January 26, 2020

1710 words 9 mins read

About Those Rent Seekers

About Those Rent Seekers

What is “rent-seeking?”

Here' a brief description from David John Marotta, What Is Rent-Seeking Behavior in Forbes

Rent-seeking doesn’t add any national value. It is coerced trade and benefits only one side. Rent-seeking can include piracy, lobbying the government or even just giving away money.

There are two kinds of lobbyists.

One kind of lobbyist is necessary to keep legislators and executive-branch bureaucrats informed and on notice. These lobbyists protect the interests of special interest group, but often their special interest needs protection because it is at the mercy of the government. For example, police lobbyists get paid to protect the interests of police officers from actions by the state legislature. Because police are employees of a local government or county and do not produce wealth, they are beholden to government policy for their well-being.

The other kind of lobbyist gives lobbyists a bad name. These lobbyists, too, represent a special interest group, but it’s a group that does (or could) create wealth and, therefore, can use good management, innovation, and business skills to achieve its goals. But many companies and industries find management, innovation, and business skills too much work, so they hire lobbyists to cajole government to hurt their competition or to provide an unfair advantage.

While both kinds of lobbyists could be described as “rent-seekers,” it is the latter who wreck the most havoc.

Rent-seeking lobbyists love regulation. They tell the media they hate regulation, but they really love it. In fact, rent-seekers invented regulation in an effort to raise the cost of entering markets.

Rent-Seeking in Beer

Say you run a brewery that was founded in 1876 and produces almost half the beer consumed in the world. You’re in a position where it’s difficult to grow organically because you’re already dominating your market. But your shareholders demand growth similar to that in emerging markets, like technology in the 1980s and 1990s. How do you keep your shareholders pacified?

You hire lobbyists. Actually, you first create a phony non-profit with an altruistic sounding name, like “Physicians for Safe Beverages,” or some such thing. The PFSB’s lobbyists, then, fan out across Washington and the state capitals to warn legislators of the growing threat to public health and safety posed by “craft” breweries." In the words of the lobbyists, these craft brewers are mere amateurs who, somehow, got a beer label approved and now want to poison voters with their creatively-named but unsanitary brew.

So, a big-brewery-friendly Congressman introduces much-needed legislation to fortify the inadequate beer-brewing regulations that have been around since the end of prohibition. Not that anyone has gotten sick or died yet, but we can’t take the chance.

Of course, the official spokesman for the giant brewery industry decries the unnecessary and irresponsible legislation. He testifies before Congress that the proposed legislation will only hurt Joe Six-Pack who wants to enjoy a frosty cold beer after a hard day at the steel mill, but who will now have to pay up to 30 percent more for the exact same beer. “It’s rip-off of the working class,” the spokesman shouts into his microphone. “Our breweries uphold the highest safety standards. This legislation cannot make our beer safer. It can only increase the price to consumers and create yet another useless government bureaucracy.”

But Congress is unmoved by the lobbyist’s exhortations. Underage drinking is bad enough, and young people are less discerning about quality. It isn’t Joe Six-Pack, who tends to favor popular brands from well-known breweries, Congress is worried about. It’s the young people coming of age who tend to prefer avant-garde beer who are at risk if Congress doesn’t pass this bill before the next election.

The new bill passes in weeks, of course, even though it’s really just a shell that allows bureaucrats of some executive agency (or five) to do whatever it wishes regarding brewery hygiene and ingredients.

The effect of the legislation goes something like this: the big incumbent breweries, because of their 145-year track records of safety, receive exemptions from inspections and compliance. The craft brewers who are operating on a shoestring, however, must jack up their prices and hire their own lobbyists. The price increase of the already-pricy craft brands makes the incumbents' brands even more attractive, even to young people in starter jobs or waiting tables after class in college.

That’s how rent-seeking works.

Missouri’s Rent-Seekers

Missouri has a special set of rent-seekers. They’re called “Tax Credit Syndicators,” or “The Syndicate” for short.

(Read about how The Syndicate orchestrated the coup that overthrew the 2016 gubernatorial election in Missouri.)

One member of The Syndicate, Jeffrey E. Smith of JSE Holdings is the “architect” of Missouri’s Low-Income Housing Tax Credit law according to the St. Louis Post-Dispatch. Smith and his three colleagues in The Syndicate sort of launder money intended to build and maintain housing for the poor. The Syndicate successfully blocked a 2014 effort by former State Senators Brad Lager and John Lamping to reduce the payout period for these tax credits to five years instead of 10. (The longer the payout period, the more money goes financing the credits through The Syndicate instead of actually building low-income housing units.)

