Extreme Inequality Is Driven by Rent-Seeking and Luck

in economics •  7 months ago

We all like to think that an above average IQ and hard work results in higher income. We think this is fair. We say that Inequality is good because it motivates us to work harder to achieve more.

But sadly there’s no causality between hard work, intelligence and income. And this means that the narrative becomes a fiction. A tale we tell each other to feel better when everything feels unjust.

It is like steem. The best articles are not rewarded the most. It depends on luck that the article is discovered by a whale within 7 days in the large stream of articles.

Nobody feels great when they get taxed on their hard labor while unearned income doesn’t get taxed at all. We are taxing the givers and providing a free lunch for takers. Isn’t it odd? One important step toward a fair economy could be to reduce taxes on labor and shift it to economic rent. This would give everyone lower taxes when producing goods and services that benefit the world. Actually taxes could go away altogether and we would only have fees left if this was taken to the extreme.

But is it possible to make the world a little more meritocratic? Well. Nobody knows. Because we have not tried.

Here I have collected a few articles on this topic:

Libertarians that want fairness:


Other people also want economic fairness between givers and takers. They acknowledge that income mostly comes from rent-seeking or luck:


They find rent-seeking occurring in the financial sector:


But mostly in land.




Possibly because we have more knowledge about land. The information age is a new thing we have not yet studied. But the amount of economic rent is huge in the IT sector.


And we have finally started to spot it in large companies like Google:

We have a long history where we try to create a causal relationship between work and income. But we have not yet managed to create the relationship. It has been pointed out many times now:

"Property income is, by definition, received by virtue of owning property ... Since such income is not an equivalent return for any productive activity, it amounts to an entitlement to a portion of the aggregate output of others’ productive activity. The workforce produces output, but surrenders part of it to people who have nothing directly to do with production. Arguably, this occurs by virtue of a social system to which those in the workforce have never given their full consent, i.e. that of private property. Alternatively, it occurs by virtue of a structure of power to which the workforce is subject: property income is the fruit of exploitation. The fact that it is essential to capitalism makes the latter a class system akin to such other historical cases as slavery and feudalism."
[O'Hara, Phillip (September 2003). Encyclopedia of Political Economy, Volume 2. Routledge. p. 1135.]


Maybe we need a little more Anarchism in this world to make the world more meritocratic?

"While equal liberty implies the ownership of the product by the producer, it also implies the non-ownership of everything not produced. It follows, then, that everything not produced by man (and location comes under this head) can be used or occupied only by common agreement, since no one has a better title than any one else. Anarchists who believe that there will be a considerable advantage in the use of some location over others, advocate an equal distribution of the difference due to this advantage. The occupant of a superior location would be secured in his occupancy so long as he would divide this difference (the economic rent) with the occupants of inferior locations." -Fred Schulder, "The Relationship of Anarchism to Organization"

Or mainstream economics would do just fine:

"Shifting taxes away from labour should be a priority for all Member States." - European Commission

It is interesting how everyone agrees on this. Actually I have a hard time finding economists or ideologies against the idea of taxing unearned income instead of earned income.

'Winston Churchill said scornfully that a landlord “contributes nothing to the process from which his own enrichment is derived”.'

But there’s something strange about this topic. Everyone agrees, but it is still not included in any political platform. I haven’t really figured out why.

Do you know?

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