Mancur Olson, in his book The Logic Of Collective Action, highlighted the central problem of politics in a democracy. The benefits of political market-rigging can be concentrated to benefit particular special interest groups, while the costs (in higher taxes, slower economic growth, and many other second-order effects) are diffused through the entire population.
The result is a scramble in which individual interest groups perpetually seek to corner more and more rent from the system, while the incremental costs of this behavior rise slowly enough that it is difficult to sustain broad political opposition to the overall system of political privilege and rent-seeking.
When you add to Olson’s model the fact that the professional political class is itself a special interest group which collects concentrated benefits from encouraging rent-seeking behavior in others, it becomes clear why, as Olson pointed out, “good government” is a public good subject to exactly the same underproduction problems as other public goods. Furthermore, as democracies evolve, government activity that might produce “good government” tends to be crowded out by coalitions of rent-seekers and their tribunes.
This general model has consequences. Here are some of them:
There is no form of market failure, however egregious, which is not eventually made worse by the political interventions intended to fix it.
Political demand for income transfers, entitlements and subsidies always rises faster than the economy can generate increased wealth to supply them from.
Although some taxes genuinely begin by being levied for the benefit of the taxed, all taxes end up being levied for the benefit of the political class.
The equilibrium state of a regulatory agency is to have been captured by the entities it is supposed to regulate.
The probability that the actual effects of a political agency or program will bear any relationship to the intentions under which it was designed falls exponentially with the amount of time since it was founded.
The only important class distinction in any advanced democracy is between those who are net producers of tax revenues and those who are net consumers of them.
Corruption is not the exceptional condition of politics, it is the normal one.
Eric S. Raymond, “Some Iron Laws of Political Economics”, Armed and Dangerous, 2009-05-27.
April 5, 2018
QotD: ESR’s “Iron Laws of Political Economics”
March 28, 2018
QotD: Rent-seeking through “health concern” trolling
Producers too often shamelessly use whatever excuses are at hand to justify their prodding the state to prevent consumers from patronizing rival producers. Trumped-up health ‘concerns’ are a prominent set of easy excuses when the good in question is food or drink. “Those foods offered by our rivals are likely to kill or injure our beloved consumers!” cry rent-seeking producers, feigning an overriding concern for the health of the public. “For the health of our citizens, our rival producers must be stopped from selling their foul foods in our market!” Conveniently, of course, when such restrictions are implemented the favored producers no longer must compete as vigorously for consumers’ patronage. (Question: What does diminished competition do to producers’ incentives to maintain the safety of the foods they sell to the public?)
Anyway, here’s a history lesson: today’s expressed concerns about the safety of genetically modified foods and the calls for governments to restrict consumers’ freedom to buy these foods are, in their essence, nothing new. In the late-19th century similar ‘concerns’ over the safety of American beef and pork were used by some beef and pork producers to sic state restriction on rival beef and pork producers. European ranchers and farmers, disliking the competition from American ranchers and farmers, played the safety card as means of securing protection from their American rivals. Likewise within the U.S.: local butchers and local slaughterhouses throughout the U.S. played the same safety card as a means of securing protection from the upstart and wildly successful Chicago meatpackers such as Swift and Armour. That this safety card was illegitimate – that is, that charges of unsafe beef and pork were unwarranted – doesn’t matter if enough people believe the charges. The widely believed myth of dangerous foods enables the state to protect powerful producers from competition.
Cronyism and rent-seeking are nothing new. But they are perhaps becoming more widespread as the scope of state involvement in private affairs expands.
Don Boudreaux, “If Only We Could Be Protected From the Disease of Rent-Seeking”, Café Hayek, 2016-07-14.
June 30, 2017
QotD: Rent-seeking
Calling someone a rent-seeker is sort of an economist’s way of telling them to die in a fire.
Scott Alexander, “Contra Caplan on Mental Illness”, Slate Star Codex, 2015-10-07.
