Wednesday, January 11, 2017

Rent Seeking: "Baked" in the Costs of Economic Access

At a recent ASSA conference in Chicago, one of the panels included discussion regarding rent seeking. While this ProMarket article is worth reading in its entirety, I'll focus on some remarks from Angus Deaton:
To the very considerable extent that inequality is generated by rent seeking, we could sharply reduce inequality itself, if rent seeking were to be somehow reduced...I don't think that rent seeking, which is incredibly profitable, is very sensitive to taxes at all. I don't think taxes are a good way of stopping rent seeking. People should deal with rent seeking by stopping rent seeking, not by taxing the rich.
He also notes that healthcare - in particular - has been notorious in this regard. I agree with Deaton, that taxation is not a well suited approach for what is an important aspect of today's inequality. That said, there are hierarchical divisions for non tradable sector labor and compensation, which make it difficult to approach inequality as a rent seeking problem. How so?

Whereas abundance in tradable sector activity often consists of "windfalls" which contribute to endogenous resource flows, the revenue sources of non tradable sector organization has been defined quite differently. Understandably, these institutions are intended to provide long term employment security, but thus far they have sought to fulfill this purpose via exogenous monetary flows. Relying on these flows requires plenty of "proof" as to one's "worthiness" for knowledge use. If this were not reason enough for the high investment costs required to gain knowledge production rights, career stability is also included as part of the package.

Unlike the wealth of tradable sector activity, which still has a relative degree of freedom to respond to consumer choice and preference, healthcare as non tradable sector wealth, has become a specific component of general equilibrium valuation. Some of this rent seeking structure, is a holdover from days when information and knowledge weren't widely available. Extensive investment for educational costs was understandable, when critical knowledge was scarce. Even as budgetary constraints limit healthcare output, this skills investment structure will continue to require a significant portion of general equilibrium income.

Fortunately: even though it is impractical to "dismantle" the high costs of today's healthcare, there are means by which to (eventually) disperse valuable and practical knowledge on new sets of terms. Even though inequality is likely to remain problematic in the decades ahead, the bigger problem is unnecessarily low levels of labor force participation, which in turn limits the forms of knowledge and time based product that appear in the marketplace. Inequality can gradually be eased by tapping into the technological potential of the present, so that more individuals can participate in knowledge based activities once reserved for those with the highest skill levels.

There's nothing wrong with having some time value that is reimbursed on terms which go well beyond normal levels of skill and intellect. Still, we shouldn't expect a mostly meritocratic framework to be a "permanent" norm for knowledge use at all levels of society, as is presently the case. In many instances, knowledge use also needs to close the loop of reciprocity at local levels, so that more citizens can take part in the important activities which contribute to their own destinies.

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