Someone mentioned Steve Jobs.

I forgot to add the controversy about Patent Rights, which plays a big role in the profits of virtually ALL highly-profitable sectors in the US at this time, especially Intellectual Property, a patent on pure ideas.

People who consider Patent Rights to be Economic Rent

Michael Hudson
Stephen Kinsella (IP atty and Austrian)
Kevin Carson (Anarchist Austrian + Marx)
Naomi Klein (Disaster Capitalism, and her previous book on Branding)
Noam Chomsky
surely all Marxists
etc.

Hudson explained that Patents and IP intentionally provide Economic Rent, govt mandated higher prices. Progressives felt that the temporary advantage in knowledge was sufficient Econ Rent (price over market-clearing labor-cost + capital), with the rest of competition being on production skills, not knowledge hoarding.

Some distinction could be made for short-term patents, appropriate to recoup dev costs, that is IF part of dev costs not borne by previous Govt spending, as Chomaky describes Big Pharma, Computers, Software, etc. developed in part by State colleges and the military.

Carson also cites all those Pentagon “spin-offs” immediately privatized and patented. Even that the cartel of GE AT&T Westinghouse RCA Thompson etc. would hire engineers to develop patents on technology that they intended to NOT create or manufacture, to prevent others from competing, to block innovation, or to sue innovators who may have independently invented a new and better design.

Carson’s Austrian-Marxist book on Organization Theory, and papers on Monopoly Capitalism, which also cites Schumpeter and many others, describes Capitalism at it’s roots as a series of violent Govt-imposed monopolies … or Economic Rents, vs the myth of “free markets” celebrated by “vulgar libertarians”.

Carson’s aim is Marxist-Socialist ends via interpretation of Austrian and other Anarchist principles of legit property rights.

I think most people here would see that Carson’s vision (Benjamin Tucker) of anarchism-mutualism would fail on many counts, MONEY in particular. But for anyone so inclined, it’s a useful and interest read, if for no other reason than to debunk Conservative talking points.

I’m very new to this, but on this topic I like Minsky and Keen for a more detailed differentiation.

Minsky developed a famous classification for fragility of financing positions. The safest is called “hedge” finance (note this is not related to so-called hedge funds). In a hedge position, expected income is sufficient to make all payments as they come due, including both interest and principle. A “speculative” position is one in which expected income is sufficient to make interest payments, but principle must be rolled-over. It is “speculative” in the sense that income must increase, or an asset must be sold to cover the principle payment. Finally, a “Ponzi” position (named after a famous fraudster, Charles Ponzi, who ran a pyramid scheme—much like Bernie Madoff’s more recent fraud) is one in which even interest payments cannot be met, so the debtor must borrow to pay interest (the outstanding loan balance grows by the interest due). Speculative positions turn into Ponzi positions if income falls, or if interest rates rise. Ponzi positions are inherently problematic as default is avoided only so long as the lender allows the loan balance to grow. Beyond some point, the lender will cut losses by forcing default.

http://www.creditwritedowns.com/2012/03/why-minsky-matters.html

Keen goes on to clarify Minsky’s Financial Instability Hypothesis, that a prior bust causes conservative cautious investment, typically in genuine productive business or what Minsky called “hedge”.

As investments meet Success, confidence grows over months and then over years (like since the G.D.), investment shifts more and more to Speculation, and greater financialization of the economy.

Eventually, Ponzi Finance arrives and along with it, political pressure on Govt to permit more Ponzi Finance, by that time it is seen as “sound fundamentals” due to the long period of success.

How far away from soundness? I won’t repeat the Housing Bubble or Dot Com that preceded it.

For a reality check, I would suggest Prof Lynn Stout on a UKMC forum (youtube) led by William Black. Stout explains that derivatives are ultimately bets or wagers, like a horse race, and differentiated historically from “insurance” for a number of sound reasons.

Govts to antiquity placed restrictions on wagers, such as refusing to enforce debts incurred by gambling. Cited speculation in olive oil described by Aristotle.

In mid-century, Congress permitted “private” licensed gambling markets with restrictions. Then in 1999 or 2000, Congress threw open the casino doors to accommodate Interest Rate Swaps.

Also, early Futures markets were structured for 70% real buyers, plus 30% speculators to add liquidity, a good working proportion.

Goldman-Sachs made a secret deal (literally) with the CFTC to exceed limits, as it had sold Derivatives of an Index Fund based on Food Futures (and energy) and needed to manipulate the Futures market to “earn” a profit for investors and itself .. without, of course, taking delivery of anything tangible.

Under de-regulation, the Futures casino was unleashed too, the Fin Svcs Mod Act, in particular.

First, I’d say Economic Rent has real ramifications, but it’s largely conceptual and philosophical, and based on “just earnings”. That is, it goes back to Classical Liberalism, the Enlightenment, the opposition to Feudalism and Mercantilism. From Smith to Ricardo to Marx, etc. This is why it’s largely been erased from common consciousness.

There are a number of sources to get a broad picture.

Murray Rothbard, when not pushing the Gold Std, described the classic examples of the Railroads. Govt issued broad and wide land grants to railroad companies. Land speculators purchased land ahead of laying track, or if insiders (Carnegie, Rockefeller), ahead of official allocation. As/after track laid, land goes up in value, railroads sell off excess land at premium prices. Ka-Ching.

another Libertarian view of what was commonly understood as legitimate earnings vs economic rent, see 2nd Paragraph

Liberty vs. the Constitution: The Early Struggle – Albert Jay Nock
http://mises.org/daily/4254
——
“The Constitution looked fairly good on paper, but it was not a popular document; people were suspicious of it, and suspicious of the enabling legislation that was being erected upon it. There was some ground for this. The Constitution had been laid down under unacceptable auspices; its history had been that of a coup d’état.

It had been drafted, in the first place, by men representing special economic interests. Four-fifths of them were public creditors, one-third were land speculators, and one-fifth represented interests in shipping, manufacturing, and merchandising. Most of them were lawyers.

Not one of them represented the interest of production [farmers, artisans] – … .
——

Mario cited Michael Hudson who is expansive with many explanations on Economic Rent.

One was a proposed project in City of London for a tram system. Hmmm. How to pay for that fairly? Issue fiat currency? Tax all citizens? How about the fact that the Land Value — equity — in the office space adjacent to the tram will increase in value? This is a free lunch.

Most wealth in most countries, he says, comes from some portion of “free lunch” because it’s nearly impossible to get stinking rich via work or even launching a business, at least not without leveraging some Econ Rent of some type. Hudson uses that concept especially to attack Milton Friedman’s statement about “free lunch”.

The choice of mid-1800s Progressive economists & philosophers was to TAX that instead of to nationalize rentier industries, aka Socialism.

Hudson also differentiated between two kinds of Land vs Property value increase, with appropriate tax policy. One, from “sweat” or private capital investment, improving your own building or clearing land, digging a well, etc. Same as “work”, not Economic Rent.
Two, gains due to nearby roads, water & sewer, airport (could be + or -), govt provision or co-investment for shopping mall (not next door but so you are no longer in the boonies), or other form of free improvement such that commercial or residential property gets a free asset gain.

Flipping houses requires an INFLATING market, or else sweat equity, which is not “flipping” per se. An inflating market is a function of Govt/Bank asset inflation policy, a la Greenspan’s “how to get rich” by buying low and selling high 5-30 years later, except that the new buyer sees a higher price, so it’s a wealth transfer that literally “costs our grandchildren” contrary to the supposed “national debt burden”.

More to the point, Hudson discussed the inflation of NYC Land Assets, vast value equal to the physical production plants across USA, but untaxed gains due to repeat “depreciation” ad infinitum.

The US Govt had initially placed Tariffs on foreign exchange. Those traders applied pressure to replace Tariffs with Income Tax … but only on the very rich, presumed to be non-working recipients of Dividends and Land Asset Gains. (Read Wigan Pier on class warfare in England, one class digging coal, the other living on dividends.)

Adam Smith rejected taxes on Labor/Consumption for moral and obvious economic reasons. I can’t state all others who agreed, but I noticed that even as late as Coolidge his TsySec Andrew Mellon argued for income taxes at ONLY the top 2% level, consistent with what Hudson argued about that high income tax being mostly to grab Econ Rent, not productive labor, not just penalizing “rich people” for “success” and “hard work”.

