Lion of the Blogosphere

Tesla and value transference

Tesla is prevented from selling cars directly to consumers in Arizona, Texas and New Jersey because of laws requiring that cars be sold by dealer franchises. Car dealers are the places where poorly dressed prole salesmen try to scam you into overpaying and trick you into purchasing dubious add-on products such as extra rust-proofing.

Libertarian-economist types would refer to car dealers lobbying the government to retain the right to be middle-men even though their dubious services are not needed or desired as “rent-seeking behavior.”

The problem with libertarian-economist types and the term “rent-seeking behavior” is that the term is only used to refer to this type of political lobbying, also called “crony capitalism,” because it fits in with the libertarian-economist-type worldview that if only government would get out of the way, then all economic activity would be directed towards value creation, and then the amount of money people make would be exactly equal to the value they create.

However, libertarian-economist types are wrong about that. The situation described above is only one of many types of value transference which happens in the modern economy. Value transference is my term for the situation in which people make money even though they don’t create any true value. The way I describe the economy, you have people who create value, and then you have people who make money because the value created by other people are transferred to them. To be rich is to be successful at value transference, because the amount of value that can be created by any one individual person is quite limited.

Then there is also the problem that “rent-seeking behavior” has absolutely nothing to do with rent. “Rent” means to collect money for allowing someone else to occupy your real property. And that’s mostly a value creation activity. People need a place to live. Erecting an apartment complex and then renting out the apartments is a valuable economic activity which should be encouraged. I think that libertarian-economist types purposely choose a confusing name because they didn’t want anyone to dwell on the issue.

Written by Lion of the Blogosphere

April 16, 2014 at EST am

Posted in Economics

79 Responses

Subscribe to comments with RSS.

  1. Which libertarian types? The ones I read all fall on Tesla’s side, seeing it as unnecessary regulation and the equivalent of occupational licensure.

    trumwill

    April 16, 2014 at EST am

    • That’s my point, you weren’t reading carefully.

      Lion of the Blogosphere

      April 16, 2014 at EST am

      • No, your point was that libertarians are in favor of dealers lobbying the government to force people to buy cars through dealers. That is exact opposite of libertarian belief. Libertarians would say that there should be no such law, and that people should be allowed to decide whether or not to buy a car from a company that uses dealers or one that doesn’t. Do dealers create value? Let the market decide.

        BehindTheLines

        April 16, 2014 at EST pm

      • The sentence is obviously too long, but I used the word “refer” and not “prefer” for a reason. Libertarians refer to this a “rent-seeking behavior.”

        Lion of the Blogosphere

        April 16, 2014 at EST pm

      • Indeed. The dangers of reading while distracted. Sorry about that.

        trumwill

        April 16, 2014 at EST pm

  2. One of the biggest changes in the economy in recent decades is the recognition of the value of proprietary information. Most of the people you describe as doing “value transfer” have proprietary information in their field and that’s how they creat value. A lot of what you say about value transfer would be negated if you were to recognize that.

    BS Inc

    April 16, 2014 at EST am

    • They keep the information proprietary to prevent competition.

      Lion of the Blogosphere

      April 16, 2014 at EST am

      • But manufacturers and engineers, your models of value creation, also keep their processes proprietary for the most part, whenever those processes are not based in open standards. The processes are forms of information as well, so should one form of information be kept proprietary and the other not?

        BS Inc

        April 16, 2014 at EST pm

  3. Rent-seeking is a perfectly good term of art, and it’s not too much to ask people to take ten seconds to learn what it means.

    La Wik:

    “The expression rent-seeking was coined in 1974 by Anne Krueger.[1] The word “rent” does not refer here to payment on a lease but stems instead from Adam Smith’s division of incomes into profit, wage, and rent.”

    Gordon Tullock used the term ‘rent’ in this way in ‘rent-seeking’ as the economic-rent concept. La Wik:”In economics, economic rent is any payment to a factor of production in excess of its opportunity cost.”

