Mike Munger: Rent Seek and You Shall Find

Lynne Kiesling

Mike Munger’s new essay on rent seeking is superb. Mike is a fluid and persuasive writer, so he does a great job of explaining some of the hardest-to-understand aspects of rent seeking. In particular, the competition for politically-distributed resources means that people will use up resources to get the political goods. That competition usually means that more resources are expended in the chase than are actually available for the winning. That’s how rent seeking destroys resources.

In particular I like this passage:

But in our political system, we have an industry dominated by two firms, Republicans and Democrats. Together they have a 99 percent market share. They have undertaken actions at the state and national levels to make it practically impossible for any other party to enter. This system forecloses good competition, the kind that raises new ideas or asks embarrassing questions. We have been fooled into thinking the system is competitive, because we constantly see vigorous rent-seeking competition for access to the public purse. This bad competition is an expensive gladiatorial combat, where Congress keeps a lot of the ticket receipts. Some of the rest of the spending is simply wasted building those expensive office suites on K Street and using the time of those lobbyists who could be doing something more productive.

Markets, on the other hand, encourage raising new ideas and allow for embarrassing questions to be asked, and if not answered to the satisfaction of, say, shareholders, market values reflect that fact.

I also recommend the podcast with Mike at the bottom of the essay.

3 thoughts on “Mike Munger: Rent Seek and You Shall Find

  1. Running a cash register looks a bit like rent-seeking; moving the goods to high-value users is wealth-creating, but actually collecting the money from them is not. Of course, getting preferences revealed requires that the money be paid (or at least that the buyer believe the money will be paid when he decides to buy). A lot of rent-seeking and a lot of information-discovery seem to be hard to tell apart, and in fact seem to come together; I’m not sure which is dominant in advertising, but I strongly suspect both are present. (Both in political advertising and commercial advertising.) I wish I had a clever way of discriminating between the two.

    (Another example that occurs to me many mornings is exiting the trains. It’s efficient to get the people who want to walk faster to the exits first, but a limited number of people can exit quickly; how much of jostling to get out first efficiently sorts the faster walkers from the slower ones, and how much of it is simply effort expended for some people to get out quickly instead of different people?)

  2. While it is easy to think of grant-making procedures that reduce the amount of black-hole rent seeking (random draws from the applicant pool), it is hard to think of reforms to grant-making procedures that allocate based upon the quality of the grant request that doesn’t also encourage spending on quality of the grant requests (i.e. pouring money into the black hole).

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