June 15, 2017
Activists lobbying the UN to make cultural appropriation an international crime
Due to the fact that the United Nations doesn’t have anything more important to deal with, delegates from 189 countries, including the United States and Canada, are lobbying in Geneva for the organization to institute laws to make cultural appropriation illegal – and for those laws to be implemented quickly.
The delegates are a part of a specialized international committee in the World Intellectual Property Organization (WIPO) which was founded in 2001 to expand intellectual property regulations to protect indigenous art, forms of expression like dance, and even words.
According to CBC, James Anaya, dean of law at the University of Colorado, said that the United Nations document should “obligate states to create effective criminal and civil enforcement procedures to recognize and prevent non-consensual taking and illegitimate possession, sale and export of traditional cultural expressions.”
Not only could the state put you in jail for cultural appropriation, those who feel as though their culture is appropriated would be able to sue you for damages. In other words, you could go to jail for making and selling burritos if you’re not Mexican, or wearing a kimono while white.
There has never been a human culture that has not “appropriated” from other cultures except for those so isolated that they never encounter other cultures. Appropriation is literally older than civilization, and no action of WIPO is going to change that. It may, however, provide even more ways for emotional and legal blackmail to be made profitable, and give even more tools to those who long to force others to bend to their will.
Ed Krayewski has more at the Hit and Run blog:
What sort of appropriation does the committee want to stop? University of Colorado Law Dean James Anaya, an indigenous leader and a technical analyst for the IGC, points to products that purport to be made or endorsed by indigenous groups but aren’t. At the Geneva meeting, Anaya offered Urban Outfitters’ “Navajo line” as an example. The Navajo Nation actually brought suit in U.S. court against Urban Outfitters over that line of products in 2012, and the case was settled out of court last year. It’s unclear how an international intellectual property bureaucracy would improve the situation.
But it’s clear how it could create new avenues for rent-seeking. The World Intellectual Property Organization generates revenue from fees, such as the ones it charges for international trademarks. Any system the IGC creates is likely to include a similar international mechanism for registering whichever “traditional cultural expressions” get protections. Such a setup could have a chilling effect on any commercialization of folklore, even by members of the original indigenous communities.
After all, the same forces of globalization and decentralization that have made intellectual property laws more difficult to enforce offer the potential to drastically expand native producers’ reach. KPMG has noted, for example, that the internet offers a “new potential for indigenous Australians in regional and remote areas to access global audiences.” An IGC-style intellectual property regime would inevitably require such entrepreneurs, not just the big corporations accused of cultural appropriation, to get additional approvals for their activity.
Meanwhile, the same governments with long histories of abusing indigenous populations would be responsible for deciding who belongs to such populations and who faces criminal penalties for not meeting the governments’ definitions. Kathy Bowrey, a law professor at the University of New South Wales in Australia, tells Reason that she would love to see the IGC succeed in setting up an system that genuinely protects indigenous culture. But she has no hopes that it will. Given the “racist practices that mark everyday lives of First Nations people domestically,” she says, “I’m not sure why there is an expectation that these states would operate differently on the international stage.”
December 7, 2016
QotD: Turning ordinary recycling into a vast revenue enhancement tool
… we know that ubiquitous RFID tags are coming to consumer products. They’ve been coming for years, now, and the applications are endless. More to the point they can be integrated with plastic products and packaging, and printed cheaply enough that they’re on course to replace bar codes.
Embedded microcontrollers are also getting dirt cheap; you can buy them in bulk for under US $0.49 each. Cheap enough to embed in recycling bins, perhaps? Along with a photovoltaic cell for power and a short-range radio transceiver for data. I’ve trampled all over this ground already; the point is, if it’s cheap enough to embed in paving stones, it’s certainly cheap enough to embed in bins, along with a short-range RFID reader and maybe a biosensor that can tell what sort of DNA is contaminating the items dumped in the bins.
