The Anti Rent-Seeking Amendment, Part I: Definitions
by James Hanley
Last week I mentioned my proposal for an anti-rent seeking amendment to the U.S. Constitution. I was asked how I would phrase it, and what it would do. Those are fair questions, plus I’d like to seriously get this idea some more exposure, so I’m going to answer them directly and fully. But I worry that without first having a discussion of what rent-seeking is, we may inadvertently end up talking at cross-purposes. So I’m writing this in two parts: This first part is a discussion of what rent and rent-seeking is; the second part, to be posted later, will contain the proposed amendment with explanation.
In the interests of not being too TL/DR, I’ve resisted the temptation to go into detailed explanations here in part 1.* I can, though, in the comments, if the brief explanations here are insufficient.
Definitions.
I want to begin with definitions of rent and rent-seeking because Patrick Bridges asked:
how do you define rent seeking … Sometimes it seems rent-seeking is the term used for “anything I don’t like” in certain crowds…
Respectfully, I don’t share that impression, but the fact that Patrick has that view indicates the need for a working definition to which we can all refer. I’m not going to try to be clever here and make any new or original arguments, but will just work from standard economic definitions.
Rent: Not what you pay your landlord, although there’s a historical connection to the concept. Instead, rent (aka “economic rent”) is a payment greater than what is needed to keep some resource (whether land, labor, equipment or entrepreneuer) in its present use (see the Concise Encyclopedia of Economics.)
For example, if a ballplayer said (and meant it), “I love this game so much I’d play it for free,” then $1 in salary would be $1 in rent, because in its absence he’d keep playing.
Rent isn’t inherently bad. It can motivate entrepreneurship and innovation, because if you can make something everyone wants that nobody else can make (yet) you can earn the rents of a monopolist on that product. But that’s only temporary, as competition eats away at rents as competitors seek to gain more sales by underpricing each other.**
Rent-Seeking: Although any effort to procure rents (including innovating new products, or negotiating a higher wage than you’re willing to settle for) could logically be called an effort to seek rents, the term rent-seeking is restricted to the activity of “people lobbying of government to give them special privileges” (Concise Encyclopedia of Economics). As Anne Krueger, who coined the term, put it:
“[G]overnment restrictions on economic activity are pervasive facts of life. These restrictions give rise to rents of a variety of forms, and people often compete for the rents” (“The Political Economy of the Rent-Seeking Society”).
Or from Joe Stevens’ The Economics of Collective Choice:
[R]ent-seeking is attempting to use the political process to allow a firm or group of firms to earn economic returns in excess of their opportunity costs.”
Types of Special Privileges that Produce Rent and Their Effects
Types of special privileges include monopoly and cartel protections, subsidies, tariffs and quotas, preferential tax treatment, and barriers to entry such as occupational licensing. In general, the effects of these special privileges are to limit production to limit consumer choices and drive up prices (harming consumers), and dead-weight economic losses. I’ll discuss a few of these privileges in the context of those two harms.
Consumer Harm
While consumers are harmed by rent-seeking, some of the benefit to producers flows to workers. This raises Rod’s prior question about the validity of distinguishing between consumers and workers:
I don’t quite understand this meme of consumers on the one hand and workers on the other, as if they’re two separate categories. You do understand that those Venn diagrams overlap about 90%, right? In fact, the category of workers is completely contained within the category of consumers, correct?
There’s no disputing that all workers are consumers. However not all consumers are workers in privileged firms. Workers in privileged firms/industries benefit only from their own firm’s privileges, while in their consumer role they are harmed by any other firms’ privileges. And all workers in non-privileged firms gain no benefits at all from that rent-seeking, but as consumers are harmed by all the privileges given to other firms. And if every firm or industry was privileged with protection from competition their workers wouldn’t actually be any better off in their consumer roles than if there weren’t any such protections. The benefit comes only if only some get privileges, and only to those that get them, and that benefit comes at the expense of those who aren’t privileged.
Let’s consider OPEC again. They agree to restrict production, which raises prices, harming consumers (technically, shifting consumer surplus to the producers). But some producing countries always succumb to the temptation to cheat, others follow suit, production rises, and prices return to more competitive levels, restoring the consumers’ surplus. But what if there was a global regulatory authority that could enforce production limits on OPEC? Then we’d all be paying higher prices in perpetuity. This is what happens with regulated cartels.
Although collusive behavior is illegal under U.S. anti-trust law because of its harm to consumers, regulate–officially authorized–cartels are legal despite their harm to consumers. Cartels or cartelish structures are found in many American industries, particularly agriculture, where oranges, dairy, almonds, and a variety of other products are marketed through cartels. The orange cartel limits production to the point of destroying overproduction, simply burying them them or leaving them to rot on the ground. They also prevent price competition by not allowing small, mis-shapen, or discoloured oranges on the market, because they can’t sell for as much, but some consumers might actually prefer ugly cheaper oranges over prettier but more expensive oranges.
Tariffs and quotas (which are functionally identical) also restrict choice and raise prices. If there is a tariff on imported cars, for example, it harms those who prefer foreign cars by either forcing them to pay more than the would have to pay in a competitive market or by pricing them out of the foreign car market so they have to settle for a car that is less satisfactory to them than a foreign car. The tariff also raises the price of domestic cars, by reducing cost-cutting competition (it was relatively easy for the Big 3 to collude when it was just them, but now that Honda, Toyota, Subaru, Mercedes, Nissan, Volkswagen and BMW all produce in the U.S., the market has become more competitive (even though not all of that production is for the U.S. market).
Probably the most controversial claim I’ll make here is that occupational licensure requirements are a form of special privilege that grants rents and harms consumers. This is where I most risk losing agreement from my liberal friends, who worry that eliminating occupational licensing puts consumers at risk from frauds and charlatans. I could discuss this at length, and if requested will do so in the comments. But to keep this post reasonable in length, I’ll just make three brief points about licensure:
- Occupational licensing does not mean an end to regulatory requirements for safety and health. For example, I used to drive a cab, for which I had to earn a cabbie’s license. Eliminating that special license would not mean that I couldn’t be required to have a safe driving record, or that the vehicles I drove could be required to go through regular safety checks.
- Licensing should not be confused with credentialing. Those with credentials could charge more because they’d be more trusted. Those without credentials would find it harder to get customers, would have to charge a lower price, and would find it hard to retain customers unless they proved themselves in performance.
- While the public tends to believe that occupational licensing is for consumers’ benefit, occupational licensing laws are most often sought after by practitioners in the various industries. Liberals don’t generally believe businesses have the customers’ best interests at heart, and I only ask them to consider that general position here as well.
Dead-Weight Economic Loss
Rent-seeking is a drag on the economy. The dead-weight economic loss is the cost of the expenditures spent on seeking rents. The political transfer of wealth is not itself a dead-weight loss, but the money spent on seeking the transfers is money spent on an economic activity that produces no net value. As Robert Tollison notes:
Perhaps the most useful way to think about rent-seeking is in terms of using real resources to capture a pure transfer. Since expenditures to take a dollar from A and give it to B produce nothing, they are wasted from the point of view of the economy at large; they are zero-sum at best and are probably negative-sum. (“Is the Theory of Rent-Seeking Here to Stay?”)
It’s not really possible to accurately calculate the deadweight loss from rent-seeking, but there’s good reason to think it’s very substantial. In 1988 David Laband and John Sophocleus estimated that rent-seeking “cost the economy an additional 22.6 percent of measured GNP in 1985,” but added that they “are the first to admit that our results are suggestive at best, owing to the inherently difficult task of measuring rent-seeking with any degree of accuracy” (“The Social Cost of Rent-Seeking: First Estimates”).
Matthew Mitchell estimates that between 1980 and 2011 rent-seeking reduced the potential per-capita production in the U.S. by around $11,000, and references others’ research showing 1) that according to IMF research on the financial crisis “those lenders that lobbied more intensively tended to take on more risk [and] delinquency rates were higher in those areas where lobbying lenders aggressively expanded their lending practices,” resulting in them having larger losses and more need to be bailed out, 2) that politically connected firms are more likely to be bailed out when they are failing than similar firms without connections, and 3) that firms that lobbied aggressively got $400-$500 in TARP funds for every dollar spent lobbying.
And in an NBER working paper, Fogel, Morck, and Yeung, demonstrate that business stability–“low turnover of dominant businesses…related to high government spending, high regulatory barriers to entry, Civil Code legal systems, bank-centered financial systems, weak outside shareholder protection, and trade or capital barriers”–is negatively associated with economic growth. They measured “the stability of the largest businesses in 44 countries over 1975 to 1996,” and found that “Economies with less persistently dominant large businesses grow faster than other countries with the same initial per capita GDP, level of education, and capital stock.”
So however difficult to measure precisely, it’s clear that rent-seeking by firms–or more precisely, rent-granting by government–is a substantial drag on the economy, meaning lower incomes and wealth for most Americans. This is not simply a libertarian position. Ralph Nader, in a co-authored 1973 Yale Law Review article wrote:
[B]ecause public policymakers have not confronted fundamental questions about its purpose, present economic regulation lacks both a comprehensive theory and a consistent goal… our unguided regulatory system undermines competition and entrenches monopoly at the public’s expense…
and:
While few would deny that government regulation for public health and safety is essential, the verdict is nearly unanimous that economic regulation over rates, entry, mergers, and technology has beeen anti-competitive and wasteful. (“Economic Regulation vs. Competition: Uncle Sam the Monopoly Man.”)
40 years later, policymakers still have not addressed this issue. The anti-rent seeking amendment seeks to force them to address it at the constitutional level. In my next post I will present the proposed–and tentative–text of the amendment, with explanations and examples of how it should work.
______________________________
* The old saw about it taking more time to write briefly was never more true than here. This is the 4th draft, and each previous draft was considerably longer. If you feel my post lacks adequate detail and depth, I agree, but that’s the consequence of trying to keep it to readable length.
** Some will dispute this point and argue about collusion in unregulated markets. I agree that collusion can happen (even Adam Smith insisted upon it), but hasten to note that it is a classic collective action problem; it can happen when there are few involved, but not when there are many involved, and the rents earned by collusion are often its undoing, as 1) those involved are tempted to cheat and produce extra to earn even more rent, thereby driving down the price and dissipating those rents (see the history of OPEC), and 2) the existence of rent attracts competitors who want a piece of the pie. Long term, collusion nearly always breaks down, and the more firms involved and the higher the rents, the more quickly it breaks down. The only way to keep collusion going among multiple firms over the long-run is through regulated cartels, which are an example of rent-seeking.