Philosophically, Hudson refers back to Classical Liberalism to include these functions as Economic Rent:

Not the labor and capital cost + competitive profit of producing petroleum products, but profiting fully on the Market Value of Petroleum Energy taken from the ground by License/Privilege what was created by Nature (or God).

Not the value of radio & TV broadcast content (advertising) but the portion of profit gained by the creation of the FCC to divide up Nature’s radio spectrum for commercial exploitation (Privilege) at below market cost, without which commercial radio would be practically impossible … or too expensive to enforce privately against “pirate radio”.

However, per Hudson, political pressure applied over years was to untax such unearned non-productive wealth, and shift taxes to productive activity, labor especially. This is now widely considered legitimate, just, and also economically sound.

See ’0 is the natural rate of interest’ on this website thanks

So the prices for housing went up to way over $100 psf. Now that the government has stopped buying (and price setting) huge marginal amounts of building materials, the housing prices have come down. This part of it had nothing to do with MBS, perhaps it could even be looked at as the government implemented a huge price increase in housing that then turned into a speculative frenzy, but the government started it imo. You had one part of the government (DoD) competing and bidding up with another part of the government (Banks) for the same fixed amount of building materials. WW2 was not run this way.

I wasn’t really trying to say that MBS directly caused the rise in house prices, although I would expect it to have some effect. I was trying to highlight the fact that any ‘asset-class’ can be used in a similar way as gold was used during the fixed exchange era, but without the regulatory restrictions. So an unregulated ‘asset’ class can be used in such a way to inflate the ‘money supply’(or whatever MMT term is supposed to be used).

The government morons do not understand what fiscal authority is or how to properly use it.

Their criminals, war criminals. Regardless, the game needs to be setup in a way that prevents morons and criminals from getting into power.

The fact that MMT has taxation and govt spending as one of its founding principles shows the unbreakable link between politics and economics. How can MMT ever be a ‘complete’ body of knowledge if it does not also deal with the political component? This where schools of thought such as Game Theory and Cryptography need to be applied so that distributed feedback systems can be created( popular voting systems).

If we can get people in there who have a clue, a lot of this goes away. And if we can get a broader understanding of the true fiscal authority of govt out to the masses thru education, it never comes back….

The masses aren’t going to care about something that they can’t interact with. I don’t agree with the line of thought against dramatic change. If it were a true line of thought, democracy would have never occurred in most countries.

Even if someone like Warren gets in and we have 40 years of prosperity, then what? By then there will be a new generation that has not experienced what we have. It is exactly the same as us, in the sense we have not experienced WW2. The same issues will occur, the good work implemented by some will be repealed and the problems will reappear. This is especially true given that there is no school of thought that does not deal with the political component of political economy.

If I had to choose a ‘team’ I would choose MMT, but I still think that if there is one word I could use to describe MMT it would be inadequate. This is still certainly better than irrelevant, which is how I would describe every other school of economic thought.

Best Regards :)

So the prices for housing went up to way over $100 psf. Now that the government has stopped buying (and price setting) huge marginal amounts of building materials, the housing prices have come down. This part of it had nothing to do with MBS, perhaps it could even be looked at as the government implemented a huge price increase in housing that then turned into a speculative frenzy, but the government started it imo. You had one part of the government (DoD) competing and bidding up with another part of the government (Banks) for the same fixed amount of building materials. WW2 was not run this way.

The government morons do not understand what fiscal authority is or how to properly use it. All of this chaos we have experienced over the last few years can be laid exclusively at the feet of the government which caused the price run up and then when balance sheets maxed out, did not engage with fiscal to maintain the levels of AD that they were responsible for stimulating in the first place.

If we can get people in there who have a clue, a lot of this goes away. And if we can get a broader understanding of the true fiscal authority of govt out to the masses thru education, it never comes back…. Resp,

True enough thought its not quite at zero because of the 0.25% IOR payment. Would you lock that in or drop IOR to 0?

Interest rate uncertainty needlessly raises the risk premium for investment. Since there is roughly a zero floor on interest rates, I think ZIRP will prove to have the lowest interest rate volatility.

There is another virtue, which is that we’re already there.