    Real Estate ‘rent’ is not actually an ‘economic rent’ because payments under real property leases in a competitive market reflect the best alternative opportunity cost of the land.

    Economic rents, on the other hand, reflect some stable positive departure away from normal profits, and that stability is usually supported by the political and legal system with some special property right. So, a patent, a license, a regulated monopoly, a no-bid contract relationship, or some regulation that prevents new entry to some commercial endeavor below the efficient market clearing supply and in a way not justified by valid ‘consumer protection’ or ‘quality’ considerations.

    Handle

    April 16, 2014 at EST am

    • It’s a limited subset of value transference that deals only with government-caused value transference, and it has a dumb name.

      Lion of the Blogosphere

      April 16, 2014 at EST am

      • Clearly Adam Smith used the term “rent” because he read your blog and was trying to distract people away from understanding value transference.

        Steve Johnson

        April 16, 2014 at EST pm

      • yea it is clumsy terminology. As a land lord, technically I’m seeking rent from my tenet when the words are used literally.

        grey enlightenment

        April 16, 2014 at EST pm

  4. But what are you supposed to do when your Tesla has problems? Teslas are different from every other car, and regular mechanics might not know about them.

    If your car is a Honda Civic, any mechanic can deal with it.

    Dan

    April 16, 2014 at EST am

    • Most Teslas are in urban areas where access to service exists, for one thing. For another, Teslas are supposedly extraordinary in how little routine maintenance they require. A lot of the parts you’re used to fixing or maintaining just aren’t even there. They’re really amazing vehicles, but then that’s why you pay six figures for them.

      cannibal

      April 16, 2014 at EST pm

    • “But what are you supposed to do when your Tesla has problems?”

      Tesla is not going anywhere, it is roughly break-even, has tons of cash sitting around, and can easily access equity and debt markets. It is nice that it makes assembles them in a California factory and will soon make the batteries elsewhere in the USA in what they plan to be the biggest and most high tech battery factory in the world.

      lodola

      April 17, 2014 at EST am

  5. “Car dealers are the places where poorly dressed prole salesmen try to scam you into overpaying and trick you into purchasing dubious add-on products such as extra rust-proofing.”

    This description could be extended to the whole sector of retailing, the remnant of a time when the limited development of information technology made the presence of middlemen necessary to conduct transactions.

    Thomas

    April 16, 2014 at EST am

    • Nordstrom salesmen are well dressed. As are most high end car salesmen, for that matter.

      Dave Pinsen

      April 16, 2014 at EST pm

  6. As long as the so-called “rent seeking behavior” either protects or creates jobs for the otherwise unemployed, I don’t see it as a bad thing.

    Jeff

    April 16, 2014 at EST am

  7. Part of the car dealer business is rent seeking, but part of it is a form of consumer protection. Dealers don’t just sell cars, they service them. If there were no local dealers, consumers would be screwed when out of state or foreign manufacturers sold them cars that needed to be recalled.

    And dealers don’t make most of their profits by tricking people into “extra rust proofing”. They make them from financing, which buyers don’t use because they are tricked but because they want newer cars than they can afford otherwise.

    Dave Pinsen

    April 16, 2014 at EST am

    • Actually, car dealers make huge margins on all of those dealer extra add-ons like extended warranty, appearance/rust packages, fabric protection, paint sealant or having VIN numbers etched on Windows to (ostensibly) prevent theft. Those foolish items are marked up quite a bit from comparable services you could do for yourself cheaply, or have performed on your behalf for 1/3 the cost that the dealer gives.

      Dealers just don’t make much volume profit on add-ons since most people don’t choose them, balking at their price.

      Camlost

      April 16, 2014 at EST pm

      • Never had a dealer even try to pitch me any of that.