Interesting.
Do you know about Capper-Volstead? It is a law that gives the agriculture industry some protection from anti-trust actions. I didn’t know about it until my most recent case which involves anti-trust and agriculture. At the time it was passed, farmers were the little guy. Now farmers are Monsanto and the various organizations that you mentioned above.
How do you distinguish between legislation which might lead to rent seeking but has positive aspects otherwise? Something like animal welfare legislation that outlaws battery cages and the like. Would people use the anti rent-seeking amendment to outlaw all environmental regulations as rent seeking?Report
ND,
No, I didn’t know about that law, but I’m familiar with the dynamic from ag subsidies generally. I’ll look it up, though, thanks.
I don’t think rent-seeking would ban environmental protection laws in general. As you’ll see in my subsequent post, I’m not seeking to strip government of its general regulatory power, so if there is another justification for a law that is plausible and any rent effects are incidental enough–standard legal analysis applying–I don’t think most such laws would be affected at all.Report
The law is old but still powerful. Volstead is the same Volstead who wrote the Prohibition enforcement act.Report
Was there no end to the man’s madness?Report
It might have been Capped off at some point.
Do you see what I did there? 🙂Report
No. (cringe. thanks for making me feel stupid.)Report
What’s the name of the full farming act? Capper-Volstead!
Capper/Capped. Get it?
Ah it probably wasn’t very funny.Report
so if there is another justification for a law that is plausible and any rent effects are incidental enough–standard legal analysis applying–I don’t think most such laws would be affected at all.
Isn’t this basically how all rent-seeking is sold now?Report
Brandon,
It’s a harder sell to the courts than it is to support-seeking legislators, especially if there’s a law explicitly saying that if the intent or primary effects are about rents. If there is expert testimony that the law is predominantly about creating rents, everything I know about legislators and independent courts tells me independent courts will take that more seriously than legislators will. Will some things pass muster that probably shouldn’t–that you and I would firmly agree shouldn’t? Absolutely. But that happens with many other constitutional amendments as well. I’m operating in the real, imperfect, world here, not trying to make any unrealistic promises. The question is not whether this amendment would stop all rent-seeking, but, given the imperfections of the real world, would the state of things be better with this amendment or without it?Report
I have a slew of questions, most of which I’m going to hold my tongue on until Part II is posted. But as a couple fall into the definitional category, I’ll pose them here.
1. If rent seeking is “people lobbying of government to give them special privileges,” is not all lobbying, politics, and indeed government rent-seeking? Indeed, is not the Constitution itself? I’ve noted this a lot in the past on this site, but most debates we have that people frame as “Freedom v. Tyranny” in a democratic, pluralistic society tend to actually be a question of whose freedom comes first. I’m racking my brain trying to think of a law or policy position I could entertain that does not give special privileges to some at the expense of others.
2. Would a No-Rent-Seeking amendment not eliminate privatization? To explain my question: If rent-seeking is illegal, doesn’t that disallow a profit margin for a private business wishing to contract with a government entity? Also,as someone that has worked with contractors quite a bit, I am aware that there is always someone willing to take a contract to a job they are incapable of doing or can only do through providing substandard quality, in private business as well as public. Would an anti-rent seeking amendment not demand that you had to take such contracts – and if not, why not? And how would whatever mechanism you created to ensure that it wouldn’t not, in fact, be rent seeking? It seems to me the only way around the amendment would be to simply have the government directly do whatever the government was even tangentially connected to. I am sure I must be wrong about this; can explain what I am missing?Report
No, to both, imo. A lot has to do with whether the law is generally aplicable or favors a limited group from which others can be easily excluded. I think the analysis is in some respects analogous to equal protection analysis.
As to privatization (or more properly understood, contracting out), I’d say any open bid process with clear requirements not designed to steer the contract toward a favored firm would be sufficient. And demonstrating competence to do the work is not rent-seeking, but value creating.
How do you ensure it’s never rigged? You can’t perfectly, so we allow judicial review. It’s really no different from any other law in that. We just learned about a man who was repeatedly anally penetrated by law enforcement in a time frame and county outside the dubiously granted warrant’s jurisdiction–how do we ensure the warrant process is never rigged? (And I’m a lot more concerned about that question than whether some rent-seeking policies still slip through, which some surely will because no process can wholly orevent it.)Report
Is there a difference between occupational licenses for non-professionals like hair stylists, cab drivers, dental assistants, and florists than there is for professionals like lawyers, engineers, doctors, accountants, and architects? I can buy the argument that too many professions require licenses and that if the amount of harm potential isn’t that great, like a bad hair cut or floral arrangement, than the free market should reign. However, if there is potential for serious harm than there should be some form of license that the profesional can display to potential clients and customers.
IMO, the licenses that should be most protected are those directly relating to physical health or structures. Doctors, pharmarcists, nurses, engineers, and architects should be licensed. Its a bit less risky to let everybody into the law but the consequenes of loosing a law suit can be great and court work is arcane enough that legal licensing should continue. It hasn’t prevented there from being surplus of lawyers. I think with accounting, you can probably de-license the profession. Same for most other licenses.Report
Why not have sunset provisions required in any state code governing occupational licensure? That is to say, requirements expire absent an express and explicit decision of a legislative body to renew them.Report
I pretty much agree with Lee here, though I’d probably take architects off the list (insurance has a mighty lot of incentive to make sure that architects know what they’re doing, and builders have a mighty lot of incentive to insure against disaster).
I’d also add that there is a difference between licensure that provides barriers to entry, and licensure that can basically make sure that you didn’t screw up royally in Omaha and then just move to Wichita to leave that ugly business behind. In other words, even in areas where I don’t want licensure to keep new people out, I do want licensure to be able to banish people.Report
Lee,
No, I see no difference, I’m aware that’s controversial. My position is two-fold. First, any occupation can perhaps be deemed dangerous to health. Hair stylists use chemicals that can burn or blind you. Licensure creates an incentive to define one’s own industry as qualifying for licensure. Second, I have quite a bit of faith in credentialing and references. If you want to distinguish yourself from Joe the Dropout who helps people deal with MIPs, get credentials he doesn’t have and do stuff that will get you references he can’t get.
And I can imagine legal education changes where there’s a non-JD legal practitioner track. That’d be a helluva lot less invested for a person who’s going to handle low-level stuff, as lots of over-qualified and deeply indebted JDs do.Report
@jm3z-aitch
I generally agree with you here, but in the example you use in the OP–i.e., taxi drivers–I’m less inclined to agree. When it comes to lawyers, etc., I’m inclined to think I would actually look for the person’s credentials. But when it’s an issue of a cab, especially if I’m in a strange city, I want to be able to depend that the person who drives the cab is at least licensed, not so much to prove that he/she has passed tests, etc., but that he/she hasn’t done anything to merit revocation of the license.
*However, I would want some protection for people in very desperate circumstances, say, an indigent person who’s just been arrested for possession and doesn’t want a public defender….the protection in that case might be the advertising attorney would have to state his/her credentials, with appropriate penalties for misrepresentations).Report
Pierre,
From the OP: Eliminating that special license would not mean that I couldn’t be required to have a safe driving record, or that the vehicles I drove could be required to go through regular safety checks./
This might mean either that would-be cabbies would have to register so that they get checked regularly (but with registration just being a go sign-up and pay a very modest, non-restrictive, processing fee kind of thing), or it could mean no registration required but extra-stiff penalties for anyone who, acting as a cabbie, was the cause of harm to their passenger. Also, “Good Driver” accreditation could arise, with the accreditors reviewing your safety record and only authorizing you to put their seal on your cab if you pass muster–we already have independent accreditors like these in other areas, so that’s reality, not a far-fetched idea. In a nutshell, there are ways to ensure reduction of risk without restrictive licensing.
And, dude, I’ll tell you the truth, regardless of the fact that I was a safe cabbie, I had some cars that were so unsafe I was scared the whole night. Brake shot, suspension shot, windshield wipers a thousand years old–one guy I knew had his engine catch on fire on the Bay Bridge, and it was real exciting listening to him hollering over the radio. So this medallion business and occupational licensing does not necessarily guarantee you’re getting a safe ride. I think it’s too simple to assume the regulations work to that effect, but my very up close and personal experience tells me a very different story.
My recommendation when you hail a cab in SF? Look for one that looks really clean and new. They’ll be the newest, least worn down, cabs, and will be driven by the most experienced drivers, who by virtue of seniority are able to command the best ones. If you can, avoid the beat up ones that are driven by young guys–that is, avoid my cab.Report
Oh, good point about public defenders. And damn, requiring better qualifications there could potentially be seen as providing rents. Ideally we’d set a rule that says the person has to demonstrate qualifications for handling the type of offense the person was charged with. I.e., we wouldn’t necessarily need the same qualifications for a misdemeanor convenience store theft as for rape. I think that could be written to pass muster, but it would require careful writing that demonstrated the public benefit of it, that it was serving to ensure due process.
I’m pretty sure that could readily be done. Due process is, after all, a fundamental right, so that’s a pretty strong public purpose to support a rule. But I hadn’t thought about the potential difficulty, so thanks for bringing that one up.Report
“but with registration just being a go sign-up and pay a very modest, non-restrictive, processing fee kind of thing”
It’s worth pointing out that this kind of “go sign-up and pay a modest fee” thing is seen as a disgusting thing driven entirely by racism when it comes to requiring proof of legal occupancy in order to vote.Report
@jm3z-aitch
Thanks for the clarification on what you meant. I think I could probably sign on to supporting both (or either) of those measures and ditching the medallion system entirely. Or just ditching the medallion system.Report
How would an anti-rent seeking amendment effect wages and salaries? It would seem that getting rid of rent-seeking, especially but not necessarily only licenses, would lower wages and salaries because the chances of getting a profit and the amount of profit is going to be lower. You assume that prices of goods and services would be cheaper to in a non-rent seeking environment but the prices fall enough to meet the lower wages and salaries? What if wages and salaries lower much more than the prices of goods and services?Report
The lower wages would only affect the sliver of the workforce subject to occupational licensing laws, so that would not be much of a consideration.Report
Lee,
Art is right. Keep in mind that worker X’s rent-seeking level wage is probably coming out of worker Y’s pocket, and due to Y having less left-over spending income, preventing a job from being created for worker Z.
But also I don’t think your question works on its own merit. If profits fall because a business can’t get rent, it has to reflect a fall in prices.Report
The math on that doesn’t work out for two reasons:
1) Not all the gains of rent-seeking go to workers, a lot of it goes to shareholders as well.
2) Rent-seeking is allocatively inefficient, which means that abolishing the rent-seeking results in bigger gains than losses.
It seems very unlikely that overall wages would fall in real terms.Report
James,
I’m very glad you tuned in. I hope you’ll stay involved and correct me on any errors I might make, or fill in any important gaps that I might miss. I know this stuff is really right in your wheelhouse.Report
Right. Eliminating rent-seeking would result in more overall production—because rent-seeking is inefficient—and also more equal distribution, because rentiers would no longer be getting a disproportionate share of total production.Report
My suggestion would be that your amendment be in the form of provisions governing public finance, perhaps as follows:
1. Appendices to the constitution which define, in terms as detailed as you need, ‘personal income’, ‘value added’, ‘final sales’, and ‘capital gains’.
2. Provisions which require that any internal revenue on value added or final sales be absolutely uniform and pay no respects to the precise goods or services being produced or vended.
3. Provisions which require that any personal income tax take one of the following forms: a flat levy on income, a flat levy less a dollar-value-per-person credit, a flat levy with a dollar-value maximum, or a surtax: a flat levy on income received over and above a dollar-value-per-person exemption. Special exemptions, deductions, and credits would be absolutely debarred and taxes for dedicated funds would require authorization from subordinate governments or voter referenda and be subject to sunset provisions.
4. Provisions which require that the assessment rate on capital gains be ever equal to that in force on personal income. (And please define capital gains correctly).
5. Provisions which limit the use of excises to assessments on industrial effluvia and like waste and to a limited list of commodities (say, giving a legislature a choice of three: e.g. liquor, tobacco, and petroleum derivatives).
6. Provisions which require imposts imposed by statutory legislation to consist of a standard ad valorem levy with variations permitted only if such are incorporated into treaties.
7. Provisions which limit the franchise to levy property taxes to local governments, which vest assessment functions in a county inspectorate answerable to the state comptroller, which require governments to assess every piece of property not a public thoroughfare at least once every six years, which articulate principles of assessment for town land (per market value) and for country land (nil for forests, per the local market in agricultural land for everything else), which suspend tax collections for decennial periods in impecunious census tracts, which cap rates, and which provide for uniform rates on every type of property outside of those census tracts where collections have been suspended. You can provide for state governments to indemnify philanthropic agencies for their local property tax payments.
8. Provisions which prohibit government grants to any private party other than an individual household (aforementioned tax rebates excepted) and which also constrain the discretion of governments to let out contracts by any means other than competitive bidding.
9. Provisions which make for general and unconditional revenue sharing in the form of distributions according to formulae from superordinate to subordinate governments but which prohibit any kind of discretionary or conditional distribution other than indemnities for public works injured due to battle or natural disaster.
10. Provisions which provide for fee assessments on corporations in lieu of corporate income taxes. The fee would be in the form of a small stock-dividend issued to the state or federal treasury, who would then have to sell the equity stake on securities markets or by an online auction. (Limited corporations would face the choice of attempting to repurchase the stake, buy out the purchaser, or accepting a new limited partner).
11. Provisions which would permit filing fees (to finance the courts) and registration fees (at the county clerk’s, the municipal clerk’s, the state dept. of motor vehicles, and the federal patent office &c) tagged to finance the operations of these agencies.
12. Provisions which would prohibit all other tolls and fees bar to pay for services analogous to those one might purchase on the open market, and then to require that these tolls and fees not exceed average or marginal cost.
13. Provisions which prohibit the assessment of fees, tolls, and taxes not expressly authorized in the Constitution.Report
Why require levies on income to be flat as opposed to progressive or regressive? That’s not rent-seeking, though it could be regarded as rent, depending on how you view the marginal utility of a dollar.
More generaly, I don’t recall having seen non-flat income taxes being generally termed rent-seeking or the result of rent-seeking. However, if you’re trying to illustrate why I made the statement that James quoted, don’t let me stop you. 🙂Report
You could have multiple rates for progressivity, and there is likely an esoteric argument for it.
You have a common marginal rate, then you compensate people with a dollar-value-per-person credit. The average rate for taxpayers approaches (asymptotically) the marginal rate as income increases and the contextual salience of the credit declines. In the other direction, it approaches nil as the assessment on your income approches the value of the credit and then heads into negative territory as the dollar-value of the credit exceeds the assessment on the income of the (impecunious) taxpayer. So, you do not need multiple marginal rates for progressivity.Report
But this gets to the general point of my original comment to James, as well as the concern I express below. Every law that someone doesn’t like gets classified as rent-granting.Report
Patrick,
People can say anything they want, but it doesn’t mean they’ll have an authoritative voice. There are people who claim the Federal Reserve is unconstitutional, but no court is going to listen to them. There were people who claimed the ERA would require same-sex restrooms, but it seems dubious the Court would have read it that way in the absence of any evidence of harm caused by segregated toilets (although I always laugh at the fear of single-sex bathrooms, as they’re not uncommon in that not-so-liberal Muslim country of Syria).
My view of the courts–which is based in some considerable study of constitutional law–is that they will A) tend to turn toward those definitions of rent-seeking most prevalent among the relevant set of experts (economists), and B) will be pragmatic in defining it because they’ll be leery of results they see as too wide-reaching.
I agree, people will define every law they don’t like as rent-seeking, but not all those claims will stand up to serious scrutiny, and the courts will most certainly give them very serious scrutiny.Report
And we’re moving towards same-sex toilets anyway, given the backandforth over transgendered persons trying to use the “wrong” restroom.
(Although a row of single-occupant cubicles is equally accepting and avoids the issue entirely.)Report
Art,
Well, it’s already written and in Tod’s hands for posting. But you can certainly reprise these ideas when it posts. Keep in mind, though, that American constitutional amendments are generally broadly written, rather than being too highly detailed. For better or worse I have followed that model. If you decide that’s for the worse, I’ll likely disagree, but agree that it’s a legitimate position.Report
There’s all kinds of detail in the New York State Constitution.Report
Yes, state constitutions differ markedly from the U.S. Constitution. There’s debate amongst constitutional scholars about which is superior. Perhaps I’m just old-school, but I believe constitutions should be more general than statutes. Again, I’m not arguing that the other position is unreasonable, but I’ve been around the block enough that I can say I’m exceptionally unlikely to be moved off my position.Report
I quite like this comment. Lots to chew on.Report
14. Provisions which prohibit special tax abatements of any kind for any party.Report
Defining rent-seeking is hard. Therefore, let’s not even try.Report
You can add constitutional provisions which proscribe certain conduits of rent-seeking, e.g. tax preferences. Rents derived from regulatory architecture are likely too difficult to discern, quantify, and anticipate with constitutional provisions to be proscribed.
The behavior of the U.S. Congress over more than fifty years indicates that there are certain things best not left to the discretion of elected officials. (Addled people who commonly post here fancy that would be matrimonial law; it is not).Report
Probably even harder than guaranteeing universal health insurance!Report
I know Jason’s kidding, but as with all good humor there’s a core of truth to it, so I want to address him as a proxy for those who incline toward that view, even moderately.
Equal protection has turned out to be difficult to define, as has reasonable cause, as has cruel and unusual. I suppose it’s possible for a term to be vague enough to be constitutionally useless, but rather than try to pin down all possible points of debate and preemptively clarify them–an impossible task engaged in only by naive utopians–I just propose we let the Supreme Court do as it does, and interpret the term as it is more or less persuasively defined to them by lawyers, who will no doubt seek out the definitions of economists; e.g, the definitions I wholly rely on here.Report
It seems like this will end up just transferring the rent-seeking activities from the legislature to the courts.Report
You mean people will sue to get Anthony Kennedy to grant them tax breaks because only an ‘irrational animus’ would prevent the legislature granting them?Report
Oh, sure, but really that’s unavoidable, isn’t it? We could equally well say we’ve transferred the seeking of unequal protection from the legislatures to the courts. There’s no way to completely mandate away an activity that people find value in pursuing, so the best we can do is to make a fairly clear rule against rewarding that activity (and the courts do, for the most part, take those rules pretty seriously, even if their interpretations are not always ideal), and make the ultimate arbiters a group that is more protected from being beneficiaries of their decisions (by any reasonable measure, the judiciary is less corrupt than the political branches).
I can’t overemphasize that I am not being utopian here. I’m seeking a best-available real-world tool, not an idealistic slam-dunk solution. I have absolutely no doubt that if this amendment were ever enacted, there would be judicial interpretations that would make me scream as loudly as some of the due process interpretations do. And yet just as I think we’re nevertheless distinctly better off with a 4th Amendment, as eviscerated as it is, I think we’d be distinctly better off–the amount of rent-granting policies would be dramatically diminished–with this proposed amendment.
I’m a pragmatist, baby. (singing: “I don’t like dreaming, ’cause dreaming won’t make you mine…’)Report
15. Prohibit any component of the government other than the central bank from making loans to any party, limit the central bank’s clientele to financial firms, and prohibit any sort of loan guarantee other than deposit insurance.Report
Okay, so you’re fine with loans to GE and GMAC?
Thanks for playing!Report
yes, that was absolutely the central bank defining those two as financial firms.Report
I do not recall that GE Capital received any loans.
Re the TARP program and the Maiden Lane deals, and the Fannie/Freddie conservatorship, the money pits were the mortgage maws, the components of the auto industry, and AIG, in that order. The banks who received injections through the capital purchase program have repaid almost all of it and paid dividends on preferred stock in the interim.
Well, you need a boundary condition on the term ‘financial firm’. No, you do not want to attempt to construct a financial system without a lender of last resort. You do want the state out of the venture capital business.Report
Art,
It was General Electric, as a whole. and not about giving loans, either.
Gov’t banned shorting financials for a bit, and they gave a full list.
http://www.calculatedriskblog.com/2008/09/sec-bans-short-selling-of-financial.htmlReport
I am not sure short-sellers are the most winsome interest group.
About 42% of General Electric’s revenue is from GE Capital, so it is a financial concern of a sort.Report
GE is very much a financial concern.
While it didn’t receive TARP funds, had the federal government not backstopped the commercial paper markets during the 2008 crisis to stave off the run on money markets funds, it could have put GE in a very dire financial position given that GE was at the time the largest originator of commercial paper. Those losses would have signaled weakness and in the capital markets environment of that time, even a hint of weakness was the kiss of death.
