Rent-Seek and You Will Find

http://www.econlib.org/library/Columns/y2006/Mungerrentseeking.html ^

[abc123alphabetagamma]

Robert Tollison, one of America's premier students of public choice and government, defines rent-seeking this way: "Rent seeking is the expenditure of scarce resources to capture an artificially created transfer." Competition for government goodies—rent-seeking—is a wild goose chase, no matter how well-intentioned the goose or the chasers.

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Tullock Lottery

In my classes, I ask students to imagine an experiment that I call a Tullock lottery, after one of the inventors of the concept of rent-seeking, Gordon Tullock.

The lottery works as follows: I offer to auction off $100 to the student who bids the most. The catch is that each bidder must put the bid money in an envelope, and I keep all of the bid money no matter who wins.

See Government Spending, by Gordon Tullock, in the Concise Encyclopedia of Economics.

So if you put $30 in an envelope and somebody else bids $31, you lose both the prize and the bid. When I run that game with students I can sometimes make $50 or more, even after paying off the prize. In politics, the secret to making money is to announce you are going to give money away.

[abc123alphabetagamma]

But I was stumped: this just seemed like competition. Isn’t competition supposed to be good? How could the outcome seem so bad? It turns out that rent-seeking “competition” is a contest for a fixed price, a zero-sum problem that works like a transfer, at best. Competition in markets has no fixed price, and is robustly positive-sum. In politics you try to move money around and take credit for it. In markets you try to create value and make profits.

[ClaireSolt]

My experience with grant writing is that you first look to see what the grantor will pay for, not what the organization wants or needs. charlotte coudl end upwith the homeless housing when it doesn’t have a homeless problem but a bridge that needs repair.

[Wuli]

The biggest problem with the way that most “rent seeking” is played out in the U.S. is that those trying hardest to do it employ a big myth in the process - the federal treasury is some magic money pit.

In truth there is not even a “national economy”, only a mathematical process that sums all the local economies across the country to create the purely mathematical notion of “national economy”.

All economies are local, at the bottom line, and every dime that every level of government has is simply money that came, in one sense or another from our local homes and businesses.

But the “local” politician, in seeking to get elected or to stay in office, would prefer to try to get away with getting more money for your locality while pretending they can do it without you paying for it. So, they tell you they are not going to raise your taxes, there going to get the money (not your money???) from the state.

But the “state” politician is no better and knows that unless he takes more money out of the local districts he does not have more money to “give back” to them. So, he finds that X % of the state politicians are in the same boat on the same issue.

“Ah” they say to themselves, “this is a national issue”.

So the local and state politicians tell there friends at the federal level that they should bring home some of that magical federal money as a gift to the people back home.

So the federal politician runs for election on the idea that they have gotten that great federal treasury to give up so much of its magical money to their local constituents, while the state and local politician run on the fiction that they “kept your taxes lower” (because of all those “gifts” from the state and federal treasuries).

Most state and federal aid to localities is nothing other than the highest form of three card monty.

In terms of government expenditures, ITS ALWAYS YOUR MONEY, NO MATTER WHERE IT “COMES FROM”. The idea that having the state or the feds do EVERYTHING is either “better”, “cheaper”, more efficient or DOES NOT COME DIRECTLY OUT OF YOUR POCKET, EVERY TIME is a fiction.

[VeritatisSplendor]

The next-door township just got a 200K grant from the feds to update police services. It’s a rich township. It doesn’t need the money. In fact, it runs an excellent EMS, for which I volunteer, on donations - not on taxes at all.

The more local the money, the more frugal the spending. Durned if I want to pay for a Maple Syrup Museum in Vermont, or a road in Georgia, and I don’t want to pay for the next town’s police, either.

Mrs VS

[Wuli]

“The next-door township just got a 200K grant from the feds to update police services. It’s a rich township. It doesn’t need the money.”

Yea, so the local leaders are now bragging that the $200K “did not cost the local taxpayers anything” - fiction that it is.

The idiot locals must think that every other state does NOT contain zillions of local police forces, each of which are claiming their $200K. The idiot locals ignore the fact the sum and substance of it all is that, in essence, the residents of each locality are paying $200K more in federal taxes - in one form or another - in order for the federal treasury to have $200K to give to all of them. Fools.

If they had brains, they’d elect people who kept more of their hard-earned money in their local pockets, whereby they would only give the police another $200k when they thought the public priority and their willingness to pay for it were in agreement. But they are fools.

It’s the same thing as GOP Senator Ted Stevens with his $250 million dollar bridge to nowhere. If the people of Alaska absolutely wanted, needed and demanded that bridge, their state oil revenues could have paid for it.

[3niner]

An excellent column. I suspect that the most fundamental conflict we have in American politics is between those who understand this (if only in their guts), and those who do not (or are simply evil).