, rising living standards, Ronald Reagan, Simon Kuznets, Steve Jobs, Steven Pinker, structural adjustment programs, The Spirit Level, too big to fail, trade route, very high income, War on Poverty

Countries that were relatively wealthy and populous places in colonial times were particularly attractive targets for conquest, so much so that there has been a historical reversal of fortune. Among the countries that were conquered by European powers, the countries that were rich are now poor, and those that were poor are now rich. Such reversals of fortune should warn us against taking modern prosperity and modern economic growth for granted, as something that we have always known and that can never go away. Rent seeking can lead to economic growth being replaced by internecine warfare in which each group fights ever more viciously for shares of a declining total. Interest groups can feather the nests of a few at the expense of the many, each of whom loses so little that it is not worth organizing to prevent the plunder; the cumulative effects of many such groups can eat away an economy from within and stifle growth.42 Powerful and wealthy elites have choked off economic growth before, and they can do so again if they are allowed to undermine the institutions on which broad-based growth depends.

In the case of the United States, current extremes of income and wealth have not been seen for more than a hundred years. Great concentrations of wealth can undermine democracy and growth, stifling the creative destruction that makes growth possible. Such inequality encourages the previous escapees to block the escape routes behind them. Mancur Olson predicted that rich countries would decline like this, undermined by the rent seeking of an ever-growing number of focused interest groups pursuing their own self-interest at the expense of an uncoordinated majority.2 Slower growth makes distributional conflict inevitable, because the only way forward for me is at your expense. It is easy to imagine a world with little growth but endless distributional conflict between rich and poor, between old and young, between Wall Street and Main Street, between medical providers and their patients, and between the political parties that represent them.

Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva, 2011, “Optimal taxation of top labor incomes: A tale of three elasticities,” National Bureau of Economic Research Working Paper 17616. Note that these authors interpret the relationship differently than I do in the text. 35. Larry Bartels, 2010, Unequal democracy: The political economy of the new gilded age, Princeton University Press, and Martin Gilens, 2012, Affluence and influence: Economic inequality and political power in America, Princeton University Press. 36. Anne O. Krueger, 1974, “The political economy of the rent-seeking society,” American Economic Review 64(3): 291–303, and Jagdish N. Bhagwati, 1982, “Directly unproductive profit-seeking (DUP) activities,” Journal of Political Economy 90(5): 988–1002. 37. Gilens, Affluence and influence. 38. Joseph E. Stiglitz, 2012, The price of inequality: How today’s divided society endangers our future, Norton. 39. Eric Jones, 1981, The European miracle: Environments, economies, and geopolitics in the history of Europe and Asia, Cambridge University Press, and 1988, Growth recurring: Economic change in world history, Oxford University Press. 40.


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They Don't Represent Us: Reclaiming Our Democracy by Lawrence Lessig

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Berlin Wall, Bernie Sanders, blockchain, Cass Sunstein, Columbine, crony capitalism, crowdsourcing, David Brooks, do-ocracy, Donald Trump, Fall of the Berlin Wall, Filter Bubble, Francis Fukuyama: the end of history, illegal immigration, income inequality, Jaron Lanier, Jeff Bezos, Joi Ito, Mark Zuckerberg, obamacare, Parag Khanna, plutocrats, Plutocrats, race to the bottom, Ralph Nader, rent-seeking, Richard Thaler, Ronald Reagan, Shoshana Zuboff, Silicon Valley, Skype, speech recognition, Steven Levy, Upton Sinclair

One could well argue that even the funders of campaigns are not representative of the rich. Funders are typically those who have something special to gain from government. Certain industries—telecom, IP—are keen to engage. Others are not. So while the rich, as Benjamin Page, Jason Seawright, and Matthew Lacombe demonstrate, are already more conservative, regardless of their politics, it is the especially interested who spend the most to drive the politics of rent-seeking, the practice of manipulating public policy to increase individual profit.126 But the inequality from gerrymandering does not benefit the rich. Safe-seat gerrymandering skews to the extremes and the extremes are not necessarily the rich. On the left, the most progressive push policies not favored by the rich (higher taxes). On the right, the Tea Party types push policies that benefit the rich though not necessarily the cronies.

RWP08-010, issued March 18, 2008, available at link #234. Compare Donald J. McCrone and James H. Kuklinski, “The Delegate Theory of Representation,” American Journal of Political Science 23 (1979): 278; Pitkin, Representation, 127. 2.Mansbridge, A Selection Model, 21–23. 3.The Congressional Research Institute has done extensive work to demonstrate how the Legislative Reorganization Act of 1970 enabled, rather than disabled, rent-seeking in Congress. See the research collected on its site, available at link #235. 4.Mansbridge, A Selection Model, 42. 5.Nancy Rosenblum, On the Side of the Angels: An Appreciation of Parties and Partisanship (Princeton: Princeton University Press, 2008). 6.Khorri Atkinson, “Democrats Won the House with the Largest Midterms Margin of All Time,” Axios, November 26, 2018, available at link #236. 7.Lessig, Republic, Lost: Version 2.0, 224–29.

See also ignorance opinions constructed from knowledge, 128–133, 134–135, 228, 294n125, 295n127 partisanship constructed by, 127–128, 131–133 pizza parlor pedophilia ring, 103 power of, 71, 283n20 as public good, 69–70 response rate decline, 134 role in democracy, 71, 131–133, 135–136, 226, 283n17, 283n20 small, representative sample, 68, 132, 188, 282n5, 295n131 on voter knowledge, 194 public spirit, 223–230 Purdue Pharma and opioid crisis, 45–46 purging voting rolls, 15–17, 168 racism 2018 Georgia governor’s race, 168–169 “Bloody Sunday” in Selma, Alabama, 74–76 Congress’s election equality oversight, 10–11, 17 Fifteenth Amendment, 6, 50–53 Fourteenth Amendment, 6, 17 gerrymandering, 22, 30 partisan ideological split, 26 purging voting rolls, 15–17, 168 vote weighting, 7 voting burdens, 9–17, 75, 165 voting burdens per state, 12, 13–14 Voting Rights Act amended, 10, 14–17, 165–166 white primaries, 51–53 Radical Markets (Posner & Weyl), 143–145 radio, 72, 91. See also broadcasting random sampling, [68n5], 282n5 random selection vs. elections, 186–190 ranked-choice voting (RCV), 152–155, [165n36], 237–241, 261, 304n36, 314n7, 315n9 The Rational Public (Page & Shapiro), 76–77, 83, 126, 254 redistricting. See electoral districts; gerrymandering Reeves, Andrew, 41, 43 reform organizations, 255–258 rent-seeking, 62 Legislative Reorganization Act enabling, 224, 314n3 representative democracy agreeing collectively, 226–230 Article V convention to fix, 259–261 campaign money as favors, 57–62, 224–225 campaign money’s effect, 47–48, 150 deliberative polling, 175–178, 307n11 equal chance to vote, 12, 13–14, 17, 18–19, 22 governing separated from elections, 229–230 ideal democracy without representatives, 68–69 one person, one vote, 7–9, [165n36], 304n36 proportional vs.


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The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay by Emmanuel Saez, Gabriel Zucman

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Berlin Wall, business cycle, Cass Sunstein, collective bargaining, corporate governance, Donald Trump, financial deregulation, income inequality, income per capita, informal economy, intangible asset, Jeff Bezos, labor-force participation, Lyft, Mark Zuckerberg, market fundamentalism, Mont Pelerin Society, mortgage debt, mortgage tax deduction, new economy, offshore financial centre, oil shock, patent troll, profit maximization, purchasing power parity, race to the bottom, rent-seeking, ride hailing / ride sharing, Ronald Reagan, shareholder value, Silicon Valley, single-payer health, Skype, Steve Jobs, The Wealth of Nations by Adam Smith, transfer pricing, trickle-down economics, uber lyft, very high income, We are the 99%

Historically, the United States had a progressive tax system with the top 0.1% earners paying much more than the bottom 90%. In recent years, the bottom 90% has paid almost as much as the top 0.1%. Complete details at taxjusticenow.org. From 1951 to 1978, the statutory rate of tax on corporate profits ranged from 48% to 52%. In contrast to the top-end individual income tax rates, these rates applied to all profits. They were not marginal rates designed to deter rent-seeking and curb excessive incomes. They were flat rates meant to generate revenue. And generate revenue they did. In the 1950s and early 1960s, corporate profits were effectively taxed at rates approaching 50%. For any dollar of profit made in America, half went straight to government. 2.3 THE KEY ROLE OF THE CORPORATE TAX FOR THE WEALTHY (Average tax rate of the top 0.1% income earners) Notes: The figure depicts the average tax rate and its composition by type of tax for the top 0.1% income earners since 1910.

