I need a clarification regarding bonds and rents
January 28, 2011 9:06 AM Subscribe
Yesterday, Mike Konczal (rortybomb) wrote the following, "The graduating class of 2011 will enter a brutal job market that will hurt its ability to be rewarded for its labor, and thus lead a full life, for at least a decade. A note to these graduates: take comfort that you must “endure” this suffering in order to placate invisible bond vigilantes and protect rentier income." What is the rentier income he is talking about? Is he saying that bond holders, generally, are rentiers?
A link would help here.
That said, "rent seeking" is a common term in economics, and it refers to people trying to manipulate the political and economic environment in order to capture economic rent, as opposed to doing so via the normal course of competing in a line of business.
Economic rent refers to the amount of money above and beyond that required to create the factor of production; i.e., it is economic profit. (Which is different than accounting profit, in that it takes opportunity costs into production.)
posted by dfriedman at 9:21 AM on January 28, 2011
That said, "rent seeking" is a common term in economics, and it refers to people trying to manipulate the political and economic environment in order to capture economic rent, as opposed to doing so via the normal course of competing in a line of business.
Economic rent refers to the amount of money above and beyond that required to create the factor of production; i.e., it is economic profit. (Which is different than accounting profit, in that it takes opportunity costs into production.)
posted by dfriedman at 9:21 AM on January 28, 2011
Best answer: Let me make this more concrete. When, say, Comcast, uses its money to hire lobbyists to encourage Congress to pass laws favorable to the cable industry, Comcast is engaging in rent seeking. They are seeking to secure profit by manipulating the political (or in this case, regulatory) environment in their favor, rather than competing with their competitors.
The profit that they earn above the capital required to create their factor of production (their cable service, more or less) is economic rent. Thus, to rent seek is to seek ways to generate economic profit at the expense of competitors by short-circuiting competition and creating barriers to competition.
posted by dfriedman at 9:24 AM on January 28, 2011 [7 favorites]
The profit that they earn above the capital required to create their factor of production (their cable service, more or less) is economic rent. Thus, to rent seek is to seek ways to generate economic profit at the expense of competitors by short-circuiting competition and creating barriers to competition.
posted by dfriedman at 9:24 AM on January 28, 2011 [7 favorites]
Thirding that this is a reference to rent-seeking. The note about "bond vigilantes" also seems to be referencing businesses that market abstract financial products, rather than businesses that build physical goods.
posted by Cool Papa Bell at 9:29 AM on January 28, 2011
posted by Cool Papa Bell at 9:29 AM on January 28, 2011
Best answer: I've never seen the word "Rentier" used in any neutral sense. As you can maybe sense from the article, to the people that view matters that way it's fancy way of saying "parasite".
As others have said "rent" refers to all forms of income that comes from owning things, not just property. Sometimes in economics it has an even more technical meaning, to do with income over and above the minimum that would get the person to provide access to their resource, but that's probably not what's intended here.
Wikipedia's short entry on Rentier Capitalism probably nails where he was coming from.
Whether he thinks all bond holders are rentiers, I don't know. Presumably some bond holders are pension funds looking after the investments of ordinary retired folk, who are not what people normally imagine when a term like "rentier" is used.
posted by philipy at 9:31 AM on January 28, 2011
As others have said "rent" refers to all forms of income that comes from owning things, not just property. Sometimes in economics it has an even more technical meaning, to do with income over and above the minimum that would get the person to provide access to their resource, but that's probably not what's intended here.
Wikipedia's short entry on Rentier Capitalism probably nails where he was coming from.