It did participate in some of the 2009 programs designed to spur lendingReport
16. An end to collective bargaining for public employees; a requirement that all employees be paid in cash with some ancillary perquisites; a requirement that all benefit programs for employees be defined-contribution plans financed by clips from their stated salaries and wages.Report
Why not just get rid of benefit programs and demand all compensation be in cash? That’s not snark, honest question.Report
I suppose you could. I do not see pension programs as a problem per se. Actuarially unsound pension programs, compensation values opaque to the general public, and school teachers and postal clerks retiring at 55 are a problem.Report
I was fine for the first two, but why in the world is it any of your business when a postal worker or teacher decides to retire? It’s something actuaries have to take into account, but outside of that why is it any of your business at all?Report
I think he’s making a reference to the fact that they have (taxpayer-funded) benefit packages that make retiring at 55 possible. I don’t think he cares if they win the lottery and retire at 55.Report
Because that’s ten extra years of paying their pensions. Which is fine if the pensions are funded by their contributions and actuarially sound. But that hasn’t been the case recently.Report
But again, that’s an actuarial problem, so why was teachers retiring at 55 even mentioned at all? If you want to talk about actuarial problems, do so. If you want to talk about rent seeking by public sector unions, do so. Off-hand remarks that could be construed (almost certainly incorrectly) as derogatory to individual school teachers, however, detract from the otherwise legitimate points you’re trying to make.Report
Because it’s not an actuarial problem—it’s a political problem. The ability of governments to force taxpayers to bail out underfunded pensions leads to pensions being underfunded. And short of Singaporean levels of savings, it’s just not realistic for teachers or postal workers to be able to save up for a 30-year retirement in 30 years of work. Given the moral hazard element, any such plans should be regarded with great suspicion.Report
Then talk about that political problem, as opposed to saying things that could be construed as whining about teachers actually using the benefits the public agreed to give them.Report
“Then talk about that political problem, as opposed to saying things that could be construed as whining about teachers actually using the benefits the public agreed to give them.”
You have just restated the topic of the entire post. The public did not give them anything. The state did. To the extent that this is more than what they could get in a free market, it is rent seeking and economically inefficient.Report
And to add I am not sure the market would not pay MORE for teachers than it does today. It would lead to different people in these positions, doing different things, with different work conditions, paid differently.Report
@roger What he actually said was and I quote, was “…school teachers and postal clerks retiring at 55 [is] a problem.” That may have not been what he meant, or what you mean, but that’s what he actually said. In fact, I could imagine there are highly-effective teachers that could demand enough compensation, either up-front or deferred, that they could retire at 55.
Again, my point is that how you say things matters. If what you mean is that the political process is problematic, say that. You may think that you know what Art meant, but what Art said was “…school teachers and postal clerks retiring at 55 [is] a problem.” Casual remarks that reinforce suspicions that all libertarians are just right-wing loons or minarchists in disguise do nothing to help you, nor does defending what you think they meant to say without even bothering to admit that what was said was poorly phrased.Report
I tell you what, if you want to take the value of the pensions and health plans and all the other “hidden,” because mostly delayed, forms of compensation for teachers and postal clerks, and put them in today’s budget and add them in cash to their pay now, I suspect you wouldn’t get much objection from teachers and postal clerks. If you want to just remove their value from the compensation altogether, though, and simply pay them what they already make, particularly with no collective bargaining to “rent seek” for raises and well-defined career ladders, you’re just not going to have any teachers or postal clerks, or you’re only going to get the least skilled people, who can’t get any other work, and have turnover rates similar to call centers.
Then again, given what your other pieces of the amendment would do to government budgets, I assume you see that sort of thing as a feature, not a bug.Report
Chris,
I think you are ignoring the dynamic effects of supply and demand. If teachers were unable to expropriate economic rents via collective action coercively enforced via the state, then you are right that wages and benefits will likely fall. However, if they fall so much that quality suffers beneath that demanded by consumers or turnover becomes a problem, then in a relatively free market, consumers would demand better teachers and competing schools would benefit via solving the turnover problem (which is what Ford did when he raised wages despite myths that it was to buy his cars).
Do note that your examples are complicated by the fact that the post office and schools are both state created monopolies. Thus in my interpretation of the situation you have rent seeking (privilege granted) employees within privilege granted organizations.
I do need to highlight something. Rent seeking is not just something that rich fat cats, evil CEOs and bloated corporations do. The term often applies to practices pursued by teachers, postal workers, fire fighters, minimum wage workers, doctors, and other “good guys.”
Said another way, rent seeking by favored groups is still rent seeking. I haven’t seen James’ amendment yet but I seriously doubt it argues against rent seeking except for favored groups.Report
Roger, you’re wrong, but I think you know I was going to say that.
At current rates, public employment has trouble attracting qualified people, and thrives mostly in economic downturns. If market rates were the issue, teachers would make more now, and not rely on deferred compensation. But the market doesn’t determine their compensation, the budget and politics do.Report
@Roger,
if they fall so much that quality suffers beneath that demanded by consumers or turnover becomes a problem, then in a relatively free market, consumers would demand better teachers and competing schools would benefit via
Even if we had a more competitive public school system, there is a problem in that the end consumer (students, or as a proxy, their parents) aren’t the actual purchasers of teacher services. The system might be improved, but that intervening agent (the school administrators) still constrains how good it would be.
@Chris,
At current rates, public employment has trouble attracting qualified people
Oh, pish. Public employment has a number of factors that make it attractive, including the diminished likelihood of your employer going out of business and, in many cases, civil service protection. And repeated studies have shown that pay is not the primary factor affecting worker satisfaction. If you think, for example, that we don’t have enough well qualified K-12 teachers in public schools, pay should not be the first issue we look to as the problem.Report
I think whether government employees are overpaid or underpaid is a pretty hard thing to say. Depends on which employees, in which sectors, in which parts of the country that we’re talking about.
I’d very much prefer compensation levels to be more competitive in both directions, where possible. More pay up front, less in the way of pensions. I figure almost certainly that means that some jobs (in some places) would start paying considerably more, while others would have overall compensation package reductions. And not overwhelmingly in either direction. Report
tell you what, if you want to take the value of the pensions and health plans and all the other “hidden,” because mostly delayed, forms of compensation for teachers and postal clerks, and put them in today’s budget and add them in cash to their pay now, I suspect you wouldn’t get much objection from teachers and postal clerks
Fwiw, the USPS (and its labor union) are objecting to the current, nearly unique practice of actually budgeting for their employee’s long term deferred compensation.Report
“…the market doesn’t determine their compensation, the budget and politics do.”
I think you may have overlooked the implications of my rent seekers within rent seeking (monopolistic) organizations line.
Market rates as you point out are not the issue as we do not have very good operating markets in public schools. I totally get the need for a teachers union to protect teachers from bureaucrats. Most teachers I talk to highlight this truth. Note they cannot shop around for a better job with a better employer without changing districts. They are victims of the monopoly too.
This gets to one of my initial thoughts yesterday to James. Some believe state granted privileges are necessary to offset privileges elsewhere. With this logic, you need a state privileged teachers union to offset the state privileged school monopoly. (I would of course argue instead to eliminate both)
As a side note, turnover is not synonymous with BAD. There can be too much turnover, and too little. You can spend too much battling turnover and too little. The answer then of the right balance of turnover and pay and teaching quality in a relatively free market eventually falls upon the consumer, that is the parent of the kids. Each competing business can then build an institutional solution and offer it up to parents. The ones most chosen win. This can work even with vouchers.Report
James,
As I just wrote to Chris, that was what I was implying with my second paragraph. I certainly didn’t overlook this, though seeing as how two people failed to get the drift of that paragraph, I certainly didn’t express it well enough.Report
“I think whether government employees are overpaid or underpaid is a pretty hard thing to say. ”
It is probably impossible to answer absent a market (or an all powerful dictator, in which case it is whatever he or she says). With a market, this is pretty much exactly what the market dynamic would seek to answer. That is what markets do.Report
Some believe state granted privileges are necessary to offset privileges elsewhere.
This. And I get their point, but it’s really the logic of reinforcing a suboptimal equilibrium instead of trying to change the institutional structures to turn the suboptimal outcome a disequilibrium.Report
Roger, my point (which perhaps I was unclear on) is that it’s hard to do because we’re talking about a huge diversity of people, skill levels, and so on.
The ability to use markets to determine compensation levels would be a lot less difficult at the local levels than the national ones. How does a Phoenix field office convince DC that they need to up compensation levels to avoid losing key personnel? Who wants Washington to take their word for it? How could the Phoenix field office convince them? Where would the discretionary funds come from? This is, to an extent, how government is pretty fundamentally different than business. (Some of these problems exist at the local level, too, though school districts are more able to recognize “key personnel” than the feds are, and school districts can pass bond issues to address more specific problems.)Report
Yeah. I get it too. Some could even argue that partial elimination of rent seeking is the worst option, as it just kills off the rent seeking of the least powerful.
This is an issue I have always had with partial deregulation. Sometimes the middle ground is the worst place to be.Report
Apologies if we are talking past each other, Will.
In a market situation, the company which solved the pay structure in distant branches issue most effectively/efficiently, all else equal, wins. There are lots of imperfect ways to do this, and markets reward those solving better.
It is a system of dynamics, incentives and rewards. In this case the dynamic attractor is appropriate local wages.Report
There’s a key distinction here that I want to make sure I understand correctly, assuming I’m right, want to highlight: You don’t want to forbid outcomes (e.g. laws and regulations) that happen to favor one industry or group over another. You want to limit how groups can use the political process to lobby for their own economic benefit?
So for example, a law that mandated shall-carry insurance wouldn’t be illegal, but health insurance industries lobbying for such a law would be? How about oil companies spending money for politicians who had previously vocally supported pro-oil policies?
Assuming I have this correct, you want to place a restraint on activities that the courts have generally regarded as speech. As such, this would need to be a constitutional amendment. I’ll be interested to see what the boundaries of this limitation are and how you would see it interacting with the First Amendment.
Anyway, nice start.Report
No, and the cause of the confusion is on my end. I think this will become clearer in my second post, but the real purpose is to prevent rent-granting. Calling it an anti rent-granting amendment would be more precise, but the term is less familiar, so I opted not to use it (I actually did use it, then edited it back to rent-seeking; perhaps the wrong choice).
