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The Rent Hypothesis

esoltas.blogspot.com

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Re: The Rent Hypothesis

#51

Post by bcg1 »

I agree with the author about the problem with rents; unfortunately this argument is almost always framed politically (including, probably not intentionally, this article).

The arguments he is making are logical, but the premises he is using are only true in the academic economics echo chamber. For instance, he doesn't even mention the fact that government is, almost by definition, either the largest or second largest rentier in modern America (their main competitor being "to-big-to-fail" financial institutions). This is probably unintentional on his part but not on the economists he mentions such as Tom Piketty and Paul Krugman, because of their personal politics. To exclude government from this discussion is probably not correct.

It is not hard to see evidence of this by the way... take healthcare.gov for instance. If your company had $500 million CASH to build a website, what level of quality could you produce? Government also encourages rent seeking by other actors in the economy, even leads to rent seeking becoming the main game in town. Real entrepreneurs end up getting hurt by this because it steals away resources from their customers. Also economists like Piketty and Krugman then paint all companies with a broad brush and advocate that their legitimately earned profits be redistributed, which thankfully the author of the article seems to be defending against.

Re: The Rent Hypothesis

#52

Post by stonemetal »

dragontamer wrote: post #8
rayiner wrote: post #7

Earlier quoted context omitted.

> Will the majority of humanity be enslaved to rent-seekers who own patents on a robot hinge? If current trends continue, it will be the capitalist who first commercialized the robot once public and private R&D had done all the heavy lifting.

No robot is 100% self sufficient. There will always be a need for skilled labor to maintain and update robots. Even the most magical electric self-driving car requires maintenance in the form of software updates, tire rotations and the like. I think we are entering a period of "super industrialization", where even fewer workers are needed to do greater amounts of work. Careful care needs to go into making sure we don…

There will always be a need for skilled labor to maintain and update robots.

Why? Surely we will come up with maintenance robots that will maintain the other ones, including other instances of the maintenance robot.

In my experience automation tends to have very mechanical edges, so the very act of automating something brings about a system that is easier to automate further.

Re: The Rent Hypothesis

#53

Post by cowsandmilk »

pinky1417 wrote: post #13

Wow, impressive article especially considering it comes from (I think) a junior at Princeton https://www.linkedin.com/pub/evan-soltas/29/5/b44 My only gripe is that he thinks that entrepreneurship and investment are struggling. If they're struggling now, then they've been struggling through all of human history.

> My only gripe is that he thinks that entrepreneurship and investment are struggling.

Entrepreneurship is extremely hyped right now, despite being at a relative low historically (Figure 1 of [1]). More companies are failing in their first year (Figure 4, 5, D1, D3 of [2]) and an increasing percentage of employment is at firms 16+ years old (Figure 2, A2, C2 of [2]).

Less people starting companies, more companies failing in the first year, more people employed at well-established companies. That sounds like entrepreneurship is struggling to me.

[1] http://www.kauffman.org/~/media/kauffman_org/resources/2015/... [2] http://www.brookings.edu/~/media/research/files/papers/2014/...

Re: The Rent Hypothesis

#54

Post by logicallee »

Look at all the rent Apple is seeking on the new 12 inch Macbook, for example. In 2015 the world supply of 12 inch Macbooks increased suddenly and unexpectedly. Nobody saw it coming. The world simply has a great new product in it starting in 2015 that it didn't have in 2014 or 2013. On HN there were 1269 comments:

https://news.ycombinator.com/item?id=9172373

One thousand, two hundred, sixty-nine! The current front-page has 6-12 comments on most stories, and tops out at 59 for a popular OpenSSL security advisory people care about and are discussing, to up to 141 for a large piece of news about Tesla direct sales being allowed in NJ. (A big issue because people feel strongly about this.)

1269 comments on the 12 inch macbook. Clearly people feel strongly about the sudden discovery of 12 inch Macbook deposits worldwide! It's a totally new thing, amazing.

