What's the deal with universities‽‽‽‽‽‽‽‽‽‽‽‽
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But then the customers of the business benefit from these particular rents. And the employees.
How do you propose that this happens?
Whatever you think of, it's wrong, by the definition of 'economic rent'.
http://business.illinois.edu/working_papers/papers/09-0104.pdf
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How do you propose that this happens?
Firstly, because the business exists.
Whatever you think of, it's wrong, by the definition of 'economic rent'.
No.
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Firstly, because the business exists.
Yes, and?
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With as indirect of paths that you are using... as far as you define benefit...
It was a straight path from "Businesses earn excess returns to taxation" to where we are now, discussing how they capture excess returns in the form of rent.
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The neoclassical position is that perfect competition is optimal. Real businesses don't work that way. They seek ways to extract rents/excess profits/arbitrage.
It bears mention here that by far the biggest enabler of rent-seeking is government.
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What service do they render for rent?
And define excess.
The relationship would be a mutual exchange, so both sides would have to agree on the right amount, unless you mean excess in an ethical sense.
And then you'll have to define what is excess and how much excess, in exact terms. Otherwise, you're just throwing words around.
You keep layering a new set of definitions on top of your argument, without defining any, or even defending the last set appropriately.
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And define excess.
A surplus over the price implied by pure competition, in the neoclassical framework. That is the textbook definition of economic rent.
And that's the whole point. They earn a surplus over what the market implies should be the equilibrium price, because of externalities that lower their cost. They don't render any service for the rent they gain.
And now, who captures the surplus? It's the business owners, since they are, by definition, the rentiers. In principle, they should see lower costs and decide to increase production. But businesses don't work like that. The decision to increase production is strategic (i.e., long term).
You keep layering a new set of definitions on top of your argument, without defining any, or even defending the last set appropriately.
They are textbook definitions in economics.
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It bears mention here that by far the biggest enabler of rent-seeking is government.
That's true, since absence of government (true anarchy) means that there are whole markets that don't meaningfully exist.
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economics
Which also gives us Keynesian economics.
They way you applied rent is egregious.
You've switched gears.
The original context was that businesses gain advantages over citizens through public utility.
Then you say "rent", and all of the sudden you're having me argue that rent isn't a valid idea.
Like I said earlier, you keep putting two ideas together as if they follow from each other, and they don't.
If the government puts in a highway, and the rent is the fact that some businesses are closer to the highway. None of that would matter if the highway didn't drive consumers to the businesses. Therefore consumers do benefit from the same highway.
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The original context was that businesses gain advantages over citizens through public utility.
No it wasn't. I started this conversation by saying that business owners gain inordinate returns on their taxes. This is true, because they earn rents.
Excess returns are the same as rent are the same as arbitrage.
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And you've switch gears on the meaning of excess.
You originally implied that there is a ethical, moral even, problem with excess.
Then you defend its technical term.
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You originally implied that there is a ethical, moral even, problem with excess.
No, I did not. I have been saying the opposite all along.
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business owners gain inordinate returns on their taxes
Compared to what?
Each other.
I don't see how this is a problem.
You could claim that I earn rent because I'm a whole 30 points higher than someone else in IQ.
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You do, but 70 isn't so high.
Hint: the fact that they're capturing surplus and not actually being competitive is bad for society.
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Especially considering the inordinate benefits to taxation the richest Americans receive.
Like the little people don't get any benefits from all those roads and sewers and profitable companies?
Like I said...the politics of envy.
The businesses that make people rich would not exist without the infrastructure.
This argument implies there is something wrong with the "excess" and that the non-business citizens don't benefit from the same infrastructure.
The American tax system is a lot more progressive than most other developed countries.
I said the rich get inordinate benefits.
Yes, but it's not simply due to the infrastructure.
We (the business owning class) get benefits others don't. That's what makes the benefits inordinate.
But they also get benefits.
You keep arguing @boomzilla, who keeps saying that it's not unfair.
Then you want to argue with me about the technical term of rent and pretend there wasn't a ethics argument.