        Dave Pinsen

        April 16, 2014 at EST pm

    • The dealers do provide a service but it doeslook kind of bad that they have to resort to this sort of lobbying. The service they provide shouldn’t need the legal protections.

      trumwill

      April 16, 2014 at EST pm

    • New car dealers also make big money from used cars. There’s a reason why eager buyers get comically low offers for their trade-ins.

      Peter

      ironrailsironweights

      April 16, 2014 at EST pm

  8. I have never understood whence comes the term ‘rent seeking’. Is the term meant to insinuate the person is trying to collect rent on something he doesn’t rightfully own? ‘Value transference’ makes more intuitive sense.

    Big Dubya

    April 16, 2014 at EST am

  9. Libertarians target coercion, not government. Much ‘government’ in this case regulatory activity is coercive is their argument, not government per se.

    Not sure about the money/value equation, either. As I read economists like Rothbard, exchange happens because values are not equivalent.

    rob

    April 16, 2014 at EST am

  10. NJ is a small state, so if dealers try to overcharge there´s a pretty simple solution for customers…

    Oraklet

    April 16, 2014 at EST am

  11. The alcohol and spirits industry in the United States also features inflated prices for this same reason – manufacturers must use a middle man (beer/wine/liquor distributors) to get their products to market.

    In the UK you can drink much cheaper because they don’t have regulations requiring this extra step – beer/spirits makers can sell directly to retailers/grocery stores or even set up their own store fronts.

    Camlost

    April 16, 2014 at EST am

    • This also severely limits options, and why you tend to see the same bottles of wine from store to store, and why you can never find that nice wine you had last night in a restaurant. Some wine store guy once explained to me that there is actually a labeling difference between store and restaurants bottles and you can see in some stores that they are selling wines they aren’t supposed to. Of course I totally forgot what he said, so I don’t know the difference anymore! This was a New York thing (it may even be county-level rules). Your mileage may vary.

      Also, FYI, New Jersey liquor stores are actually much better than New York ones. They are cheaper, have more variety and they can sell beer at the same time, which NY stores can’t do for some stupid reason.

      peterike

      April 16, 2014 at EST pm

      • Yes, this is why MillerCoors and Anheuser-Busch control 85%+ of the beer market in the US.

        But microbrews are slowly chipping away at that market dominance, we will see if they can continue their growth against the “big box” conglomerates who are now retaliating by gobbling up smaller regional craft beer makers, of course.

        Camlost

        April 16, 2014 at EST pm

      • Yes, this is why MillerCoors and Anheuser-Busch control 85%+ of the beer market in the US.

        Well that’s also because so many people have their taste up their ass! I’ve known plenty of people who have been exposed to better beer but insist on their Buds or Miller Lites.

        peterike

        April 16, 2014 at EST pm

      • Peter – Please tell us what were the name of those nice wines that you drank in the “nice” restaurants.

        For very cheap red wine: I only recommend this from Spain:

        Marques de Caceres Crianza – Just look it up.

        It’s cost about 8 dollars a bottle, and for me it’s like NAMs with their soft drinks at the 99 cent store. It has a very smooth silky texture that doesn’t give you a rush after the 1st sip.

        For some reason, I enjoy drinking red wines from Islamic countries such as Lebanon, Turkey, Tunisia and Morocco. Most of them are reasonably cheap and bland tasting, since Muslims never refined their wine making due to their religious restrictions. But the thought of drinking wine from a forbidden place changes your thought patterns.

        Astor Place wines in NYC has a nice selection of these, which tend to sell out quickly because bobos have a penchant for exotic trash.

        JS

        April 16, 2014 at EST pm

    • This is how John McCain’s wife’s family got rich. I believe they control Budweiser distribution in Arizona.

      Here in DC if you distribute beer you can’t distribute wine/spirits (and vis-versa) for some reason.

      dsgntd_plyr

      April 16, 2014 at EST pm

  12. Lion’s definition of VT: Value transference is my term for the situation in which people make money even though they don’t create any true value.