Not only am I more adamant than average about not mucking around the edges of the First Amendment, I think banning seeking would be devilishly more difficult in practice than banning granting.
I briefly address your example in my next post, but at least initially it seems to me that a will-carry rule (assuming I understand what it means) could possibly be defended as a generally applicable rule, not one that favors one firm over another or one industry over another.
Overall, I think folks bith pro and con may be expecting something more radical and far-reaching than what I am actually proposing. But it’s obviously up to me to make that clear, and I mean no criticism by it.Report
Ah, okay, that’s a different thing, then. In that case, I’m not convinced.
My first concern is encapsulated here:
1. “Rent isn’t inherently bad.”
2. “Rent-seeking is a drag on the economy.” (emphasis added)
3. “Banning [rent-]seeking would be devilishly more difficult in practice than banning [rent-]granting”
4. “[T]he real purpose [of the amendment] is to prevent rent-granting.”
So, you want to outlaw that isn’t necessarily bad (and maybe is even sometimes useful) because you can’t see how to outlaw something that is bad; I find that a little disconcerting, at a minimum.
Second, most laws do have winners and losers. Wouldn’t such a amendment put a *huge* amount of discretion in the courts hands to vacate almost any law under the guise of it being rent-granting?Report
I’m interested now in seeing how you’re going to word this amendment, but I suspect the crux of it all will lie here:
“I think banning seeking would be devilishly more difficult in practice than banning granting”
If I follow, the purpose of your amendment would to disincentivize lobbyists without constraining lobbying. To my mind, this is (sadly, but aptly) analogous to going after the prostitutes, but not the Johns.
If the free speech respecting approach to curbing the corrupting influence of money in politics is too bring cultural pressure to bear, as you and I have touched on previously in some campaign finance threads, this strikes me as stigmatizing the wrong target or, at the very least, not all the appropriate targets.Report
I read this and I start wondering about such things as unions.
In general, I’m vaguely pro-union (private sector, of course) and have somewhat more sympathies for unskilled labor unions than skilled labor unions due to the various imbalances involved but this seems like it’d do a good job of castrating unions…. which might appeal to me more if I suspected that it’d have as much an effect upon, say, police and/or prison guard unions as it would on the ILGWU.Report
Briefly addressed in the next post.Report
Assuming I understand properly, though, you’re not trying to (directly) abolish licensure, because that’s rent-providing, not rent-seeking. So, if the general public decided that it needed to license lawyers or hairdressers or dental hygenists for whaever reason, it could. You just want to limit how, for example, people who have passed the bar could use the political process to require passage of the bar for certain activities, right?Report
See my answer above, and my apologies for the confusion.Report
Imagine that we’ve reached a point at which the technology for harnessing solar, wind, and perhaps other relatively clean and renewable energy sources is sufficiently advanced and inexpensive enough to replace comparatively dirty and non-renewable energy sources, like coal. So the federal government outlaws the use of coal burning for the production of electricity. This is a big boon to the business of renewable energy, and a death knell to the coal industry. Naturally, the solar, wind, etc. companies and consortiums lobby heavily for this, and the coal companies lobby heavily against it. Which part of this is the rent seeking? The law? The lobbying? Only the non-coal lobbying? Which parts would the amendment ban?Report
As I note in the next post, it will depend on judicial interpretation. Never trust anyone whotells you they know exactly how a prospective law will be addressed in practice. Based both on the text of my proposed amendment and how I would expect the Supremes to reason (e.g., following their traditional modes of analysis), I think the validity of the law would depend on the strength of the non-rent-granting justification for it. I.e., if the public health justification was strong enough, it could pass muster, but if not, it might not.Report
Isn’t begging judicial interpretation a bit of a dodge here? (Some) courts do (claim to) take into account legislative intent. As a result, I don’t think it’s too much to ask for at least the original author of some proposal to state what things he thinks should and shouldn’t be included as rent. 🙂Report
A totally fair question. Fortunately, one I anticipated! In my next post I do talk about using debates like this as a sort of history of legislative intent. But I also emphasize that for me to say anything important about particular cases I need sufficient information about them. I’m not comfortable making strong claims about what should be the outcome in a case where I don’t know much about the arguments on either side.
In all seriousness, the answer to Chris’s question is, “what is the net social benefit of banning coal energy production?” If that net benefit stands by itself, I don’t think the law would be clearly enough rent-granting to be struck down. But if we’ve made coal clean enough by then that the net social benefit is negative or marginal, then I think the law would primarily grant rent, and would (or should) be struck down.
For legal analogy (and the Court’s legal reasoning as often as not works by way of analogy), I would expect interpretations to work out much like equal protection and church-state issues do, with the Court (not entirely consistently) considering both the intent of the law and it’s effect. A law whose clear intent was granting rent, even if there was subterfuge about the intent (see, for example, the subterfuge about the law’s intent in Church of the Lukumi Babalu Aye v. City of Hialeah, Florida), the law would fall. If it wasn’t clear that granting rent was the actual intent of the law, but nonetheless that was the primary effect of the law, the law might still fall.Report
But then this isn’t banning rent granting, is it? Instead, it’s requiring some legal standard (compelling state interest?) to be met to justify granting rents. This is exactly why I’m leery of a proposal to forbid (potentially useful) rent-granting, when what you really want to do is prevent rent-seeking.
At this point, though, I’ll just wait to see the actual language you propose. 🙂Report
But then this isn’t banning rent granting, is it? Instead, it’s requiring some legal standard (compelling state interest?) to be met to justify granting rents.
But, Patrick, that’s about all we can ever do about anything! We “ban” restrictions on free speech or free exercise of religion, but the Supreme Court will allow them under conditions of the law being narrowly tailored and meeting a compelling state interest. Does that mean those First Amendment restrictions are not valuable? I worry that you’re imposing an unrealistically high standard here, one that doesn’t apply generally. And at that point, I would argue your criticism really is unfair, because why should my proposed amendment have to satisfy a standard higher than the standards the Court imposes on so many other amendments?
This is exactly why I’m leery of a proposal to forbid (potentially useful) rent-granting, when what you really want to do is prevent rent-seeking.
A) I have to insist that what I really want to prevent is the existence of government granted rents. It’d be great if the seeking would just stop, but it won’t, and I agree that trying to ban it smashes into free speech issues. So the solution to stopping government granted rents is not to ban the seeking, but to ban the granting. And by banning the grants, we reduce the incentive for seeking, so that (with its dead-weight costs) goes down, too. But make no mistake, the seeking is not the primary target; the very existence of the granted rents is the primary target.
Think of it the same way you might think of the prevention of teaching religion in public schools. Sure, it’d be great if religionists would just stop doing that. But they won’t, and you can’t ban them from doing so without stomping on their free speech rights. So we ban the government agency, the government agency, the school, from granting that request.
B) As James K noted, rent-seeking is allocatively inefficient (and since he was talking about allocation, not dead-weight costs, he clearly is referring, as I am, to the granted rents themselves, not really the seeking part). Government granted rents are not good, not even potentially. If you’re not persuaded, then of course I may not get your buy in on this idea. I accept that. But serious economic arguments in favor of rents are so rare, and so highly specialized and theoretical, that it’s clear to me that whatever potential gains were lost by the prohibition of a vanishingly small number of potentially socially positive rents would be far outweighed by the prohibition on the vast number of extant socially negative rents. This isn’t throwing out the baby with the bathwater; it’s throwing out that little sliver of soap that you can hardly grasp anymore.Report
If your goal is to stop government granted rents overall, I think you’re making a mistake, James. We’ve already seen government granted rents that can be a good thing, especially if they’re of limited term or narrowly tailored to meet a pressing governmental need. Chris’s example, historical (if not necessarily modern day) patents and copyright, and a variety of others come to mind. You need to decide if it’s rent-seeking that’s bad or rents that are bad; note, however, that if rent-seeking is reduced, than rents that exist solely because of rent-seeking would hopefully fade over time.
Let me offer an alternative way of thinking about (and selling!) this:
1. Rent-seeking is bad – it’s economically inefficient, leads to and is enabled by political corruption, and hurts the economy and job creation.
2. Rent-seeking, however, is speech, so it is difficult or impossible to directly regulate.
3. To minimize rent-seeking, we seek to reduce the incentives for rent seeking. 4. We do so by forbidding government action whose primary goal or effect is to economically benefit or penalize one group over another.
The goal of this formulation is very upfront about what it seeks to get rid of – rent seeking, not rents. It also makes it clear that rents that serve a legitimate government purpose (safety, etc.) are allowable.
Imagine the courts looking upon rent-seeking behavior by a group as prima facia evidence that a law was meant primarily to benefit that group. Wouldn’t that dramatically reduce rent seeking, which is what you initially claimed you were worried about? For people of a liberal bent interested in campaign finance reform and the influence of money on politics, while also being staunch first amendment defenders (e.g. yours truly), this has a certain appeal. It attacks the problematic speech not by regulating the troubling speech, but by reducing the incentives to engage in it.
Finally, one thing you also have to be careful of here is affirmative action programs – they benefit one group, but because of a past (and ongoing!) history of the government penalizing that group over another. How they fit in this is problematic, it’s a difficult subject no matter what, but it is something to consider.Report
But Patrick, your formulation is my formulation. Seriously, I had to double-check to make sure you weren’t quoting me. So I think you’re really seriously misunderstanding me. Perhaps my explication is to blame, but I can only say I’ve been as clear as I know how to be. I’m really lost as to where there’s any real disagreement between us on this point.
As to the activity of rent-seeking itself, believe me, the courts would take that into account as evidence when reviewing a law. Let’s go back to the Lukumi Babalu Aye case, where the Court explicitly referred to negative statements made about the church during the debate over passing the law as evidence of what the law’s purpose was. The difference there is that people’s actions just serve as evidence against the law; the people are not subject to punishment for their actions. And that’s as it should be.
As to laws that serve a legitimate interest, you’ll see that my amendment clearly allows for them. Rents in those cases are rather unlikely, but would be clearly an incidental effect and the law not unconstitutional as a result.