So, there must be this massive misunderstanding going on, and I think it has to do with how words are communicated.
I don't care what economics says about the term "excess". Excess implies fairness.
And that rent theory implies fairness too. How can it be fair that I show up a week later, get put on lesser quality land, and have to compete against someone with higher quality land?
We should tax the better quality land higher!
But wait! We do. Because tax is % based against the land value, the higher quality land is taxed more.
Now, is it still inordinate?
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Hint: the fact that they're capturing surplus and not actually being competitive is bad for society.
The key problem is the difficulty for a competitor to enter the market. There's a market opportunity there — a potential overall efficiency gain — but something is preventing that from happening. The question is whether this is because it is naturally difficult to enter (e.g., plain old requires a lot of expertise, indicating that the actual amount of arbitrage opportunity is probably fairly small) or because there's an artificial restraint on trade. Any business would love to have that, as it basically means that they get to earn money they otherwise couldn't; that's what rent-seeking is all about.
I'm no economist, but I've picked up a fair bit here and there along the way. I know lots of shit about all kinds of other things too. Solar physics. Digital curation systems. Systems biology. Weather forecasting. Seismology. Wind turbine farm placement. Railway signalling systems. Advanced CPU design. I've had an interesting career with lots of meddling… ;)
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This argument implies there is something wrong with the "excess" and that the non-business citizens don't benefit from the same infrastructure.
No it doesn't. What it implies is that the non-business citizens don't get the same benefits from infrastructure. Indeed, they don't. They don't have businesses that can produce at the equilibrium price, and so can't earn rents from infrastructure. So business owners get more in virtue of owning businesses! Amazing!
But they also get benefits.
YES THEY DO. AND I GET MORE. WHEE!
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The key problem is the difficulty for a competitor to enter the market. There's a market opportunity there — a potential overall efficiency gain — but something is preventing that from happening.
Indeed, that's why I talked about Nigeria way back at the start of the thread. Nigeria has 180,000,000 hard working people, and they'd love to open factories to compete with ours. But their infrastructure costs are too high and it makes their businesses unviable.
The American government (and British, and Chinese, etc) have made other countries unable to enter the market.
Nevermind the moral dimension. How is Nigeria going to get out from under this situation? They have to invest their oil revenues into building infrastructure to keep up. Meanwhile, "our" developed economy businesses get to rake in rent until their businesses actually lower the equilibrium price.
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So business owners get more in virtue of owning businesses!
But they also own more of the risk.
So the benefits are proportional.
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Rent is risk-free. Rent is arbitrage is excess returns.
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It's not that obvious when you look at what Captain is saying.
He's saying rent is risk free.
But that's not counting the risk the company already faces.The same is true for the general population.
Except their "rent" from welfare is relatively guaranteed, as well as their benefit from infrastructure and so on.So once again, the benefits are proportional between business and citizen.
Rent is free for the business as long as it exists, and the proportional benefit that a citizen receives from public utilities is also just as free as long as they exist.
Businesses take a higher risk (staying in business as opposed to just staying alive) and therefore have more to gain.
Again, I don't see this as unfair.
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They don't render any service for the rent they gain.
They pay more in taxes than others, too, these rent extracting business owners.
This is true, because they earn rents.
If you want to focus only on returns as economic rents, then I guess you have a case, but it's a stupid case and you should be embarrassed for making it because you're ignoring so many other things.
But I'm still not convinced that there is an excess, given that these people are paying more to begin with. Since we're also talking about non-rivalrous and non-excludable things here, I think your underlying premise is flawed (as I pointed out before).
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It's not that obvious when you look at what Captain is saying.
He's making a minute technical argument that isn't terribly relevant to much of anything important.
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@antiquarian said:
It bears mention here that by far the biggest enabler of rent-seeking is government.
That's true, since absence of government (true anarchy) means that there are whole markets that don't meaningfully exist.
You are technically correct, but I was thinking more along the lines of things like taxicab medallions, for example.
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You are technically correct, but I was thinking more along the lines of things like taxicab medallions, for example.
