By Michael Lind
You don’t have to be a Tea Party conservative to believe that the economy is threatened when there are too many “takers” and not enough “makers.” The “takers” who threaten the dynamism and fairness of industrial capitalism the most in the 21st century are not the welfare-dependent poor — the villains of Tea Party propaganda — but the rent-extracting, unproductive rich.
The term “rent” in this context refers to more than payments to your landlords. As Mike Konczal and many others have argued, profits should be distinguished from rents. “Profits” from the sale of goods or services in a free market are different from “rents” extracted from the public by monopolists in various kinds. Unlike profits, rents tend to be based on recurrent fees rather than sales to ever-changing consumers. While productive capitalists — “industrialists,” to use the old-fashioned term — need to be active and entrepreneurial in order to keep ahead of the competition, “rentiers” (the term for people whose income comes from rents, rather than profits) can enjoy a perpetual stream of income even if they are completely passive.
Rents come in as many kinds as there are rentier interests. Land or apartment or rental-house rents flow to landlords. Royalty payments for energy or mineral extraction flow to landowners. Interest payments on loans flow to bankers and other lenders. Royalty payments on patents and copyrights flow to inventors. Professions and guilds and unions can also extract rents from the rest of society, by creating artificial labor cartels to raise wages or professional fees. Tolls are rents paid to the owners of necessary transportation and communications infrastructure. Last but not least, taxes are rents paid to territorial governments for essential public services, including military and police protection.
All of these goods or services are necessary to make or distribute the goods and services generated by productive industry (which can be government-owned or nonprofit, as well as for-profit). If one or more of the sectors providing inputs or infrastructure to productive industry charges excessive rents, then industry can be strangled. Industry cannot flourish if too much rent is paid to landlords, if credit is too expensive, if excessive copyright protections stifle the diffusion of technology. Even progressives must concede that guilds or unions or professions can use the power of labor monopolies to demand excessive incomes for their members and that at some point high taxes really do strangle the economy. (The evidence of successful high-tax-big government countries like those of Scandinavia suggests that you can go safely up to about 40-50 percent of GDP going to government, assuming the taxes are well spent and raised largely by less-distortionary taxes including consumption, property and wealth taxes).
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All of this suggests that, if we want a technology-driven, highly productive economy, we should encourage profit-making productive enterprises while cracking down on rent-extracting monopolies, whether they are natural products of geography and geology (real estate and energy and energy and mineral deposits) or artificial (chartered banks, professional licensing associations, labor unions, patents and copyrights). This is a valid distinction between “makers” and “takers.”
How rich “moochers” hurt America
In American politics as in the American economy, power and wealth have shifted from the industrial capitalists of old to the “rent lords” of the early 21st century, based in the overgrown FIRE (finance, insurance, real estate) sector. The agenda of the new rentier oligarchy in the U.S. is quite different from that of traditional productive businesses. The Rentier Agenda consists of low taxes on rentiers, the privatization of infrastructure and social insurance, and a macroeconomic policy that favors creditors rather than debtors, including debtor businesses and debtor governments.
Low taxes on rentiers. In the late 20th century, the U.S. and a number of other capitalist countries made tax rates on capital gains lower than tax rates on wage income. This was supposed to encourage investment in productive enterprises, but in fact it merely provided the super-rich with windfall fortunes that have often been used for stock market and real estate speculation. Thanks to privileged tax treatment of capital gains, Warren Buffett complains that he pays lower taxes than his secretary, and Mitt Romney — the poster boy of rentier financial capitalism — paid 13.9 percent in taxes in 2010, lower than the combined employee and employer payroll taxes paid by low-income workers who pay no federal income tax (and not counting the state and local taxes that they pay). America’s rentier plutocracy has deployed campaign contributions to intimidate Congress into keeping taxes extremely low on those who make most of their income from investments, whether the investments enhance the American economy’s productive capacity or not.
Privatizing natural monopolies. The classic productive capitalist wants to found a company to provide a new, socially useful good or service and make money by sales. In contrast, the classic parasitic rentier wants to bribe the state legislature into privatizing and selling state roads so that he or she can make money without effort or innovation every time somebody drives and pays a toll. Not only progressives but mainstream conservatives used to agree that natural monopolies, such as many infrastructure services—water, electricity, transportation — should be either publicly owned or publicly regulated utilities. Today, however, some plutocrats, seeking guaranteed, recurrent streams of money for little or no effort, fund politicians and ideologues who favor privatizing or deregulating infrastructure and public utilities and cutting or voucherizing Social Security and Medicare, to force the elderly to buy financial products and costly health insurance from the rentier sector.
Anti-inflationary macroeconomic policy. The rentier class overlaps largely with the creditor class, much of whose wealth is in the form of debts that must be repaid by governments, businesses and individuals. In all times and places, the creditor elite has lived in fear that its wealth may be reduced by inflation, which permits the debtors to repay their debts in currency, which is nominally the same but in reality of ever-dwindling value.
Moderate inflation is the friend of governments with high debt loads, allowing them to pay down debts more easily without hurting the economy by raising taxes too much or cutting spending too much. Most businesses can live with moderate inflation, as long as they pass on price increases in inputs to their customers. Nor is moderate inflation a threat to the working-class majorities in the U.S. and similar industrial democracies, as long as wages and social insurance, like Social Security, are adjusted for inflation. (Only an affluent minority of Americans have substantial private retirement savings that could be harmed by inflation.)