The sellers of zero-sum financial products, the creators of deadly pills, the promoters of tax dodges and the lawyers who certify them, the price gougers, the patent trolls, the makers of fake university diplomas: they will rise to the occasion and supply more of their labor when taxes fall. These solely profit-driven individuals will innovate more boldly—faster and faster, making it harder and harder for regulators to catch up, or for people to learn about their fraud before falling for a new one. If low top tax rates encourage innovation, they must galvanize rent extraction. Among the many policies that can curb the power of established wealth and contain rent-seeking, the quasi-confiscatory taxation of very high incomes historically has proved effective. But it faces a major limitation: as we’ve seen, it’s become too easy for the very rich to own a lot of wealth while reporting little taxable income. Reinstating a 90% top marginal income tax rate would not make a meaningful difference to the tax bills of many of America’s billionaires. Overcoming this limitation requires taxing top wealth itself at high rates.


pages: 550 words: 124,073

Democracy and Prosperity: Reinventing Capitalism Through a Turbulent Century by Torben Iversen, David Soskice

Andrei Shleifer, assortative mating, augmented reality, barriers to entry, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, centre right, cleantech, cloud computing, collateralized debt obligation, collective bargaining, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, deskilling, Donald Trump, first-past-the-post, full employment, Gini coefficient, hiring and firing, implied volatility, income inequality, industrial cluster, inflation targeting, invisible hand, knowledge economy, labor-force participation, liberal capitalism, low skilled workers, low-wage service sector, means of production, mittelstand, Network effects, New Economic Geography, new economy, New Urbanism, non-tariff barriers, Occupy movement, offshore financial centre, open borders, open economy, passive investing, precariat, race to the bottom, rent-seeking, RFID, road to serfdom, Robert Bork, Robert Gordon, Silicon Valley, smart cities, speech recognition, The Future of Employment, The Great Moderation, The Rise and Fall of American Growth, too big to fail, trade liberalization, union organizing, urban decay, Washington Consensus, winner-take-all economy, working-age population, World Values Survey, young professional, zero-sum game

The state, to be successful, can be thought of having four sets of tasks: (i) Imposing on business the requirement that product markets are competitive; this is a key requirement, for there is considerable evidence that competition (so long as not too intense) is a precondition for innovation. It requires a strong state to impose competition because businesses prefer protected markets with low-risk and high-profits which they can share with politicians. The first country to emerge as a modern capitalist economy, Britain, did not take off until the rampant rent-seeking and corruption that characterized the political system up until the end of the eighteenth century was eliminated (Popa 2015). (ii) Imposing on labor the requirement that businesses are allowed the right to manage and to cooperate with management. If labor is too powerful, it may prefer to control production and to limit innovation and skill replacement, or with cospecific skills in a technology to “hold up” management once the technology is installed.

(ii) Companies are set up as independent to compete and make profits, so that their collective voice is limited. We have underscored the role of coordination across companies in coordinated market economies or of their buying into the political and regulatory system in the United States, but these fundamental institutional weaknesses of capitalism remain. (iii) With a high stock of location cospecific investment and long-term oriented politicians, the gains from, and opportunities for, rent-seeking are limited. This political weakness of advanced capitalism extends into all areas outside the institutional framework. In particular, advanced capitalism has no impact on decisions over redistribution and poverty, or the protection of the low-skilled, including their unionization and the operation of low-skilled labor markets. These issues are determined by majorities or coalitions in legislatures.

“The Danish Business System Transforming towards the New Economy.” In National Identity and the Varieties of Capitalism: The Danish Experience, eds. J. L. Campbell, J. A. Hall, and O. K. Pedersen, 295–30. Montreal, Canada: McGill-Queen’s University Press. Krueger, Alan. 2012. “The Rise and Consequences of Inequality in the United States.” Unpublished speech. Krueger, Anne. 1974. “The Political Economy of the Rent-Seeking Society.” The American Economic Review 64 (3): 291–303. ———. 1990. “Government Failures in Development.” Journal of Economic Perspectives 4 (3): 9–25. Krugman, Paul. 1991a. “Increasing Returns and Economic Geography.” Journal of Political Economy 99 (3): 483–99. ———. 1991b. Geography and Trade. Cambridge, MA: MIT Press. Kuemmerle, W. 1997. “Building Effective R&D Capabilities Abroad.” Harvard Business Review 75: 61–72. ———. 1999.


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A Culture of Growth: The Origins of the Modern Economy by Joel Mokyr

"Robert Solow", Andrei Shleifer, barriers to entry, Berlin Wall, business cycle, clockwork universe, cognitive dissonance, Copley Medal, creative destruction, David Ricardo: comparative advantage, delayed gratification, deliberate practice, Deng Xiaoping, Edmond Halley, epigenetics, Fellow of the Royal Society, financial independence, framing effect, germ theory of disease, Haber-Bosch Process, hindsight bias, income inequality, information asymmetry, invention of movable type, invention of the printing press, invisible hand, Isaac Newton, Jacquard loom, Jacques de Vaucanson, James Watt: steam engine, Johannes Kepler, John Harrison: Longitude, Joseph Schumpeter, knowledge economy, labor-force participation, land tenure, law of one price, Menlo Park, moveable type in China, new economy, phenotype, price stability, principal–agent problem, rent-seeking, Republic of Letters, Ronald Reagan, South Sea Bubble, statistical model, survivorship bias, the market place, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, transaction costs, ultimatum game, World Values Survey, Wunderkammern

The importance of the Enlightenment for Europe’s subsequent economic development goes beyond its impact on the exploitation of useful knowledge for material progress, the essence of the Industrial Enlightenment. It also codified and formalized the kind of institutions any society needed to maintain its technological momentum: the rule of law, checks and balances on the executive, and severe sanctions on more blatant and harmful forms of rent-seeking through corruption and highly inefficient forms of redistribution, although the Enlightenment was never able to eradicate rent-seeking altogether. As Brandt, Ma, and Rawski (2014) make clear, such institutions were lacking in post-1750 China and prevented it from taking advantage of the opportunities created by technological progress in the West, the way Japan did. Qing China, as already noted, was above all a society in which the major players sought “stability and prosperity” (Brandt, Ma, and Rawski, 2014, p. 105).

The historical riddle is what might be called the great dilemma of the new institutional economic history: much of the literature in economic history that is trying to explain differences in economic performance and living standards, both by economists and historians, has accepted in one way or another Douglass North’s call for the integration of institutions into our narrative of economic growth (Acemoglu and Robinson, 2012; Sened and Galiani, 2014). An economy that grows as a result of favorable institutions requires a world of well-delineated and respected property rights, enforceable contracts, law and order, a low level of opportunism and rent-seeking, a high degree of inclusion in political decision making and the benefits of growth, and a political organization in which power and wealth are as separate as is humanly possible. Such institutions—whether part of the formal political structure (as embodied for example in a constitution) or based on private-order institutions—are credited with many positive economic developments in the past: the rise of more effective product and factor markets (and thus more efficient allocations), the growth of international and interregional trade, and the accumulation of capital, to name a few.

Cultural beliefs also help determine, for instance, whether preferences might be “other-regarding” (that is, whether the consumption of others affects one’s well-being) and whether they might be “process-regarding” (that is, whether the utility one derives from being in a particular state of the world depends on the way that state was reached rather than on the intrinsic quality of the state itself). Both of those types of preferences are not normally part of the analysis of economic preferences, but there is no inherent reason they should not be.16 A good example of process-regarding preferences is when an individual cares whether he or she earns income by creating wealth through entrepreneurial activity or by redistributing it from others through rent-seeking or corruption. Does one regard a dollar in the same way no matter how it was earned, or does one care whether it was made while providing a socially useful activity? Is a dollar earned the same as a dollar stolen? Such preferences could make a difference in the institutions that are critical to the emergence of a civil economy and economic growth (Bowles, 2004, pp. 109–11; Bowles and Gintis, 2011, pp. 10–11, 32–35).


Money and Government: The Past and Future of Economics by Robert Skidelsky

anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, market clearing, market friction, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, mobile money, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, placebo effect, price stability, profit maximization, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

In his Cycles of American History (1986) Arthur Schlesinger Jr defined a political economy cycle as ‘a continuing shift in national involvement between public purpose and private interest’. The swing he identified was between ‘liberal’ (what we would call social democratic) and ‘conservative’ epochs. The idea of the ‘crisis’ is central to both. Liberal periods succumb to the corruption of power, as idealists yield to time-servers, and conservative arguments against rent-seeking win the day. But the conservative era then succumbs to a corruption of money, as financiers use the freedom of deregulation to rip off the public. A crisis of under-regulated markets presages the return to a social democratic era. This idea fits the American historical narrative tolerably well. It also makes sense globally. The era of ‘conservative’ economics opened with the publication of Adam Smith’s Wealth of Nations in 1776.

This was the malady against which Hayek had inveighed in his classic The Road to Serfdom (1944). The attempt in the 1970s to control inflation by wage and price controls led directly to a ‘crisis of governability’, as trade unions, particularly in Britain, refused to accept them. Large state subsidies to producer groups, both public and private, fed the typical corruptions of behaviour identified by the New Right: rent-seeking, moral hazard and free-riding. Palpable evidence of government failure obliterated earlier memories of market failure. The new generation of economists abandoned Keynes and, with the help of sophisticated mathematics, reinvented the classical economics of the self-correcting market. Battered by the crises of the 1970s, governments caved in to the ‘inevitability’ of free market forces. The swing back became worldwide with the collapse of communism in 1989–90.

