You misuser, you

In my recent post on the WSJ’s review of Mokyr’s book about the industrial revolution, I said that I’d never come across the definition of ‘rent-seeking’ as “the use of political power to redistribute … wealth”. Of course, right now I’m seeing that definition everywhere. Josef Joffe, in his review of (the late) Tony Judt’s Ill Fares the Land, says:

… the more the state distributes and regulates, the more it tempts its citizens to outflank the market and manipulate public power for private gain.

And there it is again, more or less. Government: a force for bad.

Let’s consider some minimal state which is constituted only of its own citizens (as citizens) and which has authority to enforce only that which has been agreed on by citizens. Now let’s consider two statements:

(1) The citizens have grouped together to enact legislation to achieve what each of them considers to be a mutually advantageous settlement.

(2) The citizens have ‘outflanked the market and manipulated public power for private gain’.

You don’t have to widen the scopes of the constituent terms much to get to a point where these two statements are as good as indistinguishable. That is, to say one is to say the other. (I’d argue (1) is more precise, but not to the extent that it matters.)

Joffe says that the consequence of ‘outflanking’ is that even a good-intentioned government will go wrong. He adds:

The founding fathers grasped this hard truth, and hence they hemmed in government. Even the most moderate of social democrats tend to ignore this insight, and so does Tony Judt.

The problem is that beyond the platitude that power corrupts, no insight is available. Instead, Joffe’s rhetoric suggests, implicitly, that there might be some perfect end state where ‘the playing field is level’ and government … well, we’ll just not need to worry about that particular runaway monster any more. We’ll have ‘reined it in’ once and for all; it can no longer “weaken society” or “render … trust moot”. This is a hope, not an insight. And unless you are a bit more precise about what you mean by your terms – and Joffe isn’t – you’ll find that your call for an end to ‘manipulation of public power for private gain’ is a call for an end to government. Most people recognise, I think, that the inequality of power entailed by government (by definition, the government is always more powerful than any of its citizens, however grouped) is both motivated and justified by the existence of naturally arising inequalities. The spread of these is broad enough to include cases I think even Joffe would have to acknowledge, if pushed. Government is our response; the beast from the depths is the fact that circumstance and personal attributes vary, and hence some are already disadvantaged. There are and will be special interests from here on out. To acknowledge such an interest is not to automatically produce a state-corrupting ‘client’: good government is possible.

Update: It’s OK, everyone, I think I’ve discovered the source of the trouble:

The [author’s] extended methodological digression on the function of orthodox economic theory in application to the private economy is designed to provide some assistance in discussing the analogous role of theory as extended to the public economy, to the demand for and the supply of public as opposed to private goods. At base, the economist must begin from the same set of conditional hypotheses. He deals with the same individuals as decision-making units in both public and private choice, and, initially at least, he should proceed on the assumption that their fundamental laws of behavior are the same under the two sets of institutions.

– Buchanan, J., The Demand and Supply of Public Goods, 1968. (My emphasis.)

That sounds very scientific and cautious and all, but if you stop to think about it I think you’ll agree that it’s not.

20 thoughts on “You misuser, you

  1. I think perhaps your analysis could be sharpened by reading Douglass North’s Violence and Social Orders.

    Apparently, elites – which tend to rule the state in any non-democracy (or open access society) – will use the state apparatus to enrich themselves.

    A good illustration of the theories outlined by North et al can be found in The Other Path, by Hernando de Soto (although de Soto and North do not necessarily agree with each other on these issues.)

  2. Some conflation of ‘will’ and ‘can’ there, no? We’re supposed to look at processes and outcomes in states which are generally thought corrupt, assume things work the same way back home, and fix our attitudes accordingly?

