Entrepreneurship & Rent-Seeking - Intro to Political Economy, Lecture5
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- เผยแพร่เมื่อ 28 มิ.ย. 2016
- sites.duke.edu/intrope/
COURSE OVERVIEW:
Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.
LECTURE OVERVIEW:
1. Profits are defined as the revenue left over from sales after all the inputs (including the salary of the entrepreneur) are paid.
2. What is an entrepreneur? “A person who organizes/operates a business or businesses, taking on financial risk to do so.”
3. This is different from a "political entrepreneur," who uses government funds in business, which greatly reduces risk to the “entrepreneur,” but depends on taking money from taxpayers rather than customers. This is also called "rent-seeking."
4. The key difference is that entrepreneurs hire engineers, to sell stuff to consumers, while rent-seekers hire lobbyists, to get “profit” from the government.
5. The story of the Mancgere is told, from a Saxon psalter in about 1050 C.E. The Mancgere tries to justify profits as a return to risk, and trading as a benefit to consumers.
6. The story of the Verger is told, using a Somerset Maugham short story character.
7. Examples of rent-seeking and true entrepreneurship are recounted from Burton Fulsom's book "The Myth of the Robber Barons."
8. Political choice (the median voter theorem) and economic choice (profits, at the margin) are distinguished. It is likely that it is better to use one sometimes, and the other at other times. Neither is best overall.
READINGS:
Maugham, Somerset, “The Verger.” (www.sinden.org/verger.html )
Folsom, B.W., textbook, Chapters 1-2.
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After watching many poorly explained videos, I finally understand what is meant by the term "rent seeking" , well done sir.
I am at the moment where I have not started the video, but really want to understand what "rent-seeking" means. (I will return and edit this...) Now that I've seen the video, it and the comments below have given me the understanding I've always wanted. Well done, all.
“Pet rock was pretty good at stay and sit”
Lol
Fossil fuels are subsidized far more then green power at least in the United States
No.
@@joseornelas1718 either give me different numbers, or shut up. In the United States, the federal government has paid US$145 billion for energy subsidies to support R&D for nuclear power ($85 billion) and fossil fuels ($60 billion) from 1950 to 2016. During this same timeframe, renewable energy technologies received a total of US $34 billion
That’s because we’re the number one producer of oil. Subsidizing fossil fuels technically adds value to the economy through jobs and the massive revenue we make from oil. Subsidizing a massive industry with a direct link to our economy is much different than subsidizing green power innovations which don’t guarantee economical benefit. Which is really all America cares about. Which I’m not saying is a good thing. But seems like an unavoidable problem.
Very good lecture, many thanks.
Military industry is an obvious example of rent-seeking, then.
Arpanet is supported by DARPA, without subsidies, we should not talk here~
1. The speaker introduces the topic of the lecture, which is about entrepreneurs and rent-seeking. They explain that profits are often viewed negatively in society, but they are actually a reward for entrepreneurship and creating new products that people are willing to pay more for than the cost of production.
2. The speaker presents an equation for profits, which is the price of the output minus the cost of the inputs (capital and labor). They explain that profits are what's left over after revenues are subtracted from costs.
3. The speaker argues that profits are a sign that value is being created in the economy. They define an entrepreneur as someone who organizes or operates a business, taking on financial risk to do so.
4. The speaker contrasts entrepreneurs with political entrepreneurs, or rent seekers, who use government funds and sell to the government in the form of subsidies. They argue that this reduces risk for the political entrepreneur, but hurts taxpayers.
5. The speaker gives the example of Germany's subsidies for solar power, which they argue were a waste of money because the solar panels were not efficient and Germany is not a suitable location for solar power. They argue that this was sold to the government by political entrepreneurs and did not face the "profit test."
6. The speaker defines the profit test as more value being created than is being used up in the cost of inputs. They argue that electric cars, which are heavily subsidized, may not be creating value because they do not have to face the profit test.
7. The speaker distinguishes between market entrepreneurs, who build their business with private funds and sell to consumers, and political entrepreneurs, who lobby government officials. They argue that market entrepreneurs succeed by giving the public useful goods or services at a good price, while political entrepreneurs benefit from subsidies and restrictions on competition.
8. The speaker gives the example of the "main gear," a Saxon word for a trader who buys and resells goods at a profit. They argue that this type of entrepreneurship is risky, but can create value if the goods are being sold for more than the cost of acquisition and transportation.
9. The speaker tells a story about a "Verger" who was fired from his job at a church because he could not read or write. The Verger then opened a tobacco shop on a busy street that did not have one, and was successful. He eventually opened multiple shops and amassed a large fortune, despite not being able to read or write. The speaker argues that this shows that entrepreneurs do not have to be very smart, but rather have to create value and pass the profit test.