But the lack of a secure economic basis for redistributive taxation was a serious weakness once the political climate shifted against progressive taxation.7 This happened with Reagan and Thatcher in the 1980s. Welfare spending entitlements were narrowed. Tax systems were made less progressive to ‘improve the incentives’ of the already rich. In the perfect markets lauded by neo-classical economists, capitalists and workers alike would be paid their economic worth. In this world, there is no rent or unearned income or free lunches. Or, rather, there was only ‘rent-seeking government’. The theoretical case against redistribution was clinched by the device of the ‘representative agent’. We now have a single consumer who is paid exactly what he produces. The case for redistribution on equity grounds has disappeared. Money still has a diminishing marginal utility, but all this does is to give the representative consumer a choice between income and leisure. A clearer example of economics tracking politics would be difficult to find.


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Social Democratic America by Lane Kenworthy

affirmative action, Affordable Care Act / Obamacare, barriers to entry, basic income, business cycle, Celtic Tiger, centre right, clean water, collective bargaining, corporate governance, David Brooks, desegregation, Edward Glaeser, endogenous growth, full employment, Gini coefficient, hiring and firing, Home mortgage interest deduction, illegal immigration, income inequality, invisible hand, Kenneth Arrow, labor-force participation, manufacturing employment, market bubble, minimum wage unemployment, new economy, postindustrial economy, purchasing power parity, race to the bottom, rent-seeking, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, school choice, shareholder value, sharing economy, Skype, Steve Jobs, too big to fail, Tyler Cowen: Great Stagnation, union organizing, universal basic income, War on Poverty, working poor, zero day

The hypothesis that higher government spending will lessen competition in product markets seems compelling. But in practice that’s not what we observe. An expansion of America’s public social programs is likely to have little or no impact on competition. Does Big Government Mean Bad Government? A related argument, made by Alberto Alesina and George-Marios Angeletos, is that “a large government increases corruption and rent-seeking.”62 The more a government taxes and spends, in this view, the more it invites lobbying by interest groups for favors, and the more opportunity and incentive it creates for policy makers and other public officials to dispense such favors. Do big governments perform worse than small ones? There are various ways to measure the quality of government.63 A common indicator is the World Bank’s government effectiveness measure, which attempts to gauge public and expert perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.

This is essentially what the Nordic countries do: they let markets work, and government fills in the gaps. It isn’t in spite of their policies and institutions that the Nordic nations achieve economic security, equal opportunity, and shared prosperity together with strong economic performance. It’s because of them.159 America’s Path Growth of government spending is not, for the most part, a consequence of rent-seeking special interests or narrow-minded bureaucrats expanding their turf. It’s a product of affluence. As people and nations get richer, they are willing to allocate more money for insurance (protection against risks) and for fairness (extension of opportunity and security to those who are less fortunate). There are quite a few proposed private-sector remedies for economic insecurity, inadequate opportunity, and slow income growth.


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Trumpocalypse: Restoring American Democracy by David Frum

Affordable Care Act / Obamacare, anti-globalists, Bernie Sanders, centre right, coronavirus, currency manipulation / currency intervention, decarbonisation, Donald Trump, Edward Snowden, employer provided health coverage, illegal immigration, immigration reform, labor-force participation, manufacturing employment, mass immigration, Mikhail Gorbachev, Nate Silver, obamacare, offshore financial centre, Peter Thiel, plutocrats, Plutocrats, QAnon, rent-seeking, Ronald Reagan, Saturday Night Live, Silicon Valley

Slogans like “Medicare for All” distract voters and officials from the real problem: not who finances health-care costs, but who negotiates those costs. The US government is the biggest health-care purchaser on earth. It’s time to start acting like it, and not just on behalf of Medicare beneficiaries, but on behalf of all Americans whose incomes and standard of living is devoured by the health providers’ state-capture and rent-seeking. Reform is obviously urgently needed. Why is it so hard to achieve? People close to the system can witness the abuses being carried out right in front of them. Yet it is all but impossible to muster political mandates for action to squeeze the abuses out of the system. Why do Americans find it so uniquely difficult to act effectively in the public interest? We saw an answer during the Obamacare debate of 2010.

To claim, however, that you are supremely committed to reducing greenhouse gases, when in reality you are more concerned with regulating economic competition, dooms your likelihood of achieving either. It is hard enough to achieve the outcomes you actually seek; it is much harder to achieve the outcomes you are only pretending to seek—while actually seeking something very different. Putting government into the business of busting rent-seeking in the health-care industry—as the leading Democratic candidates for 2020 vowed to do—is already a public administration challenge for a generation. If successful, health-care reform will deliver in itself a big bump to worker pay and alleviate perhaps the single most harrowing anxiety faced by working Americans. Undertaking more social reform than that, in a country where social reform is more fiercely resisted than in almost any other developed democracy, is to risk the failure of everything, and above all, to forfeit any hope of building a congressional majority for climate action in the 2020s.


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The Rent Is Too Damn High: What to Do About It, and Why It Matters More Than You Think by Matthew Yglesias

Edward Glaeser, falling living standards, Home mortgage interest deduction, income inequality, industrial robot, Jane Jacobs, land reform, mortgage tax deduction, New Urbanism, pets.com, rent control, rent-seeking, Robert Gordon, Robert Shiller, Robert Shiller, Saturday Night Live, Silicon Valley, statistical model, transcontinental railway, urban sprawl, white picket fence

By the same token, left-wing politics in developing countries often feature “land reform” as a prominent demand. Vast agricultural estates, unlike complicated industrial business enterprises, can be broken up into small chunks and given to farmers to work rent-free, rather than operated as plantations staffed by peasants stuck at subsistence-living standards. Today, economists often criticize “rent-seeking” behavior by businesses that try to use government regulation to stifle competition. Though literal land rents have vanished from today’s debate, much of the history of the United States consists of a quest to build a prosperous and egalitarian nation rather than one dominated by wealthy landowners. Thomas Jefferson and his allies valorized the idea of a nation of “yeoman farmers”—a nation, in other words, where farmers owned their own land rather than owing rents to landowners.


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What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, income inequality, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, plutocrats, Plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

This new breed of American executive was quickly fingered by observers in the family capitalism countries. Here is columnist John Kay of the Financial Times in November 2009 looking back on this era: “America has a new generation of rent-seekers. The modern equivalents of castles on the Rhine are first-class lounges and corporate jets. Their occupants are investment bankers and corporate executives…. The scale of corporate rent-seeking activities by business and personal rent-seeking by senior individuals in business and finance has increased sharply. The outcome can be seen in the growth of Capitol Hill lobbying and the crowded restaurants of Brussels; in the structure of industries such as pharmaceuticals, media, defense equipment, and, of course, financial services; and in the explosion of executive remuneration.”36 Exploding American executive pay is sharply at odds with pay patterns in any other rich democracy.

Northern Europe avoids the Apple Problem because codeterminism encourages firms to behave as economic patriots. This creates a soft de facto domestic content imperative that envelops many if not all board deliberations. That perspective means more jobs at home, with firms such as VW-Audi-Porsche passing up offshoring opportunities to keep Wolfsburg bustling and rich. And, codeterminism prevents short-termism and management rent-seeking. Voter and consumer expectations are important in sustaining this domestic orientation by enterprise management. Families and public policies tend to nurture stakeholder capitalism by prioritizing domestic products over those from low-wage competitors or firms practicing wage compression. The collapse of Walmart in Germany is instructive in that regard, as is the current Franco-German focus on crafting meaningful standards and enforcing strictures against products inappropriately claiming EU origin.

The special interests are favored by ignorance and the fog of politics.”28 The ability of mining interests, in particular, to derail inspired efforts to mimic Norway’s sovereign wealth fund highlights the need to end pay-to-play in Australia. Here is a frank assessment of that nation’s contemporary political environment by Sydney Morning Herald reporter Tim Colbatch, writing in mid-2012: “Conservative leader Tony Abbott’s war against everything has made good government in Australia almost impossible…. Whatever it [the Labor party] proposes, he opposes.”29 CHAPTER 28 AMERICAN FAMILY CAPITALISM “Control of rent-seeking requires decentralization of economic power.”1 JOHN KAY, Financial Times, Nov. 10, 2009 “Many of the factors that have long driven American innovation have dried up. Droves of investors, disappointed by their returns, have abandoned the venture capital firms of Silicon Valley. At pharmaceutical companies, computer-driven research is making fewer discoveries than intuitive chemists once did.


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A Brief History of Neoliberalism by David Harvey

affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, business cycle, capital controls, centre right, collective bargaining, creative destruction, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, Pearl River Delta, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

There are presumed to be no asymmetries of power or of information that interfere with the capacity of individuals to make rational economic decisions in their own interests. This condition is rarely, if ever, approximated in practice, and there are significant consequences.2 Better informed and more powerful players have an advantage that can all too easily be parlayed into procuring even better information and greater relative power. The establishment of intellectual property rights (patents), furthermore, encourages ‘rent seeking’. Those who hold the patent rights use their monopoly power to set monopoly prices and to prevent technology transfers except at a very high cost. Asymmetric power relations tend, therefore, to increase rather than diminish over time unless the state steps in to counteract them. The neoliberal presumption of perfect information and a level playing field for competition appears as either innocently utopian or a deliberate obfuscation of processes that will lead to the concentration of wealth and, therefore, the restoration of class power.