The top comment at that link states that this is a beautiful machine. Another comment says "The overall design of the new MacBook is revolutionary."

This is a spontaneous revolution that happened worldwide in 2015. Now let's turn to rents. As another poster said in the present thread[1],

"A graph of world economic growth since the invention of fire shows anything but diminishing returns however. If rent-seeking behaviour is increasing, it's because the pie is - at least on a global level - growing at an accelerating rate."

The amount of value this machine has for users is way more than the incremental increase in what was available between 1982 and 1983, for example, at the same number of inflation-adjusted dollars.

But that other poster continues in the same comment (still [1], in this thread):

"Elites always have and always will seek to take disproportionate shares of that wealth because they can."

Apple is an elite market-maker. Although there is a spontaneous increase in 2015 in the availability of the highly desirable 12-inch Macbook, in fact Apple is not giving them away at cost. Or even within 5% of cost. It has positioned itself as a rentier sitting on its laurels and enjoying the profits of the worldwide spontaneous existence of a large deposit of totally new 12 inch Macbooks. It is taking a disproportionate share of the wealth, the actual, true, value that has just spontaneously sprung into existence this year without any work from Apple.

Out of nowhere, you have a trackpad that responds to a force-push.

Out of nowhere, you have a machine that weighs just a hair over 2 pounds, a full pound lighter than the previous 13-inch macbook air and 16% lighter than the previous, impossibly small 11-inch Macbook air. But with a full-size 12 inch retina display, and lasting 9 hours on a charge.

People want it. I want it. But Apple is hoarding this spontaneous innovation and creation. Truly, no clearer example could possibly be found of "Elites have and will always take disproportionate share of wealth", than Apple, which has secured a one hundred percent monopoly on a spontaneous natural resource that everyone could enjoy.

This is rent in action. It has led to a smart phone in every single person's pocket when they did it with the iPhone in 2007. It has led to a proliferation of tablet PC's that changed the face of mobile computing the world over, when they did it with the iPad.

And it makes my blood boil to see them do it with the 12 inch Macbook. It's just bald-faced theft of a disproportionate share of the world's wealth. They're even blatant about it, with this graph:

http://www.patentlyapple.com/.a/6a0120a5580826970c01b8d0e769...

How can they get away with this? This is an absolute blatant boast that they are taking a disproportionate share of the wealth that is spontaneously created, and that they have absolutely nothing to do with. They do so at prices that show obvious and blatant rent.

Are we just going to idly sit by and let them do it? Even cheer them on?

(for the satire-impaired: yes)

[1] https://news.ycombinator.com/item?id=9233624

Re: The Rent Hypothesis

#55

Post by joe_the_user »

baddox wrote: post #31

> Rents are not always bad. Protections for intellectual property make sense not in spite of the rents they generate, but rather because of them. A patent, after all, is a temporary monopoly. These monopoly rents give incentives for innovation and allow innovators to cover the costs of research and development. This is a weird way to talk about IP and rent. Is profit from IP necessarily rent? The problem is that "ren…

You're making an interesting argument:

Is profit from IP necessarily rent? The problem is that "rent" is defined as "profits earned above what would be earned in a competitive market," but "competitive market" isn't well-defined until you define a system of rights (namely property rights).

First comes the existence of "intellectual property" in property rights. To avoid the dependence of the right to property on the state or the monarch, John Locke and others argued for the concept of "natural rights" - the right to physical property and land property I think are included in this while intellectual property such as copy rights have not been.

After all, if property is merely an administrative system established by the state for some purpose, such a system can be changed if it happens to not serve that purpose. The assumption of natural property is that (land and mobile) property rights are a prerequisite for the existence of a just state rather than the result of the state. So-called intellectual property is always the product of a state, indeed intellectual property is always a monopoly of activity granted by the state (with the "natural rights" argument being aimed to claim natural property rights are more than that).

