Capturing Rents, or Creating Wealth?

Real wealth consists of tangibles, like cars, food and commodities, as well as of services like social care (of which we can only provide so much). This real wealth can only be consumed if its creation is adequate. We can't consume wealth that has not been created. So wealth creation really matters.

People's needs, however, are unrelated to the levels of wealth created in the economy. These needs are finite. Being physiological, social and intellectual (ie identity/spiritual). However as primates of 60-90kg we tend to be rather limited in perspective and so can be greedy, self-seeking, narcissistic and often inconsiderate. Especially when confronted with a choice of placing a small burden on many others and extracting a large personal benefit. Or, particularly, in avoiding a large perceived personal loss.

Thus, when confronted with a choice of paying the full cost, or of placing a burden on society, students in South Africa felt that education should be seen as a low cost "right" (#FeesMustFall). However, there are very real direct costs and great opportunity costs in providing education. An excessive education sector will reduce wealth creation - and so, necessarily, will deprive other people of the fruits of the economy - and make most people poorer.

Similarly in the outsourcing dispute in South Africa (#OutsourcingMustFall), which was framed as black workers getting their rights - but, actually, doing away with outsourcing just redistributes money (ie tokens or promises to pay) (and the consequent consumption) without any compensating increase in wealth creation. And, in practical experience, will lead to losses of efficiency. It was a dispute about pure economic rents - in other words about capturing a surplus - pitted against efficiency savings and so consequently against wealth creation.

This socially engendered sense of entitlement to rights, and of passive expectations, may be the fundamental defect in the South African economy.

Fortunately markets (which arise legally or otherwise for scarce resources or real wealth) give incentives to be: i) productive (with rewards for efficiency and wealth creation); and to be ii) frugal (being able to access more resources or real wealth, by spending less). And the scarcity of resources usually leads to crisis, so that pure rents tend to be swept away in history.

What South Africa, and perhaps the whole world, needs is some way to reward virtue (or "being good") rather than the narrow perspective of the market (just productive and selfish). The students and strikers lose nothing by disrupting exams and lessons - but destroy much real wealth. As well as do damage to norms and values, that maintain a just society.

Tax - a fraction of the flow of money (promises to pay) in the economy - seems to be an inadequate source of financing redistribution by the state (which is absolutely fundamental to just society). So we see addictions to growth through deficit financing - with all of the undesired incentives for excessive consumption and obscene waste. For this, there are likely better types of economy (allocation system), beyond capitalism and socialism.

And the appeal of rents - pure redistribution or capture of surplus - leads to imposing short-sighted burdens on the rest of society (like "cheap education" and "ineffective services"). In this situation it is the poor and truly deprived who suffer most, because education is underprovided and less wealth is created.

As the elite of the next generation, and leaders, one would hope that students and activists can see the full cost of these short-sighted actions. And be insightful and considered, rather than follow the examples of obscene rent capture we see by financial and political elites.

But appeals of seemingly simple matters of "rights" often obscure the bigger picture of norms, wealth-creation and redistribution.

Eat Every Bit

Thank you for asking for my dietary requirements.

Personally I eat virtually anything.

But our common diet, and the media propaganda, drive staggering waste of food and so of animal lives. Which create much avoidable suffering.

Hence disproportionate cuts of meat, like cheap chicken breasts and unrealistically cheap steaks, see huge amounts of perfectly good food go to waste.

For which animals suffer. That care for their young, and experience joys and pain. Rejecting over half the animal does not respect their being.

Hence my preference is for cuts like chicken thighs, haggis, tendons and stewing meats. As well as cheap burgers and especially sausages.

The respectful spirit of these is far more wholesome and virtuous than the disrespecting blindness of supposedly luxury cuts.

Please pass this on to your chef.

"Good-will" and harsh lessons

-- economic allocation --

Rupert Read (Green Party Transport Spokesperson, and chair of the UK think tank "Green House") says that "we must let go of this 'trickle-down' nonsense once and for all" (Guardian Sustainable Business, 23 March 2014 gu.com/p/46pkd). He identifies fundamental failings in our economic and biological systems, but fails to deal with very harsh lessons that humanity has learned over centuries.

Namely how to adjust for human tendencies to sloth, selfishness and righteous indignation.

As we saw in Soviet countries, and as we see today in South Africa's state education, relying on good nature breaks down. Owing to small indignities and to free-riding by the selfish minority.

A strength of market economies is that they reward productivity and frugality. Today, however, these are perverted with incentives for waste, obesity and imaginary economic activity. In order, I suspect, to keep deficit financing viable (by the government, for those who cannot be productive).

A further problem with rewarding productivity is that, as virtually any economic modeller will tell you, all of the wealth and all of the resources usually end up in the hands of only one producer.

To get around that, biblical writers suggested Sabbath years (when all debts are forgiven and land is redistributed). But this does great harm by eating up incentives to save.

In Islam Zakaat is promoted - where everyone should give, to the poor, 3 percent of their wealth each year. Which leaves grinding poverty among the majority.

Hence it seems to me that the fundamental question should be "How can we redistribute (provide for those who cannot work) - while maintaining incentives for productivity and frugality - and keep families and financing of the state viable?"

All economists agree, I think, that growth (which is inevitably exponential) cannot continue indefinitely. Owing to physical limits on resources. Which we see today in the Guardian's recognition of deadly climate change.

The Green Party, and many economist-philosophers like Rupert Read, do not address the question of incentives. And hold up, the old mirage, of enduring good-will.

Perhaps the Templeton Foundation, the NEF or the Aldersgate Group, will do helpful research on the topic.

So, are manufacturers "recommended amounts" ideal?

Can we rely on detergent manufacturers to tell us how much is the ideal amount to use?

A less ethical manufacturer might recommend excessive laundry powder, because their customers would use more that way. So their sales would be bigger.

Detergents also contribute to our failure to keep waters in good quality. So, apart from the wasted resources and consumer money, pollution could also be greater.

Which (www.which.co.uk, formerly the consumer association) "tested a Best Buy [washing] powder [laundry detergent] using 20% less than the recommended amount".

Would it not be more sensible, Which, to objectively test if manufacturers recommendations are truthful as to the ideal amount of washing powder? And publish these as a free public good on the internet, and praise virtuous companies.

Or is this another example of, what economists call, elite capture?