    So this would include certain occupations that are prole by your definition, such as gov’t work, accounting and corporate retail (working at Walmart and McDonalds).

    JS

    April 16, 2014 at EST am

    • Accountants lobbied for laws requiring more extensive financial statements after the 1929 crash. It was supposed to protect investors and creditors but it also created a lot more work for the accounting profession. There are about ten times as many accountants now as there were pre-thirties. A lot of this could be classified as value transference.

      Mark

      April 17, 2014 at EST am

      • Auditing is necessary to protect investors. Otherwise, corporations would lie about their finances.

        Lion of the Blogosphere

        April 17, 2014 at EST am

      • Sometimes financial statements create a false sense of security in investors. They assume the government is looking over the shoulder of the accounting profession but it’s not really possible for the government to be watching everyone. This allows Enrons or Bernie Madoffs even with all the government reporting requirements. If you pile on even more reporting requirements to deal with something like an Enron, the law of diminishing returns starts to kick in. Companies will always find ways to deceive investors and they always need to be vigilant. I work in government accounting and I’m very aware our financial reports aren’t really accurate. The government is supposed to watch the accounting profession but government accounting reports are the most deceitful of all.

        Mark

        April 17, 2014 at EST am

    • Blacks who are overrepresented in Corporate Retail are banking money as well. Although the low level employee is being paid measly wages, they are part of the peddling scheme that offers shoddy products to the public. Despite low salaries, working in McDonalds flipping cookie cutter burgers is a lot easier for a black person than a Mexican who’s grilling beef patties at your local diner, where customers are more discerning, yet he gets paid less or next to nothing.

      Not only are these people not creating true value by selling crappy stuff, they become a liability to the shareholders, who have to paid part of their social security/medicare taxes, unemployment insurance and maybe their sick days/holidays. So yes, value transference also applies to McDonald workers.

      JS

      April 17, 2014 at EST am

  13. If car dealerships were to go away tomorrow, some equivalent would probably be reconstructed before long. But how about real estate agents? Given modern technology, there’s absolutely no reason to pay 6% of your property value just to transfer it to a new owner.

    Sansfoy

    April 16, 2014 at EST am

    • Average real estate commissions are dropping each year.

      Camlost

      April 16, 2014 at EST pm

    • Well a GOOD real estate agent is worth it. But if you are a buyer you need a buyer’s agent. After all, the standard agent is working for the seller, not for the buyer. And as a seller a good agent is also invaluable, because a good agent can definitely help persuade someone. Many a person who said “I don’t need an agent” is still sitting on their FSBO property a year later. Of course, in a super hot market it doesn’t matter (e.g. Williamsburg, where a vacant apartment is typically rented within 24 hours).

      Similarly, a GOOD car dealer would, theoretically, be someone who genuinely guided you to the right choice for you and did what they could to minimize your price. Maybe the world needs autonomous “car dealers” who go out and make the deal for you, rather than working for the dealership.

      peterike

      April 16, 2014 at EST pm

      • I’ve purchased three residential properties w/o ever using a buyer’s agent. One was FSBO and the other two had seller’s agent’s. All I paid for at closing was some county recording fees for about $10 and my pro-rated share of the property tax for that year. Seller paid all other closing costs.

        E. Rekshun

        April 16, 2014 at EST pm

      • Back in Merry Olde England there were no real estate agents and notaries to handle closings. Instead there was a ceremony called feoffment with livery of seisin. You’d swear under oath you own the property you’re selling, swear you’ll leave it immediately, then transfer a handful of dirt and twigs to the buyer as he transfers the cash. If a priest, local nobleman, or justice of the peace showed up, you’d tip them but not that much.

        In good law schools, you spend months learning English property law circa 1550 in your property class, and get tested on it again for the bar exam. As a result every young lawyer can tell you about The Widow’s Election but maybe 3% of lawyers could tell you how to do a real estate closing.