The evil business plan of evil (and misery) posits the existence of smart municipality-provided household recycling bins. There’s an inductance device around it (probably a coil) to sense ferrous metals, a DNA sniffer to identify plant or animal biomass and SmartWater tagged items, and an RFID reader to scan any packaging. The bin has a PV powered microcontroller that can talk to a base station in the nearest wifi-enabled street lamp, and thence to the city government’s waste department. The householder sorts their waste into the various recycling bins, and when the bins are full they’re added to a pickup list for the waste truck on the nearest routing — so that rather than being collected at a set interval, they’re only collected when they’re full.
But that’s not all.
Householders are lazy or otherwise noncompliant and sometimes dump stuff in the wrong bin, just as drivers sometimes disobey the speed limit.
The overt value proposition for the municipality (who we are selling these bins and their support infrastructure to) is that the bins can sense the presence of the wrong kind of waste. This increases management costs by requiring hand-sorting, so the individual homeowner can be surcharged (or fined). More reasonably, households can be charged a high annual waste recycling and sorting fee, and given a discount for pre-sorting everything properly, before collection — which they forefeit if they screw up too often.
The covert value proposition … local town governments are under increasing pressure to cut their operating budgets. But by implementing increasingly elaborate waste-sorting requirements and imposing direct fines on households for non-compliance, they can turn the smart recycling bins into a new revenue enhancement channel, much like the speed cameras in Waldo. Churn the recycling criteria just a little bit and rely on tired and over-engaged citizens to accidentally toss a piece of plastic in the metal bin, or some food waste in the packaging bin: it’ll make a fine contribution to your city’s revenue!
Charles Stross, “The Evil Business Plan of Evil (and misery for all)”, Charlie’s Diary, 2015-05-21.
August 16, 2016
QotD: The real danger of expanding the power of the state
Every expansion of the state incites more people to compete – and to compete more intensely – to possess the power over others that that expansion brings. From each individual’s perspective, it’s better to be in the group that exercises power rather than in the groups against whom the power is exercised. Unlike competition in markets, competition for power wastes material resources and human time and energy (rent-seeking wastes); such competition is never win-win but, rather, win-lose. But also unlike competition in markets, competition for power results in the worst form of inequality – indeed, the only form of inequality that warrants legitimate concern – namely, inequality of power. Those with state power, regardless of how they acquire it, can command those without state power. Those with state power use force to override the choices of those without state power. Those with state power do the choosing; those without state power do the obeying.
Unlike market-enabled differences in monetary incomes and wealth, this species of inequality – inequality of power – is inhumane and destructive, and it results from humans’ most primitive impulses.
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-07-25.
September 25, 2015
Reducing income inequality
Tim Worstall in Forbes:
There’s a fascinating and very long essay over in National Affairs about how we might cut income inequality. And, contrary to what any number of Democratic candidates for office will tell you, the answer isn’t to impose ever more regulation upon the economy. Rather, it’s to strip away some of the regulation that allows certain favoured income groups to make excessive incomes. Excessive here defined as greater than the economic value they add to the lives of the rest of us, something they achieve by carving out economic rents for themselves. I would, myself, go rather further than the writer, Steven Teves, and start using Mancur Olson’s analysis, that this is what democratic (note, democratic, not Democratic) politics always devolves down into, a carving up of the public sphere to favour certain interest groups. But even this milder version gives us more than just hints about what we should be doing:
At the same time, however, we have seen an explosion in regulations that shower benefits on the very top of the income distribution. Economists call these “rents,” which we can define for simplicity’s sake as legal barriers to entry or other market distortions created by the state that create excess profits for market incumbents.
Let us take one very simple example of such rents. The earnings of those who possess taxi medallions in cities where there’s an insufficient number issued. Until very recently one such medallion, allowing one single cab to operate on the streets of NYC 24/7, had a capital value of $1 million. That led to a rent, a pure economic rent, of $40,000 a year to allow one cab river to use that medallion for 12 hours of the day. and, obviously, another $40,000 to allow another to use it for another 12 hours a day.