You are aware that they come well up the list of things that ought to be scrapped? Seriously. Lots of the world has nothing like them, and it doesn't immediately trigger the End Times…
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You are aware that they come well up the list of things that ought to be scrapped?
Definitely. I haven't lived in Boston for a while, but when I was there, getting a taxi at closing time was a challenge.
Speaking of things that lots of the world manages to do without, I think part of what keeps the drug laws in force is the prison industry, so you could say that's another form of rent-seeking.
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Does this also make you uneasy?
Filed under: we're number 1! we're number 1!
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Does this also make you uneasy?
No, but I wonder what year(s) that data is from. The page doesn't say…
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The key problem is the difficulty for a competitor to enter the market. There's a market opportunity there — a potential overall efficiency gain — but something is preventing that from happening. The question is whether this is because it is naturally difficult to enter (e.g., plain old requires a lot of expertise, indicating that the actual amount of arbitrage opportunity is probably fairly small) or because there's an artificial restraint on trade. Any business would love to have that, as it basically means that they get to earn money they otherwise couldn't; that's what rent-seeking is all about.
Speaking as someone who works in a field with a very high natural barrier to entry -- pretty much this. Relative lack of arbitrage opportunity coupled to a focus on customer service is a powerful combination...
Indeed, that's why I talked about Nigeria way back at the start of the thread. Nigeria has 180,000,000 hard working people, and they'd love to open factories to compete with ours. But their infrastructure costs are too high and it makes their businesses unviable.
QFT! Of course, corrupt governance doesn't do anything besides drive those infrastructure costs up, which doesn't help matters one bit...
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@Captain said:
They don't render any service for the rent they gain.
They pay more in taxes than others, too, these rent extracting business owners.
This is true, because they earn rents.
If you want to focus only on returns as economic rents, then I guess you have a case, but it's a stupid case and you should be embarrassed for making it because you're ignoring so many other things.
But I'm still not convinced that there is an excess, given that these people are paying more to begin with. Since we're also talking about non-rivalrous and non-excludable things here, I think your underlying premise is flawed (as I pointed out before).
From reading his last few posts, I get the feeling that is only half his argument. He's also arguing that these excesses in developed nations provide significant advantages over businesses in undeveloped countries. He's blending the two ideas together, making a very confusing argument.
So, if we are understanding @Captain correctly, he is trying to make these two points at the same time:
- Businesses get additional use out of public infrastructure that private individuals do not. These additional uses lead to greater gain, and therefore the businesses get "inordinate benefits" from taxation.
- Businesses in developed nations have an advantage over businesses in undeveloped nations because they don't need to internalize massive infrastructure costs.
The second point is mostly just a distraction from the first point, so I'm going to ignore it.
As for the first point, let's take a look at the main points of infrastructure that is supported by the government[1]:
- Roads
- Most road work and maintenance is paid for by fuel taxes. If a company relies heavily on roadways, then they pay more to support their higher usage of the roads.
- Telecom
- Telecoms are generally privately run with government oversight. If you want any telecom services, you pay for them. You want more bandwidth, you pay more. You want more phone lines, you pay more.
- Public Utilities
- If your business somehow relies on public utilities to function, then you pay for what you use. There is a direct correlation between how much you use and what you pay.
Basically when it comes to public goods, if you use more, you pay more. That's the way it works. And that's not even factoring in progressive taxation.
Now consider that to even take advantage of public goods in a manner that would allow you to make money you must take on some sort of risk. No business is completely without risk.
Now @Captain, as a business owner you have increased risk, and you have increased expenses. Buttuming that you are a successful business owner, that increased risk and increased expense translate into increased returns. How is that an inordinate benefit from public goods?
[1] This is all from the viewpoint of how things operate in the US.
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How is that an inordinate benefit from public goods?
And I'll chime in again that I don't think this concept (excess / inordinate) really makes much sense for public goods...or anything else that's non-excludable / non-rivalrous.
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@abarker said:
How is that an inordinate benefit from public goods?
And I'll chime in again that I don't think this concept (excess / inordinate) really makes much sense for public goods...or anything else that's non-excludable / non-rivalrous.