  3. ” the same individuals as decision-making units in both public and private choice, and, initially at least, he should proceed on the assumption that their fundamental laws of behavior are the same under the two sets of institutions. ”

    Good debate – the altruistic public economist vs. the individualistic consumer. Maybe I have that confused ? The altruistic individual vs. the public economic consumer . Given the lack of ego (that must obviously be financialy rewarded) that humble service to the public calls upon , the stronger/weaker willed individual is all too happy to melt into/hide within the jurisdictions of state to raise/profit from its established standing and power. There is one slight difference in attitude here compared with the individual, and that might place all public workers as a distinct group of individuals, who’s ancestry probably dates back, as a near seperate species, several thousand years . They may offer their time in trade for pay , as many other workers ,but the source of revenue in the real world is either voluntarily contributive or in free trade. Public workers however subscribe to the power structure that finances itself by obliging uncontracted payments from the rest of the human species, without due justification (i.e. by decree). Attempts to legitimise the business (by democracy for example – where all is possible but pragmaticaly we get to choose from a couple of people out of 50 million say), or by wider justifications based on the ends achieved by the system (along with reminders that our neighbouring countries would be all too willing to invade without the power of state, which justifies further expense in itself – or in other words this is our country , world etc, if you don’t like it why are you living here, go somewhere else). Wasn’t the financial crisis a godsend then – not only do they have to maintain their spending but they actually have to borrow and spend more on our behalf , to keep the economy working no less. Just what would a government do without trouble of some sort ? There is a slight catch however, and that is that we all have to pay that money back , and while government jobs are idealistically cosy, the individual has to step into the real world and scrape around for something to exchange for the currency spent by government so as to repay that debt (and the wages of the public workers as they look on admiringly at how they have seemingly encouraged new enterprise) in the form of taxes , not to mention the return of interest offered by or some financial group who knows how to get served at the ECB freebie counter so as to profit relending. Maybe I am too cynical and what is really happening is a concerted effort at global harmony by economic means which justifies government efforts, so I suppose I will have to wait till the next major war to judge which side is more coherently funding its peace making initiatives, and which has overvalued its own intelligence. Actually, seeing as a war is something not much worth waiting for, I think I’ll go for a stroll instead.

  4. “good government is possible.”

    In theory, yes. Also at least partly in practice…I would argue that, say, Magtistrate’s Courts were an example of good institution making by government.

    Buchanan’s point (and the core of public choice economics) isn’t that such good government is impossble, rather that it’s not quite as common as is commonly believed. For those inside government are economic actors (no, you do not cvheck your self interest at the door when you become a politician/bureaucrat, even if you’re supposed to) just as much as those outside are.

    We therefore see at least some of those who have access to the powers of government using those powers to feather bed their lives….rent seeking.

    One example might be teachers’ unions and their connection to the Democratic Party. Those unions are the largest electoral workforce (and very significant fund raisers) in the country. Democratic polticians very rarely do anything which would upset the teachers’ unions. As an example, the Democrats seem almost universally to be anti- charter schools. Now, maybe this is because charter schools aren’t very good. Or because they are upholding the rights and interests of their constituents. Or even of a special interest group, the teachers.

    But an entirely reasonable conclusion to reach is that the anti- charter schools stuff comes from the fact that the principle freedom of such schools is to be non teachers’ union shops. Something which the teachers’ unions hate with a passion (understandably). To the point that the DC charter school programme was shut down a few weeks ago, despite being wildly popular with parents, despite having excellent results, on the basis that elected politicians were beholden to the teachers’ unions who hated such schools.

    We can indeed view this as simple freedom of association, a group gathering together to improve their working conditions through the political process.

    We can also call it rent seeking. For one man’s privileges can indeed be another man’s rent seeking.

  5. I absolutley agree with Tim, if we are all to benefit from the boons the organisation of a larger society entails, some kind of oversight and structure is necessary, else rather than living in a golden age it is just as likely we would be still living in feudal times of tribal warfare. Luckily (or through a long period of trial and error) the government charters in the west are reasonably humane and attentive. What I find most disturbing of corruption in politics is not the fact that finances are fed off for personal or certain group ends, but the mentality , attitudes , and poltical direction that are established or enforced in the process, and visibly – hence of a nature than can be fed to the rest of the population. Laws are passed that are not of the benefit of wider society, large parts of the population become effectively accomplice by the fact that they are payrolled by government etc. Mike Shedlock absolutely detests public unions and in various posts on his blog, most of which are well worth reading , lays much of the blame on them for the increasing bankruptcy of the US.