This means that the rentiers are much more willing to have central bankers and other government policymakers slam the brakes on the economy, at the slightest sign of inflation, than are productive businesses (if they are rational), governments or wage earners. Indeed, because rising wages in tight labor markets can sometimes contribute to economy-wide inflation, the creditor class can tolerate or even approve of high levels of sustained unemployment that devastates much of a nation’s population while depriving productive businesses of great numbers of consumers.
That’s the Rentier Agenda, then — low tax rates on unearned income flowing to passive investors, replacing public utilities with private toll-charging monopolies, and pursuing policies that deter inflation, even at the risk of prolonged, mass unemployment and idle factories. It is no exaggeration to say that the private sector rentiers are not only the real “moochers” and the real “takers” but also are the greatest threat to productive industrial capitalism, in the United States and the world.
What we need is an Anti-Rentier alliance. Such a coalition would scramble the usual patterns of politics. Progressives and conservatives alike would have to distinguish between productive businesses, which we should encourage, and rent-extracting parasites that need to be dealt with. Pro-manufacturing liberals and Main Street conservative populists should unite against what the progressive economist Michael Hudson calls “the tollbooth economy” in alliance with what James K. Galbraith calls “the predator state.”
Defeating useless rich people
Today America’s powerful rentier interests, particularly those in the FIRE (finance, insurance and real estate) sector, are mobilizing campaign contributions and paid propaganda to promote what I called the Rentier Agenda: low taxes on those whose income is derived from capital gains; the privatization of public infrastructure and the deregulation of regulated private utilities, to generate windfall profits for investors in privatized or deregulated agencies; and a macroeconomic policy that serves the interests of creditors, at the expense of slow growth and mass unemployment, rather than productive businesses and workers. Similar observations have been made by many on the left and some mavericks on the right.
To counter the domination of America’s rentier oligarchs, we need an Anti-Rentier campaign that would unite unlikely groups: owners of productive businesses as well as workers, populist conservatives and liberal reformers. An Anti-Rentier movement would distinguish businesses that make profits by providing worthwhile goods or services in innovative ways from rentier interests that passively extract exorbitant tolls and fees from the economy without adding any value.
An Anti-Rentier movement would oppose unproductive, ill-begotten wealth, not the rich in general. Wealthy individuals who get richer by investing in start-up companies or funding long-lived, creative blue-chip firms provide a valuable benefit to society, even as they risk losing their own money. Such risk-taking investors are the opposites of financial sector rentiers who seek to bribe policymakers into letting them privatize their gains while socializing their losses.
But government can and should minimize passive rent extraction and unproductive speculation or gambling. The methods for minimizing excessive rents are as various as kinds of rentier interests. Windfall real estate profits should be taxed away by property taxes or “land value” taxes. Severance taxes or superprofits taxes should be levied on energy and other resource windfalls determined by geography rather than human effort. Banks should be low-profit, publicly-regulated utilities and laws against usurious interest rates, struck down in the U.S. in the late twentieth century, should be restored. Infrastructure assets—water systems, electricity, roads, airports and airlines, rail, inland waterways—may be privately-owned utilities, but their prices need to be regulated in the public interest. While there are legitimate roles for both professional associations and labor unions, they should not be allowed to act as predatory labor cartels at the expensive of the economy.
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The Anti-Rentier tax agenda would seek to raise capital gains taxes on rentiers while lowering the tax burden on American workers and the profits of productive businesses. The Anti-Rentier policy reform agenda would involve increasing public ownership or utility regulation of infrastructure. Instead of cutting Social Security and Medicare to force the elderly to buy more products from parasitic private-sector monopolies and oligopolies, the Anti-Rentier coalition would favor expanding Social Security and other public social insurance, while phasing out tax subsidies for private health insurance and private retirement products. When it comes to economic management, an Anti-Rentier movement would tolerate a modest amount of inflation, in the interest of productive business and solvent government, at the expense if necessary of the creditor elite. An Anti-Rentier movement would consider using methods used by other governments, such as postal savings banks, public investment banks, and “financial repression” (which isn’t as scary as it sounds) to raise adequate money for government while minimizing blackmail, in the form of high interest rates, imposed by domestic creditors and foreign creditors.
If these Anti-Rentier reforms were undertaken, then genuinely productive American businesses would be freed from many costs imposed on them by the “private parasites” who are far greater threat to its future than America’s public sector. Cutting off excess rents would not only shrink the rentier elite’s share of the U.S. economy, it would also alter the membership of the exclusive club of rich Americans, which would have a much greater percentage of “makers” who got rich by selling new goods and services and a much smaller proportion of “takers” from finance and real estate. The typical rich American should be an innovative industrialist or technologist, not a Wall Street financier or a guy with a parking-meter monopoly. Super-rich bankers would be as rare as super-rich public utility executives.
Americans have tamed rentier industries before. In the early twentieth century, exploitative private power companies were domesticated as regulated public utilities. The Enron scandal, associated with late-twentieth century deregulation, proved the wisdom of the utility regime. And even conservative states like Texas have always levied severance taxes on natural resource monopolies. The challenge of our time is to extend utility-style regulation or public ownership to today’s out-of-control, predatory rentiers in higher education, health care, and — most of all — finance.
Productive Americans of center, left and right, unite! You have nothing to lose but your rents.
Originally published as a three-part series here at Salon.com
2016 December 29