Whether he thinks all bond holders are rentiers, I don't know. Presumably some bond holders are pension funds looking after the investments of ordinary retired folk, who are not what people normally imagine when a term like "rentier" is used.
posted by philipy at 9:31 AM on January 28, 2011
Response by poster: Hi dfriedman,
Here is the link (i don't know why but i always have a little voice chiding me for links in askme).
posted by Hypnotic Chick at 9:38 AM on January 28, 2011
Here is the link (i don't know why but i always have a little voice chiding me for links in askme).
posted by Hypnotic Chick at 9:38 AM on January 28, 2011
Best answer: It's also worth noting that the term "rentier" is closely associated with Marx's analysis of capitalist economies. I don't know to what extent Marx used the term itself, but it's used often by his philosophical heirs.
posted by mr_roboto at 9:42 AM on January 28, 2011
posted by mr_roboto at 9:42 AM on January 28, 2011
In this sense, yes, people who derive income by holding paper are rentiers.
posted by mr_roboto at 9:43 AM on January 28, 2011
posted by mr_roboto at 9:43 AM on January 28, 2011
Response by poster: dfriedman,
"refers to people trying to manipulate the political and economic environment in order to capture economic rent, as opposed to doing so via the normal course of competing in a line of business"
I guess this is where I am confused. My sense is that people/entities that purchase bonds are providing an actual benefit. It isn't an aristocrat who was bequeathed lands and now gets income from the labor of serfs...it's a bond customer who is taking a risk.
philipy,
Your last sentence basically re-states why I am confused. Who are the rentiers Konczal is talking about? In other words, aren't PIMCO and Blackrock advocating on behalf of pension funds as well? As entities that put up money, is calling them "rentiers" misleading?
posted by Hypnotic Chick at 9:48 AM on January 28, 2011
"refers to people trying to manipulate the political and economic environment in order to capture economic rent, as opposed to doing so via the normal course of competing in a line of business"
I guess this is where I am confused. My sense is that people/entities that purchase bonds are providing an actual benefit. It isn't an aristocrat who was bequeathed lands and now gets income from the labor of serfs...it's a bond customer who is taking a risk.
philipy,
Your last sentence basically re-states why I am confused. Who are the rentiers Konczal is talking about? In other words, aren't PIMCO and Blackrock advocating on behalf of pension funds as well? As entities that put up money, is calling them "rentiers" misleading?
posted by Hypnotic Chick at 9:48 AM on January 28, 2011
Response by poster: Ok, this is starting to make sense. [P]lilpy's Rentier Capitalism link and mr. roboto's response are what I was looking for. Gracias!
posted by Hypnotic Chick at 9:52 AM on January 28, 2011
posted by Hypnotic Chick at 9:52 AM on January 28, 2011
Best answer: Your last sentence basically re-states why I am confused
The same assets might be providing humble pensions to lots of people and mind-bogglingly luxurious lifestyles to a super-wealthy minority. Which group people focus on talking about depends on what axe they want to grind. Normally someone using the word "rentier" is talking about the latter.
In the US it seems that about 1% of people own about 50% of financial assets, so it's probably that group he has in mind.
posted by philipy at 10:18 AM on January 28, 2011 [1 favorite]
The same assets might be providing humble pensions to lots of people and mind-bogglingly luxurious lifestyles to a super-wealthy minority. Which group people focus on talking about depends on what axe they want to grind. Normally someone using the word "rentier" is talking about the latter.
In the US it seems that about 1% of people own about 50% of financial assets, so it's probably that group he has in mind.
posted by philipy at 10:18 AM on January 28, 2011 [1 favorite]
Best answer: The other connotation to "rentier" in the Marxist sense, that doesn't really come across in the wiki article, is that it's a form of capitalism where a class derives income from holdings, property rights etc. but where those rights come into being and are maintained through that class's access to political power.
posted by Fiasco da Gama at 1:23 PM on January 28, 2011
posted by Fiasco da Gama at 1:23 PM on January 28, 2011
Discourse on Rentier Capitalism, courtesy of The Wire.
posted by Maxwell_Smart at 6:02 PM on January 28, 2011 [1 favorite]
posted by Maxwell_Smart at 6:02 PM on January 28, 2011 [1 favorite]
Response by poster: Thanks Fiasco and Max. I'm going to mark this as resolved, and best answer a few of you all.
posted by Hypnotic Chick at 10:47 PM on January 28, 2011
posted by Hypnotic Chick at 10:47 PM on January 28, 2011
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posted by ghharr at 9:13 AM on January 28, 2011