Nobel economist takes aim at rent-seeking banking and healthcare industries

By Greg Robb
MarketWatch, March 6, 2017

Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might, said Nobel-winning economist Angus Deaton on Monday.

If an entrepreneur invents something on the order of another Facebook, Deaton said he has no problem with that person becoming wealthy.

“What is not OK is for rent-seekers to get rich,” Deaton said in a luncheon speech to the National Association for Business Economics.

Rent seekers lobby and persuade governments to give them special favors.

Bankers during the financial crisis, and much of the health-care system, are two prime examples, Deaton said.

Rent-seeking not only does not generate new product, it actually slows down economic growth, Deaton said.

“All that talent is devoted to stealing things, instead of making things,” he said.

Another prime example of rent-seeking is that the Medicaid is funding opioid prescriptions for low-income workers, Deaton said. The results are workers who are becoming addicted and overdosing while profits are going to the Sacker family which owns Purdue Pharma that makes OxyContin.

Deaton said he favors a single-payer health system only because our current part-private and part-public system is exquisitely designed to give opportunities for rent-seeking.

“So I, who do not believe in socialized health-care, would advocate a single-payment system…because it will get this monster that we’ve created out of the economy and allow the rest of capitalism to flourish without the awful things that healthcare is doing to us,” he said.

Raising taxes on the wealthy is not a good way to combat rent-seeking because it taxes the legitimate profits of entrepreneurs along with rent-seekers.

“The key is to somehow find a way of tackling rent-seeking, crony capitalism, and corruption legal and illegal and build fairer, more equal society without compromising innovation or entrepreneurship,” he said.

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Nobel laureate Angus Deaton’s primary message is that we need to tackle rent-seeking (where “talent is devoted to stealing things, instead of making things”) to build a “fairer, more equal society without compromising innovation or entrepreneurship.” But look at how he applies that to the health care system. “Deaton said he favors a single-payer health system only because our current part-private and part-public system is exquisitely designed to give opportunities for rent-seeking.”

He says, “So I, who do not believe in socialized health-care, would advocate a single-payment system…because it will get this monster that we’ve created out of the economy and allow the rest of capitalism to flourish without the awful things that healthcare is doing to us.”

Although he says that raising taxes on the wealthy is not a good way to combat rent-seeking, other economists believe that the tax system is still a very important tool to combat rent-seeking. Tax policies can be targeted toward rent-seekers without over-taxing the legitimate profits of entrepreneurs, though legitimate profits need to be taxed equitably just as legitimate wages are taxed for workers.

Nevertheless, it is a very important lesson that Deaton teaches us and that is that our highly dysfunctional health care financing system is ripe for rent-seekers for whom we need a single payer system to improve fairness and equity in health care, even though he himself does not believe in socialized health care (just social insurance apparently). He does, in fact, believe in a fairer, more equal society.