[OP-ED]: Economic cannibalism
The spoils society advances.
The “spoils society” is a phrase I coined some years ago to illustrate a basic problem of wealthy societies, including, of course, the United States.
After all, our annual GDP (gross domestic product) is approaching $20 trillion. The problem is that, as societies become richer, so does the temptation for people to advance their economic interests by grabbing someone else’s wealth, as opposed to creating new wealth.
We see the resulting redistributive struggles all the time. They’re part of the social fabric: divorcing couples fighting over the marital assets; Congress debating who should -- or shouldn’t -- get tax cuts or subsidies (say, Social Security); lawyers launching “class action” suits to remedy alleged wrongs; patent “trolls” suing tech companies over possible infringement issues.
Regardless of where your sympathies lie -- redistribution is both good and bad -- what connects all these activities and many others is that they don’t result in the production of more goods and services. Instead, they involve the shifting of money and wealth from one party or group to another. They recall the spirit of 19th-century politicians’ defense of patronage jobs: “To the victors belong the spoils.”
This sort of economy may be larger than you think. That’s the gist of the provocative new book, “The Captured Economy,” by Brink Lindsey of the Niskanen Center think tank and Steven M. Teles, a political scientist at Johns Hopkins University. They argue that the economy is riddled with self-serving arrangements, mainly benefiting the rich, that impose excess costs on the poor and middle-class and reduce economic growth.
Take housing. Restrictive zoning arrangements drive up home prices, say Lindsey and Teles, citing detailed studies by Harvard economist Edward Glaeser and his collaborators. In some areas, housing scarcities have resulted in huge premiums in home prices: 20 per cent in Washington, D.C., and Boston; 30 percent in Los Angeles; and 50 percent in Manhattan, San Francisco and San Jose.
“Zoning exists to transfer wealth from new buyers to existing owners,” write Lindsey and Teles. But that is not the end of the story. The exorbitant real estate prices in many booming regions discourage people from moving in -- homes are too expensive. This reduces overall economic growth. Fewer people can take advantage of the available opportunities.
Or consider occupational licensing: the requirement that some jobs and firms be certified by states. In 1970, only about 10 percent of jobs required licenses, report Lindsey and Teles. Now the share is 30 percent, they say. Across all states, some 1,100 occupations are subject to licensing, including barbers, manicurists and animal trainers. California is the leader at 177.
Although the usual justification is consumer protection, the actual effect of licensing is to restrict competition and raise prices. Again, economic growth suffers. If prices were lower, people’s purchasing power to spend on other things would be greater.
In my “spoils society,” the economy splits into two parts: the producing sector, which creates and makes stuff; and the predatory sector, which redistributes income and wealth.
There is overlap between these sectors: Productive goods and services are often sold at artificially high prices that don’t reflect added economic value. They simply shift wealth from buyer to seller. At worst, this is economic cannibalism. Economists call the artificially high prices “rents” -- not to be confused with what tenants pay their landlords.
The message from Lindsey and Teles is that these rents are more widespread than most people imagine. The pursuit of rents is a big part of the spoils society. Can anything be done about them? It will be hard. Most of the offending arrangements are technical and obscure. The people who benefit from them care more about them than those who don’t. Still, a bit of consciousness-raising can’t hurt.
In fairness, it’s also worth acknowledging that, up to a point, these distributive conflicts are unavoidable and even desirable. Every modern nation has them, either through governmental intervention or private markets. The great danger of the spoils society arises if these distributional struggles increasingly displace economic growth as the way people and firms get ahead.
People will fight over getting a bigger piece of the economic pie (which means someone else will get a smaller piece) rather than growing the pie so that everyone gets a bigger piece. The consequences could be dire. As Lindsey and Teles warn:
“When life seems like a zero-sum struggle, gains by other groups are interpreted as losses by one’s own group.” This is a formula for resentment and discord.