        Other areas of law school are stuck around 1895, so LOTS of reading cases about railroads, but very little about cars, trucks, or planes.

        lodola

        April 17, 2014 at EST am

    • Same as travel agents, a dying industry.

      Colmainen

      April 16, 2014 at EST pm

    • There’s no law preventing you from selling a house on your own. People use realtors because they either don’t want to deal with the hassle or believe they can get a better price that way.

      Dave Pinsen

      April 16, 2014 at EST pm

      • Just because it’s more convenient to do business with a guild or a monopoly doesn’t mean that there isn’t value transference.

        Lion of the Blogosphere

        April 16, 2014 at EST pm

      • “Just because it’s more convenient to do business with a guild or a monopoly doesn’t mean that there isn’t value transference.”

        Nonsense. First, realtors aren’t a monopoly. And second, if someone makes your life more convenient, they are creating value for you.

        Dave Pinsen

        April 16, 2014 at EST pm

      • If they are also preventing other people from providing the same service for less money, they are transferring value.

        Lion of the Blogosphere

        April 16, 2014 at EST pm

      • “If they are also preventing other people from providing the same service for less money, they are transferring value.”

        Wasn’t there a startup years ago offering 2% real estate commissions or something like that? I don’t recall realtors stopping them.

        Dave Pinsen

        April 16, 2014 at EST pm

    • I have the gimmick of having the seller pay the price as reason why real estate agents are still around? There is no direct costs for the buyer and at least there is a way to get into an unoccupied house to look around. I have seen people try to sell their own houses and it usually only works in an overheated market.

      superdestroyer

      April 16, 2014 at EST pm

  14. “Tesla is prevented from selling cars directly to consumers in Arizona, Texas and New Jersey because of laws requiring that cars be sold by dealer franchises.”

    That’s why I oppose big government. Special interests abuse its power to favor themselves at the expense of others. Of course, there will always be value transference. No biggie as long as it’s voluntary. There’s nothing voluntary about government.

    destructure

    April 16, 2014 at EST pm

  15. @Lion:

    Krueger is a World Bank/IMF functionary. Therefore, she’s a Washington Consensus-type, which means she is a libertarian-economist type only in the very broadest sense. It may be that libertarian-economist types are somehow responsible for popularising the term rent-seeking, but, on the other hand, I remember Lew Rockwell or Walter Block or somebody of that ilk criticising this coinage on precisely the same grounds that you did.

    Let’s be clear that “economic rent” as a term of art, has always been quite different from what most people think of as “rent”, i.e. rent on a housing lease (let alone any other type of rental property). This is not Krueger’s fault but Adam Smith’s. In Smithian terms, housing rent is a mix of economic rent (for the right to live on a stretch of earth) and profit, i.e. return to capital (for the right to live in a building that someone has constructed). Housing rent is easy to confuse with economic rent because housing rent always includes at least a little economic rent (although potentially only a very limited amount).

    I think the idea behind the term “rent seeking” is that someone is seeking rent on something that does not legitimately belong to him, i.e. it’s an abbreviation for “illegitimate rent seeking”. If the thing in question is not a natural resouce, then I suppose it is technically illegitimate profit rather than rent. I’d imagine the idea is that, from the rent seeker’s perspective, since he didn’t build or purchase the capital goods in question, everything is metaphorically like a natural good that he is prospecting. Thus, it appears to me (despite what Wikipedia says) that “rent seeking” is using “rent” as a metaphor based on the popular sense of “rent”, not the economic jargon sense of “rent”.

    From a Georgist perspective, all private gain from natural resources is illegitimate, so that any economic rent is by definition a rent-seeking rent.

