Ever heard of rent creation?

Ritchie does like to tell us that rents in the economy are a very bad thing. So it’s interesting to see him endorsing the idea that the law should be used to specifically create a rent for Ritchie:

I have long agreed with them.

I was pleased to note this in their ten suggestions:

Tax Dodging: Procurement must be used, as part of massively stepped up efforts to tackle tax dodging and tax avoidance, here and in developing countries. This could bring in much-needed billions for the public purse. There should be pre-qualification disclosure of company taxation policies, not just of illegal tax evasion. Country by country reporting should be a condition and companies registered in tax havens should not be eligible. Public bodies should be able to evaluate a tender on the basis of which company pays tax or not, with penalty clauses for tax evasion and aggressive tax avoidance, post contract. Assessment of bids could make use of the Fair Tax Mark and/or other similar checks developed in future that monitor companies’ tax behaviour, locally and globally.

I think this is essential. Only then will behaviour really change.

All bidders on all public contracts must have the Fair Tax Mark. Won’t that create a lot of business for Ritchie, director of the Fair Tax Mark? And create it by law too!

But, of course, rents in the economy are a bad thing. So Ritchie tells us.

25 comments on “Ever heard of rent creation?

  1. It would reduce the potential bidders for public contracts to, if I remember correctly, a couple of co-ops, a bus company, a cosmetics factory, one energy company, and an IT consultancy.

    Still, that should scupper HS2, so there’s some upside 🙂

  2. Tim

    I must confess I thought he had abandoned the Fair Tax Mark (like those entertaining Venn Diagrams in part 2 of the Curajus State) as it’s had penetration of something like 0.002% of the listed company population of the UK despite being up and running for 15 months – but we should not forget:

    ‘people’s contributions to civil society are of paramount importance when considering public policy’

    ‘I am the expert’

    ‘Wise men agree with me’

    so regardless of the gross hypocrisy he is as usual completely right – and completely justified…..

  3. So as well as being stupid and ignorant, he’s rather wicked too.

    You’ll be telling me next he’s a socialist.

  4. Murphy applauded one of his toadies who came up with an idea on rent seeking footballers that basically all you had to do was work out what they might have earned as a non-footballer then everything above that was ‘rent’.

    I wonder what a fat ignorant obnoxious twat would earn if he wasn’t a self appointed tax-guru and had to live in the real world doing a real job. Anything above f-all would appear to be Ritchie’s ‘rent’.

  5. But it’s not “rent-seeking” when he does it. It’s in the interests of civil society.

    Obviously.

    You are a troll.

  6. AndyC

    Luckily his lack of understanding of football is one of his biggest Achilles heels – imagine getting all the supporters of the clubs affected potentially by his idiocy (basically the top ten in the Premier League) and emphasizing – ‘this fat b$%^ard is basically saying you can’t compete with the Italian, German and Spanish clubs in the Champions League and we will unilaterally ensure this’
    My guess is there are a lot of such football fans, a number of whom have propensity to violence and aggression – would be a simple matter to whip up a frenzy against Murphy and the fans, who can outnumber, and intimidate his ‘toadies’ and fellow travellers would lead them to relinquish their principles on this one – and if footballers and sports people are exempt why should his strictures on maximum wages be any more appropriate for the business world? – Q.E.D

  7. Not sure if “rent” is quite the word you need here. It’s more customary to use the expression “protection money” in criminal circles.

  8. “Murphy applauded one of his toadies who came up with an idea on rent seeking footballers that basically all you had to do was work out what they might have earned as a non-footballer then everything above that was ‘rent’.”

    The stupidity of that is beyond belief. Either that or it was a genius piece of trolling.

    Richie’s definition of “economic rent” is “the amount you earn over and above what I, as a miserable fat little socialist Quaker, deem is appropriate for you”.

  9. I’m not sure how to apply the concept of economic rent is case of wages. Ken are you around?

    In case of capital, for given risk profile, you might require a return of x before it would be worthwhile stumping up the capital, and any returns in excess of x are economic rents. In theory you are only getting >x because something is stopping those excess returns being competed away. The value of x is set by what other things you could be doing with your money, like consuming it.