Meanwhile, the other Jeffrey Smith — the Columbia-based syndicator who runs Affordable Equity Partners Inc. — has given thousands of dollars to House leaders over the years by using a web of committees with names such as Advocacy for Special Needs and Citizens for New Health Care Concepts. — St. Louis Post-Dispatch

The Syndicate is, perhaps, the most aggressive and successful lobbying system in Missouri. They more or less choose the majority party’s senior leadership by filling the campaign coffers of junior legislators who are willing to do their bidding. These junior legislators, as they gain seniority, in turn, fund the campaigns of candidates in tight races around the state. This ensures that candidate loyal to The Syndicate win and advance in the legislative leadership races. To be a Speaker of the House in Missouri, you must be selected by The Syndicate.

From my observation, The Syndicate operates mostly through the Missouri House of Representatives, focusing primarily on the Speaker’s role. Since the Speaker of the House can prevent any bill from reaching the floor, even a unanimous vote in the Senate for a bill to reform Jeffery Smith’s Low-Income Housing Tax Credit scheme would fail in the House. It would never get a House vote.

The only hope for starving the rent-seekers is the Missouri Housing Development Commission, an executive-branch board with the power to disburse or denied the $140 million a year earmarked for low-income housing.

In 2017, then-governor Eric Greitens circumvented the legislature by stacking the MHDC with anti-rent-seeking members. The board, of course, froze disbursements. And The Syndicate apparently responded by going low to oust Governor Greitens.

Missouri Is a Rent-Seeker’s Paradise

President Trump often rails against the European Union, Mexico, Canada, and, especially, China for their terrible trade imbalances with the United States—imbalances enabled by trade agreements.

But Trump is quick to remind us that he doesn’t blame the EU or the Chinese. They’re just being smart. They got a great deal for themselves by taking advantage of American idiots who were supposed to negotiate good trade deals. The Americans let other nations walk all over them, and those nations are just taking advantage of our stupidity. Good for them. (But not any longer.)

Like the Chinese, The Syndicate is only doing what we let them do. Somehow, Missouri voters allowed a guy who makes his living off the teat of state government write the law that favors teat-sucklers like him. Good for Jeffery Smith. I don’t have any personal animosity toward him for taking advantage of our stupidity.

Other syndicators weigh in with legislators through an umbrella group, the Missouri Workforce Housing Association, which retains the high-powered lobbying firm of Gamble and Schlemeier. The association also employs as its executive director former state Sen. Jeff Smith, D-St. Louis, who lives in New York after serving a federal prison term for campaign finance violations. — St. Louis Post-Dispatch

But it would be irresponsible of us to let The Syndicate keep taking our money. It would be immoral for us to let 56 cents of every dollar earmarked for low-income housing to line the pockets of multi-millionaires.

Now that we know how corrupt and unfair Missouri’s LIHTC system is, we have to act. Otherwise, we’re just enablers of corruption.

Since there is no way to stop LIHTC from funding candidates and effectively hiring their own personal Speaker of the House, we need a governor who will keep the spigot closed. We had that governor for two years, but we let LIHTC drive him from office under a cloud of trumped-up, phony charges.

It’s up to you and me to put a stop this and many other abuses of Missouri’s tax dollars. And we can do that with the right leader.

But time is running out.

The filing deadline for the 2020 election is approaching. Governor Parson has indicated he intends to turn the LIHTC spigot on full-bore. We have just under two months to find a candidate who will close the taps and keep them closed until the legislature reforms the system.

It’s been almost three years since The Syndicate had a drink from the LIGHTC taps. You know those rich men are getting thirsty. You know they want a drink. And, you know they run the House.

If Missouri voters kick out Parson and replace him with a man dedicated to ending Jefferson City corruption, The Syndicate will beg the legislature for reforms. They’d rather have less of something than all of nothing, which is what they’re getting now, thanks to Governor Greitens.

If you’re really worried about a clean Missouri, go to Facebook and join the group Bring Back Greitens. Make the rent-seekers drink from the same tap we do.

FAVOR? Please share this story on Twitter and Facebook for me. I am doing something called Exodus 90. For 90 days, I have vowed to stay off social media, alcohol, and a host of other things, while increasing my prayer life. That means I can’t promote these blog posts myself. If you found anything interesting or valuable, please share it with others.

Thanks, Bill