THe Blog

April 22, 2016

Alex Tabarrok Fears a Rent Seeking Society

In this Observer article, Alex Tabarrok responds to a question on Quora, asking what the US needs to do to create a more sustainable middle class. Excerpts below:

 

"I worry most of all that we are becoming a rent-seeking society. The idea of rent-seeking is best explained by the old metaphor of the pie. There are two ways to get a larger slice of the pie. Grow the pie or cut the pie in a way that is more favorable to you and less favorable to everyone else. Spending resources to cut the pie in your favor is rent seeking. From the point of view of society, resources spent to cut the pie in one way rather than another way are wasted. Even worse, the more resources that are spent dividing the pie the smaller the pie gets.

 

Consider copyright, patenting and land use. Copyright terms began in 1790 at 14 years and were expanded in 1831 to 28 years... Copyright then expanded in scope to movies, radio and so forth but it remained at 28 years until 1976 when it was dramatically lengthened to life of the author plus 50 years... It was then expanded again in 1998 to life of the author plus 70 years!

 

One could argue that the expansion in copyright length was necessary to incentivize the production of new works... The expansion, however, applied not just to future works but to all previously existing works still under copyright! Did we need to incentivize the production of art works that already existed!? Of course, incentivizing the creation of new works was never the point. The point was rent-seeking...

 

The 1998 expansion of copyright was opposed by George Akerlof, Kenneth Arrow, Ronald Coase, Milton Friedman, and James Buchanan to name just the Nobel prize winning economists! Sadly, however, these Nobel prize winners could not overcome the power of a mouse, Mickey Mouse (Disney was the primary lobbyist in favor of the law)...

 

Land use regulation also began to increase rapidly in the 1970s and 1980s. Zoning as well as historical preservation and environmental protection restrictions (often supported by a bootleggers and Baptists coalition) have made it difficult to build, especially in the most productive cities in the United States. It used to be the case that poor people would move to productive places because their wages in those places were higher even taking into account housing costs and that’s because when more people moved in, more houses were built. Today, however, due to land restrictions more houses aren’t being built so housing prices rise and it’s only the highly-skilled who can afford to move to high productivity places...

 

Given these trends it’s not surprising that we see evidence of more monopoly in the U.S. economy....

 

I don’t blame all of this on IP law and land use restrictions but in my view these are the places to start...

 

The intellectual property laws were designed by the founding fathers to “promote the progress of science and the useful arts.” Land use restrictions had the goal of preventing unpleasant and unfair spillovers. Over time, however, the tidal pressure of rent seeking bends law in ways that benefit special interests rather than the public interest..."

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