Boosting the economy by discouraging rent seeking

“Rent seeking” is an technical term used by economists. There is a good Wikipedia page, but roughly speaking it means investing money to make more money via ways that do not grow the economy, i.e., do not increase the sum total of a country’s wealth. The idea is basically that if someone invests money by say buying a house and renting it out, then they are making money for themselves without making the country wealthier. On a bigger scale, if say a utility such as electricity is supplied by a oligopoly with minimal competition, then the companies of the oligopoly can make a lot of money from their customers by charging high prices. But if anything this profit making harms instead of boosting the economy. Both these are examples of rent seeking; rent seeking in this sense can involve literal rents such as for houses, but it does not have to. In contrast if money is invested, say, to make a better, more fuel-efficient engine for airliners, then the company makes profits from selling the engines, but cheaper air travel could then boost the economy, making others richer too. This is the econmially good, non-rent-seeking way, to make money.

Studwell’s book How Asia Works (mentioned in my last post) makes the point that discouraging rent seeking is a key job of governments, at least of governments that want to boost the economy. I think it’s an interesting idea, although it may be controversial amongst economists — I guess like a lot of simple ideas about complex systems (here the economy), it is not the whole story.

In the UK’s recent election, the economy was mentioned a lot, with the question of which party is most trusted with economy getting a lot of airtime. But it was rather vague, more mentions of the non-specific “trust” than of concrete plans to actually do something. Ideas on avoiding rent seeking might have helped here, maybe in 2020.

Leave a Comment

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s