Public Choice 101

From Cathy Reisenwitz.

Earlier this year, Center for American Progress donor Citibank hired lobbyists to literally write 70 out of 85 lines of a bill regulating derivatives trading which passed the House. If this regulation was meant to hurt Citibank’s profitability while defending their customers it’s unlikely to have done so.

There are three main reasons corporations like Citibank write their own legislation. First, lawmakers feel pressure from constituents to regulate industries about which their staffs know nothing; corporate lobbyists and lawyers provide much-needed information. Second, it’s much easier and faster for a company to understand and comply with a regulation it wrote. Third, and most important, companies write regulation that is easier and cheaper to comply for them than for their competitors.

Read the whole thing. Of course, it will change no one’s mind. The way to resist public choice theory is to insist that with sufficient moral authority “we” can regulate in a non-corporatist way. That is a non-falsifiable hypothesis, because the premise of sufficient moral authority is never satisfied.

7 thoughts on “Public Choice 101

  1. The problem is what is done is subject to public choice, but what is not done is just as subject to public choice. The illusion is that not regulating would be any different.

  2. Pointing at public choice and saying “see, your big government policies will all fail” is as intellectually lazy as pointing to a market failure and saying “see, we should use government regulation.” I agree that good policy is under-provided for public choice reasons, but it does not follow that a lack of regulation will always be preferable to the sub-optimal regulation public choice says government will get us. You’ve got to make a case by case analysis.

    So yeah, I think you are attacking a straw man from the 60s. The number of educated people who would now say “totally perfect regulation is possible and you can establish a regime without corporatist or beuracratic meddling and regulatory capture” is zero. What people think is 1. Regulation is sometimes better than the alternative, 2. The public interest is somewhat represented in a democracy and can win, temporarily anyway, if the issue is big enough and people motivated enough, 3. Reforms can improve governance, at least temporarily, and 4. Regulation, at least locally if not globally, can be improved.

    • Have progressives ever come to grips with the implications of public choice theory? It does not appear so, in practice. Where might I go to learn more?

  3. Libertarians think that pointing out the inevitability of corporatism via Tim Carney and Gabriel Kolko allows them to be more sophisticated and cynical (cynicism is “grown up” you see) than their starry-eyed progressive peers. But everyone’s a cynic – and to that extent should know that corporatism is the only game in town (http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/07/crony-capitalism-the-only-capitalism.html). The question then is what KIND of corporatism?

    Libertarians who say that regulation = corporatism and who shrink back from any effort to regulate end up de facto enablers for the worst kind of corporatism from a progressive POV: the kind that makes the public in public/private partnership the junior partner.

  4. Hi Arnold! Thank you so much for linking to and the kind words on my post! Wanted to let you know about my blog, linked here, Sex and the State, where I write about this stuff regularly.

    Thanks again!

    Cathy

  5. Dr Arnold,
    Why don’t you and perhaps other EconoDocs invent an easy-to-understand term for “rent-seeking”? Look, for example, at the incomprehensible definition that begins the article on Wikipedia.

    The term I seek would convey:
    * the corruption of the government of free people
    * the economic penalty (of, for example, barriers to entry)
    * the substitution of special favors for satisfying human needs

    With such a term, the opening paragraph of the featured article could start with, “Today in an egregious example of , blah-blah wrote 70 of 80 sentences of the blah-blah bill.”.

    Regards,
    Bill Drissel
    Frisco, TX, USA

  6. The whole area or regulation is a bit challenging and clearly lends itself to rent-seeking act. I was just watching on of the evening news/talk shows where the question came up about there being a war on banks these days. One of the comments was that the corporation should not be fined or punished but the government should seek to charge specific people instead.

    This struck me as an unusual form of rent-seeking (the show is very pro corporation in many ways) in that it seeks to shift the costs of monitoring and enforcing behavior an agent from the principle to the public. That said, I do agree that in addition to penalizing a corporation that misbehaves that failures to property monitor or acting in certain ways due to a lack of monitoring should open up the specific people to various charges from the regulator/government agency tasked with overseeing the industry rather than claiming the person is merely the agent and so the principle is the only party that can be charged.

Comments are closed.