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“There’s class warfare, all right. But it’s my class, the rich class, that’s making war, and we’re winning.” – Warren Buffett

    America loves people that make things. George Romney made cars, Bill Gates made computers, and Steve Jobs made iPods and other Apple products. The innovations of these three people and countless others like them have created millions of manufacturing jobs, as well as merchandising jobs that sell those products. There is most likely not a single person in this America who has not benefited either directly or indirectly from the creation of cars, computers, and other consumer goods that these titans of industry have helped to create.

President Obama was surely thinking of people such as George Romney, Gates, and Jobs when he said the following during the State of the Union: “Americans understand that some people will earn more than others, and we don’t resent those who, by virtue of their efforts, achieve incredible success.” They deserve what they have because it was through their efforts that they achieved their success. They are among of the great “makers” of our society.

According to Adam Smith’s The Wealth of Nations, there are three forms of income: profit, wage, and rent. The “makers” described above earn their income as profit. They ventured capital in the hope of a return, and it paid off for them. Wages are earned by people who work for businesses. Earning wages requires virtually no risk, only their time and the use of their human capital. The third kind of income is referred to as economic rent. This is the easiest kind of income because it requires a low amount of both capital and labor, only the ownership or control of a factor of production. As Adam Smith explains:

"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land ....
    While the Gates and Jobs of the world are making their income from consumer goods, the hedge fund managers, venture capitalists, and other Wall Street types make their money from simply moving money around and engaging in rent-seeking. Rent-seeking does not increase national productivity or benefit society as a whole. While profit-seeking works to create wealth, rent-seeking works to redistribute the wealth. Since rent-seekers make their money from moving money around and taking a cut off the top, they should be referred to as the “takers” of our economy.

    One specific example of the way these “takers” operate is the soon to be famous example of Bruce Rauner. Rauner was the chairman of the private equity firm GTCR. In 2001, he contributed $200,000 to Ed Rendell, the Democratic candidate for governor of Pennsylvania. In 2002 right before the general election, Rauner sent the Rendell campaign another handful of pocket change: $100,000. Soon after being sworn in as governor, the state of Pennsylvania doubled its business with GTCR, thus increasing the management fees received by Rauner and GTCR by at least $4 million. Due to the fact that a definite causal relationship was not established between the donations and the increased stake in GTCR funds by the state, the situation was not deemed to be illegal corruption. This is rent-seeking action because Pennsylvania choosing GTCR over another private equity firm does not increase the public benefit or the economic pie, it simply changes who gets what of the economic pie. Rauner himself is now running for governor in Illinois.

    Other examples of rent-seeking actions from Wall Street firms include their use of lobbyists to change bankruptcy laws to give priority to derivatives, according to Nobel Prize-winning economist Joseph Stiglitz. Stiglitz also cites the predatory lending and the abusive credit card practices of Wall Street as yet another example of its rent-seeking behavior. This brings us back to the Warren Buffett quote. While earning an honest profit from selling products or services and being a “maker” is not class warfare, the rent-seeking “taker” actions of many of the extremely wealthy does constitute class warfare because it harms the general society while benefiting those at the top. Most people do not hate the rich simply for being rich, it is how they got rich that causes a sense of unfairness.

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Comment Preferences

  •  Tip Jar (6+ / 0-)

    I originally wrote this post for a center-right audience (hence my linking to Fox Business as a source and my use of some Luntz Language) to explain the concept of economic rent and to show why businesses that make things are far better for the economy than businesses that simply shuffle money around. I then decided to post it to my account here as well, so let me know what you think!

  •  Okay, I think (1+ / 0-)
    Recommended by:
    yoduuuh do or do not

    you make important points about the rentier class. But I think those points should be made repeatedly to the right, b/c those of us here who follow economics already agree with you.

    Glad you posted it, though: you make a complex concept quite clear.