  6. Charlie,

    it only matters that the norms by which actors behave, if indeed actors do behave as public choice theorists suggest, if you think there’s anything wrong with either the effects or the practice of rent-seeking, which is after allk only self-interest maximization. That public choice theorists are very enthusiastic about self-interest maximization in the private sector but loathe it in the public sector suggests that they at root relying on a normative rather than empirical premise about either the wrong of exploiting public power or of inefficiencies that result from doing so (or both). But that just shows that the dispute is not, as you suggest, really empirical – as long there some other principle according to which the public sector is valuable that can be appealed to, or the distinction between public and private sector behaviour can be attacked, or we remember that a market, even a free market, is a public institution sustained by law just like any other public institution, then peoples’ motivation in the public sector doesn’t really matter.

  7. “That public choice theorists are very enthusiastic about self-interest maximization in the private sector but loathe it in the public sector suggests that they at root relying on a normative rather than empirical premise about either the wrong of exploiting public power or of inefficiencies that result from doing so (or both).”

    Ooooh, no, that’s not the point at all. Rather, that if people do act out of personal self interest (or possibly do so) when they are possessed of political power then we need to examine each proposal from those with political power to see whether it is advancing their self interest or the more general interest.

    It’s really telling us to be cynical about proposalsw, not to reject them all out ofn hand.

  8. Rob,

    Motivation has to matter somewhere, though. It’s supposed to matter to voters, for instance. Personally, I’d rather have the sort of PM whose ambition is to paint watercolours in retirement rather than one who’s set on taking up a directorship at a major merchant bank. Say.

    Additionally, motivation isn’t behaviour, and I wonder if it’s even one of the ‘fundamental laws’ of behaviour. Wouldn’t one expect behaviour to vary with context?

    But what I’m getting at here isn’t so much the design of institutions; it’s the crappiness of a political discourse that lumps homeless people in with defence contractors as ‘special interests’ or ‘clients’. Our view on ‘rent-seeking’ – a term invented to describe the activities of certain advantaged groups, and a term which still carries that sense, by and large – then rubs off on both, since clearly legislators just hang around all day waiting for whoever to come along and make them an offer, be it willingness to put up a campaign poster in a window or the loan of an ocean-going yacht; basically whatever the rules allow. This damn-them-all sentiment – I suspect – is exactly what some commentators and legislators are deliberately cultivating: one is left wondering whether or not public choice theory got this going, or has been invoked simply to give the manouevre some respectability. I suppose I might agree that the best way to defuse the rhetoric is to say, yes, homeless people are rent-seekers; now let’s talk about what we’ll do for them. Your defence contractors can wait. Then again, I’m tending to think it concedes far too much, and what’s more, the continuation of a debate on those terms might ultimately be to the favour of would be bribe-takers.

  9. Robjubb – if I went to a market and swapped two grapes for ten peanuts, there would be no one taxing me a peanut to tell me that the free market was a public institution sustained by law – otherwise it would no longer be a free market.

  10. if I went to a market and swapped two grapes for ten peanuts, there would be no one taxing me a peanut

    Correct, but only technically, since the tax authority would expect you to use the national currency, not peanuts, to pay your tax bill. Barter exchanges are taxable in the UK, and most likely where you are at also.

  11. Happening right now in my local jurisdiction – debating mandating fire sprinklers in all new privately built homes. Pits the homebuilders (opposed) vs. the sprinkler installers (in favor). What is society’s cost/benefit from this mandate? No one asks that, because it is a rent-seeking contest between 2 well-funded lobbies.

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  13. In Spain, where a recent survey says 43% of the population find fiscal fraud acceptable – amongst other reasons “to get ahead”. I suppose not using the international currency would also count on that score.

