Rent seeking - Wikipedia, the free encyclopedia
In economics, rent seeking occurs when an individual, organization or firm seeks to make money by manipulating the economic and/or legal environment rather than by trade and production of wealth.
This term is becoming more fashionable within the commentariat (small wonder!), and you have probably run across it before, since we are about to see an orgy of it.
And while it might appear self-explanatory, its actual meaning is probably slightly different than you think it is. So here is a definition you may find useful.
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Thanks Bill! You’ve given me an opening to mention the closely related concept of regulatory capture.
On any given day, you’re likely to hear or read at least one person say something along the lines of “there’s too much corruption - we need more regulation!”.
Bah. As soon as one understands and accepts the reality of regulatory capture, it is clear that revoking the power of government to regulate would indeed greatly reduce, if not eliminate, corruption.
Regulation is only good for forcing transparency and preventing people from crashing the system. Before I get jumped on for the latter, I mean, like, I liked it better when independent broker-dealers could only leverage 12:1. Changing it to 30:1 sure made it look like the economy was growing, didn’t it?
It would appear that regulation, in fact, accomplished quite the opposite.
I really dislike the concept of “regulation”. It mixes together legitimate government actions like prosecuting fraud with illegitimate government actions interfering with the freedom of production and trade. By lumping both together under the same term, it destroys people’s ability to tell the difference. And that leads to failures to detect and prosecute fraud, such as the Ponzi scheme of the aptly-named Bernie Madoff, being used to justify further government violations of genuine economic liberty.
The true issue is whether the government is protecting or violating individual rights in production and trade. Focus on that like a laser, and never let the other guys get away with mixing the two together.
From my perspective, it is the misconception of regulation that you describe.
Spot on, The purpose of regulation is to make regular. Think of voltage regulator, pressure regulator, speed regulator, etc.
Economic regulation is the forcing of the economy to be more regular - regular in time, regular in location, regular in outcome, etc. - via government intervention, e.g., monetary policy, tax policy, spending, etc.
Nowhere in the concept of economic regulation should there be the detection, prosecution, and punishing for fraud.
Here’s the way I like to put it to people that seem to be mixing the two concepts.
A free market is, by definition, free of force, coercion (e.g., government interference), and fraud. This does not, however, imply that a free market is a “wild, wild, west” market where anything goes.
That is to say, the absence of economic regulation does not imply that there aren’t any rules nor an agent to enforce those rules!
The modern concept of regulation is unelected people making law without any checks and balances on their power. Matter of fact, the unelected bureaucracy in this country is more entrenched, more powerful, more intrusive and more unchecked than the people we elect whose job it is to make laws. The people we elect are supposed to be checked by the power of the ballot box, the veto power of the Executive Branch and the constitutional checks as reviewed by the Supreme Court. They’ve made an end run around those checks by empowering “regulators”.
Voltage regulators, pressure regulators et al are subject to the laws of physics or else they wouldn’t work.