THE BLOG
09/24/2013 11:51 am ET Updated Nov 24, 2013

Grand Theft Government - Biggest Game in Town

Rent-seeking is a technical term few people understand. Put simply, rent-seeking is the effort to gain a privilege from government intended to increase the seekers' incomes.

You'll note I used the plurals for the words "seeker" and "income". That's because rent-seeking these days is being driven by lobbyists paid to promote the incomes of whole industry sectors or even areas of the world.

It's no longer individuals or individual corporations seeking privileges from government: it's groups of big corporations working together through their industry trade associations to use governments for their own self-interest, regardless of the impact or costs to others.

Rent-seeking by whole industries

While some politicians in DC are complaining about minuscule subsidies to the poor draining the pockets of the rich, others are sneakily pulling money out of the pockets of the middle class to provide whole industries with billions of dollars - either directly via use of tax "incentives" or indirectly, via granting special privileges to whole industries.

Here's an example of profit-seeking by a an industry via special privileges while others pay the cost.

Western Pennsylvania battle for the oil fields

Everyone knows giant oil companies receive massive tax breaks. Oil company subsidies were a major issue for discussion during the US debt-ceiling standoff in 2011. The Christian Science Monitor was only one of many who asked, "Does the US need to give gas and oil companies 41 billion a year?"

Tax breaks from Congress aren't the only kind of rent-seeking gas and oil companies are going after. Rent-seeking on behalf of big oil is becoming a big issue in local and regional politics too.

In the Pennsylvania state legislature, apparently acting on the request of a lobbyist, House member Garth Everett (R) had his staff, the names of whom he can't recall, insert two sentences authorizing "forced pooling" into a five-page bill designed to improve the flow of information to royalty owners.

Everett's provision made the issue of oil and gas royalties even murkier. Pooling enables energy companies to combine land leases, without the owners' consent, to engage in horizontal shale drilling and fracking.

Farmers and other landowners in PA had complained about the way oil companies pay royalties for land they lease for drilling. Pooling now means companies such as Chesapeake Energy and Shell Oil can now deduct even more money from land owners' royalties for post-production costs of drilling, such as shipping gas to the market. Pennsylvania landowners are not happy!

World-wide battle for video game market share

Here is an second example of rent-seeking by a whole industry - via tax relief which taxpayers pay for.

A couple of decades ago video games were a tiny industry. Many games were free, developed for fun by computer programmers. This week with the huge successful launch of Gand Theft Auto 5, those days are gone.

Smaller companies still produce games. But mid-level companies are declaring bankruptcy as big video game companies take over the market. At the beginning of this decade, video games in the US raked in $10.5 billion dollars.

According to Investing Edge (CNBC TV), other parts of the world are trying to catch up. Canadian taxpayers' funding for subsidies to video game industry amounts to 23 percent of the companies' net sales turnover. In order to be competitive on the world market, game makers in Europe are lobbying the EU for tax relief too. They point out the European film industry gets tax incentives of three billion Euros each year.

Where will it all end?

Gordon Tullock, a retired political science professor, brought rent-seeking to the attention of economists. In "Rent Seeking as a Negative-Sum Game," Mr. Tullock's example of rent-seeking was a realtor who paid out-of-pocket for an exam to get a license to practice his trade.

"Thus, an individual who invests in something that will not actually improve productivity, or will actually lower it, but that does raise his income because it gives him some special position or monopoly power [enforced by government], is 'rent seeking' and the 'rent' is the income derived."

Nowadays, powerful industry groups representing for-profit companies not only can raise corporate incomes but also pass on costs of rent-seeking to taxpayers and private citizens. Why are believers in the "free market" promoting government subsidies to for-profit industries? What ARE we doing?

Any for-profit industry can claim its members need help from government in order to compete with corporations in other countries. As a result, the rest of the world is following the US' lead. Foreign profit-making groups are rent-seeking through their own governments.

The new "cold war" among for-profit rent-seekers is endemic throughout the world. This IS a negative-sum game!

The rush into rent-seeking leaves me wondering; how many more people will die from malnutrition and lack of decent health care so thirty-five year-old males can enjoy playing Grand Theft Auto?