/Marxism 59, 148, 218 freedom concept 20, 21 freedom’s prospect 184–5, 189, 202 neoliberalism on trial 159, 180 media 40, 56, 80, 115, 156, 159 Megginson, W. 219 Mellon, A. 163 Menem, C. 104 Mercosur 79 Mertes, T. 221, 222 Mexico 138, 139, 150 consent, construction of 41, 53, 54 freedom concept 5, 15, 17, 29, 34, 36 freedom’s prospect 185, 186, 190, 199, 204 neoliberal state 73, 75, 76, 84–5 neoliberalism on trial 159, 162–5 uneven development 94, 95, 98–104, 115, 116, 118 see also PRI middle class 25, 61–2, 181 Middle East 12, 94, 109, 139 freedom’s prospect 197, 206 Islam 83, 186 neoliberal state 71, 83, 85 neoliberalism on trial 171, 173 see also Iraq; Islam migration 127, 129, 169–70 Miliband, R. 212 military consent, construction of 39, 40 -industrial complex 83 Keynesianism 88 militarization 82–3, 101, 107, 195 neoliberalism on trial 153, 179 see also war Millennium Summit 187 Mises, L. von 20 Mittelman, J. 215 Monbiot, G. 219 ‘Monday Club’ 8 monetarism 24–5 China 123–4 consent, construction of 51, 54, 59 Friedman 8, 20, 22, 44 uneven development 89, 93 monopoly 67, 80 Mont Pelerin Society 20, 21, 22, 36 Montreal Protocol 172 morality ‘moral majority’ 49–51 neoliberal state 82, 83–4, 211 see also religion Morrison, H. 55 Mosaddeq, M. 28 Mozambique 40, 116, 117, 118 multinationals 7, 35–6, 80 Muntaner, C. 220 Murdoch, R. 34, 35–6, 38, 166 Murphy, D. 220 Myers, N. 220 NAFTA 79, 93, 101, 103, 138 Nash, J. 213 nation/national ‘interest’ 66 monopoly on violence 180–1 nationalism 79, 85, 195–6, 197 and state separate 84–5 nationalization 55, 57–8, 99 NATO 56 natural resources see commons Navarro, V. 212, 220, 221 neoclassical economics 20 neocolonialism/imperialism 27–8, 56, 159, 181–2, 197 see also United States neoconservatism 50, 81–5, 166 return of 195–7, 201–2, 204–5 see also authoritarianism neoliberal state 2, 64–88, 161, 211–13 circumscribed see Sweden freedom concept 7–11, 20–1 intervention 20–1, 79 see also Keynes and nation separate 84–5 neoconservative answer 81–5 practice 70–81 redistributions 159, 160, 163–5 tensions and contradictions 67–70, 79–81 theoretical aims 64–7 see also welfare, public neoliberal theory and pragmatics distinct 21–2 rise of 19–31 state 64–7 turn, reasons for 9–19 neoliberalism 2 defined 2–3 see also China; consent; freedom; freedom’s prospect; neoliberal state; neoliberalism on trial; uneven development neoliberalism on trial 152–82 achievements 154–65 environment degraded 67–8, 172–5 see also accumulation by dispossession; commodification; rights Netherlands/Holland 27 Netter, J. 219 New York City 52, 63, 157 finance/banks 27, 28–9, 44–8, 73, 97–8, 100 New Zealand 3, 96, 140 NGOs (non-governmental organizations) 78, 177, 205 Nicaragua 27, 117 ‘9/11’ attack 5, 83, 195 Nixon, R. 13, 43, 45, 196 non-interference see deregulation non-intervention 69 Novacek, M. 220 Nozick, M. 211 OECD countries 17, 18, 110 Office of Management and Budget (US) 52 Ohmae, K. 212 oil 173 OPEC 12, 27, 197 oligarchy, Russian 32 oppositional culture 175–6 order, need for 82–3 PACs (political action committees) 49 Pahlavi, Shah M.R. 28 Panitch, L. 28, 208, 219 paranoia 82–3, 196 Park Chung Hee 107, 108 PATCO (US) 25, 59 Pearl River Delta 87, 131, 132 Peck, J. 207, 208, 213 Pelaez, E. 219 Perkins, J. 28 Perloff, J. 143 ‘personal responsibility’ 168–9 Peterson, I. 219 Petras, J. 106, 220 Philippines 31–2, 40, 206 uneven development 89, 94, 95, 96, 117 Piketty, T. 208 Pinochet, A. 7, 8 Piore, M. 212 planning and control 12, 75, 103, 156 as denial of freedom 37 see also central planning Podhoretz, N. 50 Poland 94, 95, 154 politics 69–70, 205 oppositional 78 see also Conservatives; Democrats; Republicans see also socialism/communism Pollin, R. 25 pollution 67–8, 100, 161, 172–5 Polyani, K. 183 freedom concept 36–7, 38 neoliberal state 70, 80–1 neoliberalism on trial 166–7, 168, 172, 219 Ponniah, T. 222 Popper, K. 20 pornography 165–6, 170 Portillo, L. 99 Portugal 12, 13, 15 Post, R. 212 postmodernism 4, 42, 47, 198 Poulantaz, N. 211 poverty, increasing 76, 96, 98 see also debt Powell, L. 43, 44 power international hegemon see United States regional hegemon see China see also class; coercion/force; corporations; elites; financial system pragmatics and neoliberalism distinct 21–2 Prasad, E. 128 pre-emptive action 296–7 against Iraq 6–7, 9, 35, 39, 153, 160, 184, 197 PRI (Partido Revolucionario Institucional) 84–5, 98–101, 150 see also Mexico prices, controlled 12 private property 7 see also commons privatization 3, 129 avoided in China 122 consent, construction of 60–1 freedom concept 6, 8, 17, 23 neoliberal state 65, 71, 76–7 neoliberalism on trial 154, 159–61, 163–4 uneven development 88, 99–101, 103, 104, 114 productivity and wages 25 propaganda 70, 80, 113 property rights 64 public assets taken over see privatization see also nationalization; neoliberal state; welfare public choice 54 public-private partnerships 76–8 Putin, V. 86 quality of life concept 156 Quirk, P. 219 Rapley, J. 210 rational expectations 54 Reagan, R. 1–2, 88, 172 consent, construction of 39, 40, 44, 48, 49, 51–2, 54, 59, 62–3 freedom concept 9, 24–6, 29 freedom’s prospect 190, 192 neoliberal state 73, 84 recession 23, 57, 152 Rees, G. 211 regulation see law Rehn-Meidner Plan 112 religion 81, 85, 171–2, 195 Christianity 49–51, 186 Islam 83, 186 see also morality ‘rent seeking’ 68 Republicans (US) consent, construction of 43, 45, 48–51 freedom concept 5–6, 13, 37–8, 39, 208 freedom’s prospect 184, 188, 190, 196, 197 neoliberal state 71, 77 neoliberalism on trial 152, 160, 164, 172, 173, 182 see also Bush; Nixon; Reagan research and development 134 see also technology resources, natural see commons retail trade 34, 38, 137, 190 Ricardo, D. 20 richest people 103–4 see also elites rights and abuse of 42, 196, 197–8, 204 neoliberal state 64, 68, 78, 84 neoliberalism on trial 160–5, 175–82 Robinson, W. 209 Rockefeller, J.D. 21 Roderick, J. 32 Rodrik, D. 220 Rohatyn, F. 46, 51 Roosevelt, F.


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What They Do With Your Money: How the Financial System Fails Us, and How to Fix It by Stephen Davis, Jon Lukomnik, David Pitt-Watson

activist fund / activist shareholder / activist investor, Admiral Zheng, banking crisis, Basel III, Bernie Madoff, Black Swan, buy and hold, centralized clearinghouse, clean water, computerized trading, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crowdsourcing, David Brooks, Dissolution of the Soviet Union, diversification, diversified portfolio, en.wikipedia.org, financial innovation, financial intermediation, fixed income, Flash crash, income inequality, index fund, information asymmetry, invisible hand, Kenneth Arrow, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, Myron Scholes, Northern Rock, passive investing, performance metric, Ponzi scheme, post-work, principal–agent problem, rent-seeking, Ronald Coase, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

Instead of looking at how mutual funds vote their shares, Lauren Cohen and Breno Schmidt investigated these funds’ investment choices and discovered something disturbing: mutual funds buy much more stock in companies whose 401(k) plans they administer, even when these companies are troubled enough to prompt other funds to sell.11 Cohen and Schmidt concluded that there is “a potentially large benefit to the 401(k) sponsor firm of having its price propped up” by the contracted mutual fund. Moreover, “the resulting loss to mutual fund investors … can be large.” No economist would be surprised by that finding: it is well known that accountability decreases “rent seeking,” the actions an agent might take to extract a benefit from the system. So it stands to reason that a lack of accountability will tend to increase self-serving actions, even if it damaged the interests of ultimate savers. Two last studies complete our tour of the limited state of knowledge of fund governance and performance. In 2009, Martijn Cremers and three coauthors used still another measure to see if the way mutual funds are overseen could affect returns.