Now, a purely formal, economic definition only judges the structure of a market in question. So it simply gives what difference between what a competitive market would charge for a good and what a non-competitive market actually charges. Since "intellectual property" is a monopoly granted by the state, the degree of rent they allow is most easily calculated. If anything, the trickier thing is calculating how much rent simpler property rights involve.

Re: The Rent Hypothesis

#56

Post by bcg1 »

logicallee wrote: post #54

Look at all the rent Apple is seeking on the new 12 inch Macbook, for example. In 2015 the world supply of 12 inch Macbooks increased suddenly and unexpectedly. Nobody saw it coming. The world simply has a great new product in it starting in 2015 that it didn't have in 2014 or 2013. On HN there were 1269 comments: https://news.ycombinator.com/item?id=9172373 One thousand, two hundred, sixty-nine! The current front-pa…

What you're describing is just smart business. Producing a desirable product that people choose to buy is not rent-seeking, it is the free market fulfilling a need/want at price people are willing to pay.

An example of rent-seeking however would be if Apple set up deals with schools and colleges to roll the cost of devices into their tuition, which is really mostly malinvestment paid with student loan debt. If the amount of student loans were to reach $1 trillion for example, the government might start talking about forgiving those loans or making them eligible for bankruptcy... if that happens, Apple doesn't have their profits clawed back, even though they actively contributed to the problem. That would be rent-seeking.

Re: The Rent Hypothesis

#57

Post by joe_the_user »

kd0amg wrote: post #43
baddox wrote: post #31

> Rents are not always bad. Protections for intellectual property make sense not in spite of the rents they generate, but rather because of them. A patent, after all, is a temporary monopoly. These monopoly rents give incentives for innovation and allow innovators to cover the costs of research and development. This is a weird way to talk about IP and rent. Is profit from IP necessarily rent? The problem is that "ren…

I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product (not the whole product line, just the individual item). In a perfectly competitive market, price is driven down to match that cost, but the comparison with production cost is easier to apply in markets that aren't perfectly competitive (like licenses for a particular patent). Once an invention has been…

The problem is such definition would result in a situation where the seller had no incentive at all to engage in the process of making and sell the product.

Most theories of profit assume that an investor gets money approximately proportionate to the risk they take in investing as a well as to the opportunity cost of just sitting on their money.

Re: The Rent Hypothesis

#59

Post by tjradcliffe »

notahacker wrote: post #30
wppick wrote: post #23

At the beginning of civilization, the research budget for the invention of fire was zero, while the benefits of fire were incalculable. Compare this to the development costs of the next generation of Boeing aircraft relative to the small improvements in air travel. This dynamic has enormous implications for the presumed benefits of increases in government spending beyond some low base. Over time and with increasing c…

A graph of world economic growth since the invention of fire shows anything but diminishing returns however. If rent-seeking behaviour is increasing, it's because the pie is - at least on a global level - growing at an accelerating rate. Elites always have and always will seek to take disproportionate shares of that wealth because they can, and because regimes, legal norms and competition encourage them to do so rath…

The non-monotonic nature of growth has been used to justify the claim that complex societies fail because investment in complexity provides diminishing returns, however: http://www.amazon.com/Collapse-Complex-Societies-Studies-Arc...

Re: The Rent Hypothesis

#60

Post by spinlock »

baddox wrote: post #31

> Rents are not always bad. Protections for intellectual property make sense not in spite of the rents they generate, but rather because of them. A patent, after all, is a temporary monopoly. These monopoly rents give incentives for innovation and allow innovators to cover the costs of research and development. This is a weird way to talk about IP and rent. Is profit from IP necessarily rent? The problem is that "ren…

The philosophy behind patents is that they encourage the sharing of research so that the total cost of rnd to society is minimized. Whithout ip protection, firms would rely on trade secrets. They would still charge more for their products but a competitor would have to spend the money on research to compete. I don't know if you would still call the premium they could charge rent or if you would amortize rnd over the product lifetime.
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