{"id":89,"date":"2025-05-29T07:40:24","date_gmt":"2025-05-29T11:40:24","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=89"},"modified":"2025-05-29T07:40:24","modified_gmt":"2025-05-29T11:40:24","slug":"rent-seeking-and-opportunity-cost-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/29\/rent-seeking-and-opportunity-cost-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"Rent-Seeking and Opportunity Cost \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"

Earlier this summer, someone left a message on Bohanon’s cellphone urging him to call a vendor who could help him file for up to $26,000 for every employee he had kept on at his company during the COVID pandemic. Since Bohanon didn\u2019t have a company then or now, he thought it was a scam and blocked the number. It sounded similar to the fraudulent emails where a mythical African prince promises to deposit millions of dollars in our bank account if we send him our financial information.\u00a0<\/span>\u00a0<\/span><\/p>\n

Recently, we learned the call was a by-product of an actual government program: the Employee Retention Credit (ERC), designed to reward business and non-profit entities that maintained payrolls during the COVID crisis. <\/span>An Internal Revenue Service (IRS) website<\/span><\/a> discusses eligibility requirements and warns about firms promoting scams and aggressive marketing. Qualifying employers have until 2025 to make claims.\u00a0<\/span>\u00a0<\/span><\/p>\n

Of course, discerning eligibility and benefits for a firm or non-profit can be tricky, which is one reason consultants offer their services. Reputable consultants evaluate the employer’s claim and shepherd it through the process. The consultants garner a portion of the proceeds when the government pays the claim. <\/span>The Wall Street Journal reports that up to $340 billion could eventually be paid out, more than three times higher than the government thought it would cost.\u00a0\u00a0\u00a0\u00a0<\/span><\/a>\u00a0<\/span>\u00a0<\/span><\/p>\n

While the intentions of the original legislation may seem noble, the current frenzy is a classic example of what economists call rent-seeking: \u201c<\/span>the act or process of using one’s assets and resources to increase one\u2019s share of existing wealth without creating new wealth.<\/span><\/a>\u201d<\/span> While employers welcome money from the Federal Treasury, there is an opportunity cost. If the government didn\u2019t issue the check, someone else would have access to funds. However, the rent-seeking cost is <\/span>not<\/span><\/b> that some employers gain at taxpayer’s expense <\/span>nor<\/span><\/b> that the consultants are scammers, though many may be. Instead, the rent-seeking cost is the consultants’ time and effort in organizing, soliciting, and shepherding the transfers. Those resources could have been used for more productive ends than facilitating a transfer. Instead of capable consultants delving into the details of the federal refund provisions, those same capable people could be delving into real-world problems of firms and enhancing economic productivity. But talented and honorable people are responding to the incentives of a well-meaning government giveaway that unintentionally but predictably misallocates scarce resources to lower-valued uses. Rent-seeking is not healthy for the economy.<\/span>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Earlier this summer, someone left a message on Bohanon’s cellphone urging him to call a vendor who could help him file for up to $26,000 for every employee he had kept on at his company during the COVID pandemic. Since Bohanon didn\u2019t have a company then or now, he thought it was a scam and […]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[462],"tags":[897,105,894,895,107,892,55,893,896,460,898,891,890],"class_list":["post-89","post","type-post","status-publish","format-standard","hentry","category-microeconomics","tag-consultant","tag-covid","tag-employee-retention-credit","tag-erc","tag-federal-treasury","tag-fraudulent-email","tag-government","tag-government-program","tag-irs","tag-non-profit","tag-rent-seeking","tag-scam","tag-vendor"],"yoast_head":"\nRent-Seeking and Opportunity Cost \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/29\/rent-seeking-and-opportunity-cost-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Rent-Seeking and Opportunity Cost \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\" \/>\n<meta property=\"og:description\" content=\"Earlier this summer, someone left a message on Bohanon’s cellphone urging him to call a vendor who could help him file for up to $26,000 for every employee he had kept on at his company during the COVID pandemic. 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