See Responsible Endowments Coalition (REC) Regulation: atomized, 128–31, 154 bank, 128–29, 175, 259n47 behavioral economics and, 143–45 contemporary approach to, 128–31 designing better, 145–51 financial crisis and, 124–25 fostering accountability and, 147–49 ossified behavior and, 131, 137 oversight and, 150–51 purpose of, 125–28 relation to financial institutions, 145 relevant and unbiased information and, 149–50 supporting fiduciary duty, 146–47, 152–53, 225–26 systemic (See Systemic regulation) transparency and, 146 Regulatory regimes, Basel rules, 152 Basel I, 125, 254n1 Basel II, 43 Basel III, 43, 125, 175, 254n1, 254n2 Rent seeking, 102–3 Research funding, for new economic thinking, 189 Reserves, bank, 213, 214–16 Responsibility: regulation and abdication of, 130–31 trust in government and, 141. See also Fiduciary duty Responsible Endowments Coalition (REC), 118, 122 Responsible Investing Academy, 140 Retirement Commission of South Carolina, 206 Retirement savings, 193–99, 201, 241n39 fees charged on, 1–3, 53 liability-driven investing and, 54–56 redirecting, 13–14 switch to defined contribution plans, 99–100, 197–99.


pages: 589 words: 147,053

The Age of Em: Work, Love and Life When Robots Rule the Earth by Robin Hanson

8-hour work day, artificial general intelligence, augmented reality, Berlin Wall, bitcoin, blockchain, brain emulation, business cycle, business process, Clayton Christensen, cloud computing, correlation does not imply causation, creative destruction, demographic transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, experimental subject, fault tolerance, financial intermediation, Flynn Effect, hindsight bias, information asymmetry, job automation, job satisfaction, John Markoff, Just-in-time delivery, lone genius, Machinery of Freedom by David Friedman, market design, meta analysis, meta-analysis, Nash equilibrium, new economy, prediction markets, rent control, rent-seeking, reversible computing, risk tolerance, Silicon Valley, smart contracts, statistical model, stem cell, Thomas Malthus, trade route, Turing test, Vernor Vinge

Factions Changing coalitions and political competition among coalitions can be socially expensive because of coalition “rent-seeking.” This is the effort that people spend to lobby for their faction or coalition among their associates. For example, people can feel pressured to favor current coalition partners when choosing spouses, neighbors, suppliers, customers, and so on. Not only does this process reduce the quality of such partners on other criteria, it creates costs to change partners when political coalitions change. People can also feel pressured to lobby for their faction; those who don’t may be punished for disloyalty. Political systems have long tried many solutions to curb the costs resulting from excess coalition change and rent-seeking, with varying and usually insufficient success. For example, raising the costs to change policy can discourage policy change, although this can make societies less adaptable to changing conditions.

So em clans naturally have less inequality of the standard sort that is the focus of redistribution today. In contrast, em clans have enormous inequality in clan size, resources, and respect. However, history gives little reason to expect much redistribution to address this kind of inequality. This kind of inequality is not very analogous to those that induced forager sharing, it does not lend itself to profitable rent-seeking, and it is very sensitive to how subclans are defined. Ems might also redistribute on the basis of speed, taking from fast ems to give to slow ones. But history also offers little precedent for this, and slower ems do not seem to be suffering much more in any clear way. Thus the main kind of redistribution that we have reason to expect in the em era is between the clans of a city, based on differences of average within-clan individual consumption.


Globalists: The End of Empire and the Birth of Neoliberalism by Quinn Slobodian

Asian financial crisis, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collective bargaining, David Ricardo: comparative advantage, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, full employment, Gunnar Myrdal, Hernando de Soto, invisible hand, liberal capitalism, liberal world order, market fundamentalism, Martin Wolf, Mercator projection, Mont Pelerin Society, Norbert Wiener, offshore financial centre, oil shock, open economy, pattern recognition, Paul Samuelson, Pearl River Delta, Philip Mirowski, price mechanism, quantitative easing, random walk, rent control, rent-seeking, road to serfdom, Ronald Reagan, special economic zone, statistical model, The Chicago School, the market place, The Wealth of Nations by Adam Smith, theory of mind, Thomas L Friedman, trade liberalization, urban renewal, Washington Consensus, Wolfgang Streeck, zero-sum game

In The Economics of the Color Bar, his most extensive application of neoliberal thought to the case of South Africa, Hutt self-­consciously applied insights from Milton Friedman about U.S. racism and echoed ­those of Gary Becker from the same time.165 Latter-­day scholars recall the book as a “conscience-­raising work” and a “profound and disturbing analy­sis that exposed the moral horror of apartheid in South Africa.”166 At its core, Hutt argued, racism is a form of rent-­seeking analogous to trade u ­ nions defending their own privilege against the entry of nonwhite workers.167 “The chief source of colour discrimination,” Hutt suggested, was “to be found in the natu­ral determination to defend economic privilege.”168 In his reading, racism was not of the market but outside of—­and in opposition to—­the market. In a review, fellow MPS member Enoch Powell praised Hutt’s book as a testament that “the market economy . . . ​is the most effective ­enemy of discrimination between individuals, classes and races.”169 “The market is color-­blind” was the conclusion Hutt came to.170 He celebrated the virtues of ­labor mobility and attacked the racialized “closed shop” of apartheid.

Like Schmitt, Hayek believed that the creation of law by demo­cratically elected state governments was leading to a degeneration of the Rechtsstaat into a Gesetzesstaat, or legislative state.141 He wrote that “the weakness of the 206 GLOBALISTS government of an omnipotent democracy was very clearly seen by the extraordinary German student of politics, Carl Schmitt, who in the 1920s prob­ably understood the character of the developing form of government better than most p ­ eople.”142 He quoted Schmitt’s essay from 1932 to the effect that “a pluralist party state w ­ ill become ‘total’ not from strength and force but out of weakness: it intervenes in all sectors of life, ­because it feels it has to fulfill the demands of all interested parties.”143 In other words, Hayek saw “unlimited” (or what Mises called “omnipotent”) democracy as leading to totalitarianism out of a logic of capture. His efforts at constitutional design from 1960 onward w ­ ere attempts to discover an institutional fix for the tendency of democracy to stray from economic order ­toward particularist rent-­seeking and, as Alexander Rüstow put it, the transformation of state policy and national bud­gets into the “prey” of special interests.144 He laid out the par­ameters of this institutional concept first in a speech at the Chamber of Commerce in Dortmund, published in the Frank­furter Allgemeine Zeitung. He proposed a bicameral legislature divided into elected legislators tasked with everyday business of state, who he called “telothetes,” and another set of legislators called “nomothetes” of ages forty to fifty-­five elected by their peers to fifteen-­year terms.145 Putatively insulated from the pressures of interest groups by the length of their terms, the nomothetes would be responsible for the creation and interpretation of law.

See also Apartheid Racism, biological, 157, 169, 172, 330nn159–160 Rappard, William, 23, 41, 74, 78, 85, 88, 94–95, 109, 111, 127; Centre William Rappard, 240, 244, 281, 283 Rathenau, Walther, 29, 65 377 Rationality: danger of, 232; nonrational rules, 238; rational choice, 229; rational expectations, 229, 269; rational search, 232. See also Knowledge; Reason, abuse of Raw materials, 21, 43, 56, 71, 77, 101, 108, 131, 152; raw materials dictator, 65 Reagan, Ronald, 8, 14, 20, 23, 176 Reason, abuse of, 225, 259–260. See also Knowledge; Rationality Refugees, 120, 135, 145; refugee money, 145 Regnery, Henry, 168–169 Reisch, Richard, 66 Rent-­seeking, 173, 206 Republican Party, 161 Rhodesia, 149–151, 170–171; American-­ Rhodesian Association, 178; Rhodesia Information Ser­v ice, 177; Unilateral Declaration of In­de­pen­dence, 170, 175 Ricardo, David, 42, 50 Riedl, Richard, 37, 40 Rights: business, 145; capital, 13, 123, 135, 138, 145–146, 254, 277; civil, 150, 263; Commission on H ­ uman Rights, 220; to democracy, 278; to development, 220; to eat, 141; of expropriation, 265; ­human, 120, 176, 277–279; intellectual property, 257, 278; investor, 136–137, 144; to leave, 135, 145; market, 136, 277; negative, 121–123; private, 266; property, 25, 137, 141, 145, 279; to self-­determination, 248; social and economic, 120, 247, 264; to trade, 210, 277, 280; workers’, 266; xenos, 123, 137, 148, 220, 285 Risk, systemic, 270 Rist, Charles, 78 Rivera, Diego, 281, 283 Robbins, Lionel, 8, 23, 78, 94, 96, 98, 122, 207; on Eu­ro­pean integration, 184; federation proposals of, 22, 95, 99–104, 113–114, 116–118, 131, 133, 155, 186, 209–210, 251–252, 261, 265–266, 283; and Habsburg Empire, 109; interwar international collaborations and, 30, 72–76, 84; Mises Circle and, 31, 48; and MPS, 126–127 Rocke­fel­ler Foundation, 68, 73, 75 Roessler, Frieder, 8, 223, 244–247, 252 378 Index Romania, 69, 109, 134 Roo­se­velt, Franklin Delano, 88, 136, 158–159 Röpke, Wilhelm, 1, 8, 129; on capital rights, 137–138, 140, 207, 248; critique of juridicism, 254; critique of postwar development policy, 124, 138–139, 157–161; on culture and race, 22, 149–151, 156–157, 160, 169–172; on empire, 180, 194; on Eu­ro­pean integration, 183, 188, 191, 202; on global order, 10–11, 14, 30, 58, 84–85, 88–89, 251, 265; International Economic Disintegration, 76, 89, 98, 113; interwar international collaboration of, 21, 57–58, 72–74, 78, 79–80, 127; and MPS, 23, 126–127, 150; on Southern Africa, 149–154, 170–172; and U.S.


