Rent-Seeking: Capitalism’s Worst Enemy

By Mike Kozinski ’21, Opinion Columnist

The Democratic Party has undoubtedly shifted far to the left. In 30 years, the Democratic Party went from being the party of Bill Clinton and balanced budgets to the party of Alexandria Ocasio-Cortez and Bernie Sanders, both of whom pursue an explicitly anti-capitalist and pro-big government agenda. Sanders likened the capitalist system to a “casino” in the first 2016 Democratic Primary debate, and Ocasio-Cortez infamously declared capitalism to be “irredeemable” at the South by Southwest conference this year. This shift to the left is incredibly disconcerting to those who want less government involvement in their lives. 

It is far too simplistic, however, to dismiss these statements as the sentiments of fringe left-wing politicians. Both of them are politicians with massive public followings and support. Their rhetoric resonates with a large portion of the public because their diagnosis of the American economy is correct: it is incredibly inequitable, and too many people have accrued benefits from the structure of the economy, not because of their talent, hard work, innovation or risk taking. However, this is not because there is too much capitalism but, because there is too little. 

Democratic politicians are certainly correct to be infuriated about the current structure of the economy. Bernie Sanders is correct when he condemns it as “rigged.” However, his anger towards capitalism is misguided. The Democratic Party’s — indeed, the country’s anger should be directed at rent-seeking. 

Rent-seeking is the pernicious process through which individuals or conglomerates seek to increase their share of wealth and income without providing a better quality good or service in return. Rent-seeking, not free market capitalism, is the cause of American economic anxiety. A capitalist economy with a vibrant free enterprise system is the solution.

The key area in which rent-seeking most perniciously affects the economy is, quite literally, housing and rents. According to economist Jason Furman, chairman of the Council of Economic Advisors under President Barack Obama, local zoning laws, while sometimes serving “reasonable and legitimate purposes,” are frequently abused to “give extra-normal returns to entrenched interests at the expense of everyone else.” This is because zoning laws and “other local barriers to housing development” are frequently used as a pretext to justify policies that only allow “a small number of individuals to capture the economic benefits of living in a community, thus limiting diversity and mobility.” As a result of zoning laws that artificially raise prices, lower-income Americans are oftentimes prevented from seeking out economic opportunities simply because they cannot afford the extortionate levels of rent. 

Consequently, this seemingly local problem has disastrous consequences for the rest of the nation. Since the lower-income Americans cannot pursue economic opportunity due to high rents, the rest of the country is affected as well because the U.S. cannot cultivate as much human capital due to the high costs of living in the nation’s economic hubs. In turn, economic growth is lower than it otherwise would be. According to economists Chang-Tai Hsieh and Enrico Moretti, in their paper Housing Constraints and Spatial Misallocation, calculated that the stringent “land use restrictions” of New York, San Francisco, and San Jose “lowered aggregate US growth by 36% from 1964 to 2009.” By contrast, if those same cities had relaxed their “land use restrictions to the level of the median US City,” then “US GDP in 2009 would be 3.7% higher.” 

President Reagan in his first inaugural address called upon Americans to “check and reverse the growth of government, which shows signs of having grown beyond the consent of the governed.” While there is not much that can be done on the federal level regarding rents, it is imperative that Americans vote in local elections, and elect candidates that promise to deregulate zoning laws to build more housing. One of the simplest ways the U.S. could increase economic growth and enhance the quality of life for lower-income Americans is to intelligently deregulate zoning laws to allow for the construction of more housing. 

As the supply of housing rises, landlords will be forced to face actual competition, lower their rents, and stop their rent-seeking practices. This would allow lower-income Americans to move to economic hubs and pursue opportunities that would otherwise be unavailable to them. The American Dream is based on the premise that if a person works hard, they can succeed: it is time to restore the integrity of the U.S.’s capitalist system and end rent-seeking.