Wednesday, August 17, 2011

Rent-Seeking is the New Profit Center, and DC is its Festering Capital

In the U.S. there have always been centers for frenzied entrepreneurial activity, creating value, wealth, and employment. It's what we do.

New York and Boston were both important trade, financial, and industrial centers. Then Pittsburgh and the Ohio Valley became engines of growth and industrial might. Detroit made iron machines that covered the world with transportation. Silicon Valley, quite recently, produced enormous amounts of hardware and software, and revolutionized the way we think about information.

In all those cases, American entrepreneurs sought out opportunities to create value and collect profits. That's what profits are, the inducement to redirect resources toward higher valued uses.

What does the U.S. produce now? Government contracts, where money is taken from tax-payers at gunpoint and wasted on "information systems," useless consultants and brutal elective wars on faraway and largely innocent populations. A festering hive of rent-seekers has clustered around Washington, D.C.

Rent-seeking and profit-seeking look the same from the perspective of the seeker. Both produce super-normal returns to investment, and create wealth for the winners. The difference is that profits are a sign of value being created. Rent-seeking is a sign of value being destroyed.

(nod to Anonyman, who eats his rents with fava beans and a nice Chianti)


Jay said...

Are there any metrics that divide GDP activities into categories like:
-Capital-neutral or -negative (e.g. making bombs that just blow up)

Mike said...

I get aggravated and depressed when I critically review how dependent my family and I are upon government programs. Not like the contractors featured, but in the second and third order. I work for a private college, we would not survive if the student loan programs were cut from the budget. This is a real problem. There are probably hundreds or thousands more like it.