pages: 678 words: 216,204

The Wealth of Networks: How Social Production Transforms Markets and Freedom by Yochai Benkler

affirmative action, barriers to entry, bioinformatics, Brownian motion, call centre, Cass Sunstein, centre right, clean water, commoditize, dark matter, desegregation, East Village, fear of failure, Firefox, game design, George Gilder, hiring and firing, Howard Rheingold, informal economy, information asymmetry, invention of radio, Isaac Newton, iterative process, Jean Tirole, jimmy wales, John Markoff, Kenneth Arrow, longitudinal study, market bubble, market clearing, Marshall McLuhan, Mitch Kapor, New Journalism, optical character recognition, pattern recognition, peer-to-peer, pre–internet, price discrimination, profit maximization, profit motive, random walk, recommendation engine, regulatory arbitrage, rent-seeking, RFID, Richard Stallman, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, shareholder value, Silicon Valley, Skype, slashdot, social software, software patent, spectrum auction, technoutopianism, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, transaction costs, Vilfredo Pareto

Increasing patent protection, both in developing nations that are net importers of existing technology and science, and in developed nations that already have a degree of patent protection, and therefore some nontrivial protection for inventors, increases the costs that current innovators have to pay on existing knowledge more than it increases their ability to appropriate the value of their own contributions. When one cuts through the rent-seeking politics of intellectual property lobbies like the pharmaceutical companies or Hollywood and the recording industry; when one overcomes the honestly erroneous, but nonetheless conscience-soothing beliefs of lawyers who defend the copyright and patent-dependent industries and the judges they later become, the reality of both theory and empirics in the economics of intellectual property is that both in theory and as far as empirical evidence shows, there is remarkably little support in economics for regulating information, knowledge, and cultural production through the tools of intellectual property law. 84 Where does innovation and information production come from, then, if it does not come as much from intellectual-property-based market actors, as many generally believe?

At other layers of the communications environment, we see efforts to expand software patents, to control the architecture of personal computing devices, and to create ever-stronger property rights in physical infrastructure--be it the telephone lines, cable plant, or wireless frequencies. Together, these legislative and judicial [pg 381] acts have formed what many have been calling a second enclosure movement: A concerted effort to shape the institutional ecology in order to help proprietary models of information production at the expense of burdening nonmarket, nonproprietary production. 152 The new enclosure movement is not driven purely by avarice and rent seeking--though it has much of that too. Some of its components are based in well-meaning judicial and regulatory choices that represent a particular conception of innovation and its relationship to exclusive rights. That conception, focused on mass-mediatype content, movies, and music, and on pharmaceutical-style innovation systems, is highly solicitous of the exclusive rights that are the bread and butter of those culturally salient formats.

The evidence suggests that, in fact, exclusive rights are detrimental to various downstream industries that rely on access to data. Despite these fairly robust observations from a decade of experience, there continues to be a threat that such a law will pass in the U.S. Congress. This continued effort to pass such a law underscores two facts. First, much of the legislation in this area reflects rent seeking, rather than reasoned policy. Second, the deeply held belief that "more property-like [pg 451] rights will lead to more productivity" is hard to shake, even in the teeth of both theoretical analysis and empirical evidence to the contrary. 791 Linking and Trespass to Chattels: New Forms of Information Exclusivity 792 Some litigants have turned to state law remedies to protect their data indirectly, by developing a common-law, trespass-to-server form of action.


pages: 317 words: 98,745

Black Code: Inside the Battle for Cyberspace by Ronald J. Deibert

4chan, Any sufficiently advanced technology is indistinguishable from magic, Brian Krebs, call centre, citizen journalism, cloud computing, connected car, corporate social responsibility, crowdsourcing, cuban missile crisis, data acquisition, failed state, Firefox, global supply chain, global village, Google Hangouts, Hacker Ethic, informal economy, invention of writing, Iridium satellite, jimmy wales, John Markoff, Kibera, Kickstarter, knowledge economy, low earth orbit, Marshall McLuhan, MITM: man-in-the-middle, mobile money, mutually assured destruction, Naomi Klein, new economy, Occupy movement, Panopticon Jeremy Bentham, planetary scale, rent-seeking, Ronald Reagan, Ronald Reagan: Tear down this wall, Silicon Valley, Silicon Valley startup, Skype, smart grid, South China Sea, Steven Levy, Stuxnet, Ted Kaczynski, the medium is the message, Turing test, undersea cable, We are Anonymous. We are Legion, WikiLeaks, zero day

As Somalia and many other cases show, human ingenuity is never so predictable, nor is the path of social evolution so linear. • • • There are at least three reasons for Somalia’s robust cellular infrastructure, all of them directly related to the disastrous civil war. When the country’s central government collapsed, so did “rent seeking,” a term coined by the economist Anne Krueger in 1974 to describe the actions of companies and/or governments to extract revenues by using their positions of market authority to raise prices (“rents”). State-owned telecommunications companies have been particularly prone to rent seeking: artificially inflated rates applied to long-distance calls have been used by governments the world over to extract revenues for the state. In developing countries, the situation was dire. For decades – with the exception of those countries that underwent privatization in the 1990s – laws were passed to keep out competition because the telecommunications sector, it was argued, constituted a “natural monopoly.”


pages: 354 words: 92,470

Grave New World: The End of Globalization, the Return of History by Stephen D. King

9 dash line, Admiral Zheng, air freight, Albert Einstein, Asian financial crisis, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Sanders, bilateral investment treaty, bitcoin, blockchain, Bonfire of the Vanities, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collateralized debt obligation, colonial rule, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, debt deflation, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Snowden, eurozone crisis, facts on the ground, failed state, Fall of the Berlin Wall, falling living standards, floating exchange rates, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, global value chain, hydraulic fracturing, Hyman Minsky, imperial preference, income inequality, income per capita, incomplete markets, inflation targeting, information asymmetry, Internet of things, invisible hand, joint-stock company, Kickstarter, Long Term Capital Management, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, moral hazard, Nixon shock, offshore financial centre, oil shock, old age dependency ratio, paradox of thrift, Peace of Westphalia, plutocrats, Plutocrats, price stability, profit maximization, quantitative easing, race to the bottom, rent-seeking, reserve currency, reshoring, rising living standards, Ronald Reagan, Scramble for Africa, Second Machine Age, Skype, South China Sea, special drawing rights, technology bubble, The Great Moderation, The Market for Lemons, the market place, The Rise and Fall of American Growth, trade liberalization, trade route, Washington Consensus, WikiLeaks, Yom Kippur War, zero-sum game

Yet, thanks both to the dwindling importance of the ‘factory floor’ as a natural habitat for organized labour and hostile legislation to speed the process along, union membership has plummeted. And with it, the ability of workers to earn excess ‘rents’ has declined. Elite workers, meanwhile, are increasingly compensated through both wages and capital, the latter in the form of shares and options. As a consequence, it is increasingly difficult to assess how much of their total compensation is based on merit and how much is, instead, a reflection of rent-seeking behaviour and, in some cases, their company’s monopoly profits. And elite workers increasingly have a habit of marrying each other. One consequence of the emancipation of women in the workplace is that status is determined not just by attendance at the debutantes’ ball, the level of education or parental background, but instead by simple earning power. Rich would-be partners nowadays are more interested in merging their earnings and assets than in subsidizing each other.

By reducing the cost of information – and by creating global online ‘hubs’ like Alibaba and Amazon, where buyers and sellers can ‘virtually’ meet one another – the global marketplace should expand, competition should intensify and pricing should become more transparent. All in all, the allocation of resources should improve, leaving output higher, prices lower and everyone – other than inefficient rent-seeking companies – happier. Yet this argument assumes that technology only works by reducing barriers to entry, limiting information asymmetries and encouraging price discovery. That’s much too narrow a view. Technology also fundamentally alters production techniques and hugely skews the distribution of income and wealth. In both cases, technology can be enormously damaging to globalization. The decision on where to locate production facilities ultimately depends on a trade-off between the forces of dispersion and agglomeration.


pages: 586 words: 160,321

The Euro and the Battle of Ideas by Markus K. Brunnermeier, Harold James, Jean-Pierre Landau

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, currency peg, debt deflation, Deng Xiaoping, different worldview, diversification, Donald Trump, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, financial deregulation, financial repression, fixed income, Flash crash, floating exchange rates, full employment, German hyperinflation, global reserve currency, income inequality, inflation targeting, information asymmetry, Irish property bubble, Jean Tirole, Kenneth Rogoff, Martin Wolf, mittelstand, money market fund, Mont Pelerin Society, moral hazard, negative equity, Neil Kinnock, new economy, Northern Rock, obamacare, offshore financial centre, open economy, paradox of thrift, pension reform, price stability, principal–agent problem, quantitative easing, race to the bottom, random walk, regulatory arbitrage, rent-seeking, reserve currency, road to serfdom, secular stagnation, short selling, Silicon Valley, South China Sea, special drawing rights, the payments system, too big to fail, union organizing, unorthodox policies, Washington Consensus, WikiLeaks, yield curve

Hayek cites the German liberal thinker Wilhelm Röpke, to the effect that “while the last resort of a competitive economy is the bailiff, the ultimate sanction of the planned economy is the hangman.”9 Hayek might actually, if he had at the time known Hitler’s table talk, have cited the musings of the dictator himself: “Inflation does not arise when money enters circulation, but only when the individual demands more money for the same service. Here we must intervene. That is what I had to explain to Schacht [the president of the Nazi central bank], that the first cause of the stability of our currency is the concentration camp.”10 The decision on who should benefit from the allocation of foreign exchange became political and arbitrary. The institution invited a political process of rent-seeking, and it was those who could develop the closest contacts with the regime who benefited most. The allocation of scarce raw materials was in fact the basis of Nazi economic planning and also an initial instrument in the application of anti-Semitism: Jews were discriminated against as far as access to imports of raw materials, and their businesses suffered as a result. Ordoliberalism A softer version of the Hayekian critique of the old German tradition was deeply influential in Germany and had a major political impact.

