One of the most important books in the libertarian world (and in the world of economics) is The Calculus of Consent by James M. Buchanan and Gordon Tullock. The book is the fountainhead of “public choice theory,” which explains lobbying and other acts in a redistributive state. It’s not always easy reading, but it’s rewarding nevertheless.
Buchanan and Tullock explain that whenever government has the power to redistribute benefits and burdens between constituents, those constituents will devote time and energy to gaining control over government. Interest groups will send their lobbyists in an attempt to control the state’s apparatus to secure benefits for themselves or to impose burdens on their enemies. Thus “interest-group activity…is a direct function of the ‘profits’ expected from the political process by functional groups….” The “profitability of investment” in lobbying behavior “is a direct function of the size of the total public sector and an inverse function of the ‘generality’ of the government budget… The organized pressure group thus arises because differential advantages are expected to be secured through the political process….”
There are at least three problems with this “public choice effect”—of groups working hard to persuade government to exercise its power to benefit the winning group at the expense of competing groups. First, it is immoral for citizens to have their property taken from them and given to others based not on their merit or on any other valid public reason, but simply because they are less successful at political activism. As Cass Sunstein (of all people!) has put it, the framers of the Constitution believed it was unjust for “government power [to] be usurped solely to distribute wealth or opportunities to one group or person at the expense of another.” Instead, they believed that “government action [should] result[ ] from a legitimate effort to promote the public good rather than from a factional takeover…. Under that conception, the task of legislators is not to respond to private pressure but instead to select values through deliberation and debate.” Cass R. Sunstein, Naked Preferences and the Constitution, 84 Colum. L. Rev. 1689, 1690-91 (1984).
Second, rent-seeking is economically inefficient, because it encourages groups to invest their resources and energy into non-productive activity such as lobbying rather than into wealth-creating activity or innovation. Businesses spend time and money hiring lobbyists and attorneys to persuade government to do things for their benefit, rather than finding new and more economical ways to meet consumer demands. “[B]argaining opportunities afforded in the political process cause the individual to invest more resources in decision making, and, in this way, cause the attainment of ‘solution’ to be much more costly,” say the authors.
Third, rent-seeking tends to have a ratchet effect. Since the benefits conferred by government will be localized and concentrated, while the costs are broadly dispersed, the incentives will be skewed toward increased lobbying and ever-increasing amounts of wealth distribution. Suppose government takes one dollar from each of 100 people, and gives it all to person X. It is in X’s interest to spend at most $100 to convince the government to do this again; but it is only in the interest of each other person to spend $1 to convince it not to. The incentives for lobbying are therefore very much skewed in favor of more and more redistribution of wealth, leading to the illusion that such redistribution is “what the voters want.” It isn’t. It’s just all that the voters can afford.
Buchanan and Tullock argue that there are two primary ways to limit rent-seeking behavior: either to prohibit government entirely from distributing any economic rents to interest groups, or to require it to distribute such advantages equally:
[W]e may imagine a government that undertakes only those activities which provide general benefits to all individuals and groups and which are financed from general tax revenues. Under these conditions there would be relatively little incentive for particular groups of individuals to organize themselves into associations designed specifically to secure special advantages through government action.
In other words, when government can confer concentrated benefits on a particular class, that class has a greater incentive to lobby the government to give it that benefit. So, where the benefit is legally required to be given to everyone equally this incentive for lobbying will be much less, because the effect of a distribution will be the same for all groups, and one won’t gain any advantage over the other.
If all collective action should be of such a nature that the benefits and costs could be spread equally over the whole population of the community, no problem of the interest group, and indeed few of the problems of government would arise. If each individual, in his capacity as choice-maker for the whole group, could, in his calculus, balance off a pro-rata share of the total benefits against a pro-rata share of the total costs, we could expect almost any collective decision-making rule to produce reasonably acceptable results...[and] groups would have little incentive...to utilize the political process to secure advantages over their fellows.... One means of...[approximating] truly “general” legislation would be to require that those individuals and groups securing differential benefits also bear the differential costs.
Anthony de Jasay, in his book Justice And Its Surroundings, makes a strong, if cynical, argument that such equality is just impossible in any government. But it sure would be nice to try.
Often—in fact, always—we hear the argument that “special interests” are controlling the government and that we must rein them in. What Buchanan and Tullock explain is that we are all “special interests.” We also frequently hear the argument that because “big business” is getting its way too much in the world today, we need more government, as a great way to protect the “little guy.” What Buchanan and Tullock show is that the right answer is just the opposite. The bigger the government, the more it becomes a competition between lobbyists. And that is the sort of competition no little guy can ever win. The proper solution to problems of corporate abuse—such as eminent domain abuse—is less government, not more. More government just gives the abusers a bigger stick.
The Calculus of Consent is a modern classic of economic theory. Every law student especially should read it. But it explains so much of modern political life, that everybody ought to pick up a copy.
Previous entries in the Libertarian Bookworm are here.
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