    Ideally, someone should popularise a better term for rent-seeking. I think the closest familiar concept is extortion, where criminals attempt to establish a pattern in which business owners or whoever make rent-like payments for no legal reason. Calling it extortion-seeking is perhaps a bit too inflammatory. Maybe it would be better to call it detortion or intorsion-seeking. On the other hand, part of the definition of rent-seeking seems to be that it is illegitimate, which means it assumes a normative property structure of some sort, so maybe the connotations of “extortion” are entirely appropriate. I think of your idea of “value transference” as closely related, but not quite coterminous with “rent seeking”.

    Greg Pandatshang

    April 16, 2014 at EST pm

  16. What do Tesla owners do now when stuff breaks?

    Dan

    April 16, 2014 at EST pm

  17. The origin of the term “rent-seeking” is ultimately Henry George, a 19th century American economist who was famous for proposing that the unimproved value of all land be taxed at 99%. He believed that because land (and all natural things) was an inherently limited commodity, allowing private land owners to collect rent was an unjustified monopoly privilege.

    This concept was later expanded by other economists, especially but not exclusively Marxist ones, into “economic rent”–any situation where returns exceed value added. The concept of economic rent is analogous to your term value transference.

    Thorfinnsson

    April 16, 2014 at EST pm

  18. So nobody would get rich in a world where people were compensated for the value they create?

    This post could’ve used more examples. What kind of value transference exists in a libertarian paradise?

    Hepp

    April 16, 2014 at EST pm

    • In a world with true competition no one can get rich. If people saw Bill Gates doing X and becoming really rich also, they would also do X drive down his profits to zero. (Note that in a world without government, anyone could copy Windows without getting sued for it, so there wouldn’t be much profit in merely owning software IP.)

      But the world doesn’t work like that. There are various winner-take-all forces that tend to transfer all value towards a few lucky winners.

      Lion of the Blogosphere

      April 16, 2014 at EST pm

      • What is “true competition?” Are the “rules” continuously reset to insure “equal” starts and restarts?

        thordaddy

        April 16, 2014 at EST pm

      • This is equalitarian drivel. Lion, since when did believe all men are created equal?

        Dan

        April 16, 2014 at EST pm

      • When did I say that?

        Lion of the Blogosphere

        April 16, 2014 at EST pm

      • People witnessed Usain Bolt sprint a 9.93 sec 100m dash and get rich. No one has yet to copy. What makes you think Gates and his Windows could’ve been copied?

        thordaddy

        April 16, 2014 at EST pm

      • In country’s where there are fewer enforced laws, there’s even MORE economic inequality.

        pumpkinperson

        April 16, 2014 at EST pm

      • But what Bill Gates is doing might take a lot of capital and involve a lot of risk, and Bill Gates might be the only person who is willing and able to do it. In hindsight, it was a good idea to start something like Windows or Apple, but it’s not something you can do now just because you saw Gates do it.

        And I don’t know the libertarian position on intellectual property, but Ayn Rand was in favor of it. So that example doesn’t work.

        Hepp

        April 16, 2014 at EST pm

  19. Yeah, economists need to dump the term “rent-seeking.” It reminds normal people of a landlord trying to get some dubious tenant to pay his rent. Being a landlord is a respectable business, with lots of worries and aggravation.

    Steve Sailer

    April 16, 2014 at EST pm

  20. I finally had somebody explain to me why Toyota dealerships tend to be so vile. As the first Japanese car company in America, Toyota signed up whichever dealers they could get to perpetual contracts. These tended to be marginal dealerships, who found themselves lucking in to goldmines that they’ve had for 50 years now. Later Asian car-makers had more leverage to sign less give-away contracts. Thus, in Van Nuys, XYZ Toyota is hateful, while XYZ Hyundai a couple of blocks down the street is pretty reasonable. Hyundai has more leverage over its dealerships than Toyota has, so the same dealership company will treat its Hyundai customers better than its Toyota customers.

    Steve Sailer

    April 16, 2014 at EST pm

  21. Before the Civil War, America abandoned its intended state of liberty and changed into pure mercantilism.

    That’s where Rich White Males fooled Poor White Males into dying for a cause that made the RWMs piles of blood money – and where the RWMs would never send their own sons.

