Other Interesting New Bits

I am still feeling molto dolorosa, so have not much to say that sparkles with any wit or originality, but want to point out some good content on rent-seeking, a pet topic of mine for many, many reasons (hey, when you work on a regulated industry, rent seeking is a familiar bedfellow).

Sunday’s Carnival of the Capitalists includes a link to a post by Robert Prather on rent seeking by the states. He provides a useful definition:

Rent-seeking comes in several forms, as spelled out below, but is generally defined as a private entity seeking favorable treatment from the government. Corporate welfare is a good example; ADM is practically the poster child for rent-seeking at the federal level. Other examples can include requiring a doctor’s prescription to get a blood test at a clinic already licensed by the state, requiring licensing as a mortician to sell burial caskets — that used to be the law in Tennessee — or even requiring state accreditation to practice as a CPA. Generally, rent-seeking doesn’t include legitimate barriers to protect public health, such as requiring a prescription for certain drugs or the licensing of doctors.

This practice is as old as human society itself, as far as I can tell. The medieval guild is a poster child for ruler/government revenue extraction through the sale of monopolies, and modern trade licensing practices followed under the guise of maintaining quality of service are not very far removed from the local shoemaker’s guild trying to exclude imported shoes.

And huzzah to Robert for calling it truthfully: Archer Daniels Midland is the poster child for rent seeking at the federal level. In fact, when PBS has an ad saying “this program supported by ADM, supermarket to the world,” I’ve been known to yell one of the following things, depending on what ADM happens to be up to at the time:

“ADM, corn syrup fascists to the world!”
“ADM, price fixers to the world!”
“ADM, ethanol rent seekers to the world!”

I wonder if PBS will ever adopt the appropriate shame for the ADM sponsorship they enjoy.

Steve Verdon also has a good rent-seeking post (something in the water?), including a link to this article by Gordon Tullock on the origins of the rent seeking research and how long it took to persuade the neoclassical mainstream that this was an important phenomenon for us to understand.

The problem worsens sharply once government replaces private individuals in the charitable process. There is no obvious reason why governments driven by a vote motive should stop at the point where the utility of the rich is maximized. Much more likely is the outcome where the median voters coercively transfer, at no cost to themselves, a large part of the wealth of the rich to the poor, or where special interest groups access the political process to transfer the wealth of consumers to their own members.

Note how well this observation dovetails with the overarching conclusion of much of Mancur Olson’s work:

Two books by Olson, The Logic of Collective Action and The Rise and Decline of Nations, are considered seminal works in economics and political science. The former book showed that in most cases there is a divergence between what individuals want and what they are able to achieve as a group, while the latter book showed how the operation of interest groups can impede economic progress.

And, as I put it in this post from last Thursday on the energy bill negotiations in the Senate, if a collective decision has concentrated benefits and diffuse costs (or concentrated costs and diffuse benefits), then the concentrated interests have incentives to lobby to achieve outcomes beneficial to them, at large but widespread cost to those harmed. If the total benefits they receive from the lobbying and protection is smaller than the costs imposed on the disparate victims, then the policy is welfare-destroying but will occur anyway.

Sugar, anyone? Ethanol? Steel? Endangered species? Maintaining the status quo electricity regulation? All are examples of rent seeking.