That is purely a rent: and one created by New York City not issuing enough medallions to cover the demand for cab services. Uber has of course exploded into this market and the success of that company, along with its many competitors, shows how pervasive the creation of such rents by limiting taxi numbers has been in cities around the world. That is an obvious and very clear creation of a rent purely through bureaucratic action.
[…]
Deregulating the economy will remove many of those rents. This will reduce income inequality. So, why aren’t those who rail against income inequality shouting for deregulation? Good question and the only proper answers become increasingly cynical. Unions exist for the purpose of creating rents for their members. So, given the union participation in the Democratic Party we’re not going to see calls for deregulation from that side. And different groups, those car dealers perhaps, the doctors, have their hooks into the Republican Party too.
My own answer is that it needs to be done in the same manner that Reagan treated the tax code. Not that I’m particularly stating that Reagan’s tax changes were quite as wondrous as some now think they were, only that it all had to be approached on a Big Bang basis. Everything had to be on the table at the same time so that while there were indeed those who would defend their little corner the over riding interest of all was that all such little corners got eradicated. With this rent creation, given that so much of it is at State level, that won’t really work. Except for one idea that I’ve floated before.
September 1, 2015
January 3, 2015
Last year, “a Kentucky judge did something no federal judge has done since 1932”
It’s been a very long time since a federal judge in Kentucky anywhere in the United States has struck down a “certificate of necessity” (CON) regulation:
Mighty oaks from little acorns grow, so last year’s most encouraging development in governance might have occurred in February in a U.S. district court in Frankfort, Ky. There, a judge did something no federal judge has done since 1932. By striking down a “certificate of necessity” (CON) regulation, he struck a blow for liberty and against crony capitalism.
Although Raleigh Bruner’s Wildcat Moving company in Lexington is named in celebration of the local religion — University of Kentucky basketball — this did not immunize him from the opposition of companies with which he wished to compete. In 2012, he formed the company, hoping to operate statewide. Kentucky, however, like some other states, requires movers to obtain a CON. Kentucky’s statute says such certificates shall be issued if the applicant is “fit, willing and able properly to perform” moving services — and if he can demonstrate that existing moving services are “inadequate,” and that the proposed service “is or will be required by the present or future public convenience and necessity.”
Applicants must notify their prospective competitors, who can and often do file protests. This frequently requires applicants to hire lawyers for the hearings. There they bear the burden of proving current inadequacies and future necessities. And they usually lose. From 2007 to 2012, 39 Kentucky applications for CONs drew 114 protests — none from the general public, all from moving companies. Only three of the 39 persevered through the hearing gantlet; all three were denied CONs.
Bruner sued, arguing three things: that the CON process violates the Constitution’s equal protection clause because it is a “competitors’ veto” that favors existing companies over prospective rivals; that the statute’s requirements (“inadequate,” “convenience,” “necessity”) are unconstitutionally vague; and that the process violates the 14th Amendment’s protections of Americans’ “privileges or immunities,” including the right to earn a living.
November 9, 2014
Rent-seekers and crony capitalists love big government
One of the reasons I’m a small-government fan is that the less the government tries to do, the less opportunity for rent-seekers and crony capitalists to batten on the inevitable opportunities that big government provides when it controls and regulates far beyond its competence:
A nice little point being made over in the New York Times, that for all of the public rhetoric about free markets and competition it’s not actually true that the Republicans are entirely pro-free market and pro-competition at all levels of governance. There’s an explanation for this too, an explanation that comes from the late economist Mancur Olsen. That explanation being about the level of the system that decides what will happen on a particular matter and thus where the special interests will try to capture governance.
Republicans have hailed Uber, the smartphone-based car service, as a symbol of entrepreneurial innovation that could be strangled by misplaced government regulation. In August, the Republican National Committee urged supporters to sign a petition in support of the company, warning that “government officials are trying to block Uber from providing services simply because it’s cutting into the taxi unions’ profits.”