    Kinda like… hicks from OatMeal, Nebraska making all those Wounded Warrior commercials for Manhattan.

    Firepower

    April 16, 2014 at EST pm

  22. To be rich is to be successful at value transference, because the amount of value that can be created by any one individual person is quite limited.

    That’s an extremely speculative assertion.

    pumpkinperson

    April 16, 2014 at EST pm

    • Far less speculative than libertarian theories.

      Thomas

      April 17, 2014 at EST am

  23. 1) i agree that economic rent is a horrible term. the word “rent” as defined in most dictionaries refers to a fair deal between third parties. part of what it means to be a specialist is to come up with your own geeky names and acronyms which prove membership in the club. this is also a great example of how economists do the world a great disservice, because they confuse a term which is usually equated with fairness to describe something most would think of as wildly unfair.

    2) i like how you pick on the prole salespeople for seeking economic rents under the law, but ignore tesla’s sweetheart loans from the government, without which this venture may never have been possible. and i know fisker also got one, but it shows how much harder it was to get started in this space, that you had to win the favor of the government in the first place to get to the table. and really unfair for him to turn around and pick on the little guy for hiding behind government. pot, kettle.

    3) i’d still like to see your proposition to explain alternatives to equity ownership of corporations. should the partnership model be used everywhere there is skilled labor? are engineers blinded by their lack of exposure outside STEM to understand the advantages and alternatives to a winner take all system? Seems like the advantage of corporate ownership is stripping the worker of participation in excess profits derived from their labor. in a partnership, folks would be much more careful about who they let in and what they do. arguably would cure a lot of corporate excesses overnight.

    lion of the lionosphere

    April 16, 2014 at EST pm

  24. The term “rent” refers to an agricultural society wherein the landowner provides the land and gets paid rent, and the laborer works the land and gets paid a wage. Neither party can get anywhere without the other, and yet somehow (at least in Adam Smith’s day) the landowner ends up rich while the laborer is lucky not to starve. The explanation for this phenomenon is that there are new laborers being born every minute, whereas no one is making any more land. Thus the landowner has all the bargaining power and is able to extract all the profit out of the joint enterprise of growing food.

    “Rent seeking” refers to the attempt to make something you own artificially scarce so that, like the landowner, you will be in a good bargaining position. For example, if hair dressers are required to be licensed and this licensing process is cumbersome, then anyone with a license will not have to compete against talented amateurs, and hence will be in an improved bargaining position when it comes time to set prices. A license becomes sort of like land which no one is making any more of, and then hair dressers can rake in the bucks sort of like Lord Grantham.

    This is sort of similar to your value transference concept, Lion, except (correct me if I misunderstand) in your concept there are people who create value, but then are mesmerized into handing the value over to parasites who went to more elite schools. The standard economic concept of rent is, as I said, that there are two parties both of whom contribute and neither of whom can function without the other, but the one with the rarer skill/asset ends up with all the profit from the joint enterprise because he is in a better bargaining position.

    If I may say so, I like the standard concept better than your value transference, because it better explains why the person with the bad bargaining position puts up with the whole thing. I do however concur with your frustration with libertarian doofuses who equate being in a better bargaining position with being of greater moral worth or contributing more of practical value. I entirely agree that often the person who does the lion’s share of the work ends up with little in the way of rewards. Where I disagree is the idea that the person who ends up with the lion’s share of the rewards generally contributes nothing at all, or that there’s any better arrangement possible where the person with the rarer skill agrees to let the guy in the worse bargaining position get the majority of the payoff.

    Libertarianish Economist

    April 17, 2014 at EST am

    • Good comment.

      SJ

      April 17, 2014 at EST am

    • Law of supply and demand. Rare supply with high demand commands high value for goods, skill, anything including human bodies. What is high value added work or skill? Look at principle of market economy: supply and demand.

