The Critical Difference Between Rentier Wealth and Wealth Creation   (October 7, 2014)


If you want to understand why our economy is stagnating and wealth inequality is rising, look at the rise of rentier skims and the resulting decline in wealth creation.

To understand why the real economy is stagnating, we have to understand the critical difference between rentier wealth and wealth creation. Rentier wealth is skimmed by fees that provide little to no value to the to the person paying the fee.

The classic example is a fee collected to pass from one fiefdom's border to the next: no value is provided to the person paying the border fee; it is a rentier skim that transfers wealth from serfs to the fiefdom's landowning nobility.

In the modern economy, rentier skims take a variety of forms. The government is adept at levying rentier skims. Harsh penalty fees piled on top of minor traffic violations are one example; another is extra fees to "expedite" services government is supposed to provide in a timely manner.

A California architect recently recounted the new fee structure in a Northern California municipality: the fee to have the city planning department review your building permit application leaped to $6,000. Since the department warned applicants it will take at least six months for the agency to process the application, they kindly offer an alternative: for a mere $4,000 more (an "expedited fee"), the applicant can get his application reviewed in a mere four months rather than six months.

This is pure rentier skim.

Planned obsolescence provides many other examples of rentier skims. Microsoft's operating systems and hardware makers both operate a form of rentier skim, in that each new OS and device offers marginal benefits (if any) in terms of productivity. The rare printer that doesn't break down in a few years is obsoleted as software drivers are no longer available on the new OS.

Cartels and quasi-monopolies offer a wealth (ahem) of rentier skims. Monopolies can raise prices and degrade services at will. Cartels maintain price controls while denying they do any such thing.

Compare the monthly healthcare insurance fees offered by the handful of providers in your area--the differences are either cosmetic or result from differences in benefits.

Finance offers the richest opportunities for rentier skim. Load up college students with tens of thousands of dollars in high-interest student loans for marginal educations that could be provided at a fraction of the cost (see The Nearly Free University and The Emerging Economy: The Revolution in Higher Education) and what do you get? A nearly lifelong rentier skim off the student debt-serfs.

Higher Educationís Aristocrats: Over five years, administrators enjoyed pay increases of between 40 percent and 135 percent, and as a result each received $450,000 to $3.3 million from cumulative increases by the end of 2012-2013, the most recent year for which tax data is available.

Higher education is basically a multilayered rentier skim.

The net result of an economy of endless rentier skims is stagnation and rising wealth inequality. Money that could be saved and invested in productive enterprises and infrastructure is skimmed off by financial and political Elites.

Simply put, the rich get richer and the poor get poorer. This is the teleology of every rentier economy: the built-in consequence of rentier skims is increasing wealth inequality and economic stagnation.

This reality is easily visible in the data. Note how the wealth of the bottom 90% declined since 2003, while the wealth of the top 5% rebounded smartly.

Real median income declined from 2000 to 2014, while net worth (wealth) skyrocketed in the same time frame:

Rentier skims are naturally owned by the wealthy, so their wealth increases as the earned income of the bottom 90% declines due to the ever-rising costs of multiple rentier skims.

But this rising tide of wealth is concentrated in the accounts of those who own the rentier skims and the Upper Caste (Clerisy class) that serves them (for example, college administrators). Protecting Elites and the Clerisy Class That Serves Them.

The resulting wealth disparity is made visible in this inverted pyramid of wealth:

If you want to understand why our economy is stagnating and wealth inequality is rising, look at the rise of rentier skims and the resulting decline in wealth creation from productive investment.

ADMINISTRATIVE NOTE: a few times a year my ability to respond to emails collapses under its own weight; please forgive my lack of response and know that I read every email but am unable to reply given the backlog and my workload. Thank you for your understanding.







Get a Job, Build a Real Career and Defy a Bewildering Economy (Kindle, $9.95)(print, $20)
go to Kindle edition
Are you like me?
Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.

And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers (25 minutes, YouTube)



NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

  Thank you, Mark N. ($5/month), for your superbly generous subscription to this site-- I am greatly honored by your support and readership.  


"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

"You shine a bright and piercing light out into an ever-darkening world."
Jeremy Beck


Contributors and subscribers enable Of Two Minds to post 275+ free essays annually. It is for this reason they are Heroes and Heroines of New Media. Without your financial support, the free content would disappear for the simple reason that I cannot keep body and soul together on my meager book sales alone.

Or send coins, stamps or quatloos via mail--please request P.O. Box address.

Subscribers ($5/mo) and those who have contributed $50 or more annually (or made multiple contributions totalling $50 or more) receive weekly exclusive Musings Reports via email ($50/year is about 96 cents a week).

Each weekly Musings Report offers six features:
1. Exclusive essay on a diverse range of topics
2. Summary of the blog this week
3. Best thing that happened to me this week
4. Market Musings--commentary on the economy & global markets
5. Cultcha/Culture: selected links to the arts, performances, music, etc.
6. From Left Field (a limited selection of interesting links)

At readers' request, there is also a $10/month option.

What subscribers are saying about the Musings (Musings samples here):

The "unsubscribe" link is for when you find the usual drivel here insufferable.

 
 
Dwolla members can subscribe to the Musings Reports with a one-time $50 payment; please email me if you use Dwolla, as Dwolla does not provide me with your email.



The Heroes & Heroines of New Media:
oftwominds.com contributors and subscribers



All content, HTML coding, format design, design elements and images copyright © 2014 Charles Hugh Smith, All global rights reserved in all media, unless otherwise credited or noted.

I am honored if you link to this essay, or print a copy for your own use.

Terms of Service:
All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


                                                                         
blog     My Books     Archives     Books/Films     home


 

Add oftwominds.com
to your reader:



Making your Amazon purchases through this Search Box helps support oftwominds.com at no cost to you:



search my site: