Rentier income - economic rent and interest or other financial charges - are the major factor polarizing the U.S. and other economies. This polarization of wealth and income is just the opposite from what the classical economists and Progressive Era reformers hoped to bring about. A study for the Congressional Budget Office recently showed how sharply the maldistribution of rentier income has increased in recent years, largely as a result of lowering tax rates on capital income and capital gains. "In 2003, the top one percent of the population received 57.5 percent of all capital income." This was the highest proportion since the CBO began collecting data in 1979 - which also happened to be the year in which real wage levels peaked. At that time the top one percent of the population received "only" 37.8 percent of capital income, and the top ten percent two-thirds (66.7 percent), compared to nearly four-fifths (79.4 percent) in 2003. The Center on Budget and Policy Priorities concludes: "Extending lower tax rates on capital gains and dividend income would exacerbate the long-term trend toward growing income inequality."<4> So the concentration of rentier income is largely the result of regressive tax policies replacing the progressive taxes that existed prior to the 1970s.
The wealth created by the past century's technology and basic means of production thus is not accruing to society as a whole, but to the topmost 1 percent of an economy that is polarizing increasingly, thanks to today's asset-price inflation. Prof. Baumol provides part of the explanation in an article contrasting productive with unproductive ways of gaining wealth.<5> Expanding Joseph Schumpeter's categorization of innovations in terms of new modes of manufacture, marketing or economic organization, this article adds "acts of 'unproductive entrepreneurship'" such as "innovations in rent-seeking procedures, for example, discovery of a previously unused legal gambit that is effective in diverting rents to those who are first in exploiting it," e.g., the creation of monopolies and means of acquiring them or increasing their ability to extract economic rent from the economy. Other examples might include property speculation, corporate raiding, greenmail and leveraged buyouts.
The bulk of this rentier income is not being spent on expanding the means of production or raising living standards. It is plowed back into the purchase of property and financial securities already in place - legal rights and claims for payment extracted from the economy at large. Most rental income and interest is channeled back into the property and stock market to buy more rent-yielding real estate or ownership rights. This inflates prices for these assets, making property and financial speculation more attractive than new capital formation. The economy shrinks, in much the way that Ricardo warned would occur as a result of groundrent diverting revenue from industry to landlords. Except in this case, revenue ends up being diverted into the financial sector.
http://www.cooperativeindividualism.org/hudson-michael_the-rentier-economy.htmlFor examples of rentier economies: France's ancien regime, the economies of the latin american oligarchies, etc.
Shiny department stores with security guards at the doors to keep out the impoverished masses two blocks over.