Income inequality has been a big theme in U.S. politics and economics recently. We discussed a mathematical anomaly about the 0.01 percent earlier in the month. A number of folks have offered up defenses of the wealthiest Americans, but they seem -- like this rote piece from former Council of Economic Advisers Chairman Greg Mankiw -- half-hearted and wimpy.
What got me thinking about this recently was an intriguing article by University of Houston professor Craig Pirrong. In "The Rent Seeker, Posing as Visionary,'' Pirrong criticized the long line of government-support programs that Elon Musk’s many companies seem to be involved in.
Rent-seeking has morphed over time: "Rentier'' is derived from the French term to describe those who lived off the income from rents, typically for real estate. But that is morphing into income from government-enforced monopolies, such as patents, copyrights or government projects. The manipulation of regulations by lobbyists -- particularly by those of the financial industry -- has also given rise to claims of rent-seeking.
Which brings us back to professor Pirrong. What was so galling about Musk to him? Well to begin with, his sheer level of hypocrisy. His car company, Tesla, received $452 million in government loans; after the company paid them back, Musk suddenly decided that federal investments and/or loans to promote alternative energy was a bad idea. That is to my mind, the equivalent of Citigroup Inc. and Bank of America Corp. opposing bank bailouts, but only after 2013 on.
As Pirrong points out, almost all of Musk’s companies rely in some form on government subsidies or tax breaks. Tesla’s earnings, according to Forbes, aren't derived from selling automobiles, but from selling “emissions credits mandated by the state of California’s electric vehicle requirements.”
SpaceX, Musk’s space-launch venture is dependent on government contracts (it is the recipient of a $1.6 billion contract to resupply the International Space Station). And his SolarCity, the nation’s second-largest solar-electrical contractor, also benefits from tax breaks and subsidies.
Is Musk a visionary, or a rent-seeker? I think it's premature to make the claim that he is a full-on rentier. He certainly has a foot in each camp. Where he falls on the spectrum from parasitic monopolist to visionary genius has yet to be determined. I lean towards visionary, despite how much I despise PayPal, the online-payments system that Musk sold to eBay Inc. It is fairly clear that the final verdict on Musk has yet to be determined.
Which brings us back to the public perception of the ultra-wealthy. Many of the defenders of income inequality misunderstand the public's anger. As Josh Brown wrote, the public adored certain billionaires for their innovations. No one begrudged the vast wealth they created for themselves and their shareholders. There was a global mourning for the death of Steve Jobs, who made billions of dollars from both Apple Inc. and Pixar. Not to be maudlin, but I would bet Jeff Bezos of Amazon.com Inc. and Sergey Brin and Larry Page of Google Inc. will likely receive much more adulation than boos when they shuffle off this mortal coil.
But don’t expect to see throngs of public mourners for today's crop of Wall Street barons. Those who manipulate government for their own benefit in the absence of innovation will receive no such send off.
(Barry Ritholtz writes about finance, the economy and the business world for Bloomberg View. Follow him on Twitter at @Ritholtz.)
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