It’s a hit

For some reason, my post on rent-seeking is getting a lot of attention. Readers of it may also be interested to read my post, What is capitalism?

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11 thoughts on “It’s a hit

    • Thanks and thanks to the CrossFit site. Rent-seeking and CrossFit seem like strange bedfellows. Though I’m interested in both (I’m a big Paleo fan, too, but think you need more fat), so maybe there’s more like me?

  1. I am a CrossFitter and also a businessman. I would say most of us are, well not businessmen but have careers other than CF. I really liked the article and you now have a new follower.

  2. Founder of Crossfit had a talk in which he used rent-seeking as a refrence and why that was bad for crossfit and against his buisness model which he likened to “Striving to excellence instead of striving to make money is a better way to run a business”

      • Seth, I’m curious. If the owner of a company meets with government representatives to present his company’s product with his goal being that those government representatives endorse and adopt (use) his company’s product (in preference to other similar products), would that be rent seeking?

        • I’m going to need to give it more consideration, but I think there is a difference between “selling” your product (goods or services) to the government (just like an other consumer) and convincing them to buy your product (as opposed to others) and seeking to have the government (as a third party biased referee rather than as a consumer of your product) afford you some privilege that gives you an advantage (such as subsidizing your product or taxing or regulating the competitor’s product).

          I think there is a big difference between the two. In the first case, as long as the government representative is truly acting for the benefit of the government, he should be seeking to make a trade at FMV. Of course, this goes out the window if he’s your cousin or you’ve offered him a bribe and he buys your product at an inflated price, but I think that’s a different “crime” than rent-seeking. In the case of true rent seeking, it’s someone other than the government who buys your product and he does so at an artificially high price due either to a tariff on the competitor’s product, regulations on the competitor’s product that prevent him form lowering his price or government subsidies for your product (which, in a round about way, is the government paying for your product).

          A “rent” is essentially an excess return above the “normal” return in a competitive economic market. Now, if the FMV for an apple is $1 and I try to sell you an apple for $2, that could be considered rent seeking, but that’s not what we typically refer to when we think of rent seeking. Typically, we use the term to imply that one has lobbied the government to obtain some special privilege – something that’s been going on since governments and economies have existed and is not a unique occurrence in any economic system (although that does not mean that it is meant to be a part of that system). Rent-seeking differs from profit-seeking, in which two parties seek to extract value by engaging in mutually beneficial transactions. I would be obtaining rent if I had a third party intervene to limit your access to a trade opportunity thus making what would have been a consensual transaction a rent collection opportunity for me.

          What is important for us to realize is that the costs spent on lobbying for these privilege eliminates some of the beneficiary’s gains for the privileges and results in an economic inefficiency, i.e. less output results from the same inputs. The cost of obtaining the rent represents a use of real resources and is a loss to the economy as a whole.

          Rent is essentially a wealth transfer medicated by the government. Incidentally, our entitlement programs can be thought of as rent collection. Special interest groups – essentially organized groups using the power of the state to further their own economic ends – typically seek rent and are a key cause in the economic decline of many nations. One reason I favor limiting government to its classical minimalist state – protecting individuals from domestic and foreign threats (protecting my person and property from those who would infringe upon it) and administration of justice, e.g. enforcement of contracts – is because, as the functions of government grow, so do the attempts by SIGs to create income (wealth transfer) opportunities for themselves through political activity and this results in a loss to the economy as a whole.

  3. Pingback: To seek rent or not? | Our Dinner Table

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