Josh Barro then goes on to point out that while the national Republican party might be saying such fine words when we get down to the people who actually regulate taxi rides then local Republicans can be just as pro-taxis and anti-Uber as any group of Democrats.
[…] More likely, to me at least, is that Mancur Olsen had it exactly right. His point being that over time democracy will end up being a competition between special interests for control of that democratic apparatus. The basic background insight is spread costs and concentrated benefits. One analogy is the pig and the chicken deciding what to have for breakfast. If they decide upon bacon and eggs then the chicken is interested but the pig is rather committed there. So it is with the regulation of producers and the competition that they might faced. US consumers of sugar might be paying $50 a year each to protect US sugar producers (that number’s not right but it’s not far off, it’s not $5 each nor $500) but rationally, when there’s so much else for us to think about, it’s sensible enough for us to not get very excited nor angry about this. But the sugar producers are making millions a year out of that same system of restrictions and subsidies. They’re very interested indeed in making sure that it continues.
We who take taxis or Uber are quite interested in Uber (and Lyft and all the others) being able to continue in business. But it’s not the end of our lifestyle if the regulatory apparatus is able to stifle them. But for the people who, for example, own taxi medallions in NYC then the replacement of the traditional taxi market by Uber will mean the potential loss of up to $1 million for each medallion. They’re very much more interested in crimping Uber’s style than we consumers are in expanding it.
Olsen went on to point out that the special interests are obviously more interested than we are in the details of regulation. And they’ll concentrate their efforts at whatever level of the regulatory and democratic system it is that affects their direct interests. Contributing to election campaigns, making their views known and so on, wheeling and dealing to promote their interests.
September 9, 2014
QotD: The Iron Law of Redistributionism
[P]olicies intended to “help” the poor are invariably hijacked by a rentier class that fattens on the rising diversion of income. Result: help never arrives, much wealth is destroyed, growth is strangled, and the poor get poorer.
Eric S. Raymond, Google+, 2014-09-06.
May 27, 2014
QotD: What capitalism should do now
Just as democracy can be corrupted by repressive populism, so can capitalism be perverted by “rent-seeking” — when people seek to gain more than the goods and services they produce are worth to others.
Sometimes they use political influence to sustain monopolies or to prevent new entrants and innovators from competing for custom. Sometimes they use governments to provide subsidies from taxpayers, or to prohibit cheaper imports.
Sometimes they do deals with governments that provide taxpayer funds to cushion losses derived from incompetence or recklessness. These forms of crony capitalism detract from capitalism’s real benefits and achievements.
What capitalism should now do is to free itself from these rent-seeking perversions and spread its benefits as widely as possible.
It should act against anti-competitive practices to give people instead the power of free choices between competing goods and services. It should spread ownership of capital and investment as widely as possible through such things as personal pensions and individual savings accounts.
It should lower the barriers to entry so that everyone can aspire to start up a business to bring goods and services to others. It should seek a tax system that rewards success rather than punishing it.
Capitalism should become inclusive, making it as easy and as attractive as possible for as many as possible to set aside some part of present consumption in order to invest some of their resources and their time in providing goods and services that others will want. It should become true capitalism.
Dr. Madsen Pirie, contributing to “Viewpoints: What should capitalism do?”, BBC News, 2014-05-26.
September 11, 2013
What do libraries have to do with rent seeking?
As Logan Albright explains, quite a lot:
Libraries are wonderful places. There is nothing like a vast repository of knowledge, filled with undiscovered treasures for anyone who cares to look. They provide free access to information, both in book form and over the internet, to people would otherwise not be able to afford it. All in all, it’s a lovely service. But as much as I enjoy them, libraries also provide a useful example of the inefficiencies of the public sector and the numerous problems with government funded programs.