    English usage is sometimes more than mere taste, judgment and education - sometimes it's sheer luck, like getting across the street. E. B. White

    by Youffraita on Thu Feb 06, 2014 at 11:13:06 PM PST

  •  Everyone that you mentioned is a 'taker' (2+ / 0-)
    Recommended by:
    rat racer, Musial

    We fought a war in the 19th century to allow the federal government a major role in the US economy. Had Reagan/Palin/Romney been President in the 19th century, we would not have had the transcontinental railroad, the telegraph, and land grant colleges. Everyone of these policies is anathema to the teabaggers.

    Ronald Reagan said government is the problem. Sarah Palin and Rupert Murdoch agree with him.  

    And without government subsidies and infrastructure built with govt aid, there would have been no steel industry to provide the steel for George Romney's cars. There would have been no computer industry for the innovations that benefit us to this day.

    Other than the teabaggers, does anyone think we would have computers if orders from the Defense Department had not existed in the 1940s and 1950s when there was zero commercial demand?

    Other than the teabaggers, does anyone think that if not for NASA and the moon missions, we would have personal computers today?

    •  It's all rent seeking: labor, computers, land, (0+ / 0-)

      anything with exchange value. Gates, develops the virtual acreage where everyone lives and he rents it out, used to be commons. The point of NSA, to inventory  the human merchandise, suppress slave revolts. Slavery, humans as property, no need to pay them rent when living off their labor, people as the commons to be privatized, wage slavery same concept.  The problem, nature is getting used up, capitalism is morally unsustainable, and constitutionally- mocks gvt. of, by and for the people.

  •  "Makers" are people who make others do things (1+ / 0-)
    Recommended by:
    a2nite

    and "takers" are those who take their orders.

    People like Willard have trouble with sequence and so they often get relationships reversed. And the result of that is that their agendas are perverse. Of course, since they hardly ever get their agenda accomplished, it doesn't much matter.

    http://hannah.smith-family.com

    by hannah on Fri Feb 07, 2014 at 02:34:02 AM PST

  •  One suggestion if you are a taker/renter who (1+ / 0-)
    Recommended by:
    Vetwife

    hoards money on the backs of those who cannot buy Lawmakers.
    Please quit pissing on my back and telling me it's raining!

    "If you tell the truth, you won't have to remember anything", Mark Twain

    by Cruzankenny on Fri Feb 07, 2014 at 03:37:37 AM PST

  •  I think the enemies of this country ARE (0+ / 0-)

    people like The Koch brothers.   Make your money.. Sit in tubs of thousand dollar bills and wash in perfumed fine soaps but don't try to tear a country down by buying and controlling.  They should be rounded up and sent to tribunals for their tactics of bringing a nation to servivitude not to mention stopping the equal opportunity due to their money can buy the legislators ....They are enemies of this country and sending them to the hague would be merciful for what I think should be done to them.   Crushing the head of America with a golden boot is worthy of treason and should be handled as such..IMO.

    We the People have to make a difference and the Change.....Just do it ! Be part of helping us build a veteran community online. United Veterans of America

    by Vetwife on Fri Feb 07, 2014 at 04:34:39 AM PST

  •  Its too blurry a line (0+ / 0-)

    Lots goes into the creation of any industry:

    * Research
    * Funding from banks
    * The workers who actually do the innovation - none of the above ever invented anything - neither Steve Jobs nor Bill Gates were the technical brains behind a single invention. Romney is no exception

    In 1939 he moved to Detroit and joined the American Automobile Manufacturers Association, where he served as the chief spokesman for the automobile industry during World War II and headed a cooperative arrangement in which companies could share production improvements. He joined Nash-Kelvinator in 1948, and became the chief executive of its successor, American Motors Corporation, in 1954. There he turned around the struggling firm by focusing all efforts on the compact Rambler car. Romney mocked the products of the "Big Three" automakers as "gas-guzzling dinosaurs" and became one of the first high-profile, media-savvy business executives.
    * And yes you need businessmen with vision but vision hardly qualifies you for the crazy salaries they are making and many non-financial CEOs make the crazy salaries without having any vision.

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