Home Forum Research Is rent a useful concept? Reply To: Is rent a useful concept?

Steve Roth
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I also struggle with the issue of “justifying” income, and 100% agree with your  #2 — that attempts to quantify work-hours’ contribution to production of stuff is fruitless. Because, there is not even a conceivable common unit of measure for heterogenous “output.”  What’s actually measured, what can be measured, is spending/purchases (and their obverse, income). It’s silently assumed that that $ measure equals the “value” of production/output, labeled “GDP” and ubiquitously conceived as “real” even though it’s imputed from measured spending goshdarnit.

That questionable practice doesn’t disqualify the actual spending and income measures, however. They’re very “real.”

The fact is that in 2020 in the U.S., 142M people worked 244B hours, and received $11.6T in compensation for that work. (All “estimates” of course, like all accounting measures; some are more solidly-grounded estimates, some less.) In very real practice, those hours, efforts “justified” that income. (And we have the means to categorize/analyze that income in many ways — by income or wealth percentiles, age, race, etc. etc.)

Meanwhile in total people received $16.6T in income (plus $11T in accrued holding gains not counted as “income”). That’s $5T–$16T in income that is explicitly not “justified” by hours worked/human effort, at least in this tabulation. Tax treatments and diverse other institutional practices certainly make this earned/unearned distinction, with real import for people. It not just theory; it’s ubiquitously practiced.

To raise a topic that has better “legs,” IMO, than the two issues/examples you’ve raised. This is usually discussed in terms of “proprietors’ labor compensation,” as part of their “mixed income.” Shouldn’t some portion of their apparently non-labor ownership income be categorized and “justified” as labor income, even though they don’t report it as such (for perverse tax reasons)? My personal answer would be yes, sure — for important analytical reasons even though it slightly undercuts my preferred progressive rhetorical stance.

Income accountants/economists have been interrogating the issue for more than a century. There’s a good 2017 BEA discussion here. Piketty & co.’s approach to the issue is well explained here. It’s been addressed innumerable times in issues of the Review of Income and Wealth going back to ’51 and the work of Kuznets & co.

But yet again: even the most extreme attribution of proprietors’ mixed income to labor only shifts the labor/ownership shares by a few percentage points. It’s an edge case, pretty small magnitude, and IMO doesn’t justify saying that earned/unearned income is “unmeasurable.”

As for the far broader claim in #1 that owners “may offer” — that ownership income is “justified” as recompense for past labor (plus let’s not forget their “patience” and deeply virtuous abstinence in hoarding their wealth… #GotMarshmallowTest?)  To keep this brief I’ll just say it’s purely specious and self-serving, like so many justifications trotted out by the ownership class going back to time immemorial.  That they might (do) make that specious argument provides no reason, IMO, to accept that argument as disproof of a thoroughly well-considered distinction between earned and unearned income, measured/estimated with quite excruciating care.

Thanks for listening…


  • This reply was modified 2 weeks, 6 days ago by Steve Roth.
  • This reply was modified 2 weeks, 6 days ago by Steve Roth.