Lynne Kiesling
Because that’s what it looks like to me. And to Jim Lucier of Prudential Securities, who took the words right out of my mouth on Tuesday’s Kudlow & Company. In all of the commentary and analysis that I have read, very few people believe that this bill will do anything constructive to remove obstacles to competitive electricity markets, reduce our overall energy consumption, or provide valuable direction to energy technology research. Its most noticeable provision amounts to little more than a farm subsidy under a different name. From a recent Reuters article:
To stretch America’s gasoline supplies, the leaders of a joint Senate-House conference committee racing to finish a U.S. energy bill agreed on Monday to almost double production of the motor fuel additive ethanol to 7.5 billion gallons a year by 2012. …
The ethanol compromise is larger than the 5 billion gallons approved by the U.S. House of Representatives, but smaller than the 8 billion gallons called for by the Senate.
Ethanol, derived mostly from corn, is a popular political cause in farm country, where it is regarded as a homegrown answer to oil imports and a boon to farm income.
Ethanol lobbying has paid off, as has energy industry lobbying:
Oil and utility companies such as Exxon Mobil Corp. and Southern Co. spent $367 million over the last two years pushing the U.S. Congress to pass energy legislation. For many, the money was a good investment: lawmakers are poised to pass a measure providing about $11.6 billion in taxpayer subsidies. [NOTE: if you read the whole article, I think the author misunderstands the effects of PUHCA repeal, for what it’s worth.]
Increasingly, we have become resigned to the fact that legislation like this is nothing more than thinly-disguised excuses for subsidies to well-organized parties that are good at lobbying. One comment I’ve heard from folks who are knowledgeable about energy and favor competition and markets is that the most important thing about this bill is getting is passed and over with so we can get on with life. That’s hardly a ringing endorsement!
Why have we allowed ourselves to become so blas? about rent seeking? Even in as large, prosperous, and complex an economy as ours, an expenditure of $376 million on lobbying is a huge waste. And that doesn’t count the lobbying expenditure of ethanol and environmental interests. Pretty much flat-out deadweight loss, with very little creation of new value. Where’s the outrage? Are we so beaten down by the sclerotic bureaucracy of politics that we just chalk it up as essentially another tax, and then get on with our lives?
That difference between the active engagement of concentrated interests who will benefit from legislation and diffuse interests who will pay the price is at the core of Mancur Olson’s analysis of rent seeking. The Rise and Decline of Nations applies his arguments from The Logic of Collective Action to analyzing growth and decline in stable societies (i.e., not being ravaged by war or political unrest). He argues that in stable societies, decline occurs because groups organize to try to capture increasing shares of economic surplus. Sadly, this race to capture requires the expenditure of resources, which is what wasteful rent seeking is.
Note also that the appearance of decline is likely to be slow and incremental, particularly if the society is dynamic and productive in other ways. So we have to compare the drag on the economy that rent seeking produces in our stable society relative to the total surplus that we would create if we were not saddled with the wasteful expenditure of rent seeking. Since we have to compare the very-real results we experience in the presence of rent seeking with hypothetical results we don’t experience, we have a problem of “the seen and the unseen” from Bastiat. We don’t see the true benchmark against which to compare our actual state, so we don’t evaluate it properly.
Also of note: if you look at the the Google news search for recent articles on the energy bill, note how varied the headlines are. There are so many different regional dimensions to this bill, it’s amazing. Something for everyone to love and hate, although for my part I see very little of substance to love. I guess that’s how logrolling, vote trading, and pork barrel politics works. That complex set of incentives is how organized groups take advantage of our indifference.