You may not realize it, but most librarian jobs these days require a specialized education – a master’s degree in the field of Library Science. The curriculum of such a degree varies from school to school, but the main focus is on using a variety of complex databases, as well as interacting with the public. Why is such a specialized form of education required to work in a library? It’s not like a degree in aeronautics or medicine where actual lives could depend on your competence. A quick search for the job duties of a reference librarian turns up the following: “A reference librarian provides assistance to users of a library who need help locating resources and information.” The average salary for a reference librarian? $39,659 – $55,008. Other library science related jobs can make as much as $100,000 a year.
Of course, it’s not as simple as all that. Locating information in a library database is not like searching Google. It requires specialized skills. You can’t simply type in what you want and expect to get it. The obvious question here is: why not?
The simple answer is that the public funding structure of libraries provides no incentive to improve things. In fact, it encourages just the opposite. Since the library’s budget does not depend on how many customers it pleases, there is no compelling reason to make things easier. Since a library’s revenues come from the public coffers and not from the pockets of voluntary patrons, there is no competitive pressure to keep costs low.
September 26, 2012
Shakespeare’s Henry V: public choice theory in the 15th century
In The Freeman, Sarah Skwire points out that the opening act of Shakespeare’s Henry V — while boring to those hoping for battle and carnage — explains the public choice economic theory of rent-seeking:
Shakespeare’s Henry V — a favorite of theater companies and movie studios — begins with an invocation of the muse of fire, presumably because only her powerful heat and light can provide the inspiration necessary for Shakespeare’s great task of bringing forth so “great an object” on “this unworthy scaffold.” The prologue promises, after all, that we are about to see the armies of two great monarchies clash at the famous battle of Agincourt. A plea for divine aid seems only reasonable.
After all that buildup, however, the opening scene of the play has to be one of the dullest stretches in all of Shakespeare’s writing. Promised a ferocious battle with knights and horses and blood and thunder, we are given instead more than one hundred straight lines of a highly technical legal discussion between the Bishop of Canterbury and the Bishop of Ely. It is historically accurate. It is important. And it is exceptionally tedious.
It is tedious, that is, unless you are familiar with one basic piece of Public Choice theory.
Gain without Mutual Benefit
One its core concepts is the idea of rent-seeking. Unlike profit-seeking, which aims at mutually beneficial trade, rent-seeking is the attempt to use the political process to capture a bigger slice of wealth for oneself. Unlike trade, there is no mutual benefit. No wealth is created. The only profit is to the rent-seeker, and possibly his cronies. With that in mind, the opening scene of Henry V is gripping. It is no longer more than one hundred lines of fifteenth-century legal trivia. It is more than one hundred lines of some of the most explicit, uncensored, behind-the-scenes rent-seeking action in literary history.
August 11, 2012
The Broadcasting Treaty zombie rises from the grave
Cory Doctorow explains why we still need to fight against WIPO’s latest attempt to gain even more legal rights over content:
The UN’s World Intellectual Property Organization’s Broadcasting Treaty is back. This is the treaty that EFF and its colleagues killed five years ago, but Big Content won’t let it die. Under the treaty, broadcasters would have rights over the material they transmitted, separate from copyright, meaning that if you recorded something from TV, the Internet, cable or satellite, you’d need to get permission from the creator and the broadcaster to re-use it. And unlike copyright, the “broadcast right” doesn’t expire, so even video that is in the public domain can’t be used without permission from the broadcaster who contributed the immense creativity inherent in, you know, pressing the “play” button. Likewise, broadcast rights will have different fair use/fair dealing rules from copyright — nations get to choose whether their broadcast rights will have any fair dealing at all. That means that even if you want to reuse video is a way that’s protected by fair use (such as parody, quotation, commentary or education), the broadcast right version of fair use might prohibit it.
Worst of all: There’s no evidence that this is needed. No serious scholarship of any kind has established that creating another layer of property-like rights will add one cent to any country’s GDP. Indeed, given that this would make sites like Vimeo and YouTube legally impossible, it would certainly subtract a great deal from nations’ GDP — as well as stifling untold amounts of speech and creativity, by turning broadcasters into rent-seeking gatekeepers who get to charge tax on videos they didn’t create and whose copyright they don’t hold.