      IC

      April 17, 2014 at EST am

  25. @Hepp

    “But what Bill Gates is doing might take a lot of capital and involve a lot of risk”

    The original cost of funding Microsoft was $200,000 inflation-adjusted dollars. That is the price Bill Gates paid to Tim Paterson for 86-DOS, which was then marketed to consumers as MS-DOS.

    $200,000 is hardly a “lot of capital”. And starting an IT company in the 80s hardly involved “a lot of risk”. It was the big thing at the time.

    “and Bill Gates might be the only person who is willing and able to do it. In hindsight, it was a good idea to start something like Windows or Apple, but it’s not something you can do now just because you saw Gates do it.”

    Maybe Bill Gates was actually one of the worst persons who could launch the consumer IT revolution, and he succeeded through sheer luck and family privilege.

    So you are right that Bill Gates was in the right place at the right moment, but this is hardly libertarian thought; my liberal hairdresser could have thought about the same thing.

    Libertarians will never be taken seriously if their intellectual system is just a rationalizing machine based on the just-world fallacy.

    Thomas

    April 17, 2014 at EST am

    • There’s just a lot of conjecture here. It’s more plausible to believe Gates was providing something that was useful and that people wanted, rather than simply believing he fooled all these people to act in their interests by “sheer luck and family privilege,” however that would work.

      And even if someone invents something out of luck, that is still a contribution, if no one else was likely to be lucky in the same way and stumble upon something valuable.

      Hepp

      April 17, 2014 at EST am

      • “It’s more plausible to believe Gates was providing something that was useful and that people wanted”

        People don’t always act in their best self-interest.

        “And even if someone invents something out of luck, that is still a contribution, if no one else was likely to be lucky in the same way and stumble upon something valuable.”

        Where did I deny that?

        And where is the link with Bill Gates? Bill Gates didn’t invent anything.

        Thomas

        April 17, 2014 at EST am

    • Thomas…

      The point was that in a supposed “true competition,” profits would equal zero because imitation AND THUS equal results would manifest. This is a supposed law of economics, but it can’t be a law of liberated economics, can it?

      So in “true competition” there are no winners BECAUSE there are only imitators splitting the profit in innumerable ways.

      thordaddy

      April 17, 2014 at EST pm

  26. Yes, the term is misleading because if you haven’t seen it defined it appears to imply that the behavior in question is analogous to a landlord renting his land to a tenant.

    Which is confusing because what we’re really talking about is economic parasitism via extortion. Land lords have a good economic position which may at times become problematic (or not, topic for another day), but they are clearly giving their tenants at least some value in exchange for the rents they receive (the value of the use of the land).

    The current situation is more analogous to a situation where a witchdoctor guild has convinced the king to pass a law which requires that a witchdoctor be paid to bless every single economic transaction. In the common usage of the terms, that’s not rent, that’s just parasitism. A useless ritual in exchange for cash, not the use of land in exchange for cash.

    And of course, we’re at a late stage of the game where there are hundreds of witchdoctor guilds, each of which has staked out their own little economic fief and where you almost certainly need multiple witchdoctors blessing any kind of significant economic transaction.

    Perhaps instead of “rent seeking”, we could call it “blood sucking”.

    Van Phauc

    April 17, 2014 at EST am

  27. As far as car dealers are concerned, this is meaningless to the consumer. Tesla will simply profit more by transferring whatever savings to itself. And this assumes it can provide all the services of a dealer at a lower cost.

    More generally, I’ve seen the actions of all of these billionaires after they made their money. They use their wealth to undermine capitalism and society for other people. Tweaking the “rent seeking” argument to paint these people as parasites and lucky winners is ok by my book. Guarding against the value-transference of rich people is just as important as guarding against the value-transference of the government.

    map

    April 17, 2014 at EST am


Comments are closed.

%d bloggers like this: