On Rent-Seeking and Lobbyists

December 3rd, 2011

I often argue that rent-seeking is rational. Lobbyists are simply acting rationally by seeking rents that government can offer. I have argued elsewhere that the key to minimizing this problem is not to place limitations on lobbyists, but to decrease the rents. I have even grounded this in Madison’s philosophy in Federalist No. 10.

Rick Hasen blogs about his new article, Lobbying, Rent Seeking, and the Constitution, seeking to answer whether lobbyists are the problem?

USA Today says yes and Brad Smith says no.  In my forthcoming article in the Stanford Law Review, “Lobbying, Rent Seeking, and the Constitution, I argue that we should not demonize lobbyists as inherently corrupt.  Instead, we should recognize the skew to our economic system caused by lobbyists.  I also take on the claim, made by Smith in his oped, that the solution to the problem of lobbyist-facilitated rent-seeking is to shrink the size of government.  My claim is that even shrinking the size of government significantly would not do away with the problem.

Rick’s thesis seems to be in conflit with mine.

Here is the abstract:


Politicians across the political spectrum, from Barack Obama to Sarah Palin and Rand Paul, routinely castigate lobbyists for engaging in supposedly corrupt activities or having unequal access to elected officials. Since attaining office President Obama has imposed unprecedented new lobbying regulations, and he is not alone: both Congress and state and local legislative bodies have done so in recent years. At the same time, federal courts, relying upon the Supreme Court’s new campaign finance decision in Citizens United v. FEC, have begun striking down lobbying regulations, including important regulations limiting campaign finance activities of lobbyists and imposing a waiting period before legislators or legislative staffers may work as lobbyists. Two courts have held such laws could not be sustained on anticorruption grounds, and they are unlikely to be sustained on political equality grounds either.

This Article advances an alternative rationale which could support some, though not all, of the recent wave of new lobbying regulations: the state’s interest in preventing the socially inefficient activity of rent-seeking. Less technically, the government’s interest is in promoting national economic welfare. Rent-seeking occurs when resources are dedicated to capturing a government benefit, rather than being put to a productive use, and lobbyists are often the key actors securing such benefits. The rent-seeking analysis focuses attention on the systemic societal costs of lobbying, rather than engaging in unjustified vilification of the vast majority of lobbyists.

Part I of this Article provides an overview of the current state of lobbying regulation and lobbying jurisprudence. Part II proposes a new anti-rent-seeking rationale for lobbying regulation. It begins by describing the political science literature on how lobbying works, as well as current statistics on the extent of lobbying on the federal level and the costs of lobbyist-driven rent-seeking on the national economy. Some of the new and proposed lobbying regulations, such as anti-bundling provisions and anti-revolving door provisions, could decrease the total amount of interest group rent-seeking. The state’s anti-rent-seeking interest must be balanced against the First Amendment costs of lobbying regulation in infringing on the right to speak and petition the government. I defend the reduction of rent-seeking as an important (even potentially compelling) state interest that justifies at least some new lobbying regulations against constitutional challenge.

Part III turns to objections and extensions of the argument. I respond to objections on both ends and means. On ends, I consider the circumstances in which the promotion of national economic efficiency can trump First Amendment rights. On means, I consider whether there is sufficient proof that lobbying regulations are sufficiently tailored to a reduction in rent-seeking and whether, because the “hydraulic” nature of money in politics, attempts to regulate lobbying so as to decrease rent-seeking will be easy to evade. Under extensions, I consider whether the anti-rent seeking rationale could be used to justify the reenactment, as suggested by Justice Stevens, of the ban on the spending of corporate treasury funds in candidate elections, as well as the recent SEC “pay-to-play” rule for investment advisers.

From the paper:

Many conservatives agree that rent seeking is a major problem facing the United States today, and it is at least partially responsible for the tremendous size of the federal government. However, these conservatives are skeptical that any attempt to regulate political activity would be effective in curbing rent seeking. Instead, the only solution they see is to shrink the size of government. Thus, McChesney remarks that “[t]he one unambiguous solution for reducing rent extraction is reducing the size of the state itself and its power to threaten, expropriate, and transfer.”288 Senator Paul is even more emphatic: “While it is important to cut down on the demand for lobbyists, the supply side is even more important. Washington, D.C. has a supply of money and power that it can dole out to the highest bidder. As long as this golden goose exists, people will find ways to take advantage of it. The problem is not the abuse of power, but rather the power to abuse. [¶]The only answer to that problem is for Congress to reduce severely the size and scope of the federal government, so that the market is allowed to operate according to the free forces of a laissez-faire economy.”289

The solution to shrink the size of government seems a quixotic one. In the first place, the very forces that make lobbying so powerful make it exceedingly difficult to enact major spending cuts. Even more importantly, even if the United States budget were cut in half, the annual federal budget would still be almost $2 trillion.290 There is plenty of room for rent seeking in such an enormous budget.

I’ll give this some more thought.