Great Problems: The Rent-seeking Economy

In a healthy society, people acquire wealth by making stuff people want. Farmers till plots to provide for their nutritional wants. Workers assemble motorcycles for consumers who pay money because they find the motor bikes valuable. Perhaps the worker serves a philanthropic organization and earns a salary by serving the official goal of the organization. Or perhaps the worker earns money by creating crafts that others in the community value.

A society structured as the above has two great benefits. First, incentives are aligned to produce more output. A person can only acquire wealth by producing wealth. Thus the production of wealth is encouraged, as man’s natural greed is channeled towards productive ends. Second, humans are innately goal seeking creatures. It makes us fundamentally happy to strive towards a goal – whether that goal be winning a football game, learning a new song on the piano, leveling up in Warcraft, or producing a product that people want.

In a dysfunctional society, people acquire wealth via corruption, rent-seeking, and theft. Perhaps they steal it at the point of a sword. Perhaps they acquire wealth through outright corruption. Perhaps they acquire wealth through holding a position in a completely dysfunctional management structure that requires internal politicking and Kabuki make work rather than actual performance.

As Adam Smith wrote, “there is a great deal of ruin in a nation” Corruption has always existed in America. But in the past decades it seems as if the dominant paradigm has shifted, so now more and more income comes via dysfunctional rent-seeking rather the net creation of new wealth. 1

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The Four Economic Classes and their Respective Plights

This is the third essay in a series on the great problems of our age. See part 1 and part 2.

To understand American economic conditions, it is helpful to generalize Americans into four economic classes:

  • The Underclass Those scraping by at the fringes of economy, often subsisting on crime or welfare.
  • The Plebs The interchangeable parts in the machinery of the economy. Because plebs are so easy to replace, they earn low wages and have little job security.
  • The Rat-racers Those who have found a career track that offers leverage and rewards inside knowledge. The inside knowledge makes it harder to replace the rat-racer, thus earning them higher salaries. But they must grind out long work hours to maintain their competitive edge.
  • The Rentiers Those who have achieved complete economic security. They no longer need to work to live, instead they work for personal fulfillment.

Please note that the above classes are economic classes, not social classes. A hipster coffee shop barista and a high school dropout janitor both belong in the same pleb economic class, but they are in very different social classes.

Let’s examine each class in detail.

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The Misunderstood Laffer Curve

The blogger “Jim” just wrote a short post on the Laffer curve. I started to write a comment and it mysteriously grew into an essay.

The Laffer Curve is everywhere misundestood (even I think by Art Laffer himself). The point of tax policy is not to maximize revenue. Modern governments can print their own currency. If a government wanted to maximize revenue, it could simply print money. The point of a tax policy is to maximize the government’s long term purchasing power. And theoretically, In a democracy, the goal is to maximize the life time purchasing power of the median voter.
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Was the End of Monarchy Inevitable?

Anomaly UK, Clio and Vladimir discuss why democracy won out over monarchy.

Underestimated, in my opinion, is a peculiar historical accident. Imagine a thought experiment: What if North America was only 100 miles wide?

The European monarchs won a number of battles against the democratic radicals of the 1600-1800′s. The kings were not savage tyrants of the sort that afflicted the 20th century. So rather than slaughtering dissidents wholesale, the monarchs usually expelled the radicals to the Americas. Thus the Puritans departed for America in the 1630′s as Charles I cracked down on dissenters. Numerous German revolutionaries departed after the failed 1848 revolution.
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Great Problems: The Unceasing Growth of Third World Slums

Every year the slums around Rio, Johannesburg, Lagos, Kolkatta, Mexico City, and dozens of other cities grow larger. More people cram into tightly packed, noisy, polluted conditions.

Some of these cities, such as Rio, Lagos, or Johannesburg, suffer incredible levels of violence. Police rarely dare to enter the Rio favellas. In South Africa, a survey revealed that one in four men admitted to committing rape. In Monrovia locals have forgotten the basic rule of life, “don’t shit where you eat”.
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Great Problems of Our Age: The Destruction of Urban Life

Our project here at Intellectual Detox is to develop a hard and clear understanding of current reality. In this series of posts, we will illuminate and analyze the greatest afflictions of our age, while ignoring the fake problems that occupy too much political discourse.

From 1950 to 1990 the great American cities fell into ruins. Rioters smashed windows and torched houses. Thugs roamed the streets assaulting and robbing decent folk. Homicide rates rose 1,000%. Grandiose “urban renewal” projects razed entire neighborhoods to make way for highways, housing projects, and political trophy towers. The middle class fled the dangerous streets and violent schools. Tight-knit ethnic neighborhoods evaporated. Zoning laws, urban planning fads, and home loan regulations conspired to replace lively, mixed use urban streets with repetitive, isolated boxed housing in suburban neighborhoods.

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The Nature of the Left and the Right (Work in progress)

The Left is analagous to a religion. It is a religious without a God or Theos – an atheistic religion. But it has a central ideology and a set of social networks and institutions that pledge adherence to that ideology.

As with all religions, the practice of the institutions can diverge sharply from the official ideology. The luxury of the 14th century Catholic Church was a long way from the ascetic poverty found in the Gospels. Similiarly, the elitism of Harvard is somewhat incongruous with the egalitarian and democratic ideology promoted by the leftist professors.
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