    In case of labour, what’s the benchmark? Footballers definitely earn rents in the sense that they are like monopolists with massive pricing power, not suppliers in a competitive industry in the sense that they are many other goods that are good substitutes for them. I guess the benchmark is, more as a thought experiment than a reality, what is the minimum people would need to be paid to play football for a living? So suppose footballers were all paid 50k a year, and that was the best they could do, would they still do it? If yes, all excess is rent.

    I think that’s right.

    as for Richie, the consistent thing to do would be for the courageous state to legislate the price of obtaining the fair trade mark so that even if it was obligatory to have one, he wouldn’t make any more money than the minimum required to bring his labour into effect. And because for Richie the state has the information needed to set such prices, no problem.

  10. sorry I didn’t make clear what confuses me in the case of labour – the “other uses of your time” which determine how much you’d need to be paid to do job X include how much job Y pays. But job Y may pay rents too. So what’s the clean benchmark used to pin down the outside option?

  11. Hi Luis,

    I’m not sure I follow that at all. Footballers are not monopolists, where are the barriers to entry? I don’t see that someone being ‘elite’ is automatically a monopolist.

    The clubs are voluntarily exchanging with the players, the money’s just gotten so big as globalisation has created clubs and sponsors with global reach, and correspondingly-large budgets. So it’s worth fighting over a small pool of players with a lot of money.

    Rent-seeking is demanding profit without generating underlying value. The markets currently value Richie’s Mark at near-zero. Richie lobbying to get the money anyway sounds like classic rent-seeking. If nothing else, he’s begging the question (as usual) that his Mark actually add value. Given he’s expecting procurement roles to take on tax-collection facets, they would have to.

    Niels.

  12. @Luis Enrique

    Yes Murphy and his toadies were trying to say something similar, that footballers were somehow monopolists because…er..they were better than evryone else at what they did and ….er….forced poor people to pay to watch them, forced them to take out Sky subscriptions and so on and…er… prevented people like the supporters of FC United from stopping following Man U and setting up their own team to support. This ‘proved’ that football wasn’t an open market and everything above £30k a year was ‘rent’.

    Would footballers accept £50k a year to play football? Some of them I’m sure would but where would all the money saved go? To the owners? Managers? Sky TV? Why shouldn’t the footballers be able to earn huge sums in a market where not one of their customers has to pay a penny they don’t want to?

    The irony is if you really want to see rent seeking in wages you need to look at closed shops and the actions of unions. You think tube drivers would be earning what they do without the power of Bob Crow’s union actions? That’s classic rent seeking.

  13. “Rent-seeking is demanding profit without generating underlying value.”

    that is not the definition in economics. Although I do here people talk about “pure rent seeking” which presumably means that – however more generally generating rents doesn’t mean something for nothing, it means an excess for something.

    footballers are monopolists in sense they have pricing power – the word here does not mean being the unique supplier of the thing – it applies to any brand – as in Nike has a monopoly over Nike trainers because for whatever reason people think Nike trainers differ from others. See any intro micro text book. If you are a Liverpool fan, other football clubs are not substitutes in the same ways as commodities like flour or coal from different producers are. The pricing power in football is immense. Think about their ability to “extract consumer surplus” meaning setting prices as high as people will pay. In other areas, lets say food, prices are way below the maximum we’d pay.

    Barriers to entry are very high, just not artificial. Few people can play football as well as Ronaldo.

    Andy C what you say makes sense under the current system in which football generates billions of revenue. But the current system generates massive rents, that’s the point, which are almost all captured by the players, that’s the point. Of course nobody is expecting footballers to work for 50k a year when they could be getting paid that much a day. There is no moral judgement here (although one might have views) just the analytical division of earnings into “the minimum needed to bring the factor into production” and the excess over that, which is classified as rent.

    yes unions are rent seeking, in the sense that they try to drive wages up above the minimum needed to get people to work. If you think about economic activity generating a surplus, then workers, bosses and shareholders bargain over that surplus and unions are there to increase the bargaining power of workers

  14. in this instance, it’s not just Richie’s toadies that think this way.