As to affirmative action, it would depend on the specific policies. Affirmative action is itself an exceptionally broad term that covers a very wide range of policies, from making sure, for example, that a college doesn’t skimp on recruiting from minority-majority high schools to having explicit quotas. I’ve compared my proposal a bit to equal protection law, which I think is very apt (in fact many claims of reverse discrimination are de facto claims of rent-granting to minorities), and just as some affirmative action policies pass EP muster (some so easily they don’t even get challenged), others don’t. I don’t see a big difference there.Report
We do agree, James; your description was a bit confusing (see below), but mainly I changed my mind. I was originally skeptical of going after rents, because it wasn’t clear to me how broadly that you were doing so. It also wasn’t as clear as it could have been that you were going after rents only to the extent necessary to discourage rent seeking. If the amendment makes it clear that it is banning *illegitimate* rents as a way of attacking political corruption, I’m all for it.Report
your description was a bit confusing
Impossible. The fault is entirely yours. No, just kidding. I don’t doubt I could have improved the explanation (I’m going to blame my extended brain-oxygen deficit from this long-ass bout of bronchitis; that way I can pretend it’s not really my fault). I’m glad we understand each other. And hopefully the text will clarify things. In some ways it would have been better to just make this all one post, but I thought it would be really TL/DR.Report
I’m looking forward to Part 2 of this, James. One random thought – to what extent do you think concerns about rent-seeking could/would be addressed by restoring the Privileges and Immunities clause of the 14th Amendment and overruling the Slaughterhouse Cases?Report
Oh, hell, Mark, I don’t know. P&I was eviscerated so quickly it’s got precious little interpretive meaning, right? And honestly I haven’t thought about that area of Con Law in close to a decade. I see where you’re going, though, and it’s a damn good question. I’d love to see someone better suited than I (hint hint) follow up on that.Report
Clint Bolick covered this potentiality well in David’s Hammer. But then he waxed rhapsodic about Clarence Thomas, so he lost me immediately after he had won me, because what Bolick longs for in a re-interpretation of the P&I clause is precisely the opposite of those dimensions of Thomas’ jurisprudence which Bolick so admires: you cannot simultaneously apply an intentionally-narrow reading of the original meaning of phrases within their historical context with an intentionally-expansive reading of those same phrases when applied to contemporary issues.Report
Bolick? Hmm, yesterday I was envying Richie Incognito’s name, thinking how cool it would be to be Dr. Incognito. Now I’m thinking it’d be great to be Dr. Bollocks.Report
Yeah, but then you could Never get students to Mind you.Report
Well since there’s essentially no interpretive history, I don’t know that a background in Con Law is terribly relevant! I’m quite busy the next week or so, so I doubt I’ll have time to put anything together. I will say that my general view is that most of what now falls under substantive due process and equal protection concepts would be covered by a broad reading of the P&I clause, but also quite a bit of rent-granting activities as well; indeed, the original Slaughterhouse Cases dealt with what amounted to a state-granted monopoly, and had those cases rendered anything approaching a reasonable interpretation of the P&I clause, the logic would have almost certainly needed to extend to place hefty limitations on licensing laws. I doubt it would have extended to tariffs or other matters of federal law, but I think it would have placed a hefty limit on the amount and success of rent-seeking on the state and local levels.Report
Well played, Glyph. Well played.Report
I actually agree with some of James’ underlying complaints about rent-seeking.
I question 2 parts, though. One, the underlying assumptions about rent seeking, and two, how this decision should be taken.
First is the assumption that restricting consumer choice is automatically bad. Or rather, that it can be assumed to be a worse outcome for society than whatever benefit the restriction produces.
For instance, would society be better off if people had the freedom to get haircuts in unregulated salons? Maybe- I’m willing to explore that option.
But we are balancing one benefit- (cheaper haircuts)- against another- (greater safety). I don’t understand why one benefit can be assumed to always be worse than the other.
Second how should society make a decision like this?
Should it be a municipal decision, a state decision, a federal decision? Should it be a simple majority, or a constitutional change?
I think it is instructive that the constitution is mostly silent on economic matters, leaving that flexibility to future congresses and states to sort out.
Why the jump to a consitutional change?
I would think that the constitution should be limited to the most important, basic freedoms we need; I can’t see how getting a cheap haircut qualifies. Or, to be more charitable, how consumers paying more for corn is anything more than an unwise economic policy which properly belongs in the hands of Congress.Report
is the assumption that restricting consumer choice is automatically bad.
This derives naturally from the assumptions that value is subjective and that people seek value gains–as they subjectively define them, which under the first assumption is the only way they can be defined–in their actions.
1. If you don’t share the first assumption, then we’re stuck on debate about how value can be objectively defined for diverse individuals, and there’s probably no getting past it.
2. If you don’t share the second assumption, you run into the problem of figuring out how beings that can’t properly define their own interests can manage to properly define the interests of others.
3. If you do share those assumptions (even with the caveat that people aren’t perfectly rational, just generally so), the primary objection, I think, is pragmatic, that in some cases individuals will not be able to access the information they need to make good decisions. But that puts us in the realm of fraud and of mandating information disclosure, neither of which count as rent-seeking (in fact a law protecting a firm from having to disclose information would be more clearly a case of creating rents than a law that corrects for a market failure by making relevant information available).
Why the jump to a consitutional change?
Because statutory changes would have to involve changing every rent-providing statute, and any general anti-rent statute could be circumvented by any other statute just invoking an exception to it.
I can’t see how getting a cheap haircut qualifies. Or, to be more charitable, how consumers paying more for corn is anything more than an unwise economic policy which properly belongs in the hands of Congress.
Yes, you could hardly have been less charitable with the first example, which causes me to question your sincerity here. Your second example is better, but incomplete. Not only are the economic issues much larger than you’re recognizing, there are questions of justice here. As vague as the estimates of the drag on the economy from rent-seeking policies are, they are uniformly very large. We are not just talking about paying a bit more for corn and haircuts, but about creating a vast restraint on the growth of the economy. That vast restraint means less job creation and less wealth growth. And as with the higher prices, those costs fall disproportionately on the least well off in our society. Milk price floors and subsidies keep the price of milk high–my kids go through about a gallon a day, but we can afford it; can the poorer families afford it?
In my opinion, those who are overly casual about policies that raise prices and drag on the economy are in conflict with their concern for the less well off. They support policies that actively harm the poor. I don’t in any remote way think they do this consciously; I just think they really misunderstand the issue, and end up putting the interests of select portions of the middle and upper classes against the interests of the rest of the middle class and the lower classes.Report
True, I don’t share your first assumptions. When you say “people”seek value gains”, who are you talking about? People in the singular, or the collective? In other words, if one person values cheaper products, while the majority values safer products, whose values should prevail? Why?
And saying that a constitional change is needed because a simple law can be circumvented by another law, seems like you want to put your policy preferences safely out of the reach of the majority.
A wise choice, if we were really discussing fundamental rights. I just don’t think this qualifies.
The appeals to economic justice fall flat- this is the old false dilemma argument that we must strip away unions/ minimum wages/ environmental protections/ child labor laws/ indentured servitude/ what-have-you so as to create economic vitality “for the Poors”.
It has never been shown to achieve those aims, and in fact the opposite polices have every bit as much empirical data to support them.Report
True, I don’t share your first assumptions. When you say “people”seek value gains”, who are you talking about? People in the singular, or the collective? In other words, if one person values cheaper products, while the majority values safer products, whose values should prevail? Why?
The “collective” doesn’t seek anything. Individuals do, through mechanisms we euphemistically call the collective. The “collective” has no mind, therefore it has no will, no preference, no conscience. What we call the “collective will” is just an artefact of the way we aggregate individual preferences, and voting theory shows us that by changing the way we aggregate preferences we can change the apparent preferences of this collective.
As to safety, it depends what kind we’re talking about, right? If I want to drink absinthe and risk going blind, it’s nobody else’s business. If I want to drink anything alcoholic and go out and drive, it’s everybody else’s business. General safety regulations won’t be affected by this. You should ask what I mean, rather than jumping to wild conclusions.
And saying that a constitional change is needed because a simple law can be circumvented by another law, seems like you want to put your policy preferences safely out of the reach of the majority.
Of course it is! That’s what we use constitutions for, and there’s nothing illegitimate about that. It’s more than fair to oppose putting this particular policy out of reach of the majority, but surely you aren’t arguing against the general idea that it’s legitimate to put some policies out of reach of the majority?
The appeals to economic justice fall flat- this is the old false dilemma argument that we must strip away unions/ minimum wages/ environmental protections/ child labor laws/ indentured servitude/ what-have-you so as to create economic vitality “for the Poors”.
That’s not an argument, it’s a smear. And a false one.Report
@jm3z-aitch, on the subjectivity of value. Isn’t the entire idea of consumer culture and mass entertainment is that basically you can get lots of people to value and want the same things and make money off this? Some people have unique tastes but in many instances people do place values on the same things. Thats why we have massive markets for cars, houses, fashionable clothing, tickets for sports, concerts, and movies; etc. To a large extent, many businesses seek more that a little effectively to make value objective rather than subjective.
Since you do have a situation where millions of people more or less put similar value on similar products and events, it does seem that you could use law to favor safety over cheap hair cuts.Report
Lee,
If that many people prefer safe hair cuts over cheap haircuts, why wouldn’t the market respond? You could set up as a stylist with a big sign announcing, “Safest haircuts in town! Professionally trained and certified! Is risking your eyesight to hacks untrained in chemical safety really worth saving a dollar?”
If you don’t get business, then people don’t really want the safety, even if they say they do. And that’s one of the problems of legislating these things; what we say we value does not always equal what our revealed preferences show we value.
Of course none of this is to say that general safety regulations would be disallowed. If the safety regulations were so stringent that their purpose and effect was just to limit who could provide the service (somewhat, although not perfectly, analogous to abortion rules requiring they be done by doctors with permitting privileges (which has an entirely non-rent-seeking intent, but effectively would create rents anyway), then it goes too far. But that’s not to say you couldn’t have a law requiring that you couldn’t apply chemical dyes to hair without providing eye protection (or whatever is a reasonable rule on that).Report
@jm3z-aitch, what I’m challenging is the idea that value is subjective. To a certain extent it is. Some people have different tastes or least but different priority or value on different things. However, there is enough commonality in taste to assume that at least some value is objective. Its the entire basis of consumer capitalism, that you can get millions of people to value and want the same things and make money off of this.
The market does respond to consumer demands kind of, the problem is that a lot of consumer demands are contradictory. They don’t necessarily want safe haircuts over cheap haircuts. What most people want is quality haircuts or really any product or service for cheap regardless of the product or service in question. The problem is that quality isn’t cheap.Report
Lee,
We need to think statistically, because that’s what the businesses are doing. They don’t actually say value is objective, so we can charge this price. They say value is subjective, but when subjective values are averaged we estimate (cross our fingers and wish real hard) that this price will maximize the amount we receive, even though we know that a bunch of those people would actually pay a lot more. (Or, if we can manage it, we’ll engage in price discrimination, as with airline ticket pricing.)
But I don’t think that really matters to the issue of rents. Because even if the objective value of a widget is $10, people would still prefer that they have the option of paying a competing supplier $9, and so by preventing that other supplier from competing, you are forcefully transferring $1 of consumer surplus from each consumer to the privileged producer.
the problem is that a lot of consumer demands are contradictory.
Oh, sure. We all want everything and we don’t want to pay much for it. I have a vivid memory from when I worked in a building supply store of dealing with two men who had inherited a house and planned to rent it out. They needed vinyl sheet flooring, and didn’t want to pay much because they were persuaded tenants would tear it up, but didn’t want the cheaper stuff because it would be too easy for tenants to tear up. Couple of damn fools presenting a real life case of your claim.
But the existence of the problem does not mean a regulatory solution is meaningful. If these two guys are conflicted about which course of action to take, would a regulation either way necessarily resolve it in a way that maximizes their value? If I want a haircut that’s both cheap and safe, does a rule saying I must have just the one or the other necessarily maximize my value? And that’s where the issue of subjective value comes back full force. If in fact those values were objective, so that everyone–if they just rightly understood themselves–would choose the same way, then a regulation might (assuming it wasn’t elicited through lobbying by the producers that knew they weren’t providing the higher value, and how do you ensure prevention of that?). But if value is subjective, then some people would be better off doing one thing, and some would be better off doing the other, and the regulation will help some to their better outcome but lead others to their worst outcome.
Actually, even with objective value a firm rule could lead some to the wrong decision because not all consumers of the same item are in the same position. E.g., my friend bought a tankless water heater, and is trying to persuade me to do the same thing because I need to buy a new water heater, too. And looking just at the water heater cost in isolation, I think that’s financially the sound choice, even though the tankless heater has a much larger upfront cost. But I can’t look at the water heater in isolation. I also need to add insulation to my home, and I need to upgrade some windows that are perhaps a century old or close to. Am I better off expending that extra upfront on the water heater or using that money to replace windows, or to finish insulating my house properly? Because our opportunity costs differ, my friend and I perhaps should make different choices, even though for both of us a tankless WH would be–considering only that purchase–better than buying a traditional tank WH.Report
As I mentioned, putting certain basic freedoms out of the reach of simple majorities is wise.
Taking a personal economic policy preference and enshrining it up there with things like freedom of religion and speech is not just unwise, but fundamentally unjust.
Your comments about the collective, taken together with your comments on the previus thread are interesting. The constitution is explicitly written in the name of We the People, and the concept of democracy itself assumes that the will of the majority is legitimate.
Your comments seem to be attacking this premise.Report
LWA,
First, our understanding of the disjunction between individual rationality and collective rationality, about the impossibility of ensuring an accurate aggregation of preferences, was developed post-1787. This is well fleshed out in the rational choice and public choice literatures.
Second, the Constitution actually assumes that the will of temporary majorities is not necessarily legitimate. In fact the Constitution is clearly un-democratic in a number of ways. This is clearly fleshed out in the constitutional theory and constitutional law literatures.
And of course a constitutional amendment that actually received the approval of the multiple supermajorities required–2/3 of the House, 2/3 of the Senate, and 3/4 of the people–would be as legitimate as any other amendment, and so would be neither more no less democratic in that aspect than, say, the income tax amendment.
As for saying ending rent-seeking is “unjust,” I say forcing the poor to pay more so the middle class can have higher incomes and the upper class can have bigger dividends is pretty damned unjust, and I can’t help but notice you have still failed to make anything approaching a substantive argument about why that is not unjust, or how eliminating that would be unjust. But at least you’ve improved from trying to falsely smear me to just making wholly unsubstantiated assertions,
And that’s a more polite answer than you deserve, given that prior attempt to falsely smear me without making a serious rebuttal. Apparently you lack any substantive knowledge of economics, rational choice and public choice theory, and constitutional theory. That’s fine; no doubt you know many fields of which I am wholly ignorant. But unlike you I’m not going to try to prate to you about those fields and then lie about your intent if you disagree with my ignorant interpretations of them.Report
LWA,
A good primer on the problems of preference aggregation via voting. The effects of how different voting systems could result in different “group preferences” without any individual changing their preference at all were first figured out in France in the 1800s, and brought into prominence by U.S. scholars in the mid 20th century. It’s not some new and unconfirmed theory. Plus there’s the potential for strategic voting to manipulate outcomes, which is another subset of voting theory that demonstrates the limits of democracy in representing “group” preference–there’s lots of literature on that, too. so the idea that we can meaningfully measure the group’s preference is essentially mathematically impossible. Can’t be done with any certainty, period. That’s not even seriously debated anymore.
That’s not to say we have a better method, so those of us who know that problem prefer democracy like mad to dictatorial rule, which deviates even farther from group preference. That’s why we tend to prefer classical liberalism, which is not “un”-democratic, but also tend to set more issues off from democratic decison-making than your approach, which to me appears to be a version of populism. A highly recommended book is William Riker’s Liberalism Against Populism: A Confrontation Between the Theory of Democracy and the Theory of Social Choice. It’s a classic work, and crucial for anyone defending such extensive democracy to confront if they want to be able to meaningfully defend their position.
And that’s all assuming the public is actually consulted; it doesn’t even consider the prevalence of policies passed by lobbying, not by any reference to actual group preference. Vanishingly few rent-seeking policies represent even a measured public preference, much less a considered public preference, as opposed to being a product of lobbying by specialized interests. Consequently, you are inadvertently defending as “democratic” some of the most undemocratic policies in our polity; policies that concentrate benefits for a few by distributing the costs among the many, policies that allow corporations to screw consumers right, left, and center. I don’t see many liberals defending those policies. I’m sure you wouldn’t if you understood them.Report
Your reply illustrates exactly why I say that libertarians “struggle” with the concept of democracy and majority rule.
“Struggle” is a fitting word, since you seem to be unresolved as to how you view it.
For example, your posts can fairly be summed up as “Majority rule has a lot of problems!”; (Which is actually true, I don’t disagree with it)
But then you piroutte to “But we don’t have anything better!”.
Well, ok, then!
Besides, there is quite a bit of difference between “establishing the true will of the majority is difficult” versus “there is no such thing as the collective will”, don’t you think? However flawed the process is, it should be reasonable to conclude that the will of the people does exist, and can be legitimately established. Otherwise, government itself lacks legitimacy, which I don’t think you are saying. So you seem unresolved.
Yes, the constitution limits the democratic process- but it doesn’t invalidate it. A bill passed by a simple majority is assumed to be legitimate. And the government’s authority to pass bills and enforce them (coercively, even!) is also entirely legitimate, all done with officials elected by simple majorities.
The constitution is intended to describe and limit the powers of government- it establishes minimum basic rights that can’t be infringed. Speech, religion, privacy.
You are elevating a personal economic preference to that level- establishing that licensing, subsidies and tarrifs are somehow an infringement on a right- what right, I’m not sure. Cheaper stuff? Economic efficiency? What basic human right is being protected here?Report
LWA,
Since you’ve forgone the false claims about my motives, I’ll engage you considerately. I hope you’ve noticed that of all the comments yesterday, you were the only one who took that low road.
This is going to be long, but I think I need to get extensive to explain why your objection to my struggle with the idea of democracy is a totally spurious one, and why it’s more intellectually justifiable struggle with it than to not. And, I’m sorry to say, you’ve walked right into an area where I do in fact have special expertise. This is not an ideological position for me, but a primary subject of professional study for me since I was a registered Green in California.
Your reply illustrates exactly why I say that libertarians “struggle” with the concept of democracy and majority rule.
Of course we do. And it’s odd to me that you say that as though it’s a bad thing. Democracy is problematic, so the only truly honest thing to do is to intellectually struggle with its problems. We have good provenance for that struggling with democracy–we’re following in the footsteps of the Framers of the Constitution. Read Madison in Federalist 10:
He’s struggling with the concepts of democracy and majority rule. Was Madison a bad person?
Keep in mind, he was the key figure in the design of the Constitution. So let’s look at what he and the other Framers put together. The Constitution is in many ways very undemocratic. It reserves a base of popular government, in the House of Reps–the “people’s house”–the only portion directly elected by the people, which they viewed as the mainspring of the system. But the Senate represented the states as separate political units, without regard for the political equality of individuals that proper democracy requires. And the idea of direct election of the president was explicitly rejected by vote in the Constitutional Convention, multiple times. And of course the public has no vote on the members of the federal judiciary, and they are absolutely protected from the will of the people.
We did democratize in some ways over the years. We extended the vote to non-property owning white men, then to all races, then to women, then did direct election of senators, then we got more serious about ensuring all races could vote. There’s no conflict in me on that; those are all good things (heck, I would extend the vote to legal residents even–I’m a virtual radical democrat on that–and believe that ex-felons are being unconstitutionally deprived of the right to vote). The hard part of democracy is not >who should vote, but what should they be allowed to vote on.
But our system is still imperfectly democratic. Although we directly vote for Senators now, there is nothing like equal representation in the Senate. That could theoretically be justified when it was state legislatures selecting them, and they could be said to be representatives of the state governments, which were all equally represented (e.g., as China, the U.S., France, etc., are equally represented in the UN). But with direct election we bastardized that theory and now have the people voting for legislators who represent them unequally.
And the House of Representatives, which is supposed to have equal representation, no longer does. We’ve been stuck at 435 Representatives since ~1911, when the U.S. had 1/3 the population, and now we don’t have enough to apportion them for equal representation. The smallest states are now not only over-represented in the Senate, but in the House as well. Mathematically,they should have less than 1 representative, to make things equal. That’s not constitutionally allowable, so we need to increase our number of Representatives. Again, I have no democratic problems there–I have been arguing this point for a number of years now. Oddly, I find surprisingly little agreement. People worry about the House getting too big. And it’s true that the larger it gets the more difficult it is to organize it for good functional operation–that is in fact a problem with large scale democracy, and so as an objection it ought to be taken seriously. And although I ultimately reject it as an objection, because I think that problem is less serious than the problem of unequal representation, I did intellectually struggle with this democratic problem, because that’s what people who study an issue seriously do.