10. The speaker discusses the concept of rent seeking, which is the act of seeking to increase one's share of existing wealth without creating new wealth. They argue that this is often done by lobbying for subsidies or restrictions on competition.
11. The speaker discusses the difference between profit seeking and rent seeking, arguing that profit seeking is about serving consumers and creating value, while rent seeking is about keeping competitors out and transferring wealth.
12. The speaker gives the example of Robert Fulton, who was a successful engineer and market entrepreneur, but became a rent seeker by lobbying for a patent that would give him an exclusive right to provide steamboat services. They argue that this was ultimately unsuccessful, as the Supreme Court ruled that the state of New York could not regulate interstate commerce and outlawed rent seeking.
13. The speaker discusses the concept of the median voter, which is the middle preference in a distribution of preferences. They argue that in a democracy, political power lies at the center of the distribution of preferences, and that the median voter is where choices are made.
14. The speaker argues that politics is inherently resistant to changes in the ideas of just a few individuals, and that this can be a good thing because it means that the system is not easily swayed by fringe ideas. However, they also argue that this means that politics is not good at innovation, as innovation always takes place on the fringes.
15. The speaker argues that the profit test is necessary for determining which technologies are successful, as it shows that people are willing to pay more for the product than it costs to produce. They argue that the median voter is not good at choosing technologies, and that we need changes on the fringes to drive innovation.
16. The speaker discusses the concept of subjective value, which is the idea that value is determined by individual preferences and is not objective. They give the example of the "pet rock," which was a fad in the 1970s where people bought rocks as pets. They argue that while the pet rock may not have had objective value, it created subjective value for people who bought it, as they were willing to pay more for it than it cost to produce.
17. The speaker argues that the profit test is the best way to determine if a product is creating value, as it shows that people are willing to pay more for it than it costs to produce. They argue that the only other choice is politics, which they argue is a worse choice because it relies on the median voter, who may not be well-informed and is using other people's money to make decisions.
18. The speaker concludes by summarizing the three mechanisms for making choices: markets, which use the profit test; rent seekers, who use the rent or subsidy test and appeal to politics; and politics, which uses the median voter test. They argue that all of these systems are imperfect and can lead to trouble if relied on too heavily in the wrong circumstances.
The speaker's name is Michael Munger. He is a professor of political science, economics, and public policy at Duke University. He is also the director of the Duke Program on Philosophy, Politics, and Economics. He has written extensively on the topics of political economy, public choice, and the moral foundations of markets.
Thanks
14:58 hit home HARD
If rent seeking invests in lobbyists and sells to the government, where does land speculation fall? Does land pass the profit test?
Better to add left side arguments to this topic, Stiglitz E.g.
Does anyone have a good lecture on this?
Profit is a value-free accounting term, not a reflection of entrepreneurship, necessarily. A good deal of profit can be derived from privilege, privilege being the source of rent as income. Sound economics and sound public policy demand that rents be publicly captured, that earned income not be taxed. This is the key to entrepreneural profit, to value creation.
Give an example of profit privilege.
@@tdreamgmail Our systems of law, taxation and public policy have operated to benefit rentier interests from the very beginning of European settlement in North America. Rent-seeking dominated European societies from the fall of feudalism as a system of reciprocity between the land barons and the peasants who worked the land. Looking for the solution? Start with a a reading of Henry George's book: "Our Land and Land Policy." Any asset with an inelastic supply (with by nature or because law restricts competition) yields an unearned rent to private interests that hold title or control. This unearned rent justly belongs to the community and should be captured via taxation.
Profit tests are about money, not about right or wrong, or about utility and sustainability. Sounds like an Ayn Rand disciple. Cold, ruthless, yet utterly convinced he has all the answers.
I dislike his example on solar panel vs fossil power. I know he explains negative externalities it later, but fossil fuel does not bare the rightful costs of it's negative externalities, and therefore is cheaper than it ought be. What's worse is that this cost (ei damage to our climate) is in the long term future.
I believe that the climate crisis is an existential threat to human civilization. However, the climate enthusiast crowd is completely delusional when it comes to green energy namely solar panels and wind turbines. Looking at the numbers, it is not possible AT ALL, not even close, to replace the current energy output that we have with alternative green tech. We would have to dramatically scale back the way we live in order to fit our lifestyles into the newly constrained power grid of green energy.
People on the right side of this issue keep talking about solar panels and wind like that is some kind of solution. That we can just unplug fossil fuels and plug in sunlight. This is a pipe dream fantasy. You have to start telling people the truth. In order to scale back our heat emissions, we need to dramatically scale down consumption, and in turn, manufacturing.
