Macroeconomics For Dummies®, uk edition Published by: John Wiley & Sons, Ltd

Don’t be DUPed, dope

Economists aren’t per se against people seeking out rents. For example, a person may build a house in order to rent it out, or a pharmaceutical giant may spend large sums in order to create a new drug that it knows it can sell for a premium. These activities are carried out to ‘seek rent’, but they can’t be considered ‘rent-seeking’, because something of value is being created.

This is a bit confusing, which is partly why the prominent economist Jagdish Bhagwati coined an alternative phrase to describe rent-seeking behaviour: he calls it a kind of directly unproductive profit-seeking or DUP (pronounced, quite appropriately, ‘dupe’) for short.

A good example of DUP is lobbying activity: lobbyists typically spend a lot of time and resources influencing policy makers to carry out policies that favour their special interest. Often lobbying takes place in an attempt to divert public spending in a way that makes the special interest the beneficiary (for example, defence companies lobbying for greater military expenditure). Another favourite for lobbyists is trying to protect their industry from competition (for example, farmers trying to restrict imports of food). Although these activities are potentially very profitable for those undertaking them, their contribution to output is zero. Moreover, real resources have to be expended in order to carry out these activities.

Rent-seeking in the financial sector matters partly because, due to the large implied subsidies the financial sector receives, it’s able to pay substantially more than most other types of work. If a large portion of the activities of banks can be considered a form of rent-seeking, by attracting the lion’s share of the brightest graduates, the financial sector is depriving other industries of their talents. These bright young things could have made substantial contributions to society, whether in the fields of teaching, scientific research, medicine, politics and so on (not that these fields are free of rent-seeking!).