    here is one of Tim’s favourite economists William Baumol and Alan Blinder using sport to illustrate concept of economic rent in a text book

    https://books.google.co.uk/books?id=tpF8L6EytYcC&pg=PA412&lpg=PA412&dq=sport+economic+rent&source=bl&ots=LFlPA9LuiN&sig=E061Ljovx5KYSzxowCitYY_WL5Q&hl=en&sa=X&ei=5pBDVcbMIMjtaPGDgaAI&ved=0CFUQ6AEwCQ#v=onepage&q=sport%20economic%20rent&f=false

  15. But such a wide definition of rent seeking brings just about any activity into the definition and makes it rather pointless. Liverpool FC are unique. So are Nike. So is JK Rowling. So is Renaldo. So is Jolyon Maugham. So any skilled person who might earn less doing something else or who might be prepared to take a pay cut is being paid economic rent?

    I can’t see that a definition of “would someone be prepared to do the job for less, then if so everything above ‘less’ is ecnomic rent'” produces anything worthwhile. In the book you quote from the authors point out that the sportsteam gets no more time from their best paid player than their worst but that ignores that they aren’t paying for his time, they are paying for his ability. The points he scores or enables his colleagues to score. How much is that worth? Generally what the guy is paid so there is no ‘excess’ payment.

    If you want to define being paid what someone is worth to the people that pay him in a free market (where opinions do differ as to what someone is worth) as ‘economic rent then that’s fine but that’s not ecomonic rent that is worth campaigning against is it?

  16. Ah, gotcha, thanks. So rents are anything over and above making whatever minimum profit makes it worthwhile for the producer.

    Interestingly, that book defines rent-seeking as “unproductive activity in the pursuit of economic profit – in other words, profit in excess of competitive earnings”. Which spins it back the other way.

    Our example footballer might be willing to work for far less, making most of their salary rents as you say. But their *competitive* earnings would include all the premiums offered by the clubs as they try to outbid eachother. Wouldn’t it? Even if the only alternatives are slightly less-good players, the footballer’s certainly subject to competition for his salary.

    Or am I still misunderstanding?

  17. @NielsR

    Which makes one wonder what the point is. If Murphy wants to squawk on about it, let him. Where’s the great injustice in someone earning loads because he’s good at something? I don’t begrudge it and it doesn’t make me any poorer.

  18. You think tube drivers would be earning what they do without the power of Bob Crow’s union actions? That’s classic rent seeking.

    I’m not so sure. I think in a free market tube drivers would be well paid not because it’s a difficult job but because London is a ludicrously expensive place to live.

  19. @AndyC ah, not sure that’s right. I’ve only argued that someone can receive rents without there being a problem.

    Thats not saying all rents are OK.

    RM is arguing the state should exempt him from competition, by legislating that all bids to govt should carry his Fair Tax Mark. (He obviously thinks there’s nothing like it, or he wouldn’t have set one up. And the idea here would require govt to whitelist any that might appear).

    Even of the mark actually improves bids, he’s still calling for protection from competition. Which would make it rent-seeking, beyond just rent collection.

    I think.

  20. Yeah I’m confused again. Just don’t know how to apply concept to labour plus also think concept of non productive activity is sometimes part of it. Daft to think everything in excess of min wage is rent but if you have individual specific bemchmarks then you bring in charactersitics that convey pricing power. I need to call an expert.

  21. Is there a difference between the “minimum” at which a footballer might play for, measured by say his first professional job, and the amount it takes for Club 2 or 3 to get him to play for them. The additional rewards are not rent. They are what is needed to bring that factor of production into play for Club 2?

  22. Tim Newman: I think in a free market Tube drivers would be paid nothing because it’s a piss easy job that could pretty much always have been done by a monkey, could be done now by a computer, and will be, soon. Without the RMT London Transport would have told the whole recalcitrant bunch to go fuck themselves years ago and put R2D2 in the cab, to the benefit of every Underground user.

  23. Luis

    Thanks for your excellent contributions.

    I for one don’t have any problem extrapolating the concept of rent to Labour. I’m pleased though you note these essentially aren’t moral observations though, because the rents taken by very young and poorly educated footballers exploiting their unique talents are entirely ethical in my opinion.

  24. Ironman,

    Nice of you to say so, but I fear I may have got it wrong! Think it might mean earnings from non productive activity

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