The More Government Grows, The More Rent-Seeking Becomes Necessary

June 10th, 2012

Or, as the Times’s Economix blog puts it, “Active Government Means More Lobbying.” Public choice 101.

Government has undertaken a whole new range of activities in the last several years, from running a major automobile manufacturer to buying stock in banks to providing health insurance for able-bodied middle-aged adults. Other areas of government involvement, like education, military spending, Medicare and Medicaid have become increasingly costly over the last decade.

Some people think government activities in these areas are long overdue. Others say government expansion was unnecessary. Either way, both sides can agree that businesses, institutions and families have more at stake in their government.

It’s only natural, then, that businesses, institutions and families would spend more resources trying to influence public-sector decisions. Just as in many other types of behavior, political behavior is affected by costs and benefits. And the costs and benefits of influencing the government have continued to grow.

For better or for worse, an active government begets lobbying activity.

The only way to reduce the amount of lobbying and fundraising for campaigns is not through idiotic campaign finance laws, but to decrease the incentive to invest. And the only way to decrease the incentive to rent-seek is to decrease what rents can be sought–that is, if government does less, there will be less of a demand for rent-seeking, and less money flows to Washington. However, it usually works in reverse. Politicians want more money, so they offer rents, and do stuff on behalf of powerful groups. No campaign finance laws can change the most basic principles of public-choice theory.

I think this is, in fact the lesson of Federalist 10. See here and here.