Up until approximately 1890, economists understood that a key part of the economic system is what are known as rents, or ‘free lunches’. This means unearned income or excess profits. They recognised that a key goal of economics should be to eliminate rents. Recent economic theory does not talk about rents very much – there is an incorrect assumption that all income is earned. The people and companies who receive excess wealth from rents are usually described by the media as wealth-creators, but this is partly propaganda. Many of them are ‘rent-seekers’ (also known as rentiers) – people who know how to take money from the system because they understand how it is rigged.
The current system is now dominated by rents. This includes monopoly profits, offloading costs onto others (externalities), asset-price inflation; crime, a rigged international system, tax manipulation, resource extraction; regulatory capture; and power imbalances allowing for exploitation of staff, customers and suppliers. This article will focus on one particularly important rent: government subsidies.
The Biggest Welfare Scroungers are Big Business
A subsidy is when a government provides some assistance to a business. This can take many forms. Giving a company a tax-break is a subsidy. If a government does not charge tax on aviation fuel, this is a subsidy to the airline industry. Purchases of weapons by the government subsidise many high-tech industries. Sending your soldiers to protect oil pipelines is a subsidy to the oil industry. When the U.S. and British Governments lend money to poor countries and insist that it has to be spent on exports from U.S. or British companies, this is a subsidy to those companies. Government spending on research which leads to profitable products sold by private companies is a huge subsidy.