Thursday, June 12, 2014

The Ivory Cubicle | The Trouble with Special Interests

It’s an ill-kept secret that national politics runs on the most weaselly, slimy, scuzzy, greedy, and unscrupulous leeches on the underbelly of the American government that you could possibly imagine. I refer here, of course, to special interest groups, in all their wining, dining, schmoozing, underhanded glory.

Of course, there’s nothing intrinsically evil about special interest groups. A special interest group, ideally, is a collection of citizens who have a particular interest and wish to make their voices heard. At their best, special interest groups are a means by which politicians interface with their constituents, and serve to counterbalance each other to help lawmakers make the best possible decision.

A Matter of Faction

James Madison described this process of balancing competing interests against each other as a way of ensuring that political factions were restrained. “Ambition must be made to counteract ambition,” he wrote in Federalist Paper 51. “This policy of supplying, by opposite and rival interests, the defect of better motives, might be traced through the whole system of human affairs, private as well as public.” Good decision-making, Madison notes, whether public or private, always comes through a process of arbitration between rival interests.

Madison’s argument, however, required a basic controlling principle – virtue. Virtuous statesmanship was critical, for statesmen must be above corruption if they are to see through competing special interest and render an impartial and just decision. As Madison wrote to the Virginia Ratifying Convention, “to suppose that any form of government will secure liberty or happiness without any virtue in the people, is a chimerical idea.” This precarious scheme for government, as the founders noted time and time again, required a virtuous populace selecting virtuous leaders. Take that away, and the edifice falls like so many jenga blocks.

In its absence, special interest and politicians are governed by the most basic principle of economics – people act in accordance with their self-interest. When that principle is extrapolated and applied to special interest politics, we find a recurring theme of concentrated benefits and distributed costs.

What exactly does that mean? Well, let’s take a look at it through the lens of a basic wealth redistribution scheme. Suppose that there’s a powerful lobbyist who is actively seeking a government subsidy for his project, and he wants the government to cut him a check for $300 million. So he goes and spends millions of dollars lobbying, financing political campaigns, and generally making sure that politicians are on his side. At the end of the day, the money talks, and the politicians award him the check, taken from federal taxpayer dollars.

The American people might be unhappy with the new policy, but when you take $300 million dollars and spread the cost across over 300 million citizens, the cost ends up at less than $1 per citizen. So the American people, being themselves self-interested, roll their eyes and declare “it’s not worth it” to any effort to shut down such underhanded dealing. The politician makes a decent amount of money from the lobbyist, the lobbyist gets $300 million in concentrated benefits from his activities, while the distributed costs are spread over a large enough number of people that nobody really cares.

Over time, these kind of operations start to add up, resulting in a slow, behemoth federal budget, with tons of subsidies and superfluous programs clogging up taxpayer dollars for the benefit of the select few.

Though this sort of activity does happen in national politics (economists call it “rent-seeking”) a lot of special interests lobbying is less clear-cut. Many regulations, ostensibly passed under the guise of safety, serve to erect entry barriers that new competitors must surmount before they can enter the market (the result is occasionally ridiculous – it is illegal to cut hair without extensive licensing in many regions of the country). The same effect is achieved: a lobbying organization is able to secure significant profits by using regulations to prevent competition from entering the market.

Lest you think this this sort of lobbying can be prohibited by law, think again. Strict laws already exist preventing gift-giving to elected officials, but there’s nothing to stop a high dollar lobbyist from saying something along the lines of, “Why hello, Senator, I just got this brand-new Maserati the other week and found it wasn’t to my liking, I’ll just go ahead and toss the keys to your son.” Human nature, if determined enough (that is, if there’s enough money involved), has a tremendous capacity for exploiting loopholes.

So what then is the solution? Well, on one level, the founders had a point – virtue in government does tend to solve a lot of problem. But there’s no guarantee that virtuous statesmen will remain in power, in fact, it’s almost guaranteed that someone unscrupulous will attain power at some point. The solution lies in erecting certain constraints on acceptable spheres of government activity, and downsizing it significantly. The solution involves allowing citizens to exercise self-government and responsibility, so that nobody can bring the coercive arm of the state to bear when attempting to secure their own interests.

Posted by Nick Barden.
Picture: The Lobby of the House of Commons by Liborio Prosperi (1886).

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