2-Day Prime Shipping from Amazon in a green economy? Forget about it. Want a new iPhone every year? That is not happening. Want to take a trip to Europe over the summer on a place or on a cruise ship? Those all have to go. Enjoy ordering pizza with cheese and pepperoni? We have to switch to plant-based eating, and remove dairy, eggs, and meat from our plates. Does this sound like something people are going to go along with? Not a chance. We are completely fucked. And that's what you should be telling people. Not to prepare for a green future, but how are we going to manage the coming crisis as best as possible. This is not going to end well.
Agreed, and one of those externalities is the cost (for the USA) of maintaining a military to ensure the supply of oil keeps flowing.
"Politics chooses the median". Doesn't that neglect public choice considerations? Wouldn't it be more accurate to say "The most popular choice is the median. Politics will choose whatever profits the choosers."?
Given his argument in the lecture, wouldn't Universities be rent seeking institutions?
Universities are rent seekers, yes. Strange how Universities are going about doing it ... by way of subsidies. Value creation is only a periphery concern. Their primary concern are ) job security of administrators and teachers and 2) power over State politics and students.
They are.
Good lord yes! Among the worst. Absolutely.
2:25 Profits are a sign that value is being created in the economy
2:50 A Political Entrepreneur (A rent seeker),uses government funds, they are selling subsidies, reduces risk to the entrepreneur but hurts tax payers
Entrepreneurs hire engineers and sell to consumers
Rent seekers hire lobbyists and sell to the government
Assignments for this lecture
Folsom Book: Robber Barrons
“The Myth of the Robber Barrons”
- the rent seekers are the robber barrons
- the entrepreneurs were not (profit seeker)
Rent seeking is about keeping competitors out
Gibbons vs Ogden outlawed rent seekers
26:13 damb bro politics do b like that tho🤯
what about microsoft office and windows....surely that is the biggest culprit.
@33:17 this wonderful presentation loses credibility for some reason . .
The distinction between an entrepreneur and a rent-seeker is so ridiculously one-dimensional and grossly oversimplified in this lecture. Profit and rents more often than not constitute each other. Engineers that pushes forward new technology, with or without the help of subsidies, are pushing the boundaries of technology regardless, and their contribution should be recognised on this front, whether what the marketing and business department do with the product, is a seperate issue, vastly marked up, restricts competition, bans foreign import, lobby against subsidy to competitor's firm, these are monopoly, anti-competitive rent seeking behaviour, and should be recognised as such. Rent-seeker, should be classified, as one, who does not utilise capital and deploy it in such a manner that expands the production frontier, and the core of his behaviour, is to use capital to extend his ownership of non-productive assets, and lease it to other people for a rent, housing is the perfect example. One whose action is worthless as a rent-seeker, contributes nothing to soceity in this actions. There can also be cases where entities can engage in rent-seeking behaviour with a productive assets, like what Qualcomm does with their royalities, like buying up housing and renting them out at a higher premium. The point is, that rent-seeking, is akin to a softer version of extortion, one that aims to maximise value extraction, with or without a productive asset. Some would say that is just profit maximisation, yes, rent-seeking is a firm that puts more emphasis in engaging in profit maximisation rather than product/process improvement. The prime motivator of capital utilisation/deployment ought not to extend ones' ownership as the end, but to improve the living condition of all who can participate and enjoy the fruit of research and development. Market participants willfully or not confusing the means as an end is the distortion that must be identified, monetary reward is the means to encourage better products, not the end that tunnel-vision people into short-term rent extraction.
I also have some issues with his choice of words, how about a video response?
The teacher is so hot
I loved this propaganda so much. I nearly thought is was a real lecture, but of course this was just comical. What a 19th century nonsense. We now are so much better informed and know so much more than Smith and the free market ideologists. Please remove the lecture5 and change it in standup5
Hi, could give some references . I am completely unfamiliar with the modern economics theory could you recommend some readings and/or courses.
This is an introductory level course on capitalism and political economy meant for non specialists. Therefore it makes much more sense to be dealing with older simpler theories just like in natural sciences like physics you would first study Newtonian 17th century physics before moving onto Einstein 20th century physics
@@Chiragatrey I understand. I was taught the same things around 42 years ago in my Universities. But....now at 62, doing my PhD in economic development, I am shocked how this puts a bias on a person. Especially in the USA loads of people are suffering daily because of non inclusive pure capitalist policies, as these are "just the best we can do", not realising that the reality is far more subtle, and that other economic realities do exist. Elites are defending their policies (and hence positions) based on "free" capitalism (as if that would exist) and call even a small deviation from the Religion immediately "socialism" and hence totally destructive, and for fools only. This "set of (old) believes" became some kind of "religion" (and power play) to far too many people, and hence more nuance is crucial for young students, right from the stars, as they might be biased their whole life, doing too much and unnecessary damage. Good luck!