Such an arrangement has severe long-run costs. The high-unemployment rate in the periphery invites proactive young people to emigrate to the productive core of the euro area. Their emigration makes the periphery rely even more on transfers. Instead of facilitating economic convergence, a productivity gap will be cemented. Fiscal transfers also distort economic activity. People in the periphery might find it more worthwhile to pursue rent-seeking activities and hunt for subsidies instead of doing something productive. Government payments, for instance, for civil servants, that might be appropriate for high-productivity parts of the country, may be too high in low-productivity areas, making government employment look more attractive than private sector work. This is how Italy’s South, the Mezzogiorno, became progressively more dependent on Northern Italy.

Some geostrategic theorists in Russia promoted such strategic investments as a way of building up a gradually increased command over what Lenin had dubbed the “controlling heights” of the economy of Russia’s Western neighbors and hence for an increased extension of influence. EUROPE’S DEPENDENCY ON RUSSIAN ENERGY But the most obvious instrument for Russian control came from its energy sector. The resource curse—in which abundant natural resources (above all energy) promote rent-seeking behavior—means that many large energy exporters are prone to corrupted politics and unstable policies and have a proclivity to blackmail. For modern Europe, the most obvious threat is posed by the extent of dependence on Russian gas. Although there were incidents in which disputes between Russia and Ukraine overpricing of long-term gas contracts led to a cutoff of supplies to some areas, notably in January 2009, when there were major shortages and cutoffs in Bulgaria and Romania, the issue only reached political and popular salience as a strategic threat to Europe in the aftermath of the collapse of the Yanukovych regime in Ukraine and the subsequent Russian annexation of the Crimea and destabilization of Eastern Ukraine.


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The Technology Trap: Capital, Labor, and Power in the Age of Automation by Carl Benedikt Frey

"Robert Solow", 3D printing, autonomous vehicles, basic income, Bernie Sanders, Branko Milanovic, British Empire, business cycle, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, collective bargaining, computer age, computer vision, Corn Laws, creative destruction, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, desegregation, deskilling, Donald Trump, easy for humans, difficult for computers, Edward Glaeser, Elon Musk, Erik Brynjolfsson, everywhere but in the productivity statistics, factory automation, falling living standards, first square of the chessboard / second half of the chessboard, Ford paid five dollars a day, Frank Levy and Richard Murnane: The New Division of Labor, full employment, future of work, game design, Gini coefficient, Hyperloop, income inequality, income per capita, industrial cluster, industrial robot, intangible asset, interchangeable parts, Internet of things, invention of agriculture, invention of movable type, invention of the steam engine, invention of the wheel, Isaac Newton, James Hargreaves, James Watt: steam engine, job automation, job satisfaction, job-hopping, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kickstarter, knowledge economy, knowledge worker, labor-force participation, labour mobility, Loebner Prize, low skilled workers, Malcom McLean invented shipping containers, manufacturing employment, mass immigration, means of production, Menlo Park, minimum wage unemployment, natural language processing, new economy, New Urbanism, Norbert Wiener, oil shock, On the Economy of Machinery and Manufactures, Pareto efficiency, pattern recognition, pink-collar, Productivity paradox, profit maximization, Renaissance Technologies, rent-seeking, rising living standards, Robert Gordon, robot derives from the Czech word robota Czech, meaning slave, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, social intelligence, speech recognition, spinning jenny, Stephen Hawking, The Future of Employment, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, total factor productivity, trade route, Triangle Shirtwaist Factory, Turing test, union organizing, universal basic income, washing machines reduced drudgery, wealth creators, women in the workforce, working poor, zero-sum game

What is beyond question is that the relative importance of science to the productive economy kept growing throughout the late eighteenth and nineteenth centuries, and became indispensable after 1870, with the so-called second Industrial Revolution.”22 Another explanation for the time and place of the beginning of the Industrial Revolution is that institutions in the preindustrial world did more to prohibit innovation than they did to encourage it. Inspired by the pioneering work of Douglass C. North, many economic historians have argued that it was only after the Glorious Revolution of 1688–89, when the English Parliament gained supremacy over the crown, that the preconditions for the Industrial Revolution were established.23 Before then, rent-seeking monarchs and other so-called economic parasites found it easier to extract revenue from others than to take part in productive activities, which required hard work. Article 4 of the Declaration of Rights of 1689 changed the rules of the game, as Britons could no longer be taxed without their consent. Without the authorization of Parliament, levying money for the use of the crown was deemed illegal.

The structure of power was shaped by the invention of agriculture, which meant that for the first time food could be stored, land could be owned, and individuals could accumulate a surplus of significance. This, in turn, led to the concept of property rights and a political structure to uphold those rights. The exchange of peasant labor for knightly protection created an unequal world, where rent seeking paid more handsomely than progress. The fear among the ruling classes that labor displacement would cause hardship, social unrest, and at worst a challenge to the political status quo meant that worker-replacing technologies frequently were resisted or even banned. This dynamic, in which the politically powerful had more to lose than they could gain from progress, kept the Western world in a technology trap where technologies that threatened people’s skills were forcefully resisted.

., 165 population curse, 64–67 populism, rise of, 277–85, 365 populist backlash, 293 populist renaissance, 21 populist revolutions, vulnerability to, 264 Port Clinton, Ohio, 250–51 Portuguese caravel ship, 51 power loom, arrival of, 15 prefabrication, 311 Price, Derek, 39 printing press, Gutenberg’s, 17 Procter and Gamble, 199 productivity, populations and, 64 Progressive Era, reform agenda of, 271 property rights: in American culture, 200; concept of, 62, 91; importance of, 20; in preindustrial societies, 33 Protestant Huguenots, 80 Protestant movement, 46 “proto-industrialization,” 68 prototypes: adoption of, 323; Amazon Go store, 312; developed, 261; imperfect, 298, 314; inventions turned into, 73 public clocks, 45 public infrastructure projects, 363 public schooling, 214 purchasing power, 191 Putnam, Robert, 250–51, 272, 276 railroads: arrival of, 108; declining importance of, 170; as enabling technology for revolutions, 85; network, expansion in Britain, 110; revenues (America), 208 Ramey, Valerie, 159, 332 redistributive taxing and spending, 271 Reform Acts of 1832 and 1867, 83 Reich, Robert, 235 relocation, 359–60 Renaissance, 51; as “age of instruments,” 59; beginnings of modern capitalism during, 70; great inventors of, 38; origin of, 51; productivity-enhancing technological improvements of, 54; technological advances of, 51 rent-seeking monarchs, 79 Restrepo, Pascual, 15, 144, 227, 242, 346 retraining, 353–54 Reuther, Walter, 191, 276, 356 Ricardo, David, 4, 116, 206, 345 right-to-work states, 257 robber barons, 208 Robinson, James, 19, 80 robots, 14; automobile assembly, 18; autonomous, 307; creation of new jobs for engineers, 15; flying, 312; human perception and, 318; jobs of machine operators taken over by, 14; middle-income jobs cut out by, 26; multipurpose, 242, 261, 327; of preindustrial times, 74; routine tasks performed by, 229 Rockefeller, John D., 208 Rodrik, Dani, 286–87 Roman alphabet, 47 Roman Empire: fall of, 41; most famous invention of, 38; slavery in, 74 Roosevelt, Franklin D., 157, 179, 211 Rousseau, Jean-Jacques, 62 royal trading monopolies, 80 Rural Electrification Administration, 157 Russell, Bertrand, 33, 78 Rust Belt, 279, 283, 291 Sanders, Bernie, 286 Savery, Thomas, 106, 317 Scheidel, Walter, 211 Schumpeter, Joseph, 73, 294 Schumpeterian growth, absence of, 72 Schumpeterian transformation, 49 scribes, 49, 50 Second Industrial Revolution, 22, 25, 148–73; agriculture, mechanization of, 189; American inequality during, 217; automotive industry, 202; child labor, as opportunity cost to education, 21; elimination of jobs created for machine operators during, 228; greatest virtue of, 155; mechanization following arrival of, 142; new tasks for labor spawned by, 202; skill-biased technological change, 213; skill demand raised by, 209; technological leadership of, 25; tractor use, expansion of, 196; urban-rural wage gap self-employment, 71 serfdom, 41 Shannon, Claude, 302 Sigismund I of Poland, King, 29 Silicon Valley, 257, 359 silk industry, beginnings of, 99 silk-throwing machine, 52 Simon, Herbert, 316, 336 Singer, Isaac, 149 Skill-biased technological change, 213 slavery, 39, 74 smartphone, spread of, 328 Smiles, Samuel, 110 Smith, Adam, 67, 69–70, 83, 228 Smithian growth, Schumpeterian vs., 58, 72 smokestack cities, 263 social class, Marx’s theory of, 265 socialism in America, 272 social media, 285 socioeconomic segregation, 26 Solow, Robert, 4, 180, 206, 325 speech recognition technology, 306 Spence, Michael, 292 spinning jenny, 102 spousal employment, 240 Sprague, Frank J., 152 steam engine: development of, 73; economic virtuosity of, 107; impact of on aggregate growth, 136; universal application of, 249 steel production, changed nature of, 13 Stephenson, George, 109 Stevenson, Betsey, 336 stocking-frame knitting machine, 10, 54, 76 strikes, protection of car companies from, 276 “stylized facts of growth,” 205 subjective well-being, 255 Summers, Lawrence, 261, 349 supercomputers, 290 supply of technology, obstacles to, 77 “symbolic analysts,” 235 task simplification, example of, 311 tax credits, 355–58 taxing and spending, redistributive, 271 tax revenue, 133 technological gap (1500–1700), 51 technology companies, location decisions of, 260 telephone operator, vanishing of, 201 telescope, 59 Tennessee Valley Authority (TVA) Act of 1933, 363 Tesla, Nikola, 152 textile industry, 38, 55, 95 Thirty Years’ War, 58 Thompson, E.