  14. Robjubb – if I went to a market and swapped two grapes for ten peanuts, there would be no one taxing me a peanut to tell me that the free market was a public institution sustained by law – otherwise it would no longer be a free market.

    Wrong. If the counterparty tried to settle in magic beans or dog’s anal gland extract, or just produced a club, it would no longer be a free market in any useful sense. You’d be on the roadside, hungry, clutching your ideological purity. If, on the other hand, you could pay a peanut for roughly impartial dispute resolution, you’d be working in something much closer to a free market in terms of operational reality.

    The difference between the ideal type here and the reality is the difference between being a citizen of, say, Milan or Venice today, and being a peasant in Sicily circa 1948.

  15. Or you could spend trillions you have just taxed, on a war that has devastated a region with no sign of proper eventual peaceful resolution , which coincidentally helps guarantee payments in gasoline on government subsidized oversized engined vehicle production , and then slog away to pay the taxes due for the vehicle company bailout. Take on Iran and there goes part of China’s petro investment and with a few more sparks a large part of the deficit the US owes it (if we wish to view such circumstance that way). The previous commentary is for definitions sake , assuming for a society of decent honest and trustworthy citizens – and I agree with the oversight your comment implies in reality, though regulation and policing of markets has also been known to distort them severely .

  16. I fail to see the relevance of your comment, and I point to the significant co-responsibility of prominent “libertarians” in the events you refer to, and to the heroic nature of the assumption.

  17. If you expound taxation as payment to maintain the free market as a public institution maintained by law, else reality would have traders clubbing one another etc. , I would point out to you that the wealth achieved by state , either from present or future perceived taxation, is often used precisely to those ends i.e. to go round clubbing other countries. You tell me if such is to maintain national markets, individual rights , or the wider intenational framework, to keep it free ? In reality we have no true comparison to make , such as how the world would be if say Iraq was not invaded, reality does not benefit us with both realities to place side by side at once, so I suppose we must leave each to his judgement and the application of his own ethics and principals in his appraisal. I would also point out that such behaviour might equally send us back a few decades, if not more, so it is maybe too soon to judge if we are better off sitting in luxury in a Manahattan sky scraper or living off bush tucker in the Australian outback. To me it doesn’t matter what side of the political or economic spectrum is behind such actions, to me what matters is individual intent and action , something which state tends to ‘hide’.

  18. Tim’s comment of course embeds apparently without realising it exactly the normative assumption that I want to call into question, and Alex has made quite nicely with the point that property rights don’t just magically come into being all by themselves, so there’s just Charlie. I don’t want to deny that we do and should care about people’s behaviour. The point is that what is typically at the root of these sorts of dispute, I think – and I suppose that’s an empirical claim of sorts – is not claims about actual behaviour, but claims about the proper moral evaluation of that behaviour. If rent-seeking carries a normative charge, then it depends on claims about the badness of the activities gathered under that label. Perhaps the homelessness lobby – whoever that’s supposed to be anyway – does behave in a way functionally equivalent to admirals wanting another aircraft carrier: I don’t know. The important difference isn’t to do with how selfless they are, but to do with the fact that one is an admiral, with all the advantages that entails, trying to extract money to build machines of death, whereas the others are homeless, vulnerable, at the wrong end of power hierarchies, trying to extract themselves from precisely that pretty awful situation. When you’re very badly off, it’s perfectly reasonable to be a bit selfish about what you can get out of people who are much better off. Not only is it I think irrelevant whether consumers of services extract benefits from the state in much the same way as defence contractors, investing significant resources in denying that they do volunteers yourself as a hostage not just to the fact of the matter, but trends in pop political science and economics, which is I think markedly right-wing.

  19. “that property rights don’t just magically come into being all by themselves” – something belongs to you only so much as is recognized by others and/or only so long as you, or someone on your behalf, can guarantee or defend your posession of that property ? Actually I feel I have as much right to/in this world as the next person or creature, without such having been declared by anyone , although most people are then happy to define parts of the world to their sole exclusive use or sole governance of use.

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