Neither do I. I'm just trying to see if he has any reasoning to back up his claim.
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Most road work and maintenance is paid for by fuel taxes. If a company relies heavily on roadways, then they pay more to support their higher usage of the roads.
Yes, but the costs of road maintenance are more strongly coupled to the speeds and especially the axle weights of the vehicles. (I think the amount of damage done is related to the 4th power of the weight, and I can't remember how speed is a factor.) This means that gas taxes are effectively a subsidy for business, since fuel consumption definitely doesn't vary with that high a power of weight.
I know, it might not feel like a subsidy. It still is though.
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@abarker said:
Most road work and maintenance is paid for by fuel taxes. If a company relies heavily on roadways, then they pay more to support their higher usage of the roads.
Yes, but the costs of road maintenance are more strongly coupled to the speeds and especially the axle weights of the vehicles. (I think the amount of damage done is related to the 4th power of the weight, and I can't remember how speed is a factor.) This means that gas taxes are effectively a subsidy for business, since fuel consumption definitely doesn't vary with that high a power of weight.
I know, it might not feel like a subsidy. It still is though.
That's the best you can come up with? Did you also consider that most private vehicles run on unleaded gasoline and most commercially important vehicles are diesel fueled? What about that fact that excise taxes on diesel are higher than excise taxes on unleaded by an average of 6¢/gallon (varies by state)?
Considering that heavier commercial vehicles have a lower fuel economy and pay higher excise taxes, that "subsidy" is gonna be a lot less than you think.
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Businesses get additional use out of public infrastructure that private individuals do not. These additional uses lead to greater gain, and therefore the businesses get "inordinate benefits"
from taxation.Look at that
del. That's what I'm trying to say.therefore the businesses get "inordinate benefits"
Yes
therefore the businesses get "inordinate benefits" from taxation.
No
When you start comparing against tax, then the "inordinate benefits" becomes normalized.
Businesses get taxed like individuals, even though not all of their profit becomes pay.
Now, someone might be able to Incorporate the business, so that they can "pay" themselves, so that their take-home pay falls into a lower tax bracket.
But that doesn't help the mom and pop shops that do not Incorporate.
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Look at that
del. That's what I'm trying to say.therefore the businesses get "inordinate benefits"
Yes
therefore the businesses get "inordinate benefits" from taxation.
No
When you start comparing against tax, then the "inordinate benefits" becomes normalized.
But that's not what @Captain was saying. AFAICT.
Filed Under: I'm so glad that DiscoBBMarkDownUp works in quotes
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But that's not what @Captain was saying.
Then it's a pointless discussion.
The entire system is designed with giving certain people advantages over others.
It gives poor people advantages to offset their poverty.
And businesses advantages to encourage economic growth.
The only meaningful point you can make is whether a subgroup gets unfair advantages.
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A minute technical argument? Economic rent is the basis for modern business management.
Hint: If a business doesn't earn rent, it earns the competitive market price. And, by definition, this means it earns no marginal profit. And, by definition, it means the owner was better off buying risk-free bonds.
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You guys seem to be arguing different things.
@Captain seems to be arguing whether or not subgroups get advantages through the tax system.
@boomzilla seems to be arguing whether this is fair.
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I think that does about sum it up.
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But that makes about as much sense as playing Worms or Angry Birds, and aiming the birds/guns at the ground.
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What is "that"?
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If you aren't arguing the same topic, you might as well be speaking different languages.
You can't rebuttal an argument that advantages are unfair, by replying that advantages exist.
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boomzilla rebutted my argument that economic rents (specifically with regards to taxation) exist by saying they don't, and then opined that I think the existence of rich people is unfair.
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No, he argued that the advantages aren't unfair.
By saying the advantages aren't "excessive" or "inordinate".
At which point you started using a different definition of "excessive".
Just because your definition of "excessive" is technical and right in the context of economics, doesn't make the definition right in the context of the argument.
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But the fact that businesses earn rent means that businesses are not operating at the point of economic efficiency. Unfair or not, it's bad, especially for the libertarian position.
It's an economic argument.
