Capital, rent-seeking, and inequality

I’m not generally concerned about inequality per se, but over at the Pacific Standard Tim Noah has a piece on the difference in the return on capital vs. economic growth, and its causes and consequences.

In plain English: The return on capital (r) almost always exceeds economic growth (g). Piketty calls r > g an “inequality” rather than a formula because it isn’t “an absolute logical necessity.” Rather, it’s “the result of a confluence of forces, each largely independent of the others.”

The article itself is more balanced than the blurb at the top suggests, so do read the entire thing.

Why, then, is it news to contemporary readers that r > g? Because for most of the 20th century that wasn’t true: Economic growth surpassed capital accumulation.

It does raise the question though of to what extent the interests of the capital-rich are aided and abetted by government regulations which promote rent-seeking and actively increase the return on capital. The most recent and egregious example is the government of New Jersey (which one article I read described as a “red state” because, you know, Chris Christie) preventing Tesla from selling cars other than through a dealer.There are a host of similar regulations which nobody ever thinks about that nonetheless tilt the playing field in favor of entrenched interests. From a post I put up last week, there are some even more absurd examples.

It’s politically difficult—remember the hysterical temper tantrum BellRogersTelus threw a few months ago at the mere suggestion that the government might permit foreign competition in wireless—but repealing regulations supporting the rent-seekers would be at the top of my to do list. Far, far above brute-force wealth redistribution.

Advertisements