{"id":317,"date":"2010-06-10T18:23:33","date_gmt":"2010-06-11T01:23:33","guid":{"rendered":"http:\/\/chasingeden.com\/?p=317"},"modified":"2010-06-11T08:35:19","modified_gmt":"2010-06-11T15:35:19","slug":"rent-seeking-wealth-creation-and-an-all-service-economy","status":"publish","type":"post","link":"http:\/\/chasingeden.com\/?p=317","title":{"rendered":"Rent Seeking, Wealth Creation, and an all Service Economy"},"content":{"rendered":"\t

Rent Seeking:<\/strong><\/h2>\n\t

Not to be confused with simply paying rent….rent seeking is an economic term to describe extracting an economic “rent” (i.e. some sort of value) on a transaction where the party adds no actual value.\u00a0 Another definition (from investopedia.com) is when a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation.<\/p>\n\t

This is easily applied to the current financial industry.\u00a0 It is a simplification; however, if the high-finance industry simply ceased to exist, no harm would be done.\u00a0 They don’t actually produce anything<\/strong>…they simply extract rent as a piece of other, hopefully productive, activities.<\/p>\n\t

Finance claims to do risk assessment. <\/strong> That is almost laughable.\u00a0 They failed to properly evaluate the risk they themselves created with their fancy debt instruments……and we ended up bailing them out.\u00a0 If I were them….and they were smart….I would fire themselves.\u00a0 They are obviously incompetent and a self-contradiction:\u00a0 If their purpose is to mitigate financial risk and they themselves are the largest risk to global finance…the only logical conclusion is to close their doors and go home.<\/strong><\/p>\n\t

Rent seekers are bad. <\/strong> They produce nothing and extract a “rent’ (i.e. are a burden) on people who do.\u00a0 If the rent seekers get bad enough….the producers simply stop producing.<\/p>\n\t

Wealth creation:<\/strong><\/h2>\n\t

Who then are the non-rent seekers?\u00a0 What actually is a productive pursuit?\u00a0 This is the more interesting question by far.<\/p>\n\t

I argue that productive pursuits improve lives.<\/strong><\/p>\n\t

Productive:\u00a0 Growing food is productive.\u00a0 Building houses is productive.\u00a0 Air conditioning, plumbing, refrigerators.<\/p>\n\t

If you have these things….your life will be better.\u00a0 No doubt.\u00a0 Black and White.\u00a0 It gets more difficult though.\u00a0 Some things are necessary to make things that make life better.<\/p>\n\t

Compliments to wealth creation:\u00a0 Roads, electricity, computers, telephones, etc.<\/p>\n\t

These are necessary to make the things that make life better.\u00a0 It gets even harder.<\/p>\n\t

Ambiguous:\u00a0 What about lawyers?\u00a0 Are they navigating the law for the wealth creators so they can do their job or are they using their special knowledge of our byzantine legal system to bend the rules in their favor….to rent seek?<\/p>\n\t

What about the health insurance industry?\u00a0 Are they helping people get health care or are they using their legally created special status to rent seek on people trying to get health care?\u00a0 If the whole industry simply disappeared, would it really matter?<\/p>\n\t

What about service industry jobs? <\/strong> Are barber shops and nail salons creating wealth? No.\u00a0 They are not.\u00a0 They are compliments.\u00a0 Theses industries (and many others) do not create wealth; they exist solely because of the excess wealth of the industries which create things that make our lives better.<\/p>\n\t

Only when the first dude created enough excess wealth from his labor would their ever be demand for a service job like laundry or cleaning.<\/p>\n\t

After all…..imagine a society where everyone is cleaning for everyone else and cutting their hair….where do these people live?\u00a0 What would they have to clean if nothing were being produced?\u00a0 The service industry exists as a compliment.<\/p>\n\t

So……I’ve probably lumped over half (forgive the imprecision) of US economy into non-wealth creating pursuits.\u00a0 Most people work in service or rent seeking industries.<\/p>\n\t

If this is the case, what about the US economy with its dwindling manufacturing base and increasing service sector<\/strong>?<\/p>\n\t

Can a purely service economy exist?<\/strong><\/h2>\n\t

No.\u00a0 I don’t think so.\u00a0 Not for any extended period of time and be prosperous.<\/p>\n\t

There are a precious few things that truly make life better….and the vast, vast majority are all actual THINGS.\u00a0 They are things enabled by advances in technology.<\/p>\n\t

That’s what true wealth creation is:\u00a0 Technology enabled stuff we produce that makes our lives better.<\/p>\n\t

Everything else exists on the coattails of those very few items, because without those very few items all the other stuff wouldn’t NEED to exist.<\/p>\n\t

Example:\u00a0 It might be true that the greatness of the Seinfeld TV show made lives better.\u00a0 I could agree with that; however, without food, a roof, warmth, indoor plumbing, electricity, etc….no one would care about TV.<\/p>\n\t

What does all this mean? <\/strong><\/p>\n\t

1) Technology is the basis of everything that makes our life better.\u00a0 Invest in it.\u00a0 Waste money on it if needed (don’t waste money on foreign wars).<\/p>\n\t

2) Make stuff that improves lives.\u00a0 Everything else is either service for those that make things…..or rent seekers.\u00a0 If you don’t make things, you’ll soon be lining up to be friends with those who do.\n<\/p>\n","protected":false},"excerpt":{"rendered":"

Rent Seeking: Not to be confused with simply paying rent….rent seeking is an economic term to describe extracting an economic “rent” (i.e. some sort of value) on a transaction where the party adds no actual value.\u00a0 Another definition (from investopedia.com) is when a company, organization or individual uses their resources to obtain an economic gain […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_newsletter_tier_id":0},"categories":[1],"tags":[28],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p3IMYj-57","jetpack-related-posts":[{"id":31,"url":"http:\/\/chasingeden.com\/?p=31","url_meta":{"origin":317,"position":0},"title":"Home ownership: Does it make sense?","author":"kellio","date":"November 27, 2007","format":false,"excerpt":"Or more to the point: does it make sense for me? 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