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Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler, Cass R. Sunstein

Al Roth, Albert Einstein, asset allocation, availability heuristic, call centre, Cass Sunstein, choice architecture, continuous integration, Daniel Kahneman / Amos Tversky, desegregation, diversification, diversified portfolio, endowment effect, equity premium, feminist movement, fixed income, framing effect, full employment, George Akerlof, index fund, invisible hand, late fees, libertarian paternalism, loss aversion, Mahatma Gandhi, Mason jar, medical malpractice, medical residency, mental accounting, meta analysis, meta-analysis, Milgram experiment, money market fund, pension reform, presumed consent, price discrimination, profit maximization, rent-seeking, Richard Thaler, Right to Buy, risk tolerance, Robert Shiller, Robert Shiller, Saturday Night Live, school choice, school vouchers, transaction costs, Vanguard fund, Zipcar

The answer is that the combination of loan guarantee and subsidy by the government makes these loans exceptionally profitable, so lenders compete hard to get the business. Presumably, it was the hope of such competition that led the government to design the program in this partially privatized manner, in which the federal government hands out subsidies but relies on the private sector to distribute the loans. However, the competition has not focused on price. Instead, the lenders have engaged in what economists call rent-seeking activities. The idea is that if there are high profits to be made, suppliers will be willing to spend a lot of time and money to get that business. Because excess profits are available to the lenders who snag the student loan business, there are temptations to do whatever it takes to get to the head of the line. As with mortgages, this example illustrates the problem with directing people to seek “expert” advice when they face difficult, high-stakes problems and are confused about what to do.

., and retirement plans Lay, Kenneth lemmings Leslie, Phillip Lewin, Kurt libertarian paternalism, arguments against, see counterarguments; golden rule of, of government, in health care, and marriage, in politics, as Third Way, why stop there? life expectancy “lifestyle” funds Lincoln, Abraham loans: direct-to-consumer, federal, fixed-rate, and foreclosures, “good-faith estimate” on, home equity, interest rates on, microfinance, predatory, private, rent-seeking activities in, research findings on, risky, Stafford, student, and Truth in Lending Act, variable-rate Loewenstein, George Lollapalooza festival, Chicago London: bombing in World War II, pedestrians in Long, Bridget loss aversion lotteries low stakes Madrian, Brigitte magazine subscriptions, and inertia Maine, “intelligent assignment” choice architecture in mandated choice Manilow, Barry mappings markets, feedback in, free, incentives in, invisible hand in, trading systems in Markowitz, Harry marriage: anachronistic state control of, and children, choice architecture for, civil union vs., commitment in, cost/benefit analysis of, covenant, default rules for, discriminatory history of the institution of, and divorce, as domestic partnership agreement, expectations for, factors to be considered in, goals and intentions in, legal aspects of, mandatory waiting periods for, as precommitment strategy, prenuptial agreeements, recognition by religious organizations, same-sex, single state vs., status quo bias in, use of term, variations on a theme McAllen, Texas, Medicare Part D in McFadden, Daniel Medicaid, and Medicare Part D Medicare Advantage Medicare Part D, see prescription drug plan Medicare Web site mental accounting mere-measurement effect Merrell, Katie Métro, Le, Paris Meulbroek, Lisa microfinance loans mistakes, learning from MIT, Poverty Action Lab money: borrowing, as fungible, liquid assets of households, personal savings, for retirement, see retirement plans; Save More Tomorrow money illusion money market accounts Montana, social influence in mortgage brokers mortgages, and the American dream, annual percentage rate (APR), costs of, fees, fixed-rate, and foreclosures, “good-faith estimate” in, interest-only, online shopping for, points, prepayment penalties, and RECAP, research findings about, in sub-prime market, and teaser rates, and Truth in Lending Act, variable-rate motorcycle helmets music downloads mutual funds MySpace nail polish, no-bite National Association of Chain Drug Stores National Community Pharmacists Association National Environmental Policy Act (1972) Nazism negligence: defined, right to sue for negotiations, opening offers in Nelson, Willie neutrality New Deal No Child Left Behind Act noodge, meaning of term Norman, Don, The Design of Everyday Things nudge, use of term, nudges, evaluation of obesity, and conformity, and self-control, and social influence Occupational Safety and Health Administration (OSHA) One Size Fits All optical illusions optimism “opt-in” policy “opt-out” policy Oreopoulos, Phil organ donations, “brain dead” sources of, complexities in, default rule in, explicit consent in, inertia in, mandated choice, market in, presumed consent, rejection rate in, routine removal, social norms overconfidence ozone layer painting a ceiling paint store Parker, Tom, Rules of Thumb parking garages paternalism: asymmetric, and coercion, of government, “one-mouse-click,”; One Size Fits All, rejection of, stopping point for, use of term pedestrians peer pressure Pension Protection Act (2006) pensions, see retirement plans pesticides, warnings about Petrified Forest National Park, Arizona Planners planning fallacy pluralistic ignorance politics: brand switching in, libertarian paternalism in, predictions in, private-sector interests in, probability of voting, Third Way in, voting patterns pollution popcorn portfolio theory postcompletion errors practice, and feedback preferences Prelec, Drazen prescription drug plan, available alternative plans, confusing choices in, coverage in, defects of, design of, “doughnut hole” in, and drug prices, dual eligibles in, enrollment routes, failure to serve, flexible switching option in, individuals with no coverage, intelligent assignment in, key features of, lessons to be learned from, as Medicare Part D, minimum coverage requirements for, non-enrollment as default option, and pharmacy networks; poor choices made in, price differences in, random default, RECAP proposal for, restructuring of, simplicity needed in, Web site as tool for Prestwood, Charlie presumed consent, and organ removal prices, and incentives priming procrastination publicity principle public policy, and framing random processes: neutrality in, patterns in, “streak shooting,” Rawls, John Read, Daniel RECAP (Record, Evaluate, Compare Alternative Prices), and credit cards, and Medicare Part D, and mortgages, and student loans, and transparency recycling redistribution Reflective System, and Planners Regulation Z (Truth in Lending Act) representativeness required choice restaurant health inspection retirement plans: automatic enrollment in, automatic savings for, choice architecture in, choosing, complex choices in, conflicts of interest in, contribution rates, default options in, defined-benefit, defined-contribution, discretionary contributions to, diversification rule of, education about, enrollment decisions, ERISA, errors expected in, exclusive benefit rule of, feedback in, forced choice in, “free money” in, and government, incentives in, investments for, see investments; and job switching, mappings in, matching contributions to, and mindless choosing, obstacles to saving for, portable, postretirement income needed in, prudence rule of, “safe harbor status” for, Save More Tomorrow, saving for, simplicity in, status quo bias in, synchronized to pay raises, tax-favored savings accounts right to be wrong risk assessment risk-related behavior risk tolerance Robur Aktiefond Contura, Sweden Rogers, Kenny, “The Gambler,” Romalis, John Roosevelt, Franklin D.


pages: 311 words: 94,732

The Rapture of the Nerds by Cory Doctorow, Charles Stross

3D printing, Ayatollah Khomeini, butterfly effect, cognitive dissonance, combinatorial explosion, complexity theory, Credit Default Swap, dematerialisation, Drosophila, epigenetics, Extropian, gravity well, greed is good, haute couture, hive mind, margin call, negative equity, phenotype, plutocrats, Plutocrats, rent-seeking, Richard Feynman, telepresence, Turing machine, Turing test, union organizing

Rather, it evolved over a period of centuries, from a tool of state censorship (you could prevent sedition by licensing big, heavy, old-fashioned metal-type printing presses) to a tool for revenue protection (Dickens and other Victorian writers