Gridlock Reduces Rent-Seeking in Washington, Increases it in State Governments

May 11th, 2015

The Washington Post reports that due to the gridlock, Washington can accomplish less, and lobbying has shifted to the states.

Lobbyists aren’t having much luck on a gridlocked Capitol Hill — so more and more, they’re opening their wallets in state capitols around the country. Not keeping pace with the surge, say watchdog groups: the disclosure laws that are supposed to keep the influence industry in check.

Battles in legislatures between rival energy companies; powerful medical interests like doctors, hospitals and insurers; and even environmentalists and plastic bag manufacturers have fueled huge growth in lobbying spending at the state level, even as spending has plateaued — and even waned — at the federal level.

A Washington Post review of lobbying spending in states shows professional advocates reported spending at least $2.2 billion on activity aimed at influencing state legislators in 28 states where data was available during the 2013-2014 biennium — with virtually every state seeing dramatic growth over the last decade.

At the same time, total spending on federal lobbying activities has fallen. After hitting a peak in 2010, when advocacy groups reported spending $3.52 billion on lobbying, that number dropped to $3.24 billion in 2014, according to data maintained by the Center for Responsive Politics.

My reaction? Good! I would much rather have lobbyists try to seek rents in all 50 state capitals. The transaction costs are much higher, and it will be harder to impose systematic, blanket rules across the country.

“When nothing’s happening in Washington, D.C., it’s happening in the states,” said Frank McNulty, a former Republican speaker of the Colorado House of Representatives who retired from office earlier this year. “You tend to see all these public policy issues work their way down to the state level because, whether it’s an environmental organization or a Fortune 500 company, they’re still going to try to move their agenda.”

Last year the Times reported that the Republican Governors Association explained,”With Congress producing so little legislation, governors’ offices have become attractive targets.” Isn’t this federalism unleashed. 50 states serving as the laboratories of democracy? Why is this a bad thing. The article cites a lack of disclosure laws but seems to miss the broader picture that gridlock is hobbling the power of D.C.

The theme of our government from 2009-2016 has been Gridlock. (That is likely to be the title of a soon-to-be announced book project). One of the major benefits of gridlock is that the federal government spends less money. When Congress can spend less money, interest groups have less of an incentive to lobby politicians in Washington. In essence, gridlock reduces rent-seeking. More generally, the less government can do, the less incentives there are for rent-seeking. Short of enforcing the separation of powers, gridlock actually works to shrink the power of the federal government. (Taking the opposite position is Rick Hasen, who argues that limited government would not do away with these problems).

Doesn’t this bring us back to the 17th Amendment, which required the direct election of Senators. David Schleicher has argued that one of the advantages of the 17th Amendment is that state governments are no longer subject to intense lobbying, making them less susceptible  to corruption. But the flipside to that is that all of the lobbying takes place in D.C., which results in much more wealth being distributed by the national government.

I address this balance “The Burden of Judging” in the NYU Journal of Law & Liberty.

When the federal government assumes various aspects of the police power once reserved for the states—thereby diminishing our vertical federalism—rent seeking becomes much easier. It takes much less time, effort, and money to lobby and petition a single government in Washington that can easily impose nationwide rules, than to lobby in 50 state capitols to achieve rules that can have an impact within one state’s borders. In this way federalism increases the cost of rent-seeking. It makes capture more difficult, and diminishes the impact of special interest legislation.[1] Federalism also permits states to engage as laboratories of democracy, to experiment in different forms of government.[2]

[1] Professor Todd Zywicki has made similar arguments about the 17th Amendment. By taking the state legislatures out of the public choice equation, special interests will find it more worthwhile to petition Senators in Washington who can impose one-size-fits-all rules nationwide. See Todd Zywicki, Repeal the Seventeenth Amendment, National Review Online (Nov. 15, 2010), In contrast, Professor David Schleicher argues that the 17th Amendment improved public choice politics, as it removed the state legislatures from the corrupting influences of rent seeking.