The Insider’s Economic Dictionary: R Is for Rentier
Posted on Apr 14, 2014
By Michael Hudson
Race to the bottom: A term for dog-eat-dog competition by which countries compete by cutting wage levels so as to produce in the cheapest market, not by raising wages and labor productivity. The effect is to shrink the circular flow between producers and employee-consumers, leading to declining living standards. Under these circumstances productivity is increased only by working the existing labor force more intensively and cutting back medical insurance, old-age pensions and other social welfare expenditures. (See Free Market.)
The state of Alabama shows the inner contradiction inherent in this policy. When the state cut back educational and health spending in order to minimize taxes, ostensibly to attract business, global companies pulled out on the ground that its labor force was too low-skilled and in too bad health to compete in the modern high-technology world.
Reaganomics: An economic slogan for the policy of cutting taxes for the wealthy (and especially for real estate) while increasing the Social Security tax on employees. (See Tax Shift and Laffer Curve). The effect was to quadruple the public debt during the Reagan-Bush administration, 1981-92. In addition to tax cuts, Reaganomics dismantled environmental regulations and deregulated industry in general, producing a stock-market and real estate boom that was the precursor to the economic bubble of the 1990s. See Chicago School and Asset-Price Inflation.
Real estate: Originally “royal” estate, reflecting the idea that property is held on behalf of the ruler, who in turn is charged with responsibility for steering society’s forward evolution. As property has become privatized, however, real estate has been turned into an economic cost for society at large, as its members are obliged to pay tolls for access to the land in the form of groundrent, while real estate investors and speculators seek capital gains.
Reality economics: A term for the study of economics subject to verification by empirical evidence rather than a body of abstract deductive assumptions by neoclassical and neoliberal economics that do not seek to be realistic. As Arthur Schopenhauer observed: “All truth passes through three stages. First, it is ridiculed; second, it is violently opposed; and third, it is accepted as self-evident.”
Reform: Just as Newton’s Third Law of Motion states that every action produces an equal and opposite reaction, so the political pendulum swings from one extreme to the other, so that one century’s flawed reform thus becomes the policy against which the next century fights. Whereas the classical aim of modern reform was to strip away unearned privilege and free lunches, today’s post-modern reform is retrogressive, taking the shape of an economic counter-Enlightenment. In Russia, for example, the “reformers” have been denounced as kleptocrats, while similar privatization and client oligarchies in third-world countries are being supported by Neoliberals and the Washington Consensus.
Regressive taxation: A tax policy that falls primarily on the lower wealth and income groups rather than on the highest. (See Tax Shift and Trickle-down Economics.) As such, this policy is the opposite of progressive economic policy.
Regulation: From semantic roots meaning to rule. A ruler or government sets rules for the economy, creating a regulatory system that, in principle, is supposed to maximize welfare and prosperity. Every economy and society is regulated in one form or another. In practice, deregulation by government relinquishes the regulatory power to the financial and property sector – primarily finance in today’s world. Although this mode of regulation tends to be more centralized than public regulation, it has much narrower goals (rewarding rentiers, with the effect of polarizing society). Advocates of regulation of the economy by the FIRE sector call it deregulation.
Rent: Literally a periodic payment, from French rente, a government bond paying interest on a regular calendrical basis at a specified rate. The concept was extended to property rents, whose payment also is periodic and specified.
Rent, economic: The classical term for income that has no counterpart in necessary costs of production, and hence does not add to price, as no out-of-pocket costs are attached to its supply. In Ricardo’s model, landlords possessing the most fertile and best situated soils receive the largest groundrent. It is a free lunch, paid out of prices either set at the high-cost margin accruing to producers producing at lower costs, or as monopoly rent. Its reduction does not lead a production input such as land to be withdrawn, because it is supplied by nature or otherwise extraneously to its recipient’s own efforts.
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