"In a healthy society, people
acquire wealth by making stuff people want. Farmers till a plots to provide for their nutritional wants. Workers assemble motorcycles for consumers who pay money because they find the motor bikes valuable. Perhaps the worker serves a philanthropic organization and earns a salary by serving the official goal of the organization. Or perhaps the worker earns money by creating crafts that others in the community value.
A society structured as the above has two great benefits. First, incentives are aligned to produce more output. A person can only acquire wealth by producing wealth. Thus the production of wealth is encouraged, as man’s natural greed is channeled towards productive ends. Second, humans are innately goal seeking creatures. It makes us fundamentally happy to strive towards a goal – whether that goal be winning a football game, learning a new song on the piano, leveling up in Warcraft, or producing a product that people want.
In a dysfunctional society, people acquire wealth via corruption, rent seeking, and theft. Perhaps they steal it at the point of a sword. Perhaps they acquire wealth through outright corruption. Perhaps they acquire wealth through holding a position in a completely dysfunctional management structure that requires internal politicking and Kabuki make work rather than actual performance.
As Adam Smith wrote, “there is a great deal of ruin in a nation” Corruption has always existed in America. But in the past decades it seems as if the dominant paradigm has shifted, so now more and more income comes via dysfunctional rent seeking rather the net creation of new wealth.
A most severe case of a rent seeking economy was described by the historian Rostovtvzeff, who wrote of the late Roman empire:
The reforms of Diocletian and Constantine, by implementing a policy of systematic spoliation to the profit of the State, made all productive activity impossible. The reason is, not that there were no more large fortunes: on the contrary, their build-up was made easier. But the foundation of their build-up was now no longer creative energy, or the discovery and bring into use the new sources of wealth, or the improvement and development of husbandry, industry and commerce. It was, on the contrary, the cunning exploitation of a privileged position in the State, used to despoil people and State alike. The officials, great and small, got rich by way of fraud and corruption.
The problem in America is not quite this bad – yet. But it is bad, and getting worse.
The “rent seeking” economy has several variations: [...] "
