Wednesday, September 30, 2015

Word of the Day: Rentier

Rentier (REN-TEE-AY from the French) is an important concept. It refers to wealth created by control of the economy, not capitalist competition and innovation. By definition, competition would produce lower prices and promote innovation, but the rentier faction captures government and passes regulations to quash such things.

In short, their wealth is an artificial construct protected by law. They may act like capitalists, but they are not. They derive their income from rents, not real achievements.


Michael Hudson has a fascinating article detailing the need to take such things into account in economic models.  Because economists are lousy at predicting human corruption and irrationality!

Here's the introduction:

"By promoting a misleading view of how the economy works, the above omissions lead to a policy that fails to prevent debt bubbles or deal effectively with the ensuing depression. To avoid a replay of the recent financial crisis – and indeed, to extricate economies from their present debt strait-jacket that subordinates recovery to the overhang of creditor claims (that is, saving the banks from taking a loss on their bad loans and gambles) – it is necessary to explain how credit creation inflates housing and other asset prices, while interest and other financial charges deflate the “real” economy, holding down commodity prices, shrinking markets and employment, and holding down wages in a downward economic spiral. We are dealing with two price trends that go in opposite directions: asset prices and commodity prices. It therefore is necessary to explain how credit expansion pushes asset prices up while simultaneously causing debt deflation."

No comments: