Public Choice and Rent Seeking

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One Benefit of Nancy MacLean's

Democracy In Chains - Public

Choice And Rent Seeking

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Aug 6, 2017, 08:46am EDT

Tim Worstall Former Contributor

This article is more than 3 years old.

The classically liberal wing of the economics profession has been rather

blindsided by Nancy MacLean's recent book, Democracy in Chains. Quite

how anyone could come to believe that the observation that politicians have

economic motives--which is what public choice theory really says, that they

have the same regard to economic self-interest as the rest of us--means that

in fact you're a racist opposed to the desegregation of schools is difficult to

work out. Still, rather than get into the argument of what the book is really

trying to say I'd just note that what is happening in reaction is that the study

of public choice and of rent seeking is being discussed more avidly than it

has been for a long time.

An example of this is Don Boudreaux talking about his former colleague,

Gordon Tullock:

Economists have long understood that people with special privileges – say, producers protected from foreign competition by tariffs – act in ways that generate outcomes that are less valuable than are the outcomes that would be generated in the absence of such privileges. But in 1967 Gordon said,

The seeking of the rents being a much greater drain on the economy than

the number that actually get captured. This is Babe Ruth's point all over

again. It's not the illicit legover that damages the sportsman's performance,

it's the chasing around half the night trying to find someone to legover with

which does.

What amuses me at this point is that we can in fact combine the two ideas,

the rent seeking and the public choice idea, and when we do we get a rather

good explanation of how politics works. Rent seeking is the attempt to gain a

legal privilege that then makes you money. Public choice is just saying that

politicians--and bureaucrats--have economic self-interest. Quite obviously

it's therefore possible for the two to combine and the seekers to pay the

politicians for the privilege.

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But of course our own politicians and bureaucrats would never do that, the

actual taking of bribes is un-American and besides, the FBI's rather too good

at detecting it. However, it's worth adding a bit of another bit of economics

here, game theory. If it is of benefit to politicians to be lobbied--which it is,

this is how election campaigns are paid for, from the donations lobbied for--

and it is also of value to rent seekers that privileges be granted, then we

in effect, ‘The costs of those long-understood inef�ciencies, while real and regrettable, are small in comparison with the wastes of resources used when people strive to get such privileges – that is, to seek rents.’ If, say, U.S. tire producers expect that their pro�ts will rise by $200 million if Uncle Sam slaps a punitive tax on Americans who buy non- American-made tires, these tire producers won’t sit around twiddling their steel belts hoping that Uncle Sam will impose such a tariff. These tire producers will actively seek such a tariff; they’ll lobby for it.

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should see a constant expansion of the regulatory state as politicians can

then farm ever more of the economy for those donations. Further, do not

forget that positive privilege in my favour is not the only way this can work.

It's also possible for my competitors to be subject to negative privilege--or,

as we might call it, greater regulatory oversight. This would expand that

regulatory state again.

All of which is actually a rather good explanation of what is going on with

the large tech companies these days. A decade back Google and Microsoft

spent near nothing on lobbying DC. No one there really understood them

and they weren't worried about the politicians. This isn't the case today of

course, everyone and their grandmother is calling for more regulation. At

which point the companies themselves have to lobby in order to discredit

the more ludicrous ideas. From the point of view of the political caste this is

all just great, isn't it? More resources flowing, through lobbying, into the

political ecosystem.

Or as we might put it, that combination of rent seeking and public choice

economics leads to threats of the expansion of the regulatory state in order

to attract the lobbying revenues against said expansion. A complete waste of

the time and money of course.

Tim Worstall

I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and

that and strangely, one of the global experts on the metal scandium, one of the…

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