And then we have judicial review, which experts who love clunky nomenclature like to call “the countermajoritarian difficulty.” Over and over we have courts at the federal and state levels flatly overturning the will of the people. That is explicitly undemocratic. And yet that feature was built into our system because it’s been recognized from the beginning that some things just aren’t appropriate for regular democratic decision-making. As I said, the tough issue in democracy is which issues are and which are not appropriate for that. I have no problem with you disagreeing about whether this particular issue is suitable for democratic decision-making, but when someone suggests putting an issue out of the reach of regular democratic decision-making–as long as they’re not proposing to deny participation rights to anyone, and I’m not–that’s well within the norms of the American political system, and to claim otherwise is to demonstrate poor understanding of our system.
Now let’s talk about direct democracy in the states. You may not be aware of the debate about this issue. Much of that direct democracy developed during the progressive era, when there was concern that corporate political influences were dominating, and the goal was to move the decision-making past corrupted legislators and directly to the people. That’s where we get initiative and referenda systems. Democracy, it seemed, had gone awry, and the solution seemed to be more democracy. But the initiative and referenda have been problematic. No serious observer could call them an unqualified success. And it’s very doubtful that states that have them can, as a group, be said to be better governened than those without them. Too often each issue is considered in isolation, so that the cumulative and interactive effects of multiple initiatives over the years snarls the potential for good political management of the polity. And too often initiatives are promoted by specialized and corporate interests–Madison’s factions, the same ones the system was intended to protect the public against.
At the same time, there was in many states a desire to separate state and local politics from the winds of national politics led to separating elections, so that now the public is faced with multiple election days. It’s often said by political scientists that we have a “surfeit of democracy.” This causes turnout to be very low, because people are being asked to turn out too often, and with too little at stake. This allows well-organized minority factions to win, particularly on initiatives that are up for vote in those low-turnout elections. We cannot justify that as the will of the people; it’s not truly majoritarian, even though it’s democratic.
And then there is the problem of vote aggregation. I mentioned it yesterday, and you didn’t even attempt to address it. This suggests you’d rather ignore difficulties with democracy than make the effort to think about them, but ignoring them doesn’t make them go away. I have an assignment I like to give students, where there is a group of voters and a group of candidates, and 5 different–and legitimate–methods of counting the vote. Each method produces a different winner. It’s highly stylized, of course, but for those willing to think about it, that’s a very troubling outcome. Even though no individual in the group changes their preference, we can produce 5 different outcomes that can each with equal legitimacy be called the group preference. What that means is the outcome of a “democratic” vote can be manipulated by whomever can determine the rules (read this, for example). It also means that whatever rules we’ve selected are only producing one of many equally legitimate outcomes, so we have no sound basis for calling it “the” group preference.
That point is crucial, because you ask:
Besides, there is quite a bit of difference between “establishing the true will of the majority is difficult” versus “there is no such thing as the collective will”, don’t you think? However flawed the process is, it should be reasonable to conclude that the will of the people does exist, and can be legitimately established.
In fact these findings do mean that the very concept of “the collective will” is extremely dubious. “Collective will” is an idea that has been promulgated by political philosophers, but it’s always assumed, it’s never actually been demonstrated through any rigorous analysis. When political theorists got around to rigorously analyzing it, they found that in fact such a thing cannot be legitimately established, that what appears to be a collective will is largely an artefact of the rules used for aggregating individual preferences.
Consider the very simple example of Condorcet’s voting paradox. You have 3 people and 3 preference orders. The first letter for each is their top preference, and the last is their least preferred option.
Joe: A, B, C
Lisa: B, C, A
Kim: C, A, B
No option has a majority. No option is even the most preferred second-best. There is no collective will here. The group preference order, such as it is, is intransitive–A beats B, B beats C, and C beats A. The group is, collectively, irrational, even though each individual is rational. And here’s the real bad part–mathematically, the more voters you add and the more options you add, the more likely you are to get group preference orders that are intransitive like this.
Collectiv will is a nice fiction. It’s not impossible that it could exist in some cases. I assume that if the Russians invaded the U.S., American citizens would collectively have a rationally transitive preference order, such that “fight back” necessarily beat other options. But to assume it is generally there, or that we can generally “legitimately establish” what it is? No. Flat out, no. If you want to disagree with me on that, you need to familiarize yourself with the literature, because an argument that doesn’t deal with that literature is an argument from ignorance.
You may not like that, but you can’t just wish it away and pretend to actually know what you’re talking about.
Otherwise, government itself lacks legitimacy, which I don’t think you are saying. So you seem unresolved.
Yes, that’s a tricky one isn’t it? But there’s the difference between us. You are assuming government is necessarily legitimate. You apparently aren’t willing to confront that assumption. Many people aren’t, because it’s a serious challenge. The fact that I am, I agree, unresolved on the issue is an indicator that I take the issues seriously, rather than ignoring them.
Being unresolved on tough issues is not something to be embarrassed about. For you to imply–it seems to me–that there’s something wrong with that is an indication of your own failing. As Darwin said, “ignorance more often begets confidence than does knowledge.” To criticize someone for uncertainty is to assume that certainty is necessarily admirable, even though certainty is often a mask for lack of considered thought about an issue.
So, yes, I do struggle with the ideas of democracy and majority rule. Because anyone who hasn’t has not thought deeply about democracy and does not really understand the American political system. Struggling with these ideas is not a mark of shame; being unwilling to struggle with them is.Report
I’m going to nitpick something here. While what you say is absolutely correct some of the time, but the opposite of correct some of the time as well. The five most overrepresented states are Rhode Island (2), Wyoming (1), Nebraska (3), Iowa (4), and West Virginia (3)… but the five most underrepresented states are Montana (1), Utah (4), Delaware (1), Nevada (4), and South Dakota (1).
This does not detract from your point at all, and we are in complete agreement. I just resolved to myself I would point this out whenever I saw the implication that the House benefits small states. (The Senate, of course, is an entirely different matter.)Report
Good point, Will. I was a little careless there.Report
I don’t know. I’ll give him credit for saving us from the Borg, but his academic credentials are suspect. (I suspect I’m not the first to make that “joke.”)
More seriously, maybe it’s something I should read.Report
My best friend from grad school is a Trek fan, and regularly refers to him as Commander Riker.Report
@lwa
See also this recent post by economist Don Boudreaux (not my favorite economist, but he does know this stuff).
My point is simply that there’s too much rigorous analysis of the issue of translating a set of individual preferences into a group preferences for you to be able to justify ignoring it and simply treat “struggling with democracy and majoritarianism” as something odd and of questionable legitimacy.
(That does not, however, reflect upon your disagreement with the amendment. Disagreeing with it is entirely legitimate, even if, imo, misguided, and I will happily reconfirm my support for the legitimacy of your anti-amendment stance as often as necessary.)Report
James, you are really just repating the same point over again, in a longer more ponderous way.
Yes, we get it- it is difficult to establish the legitimate will of the people. The system can be gamed and manipulated, both by temporary passion and cynical demagogery.
Its nice to see some chin-stroking intellectual struggle going on- the mark of a finely tuned intellect. I also appreciate the homework assignment- but I already know and acknowledge that the Founders were skeptical of mob rule, as much as central authority, which is why they created a blended system of checks and balances.
Except at the end of the day, we need to pull the trigger and authorize some sort of action in some sort of direction. We either accept the legitimacy of the government or we don’t. It is a pretty binary proposition, and so far you are only evading the issue with a squid cloud of jargon and references.
When you start talking about limiting the power of the government, along with an admitted suspicion of the existance of the collective will, what becomes clear is that what you are really discussing is limiting not the power of government, but the power of your fellow citizens to act in concert with each other for the gain of the majority.
The more we talk, the more I am coming to see feudal authoritarianism lurking at the heart of the libertarian project. Except for the most radical anarchist, in the libertarian proposals, government still exists as the monopoly of power, which exists not in the service of the people, but at the service of property. Property rights are unquestionable, contracts are inviolable, and We the People are dissolved into powerless individuals.
Your proposal is a good example. It doesn’t protect any rights, (you never bothered to even name any right that is being protected) , it doesn’t empower the people in any way, it only solidifies the privilege of the holders of private power against the ability of the people to collectively challenge and redistribute it.Report
Is it, then, impossible to accept the legitimacy of the state to take some actions, but not take other actions? To accept the existence of a state as legitimate, but deem many actions of said state – even actions approved by 51% or even 68% – as being illegitimate? Or does the acceptance of the legitimacy of a state, and of democracy abstractly, necessitate sacrificing the concept of legitimate and illegitimate actions by the state (with or without the authorization of its people)?Report
Will-
Of course!
The limits of governmental authority are, as I have repeatedly said, debatable.
Debatable means a group discussion, right? Not something LWA decides, then tucks safely up away from the rabble. Becuase if that were the case, I am proposing a consitutional amendment establishing a cradle to grave social welfare system, which can only be rescinded by a 99% vote of every single state house, no take back-sies.
It is logically incoherent to assert a strong belief in property and contract rights, yet be unwilling to empower the majority with the ability to define property rights, to define the validity of contracts or be discerning about when and where these rights are defended.
So all the hand wringing uncertainty about majority rule, within a libertarian context or property rights claims, only makes me conclude that “What I claim is mine, and no one else is empowered to weigh in on that decision,” In other words, authoritarianism.Report
Is James actually arguing that there is no way for the government to take his money and spend it? Or is he arguing that there should be limitations – beyond bare democratic rule – on the control that the government can exert over the money taken, and how money is redirected within the economy?Report
This argument-
“that there should be limitations – beyond bare democratic rule – on the control that the government can exert over the money taken”
even absent any libertarian context, even on its own face, is objectionable and open to accusations of authoritarianism.
Contrary to the posts above, the Founders did not retain ambivalence about majority rule. They struggled with it, debated its limits, but ultimately they firmly, decisively affirmed majority rule as the basis for nearly everything the government does. It was checked by two separate houses, and executive veto, and court oversight, true. But it is the foundation of virtually all government action.
The supermajority envisioned by this proposal- 2/3 of both houses and 3/4 of the states- was reserved only for the most critical and important decisions of essential human liberty or the fundamental structure of the government.Even the decision to go to war was easier to obtain.
Spending was explicitly given to the lower house, and ruled by majority vote.
Taking away the people’s ability to readily change that confers privilege upon those with private wealth- it makes their power superior to the power of the people to check.Report
You left off part of my sentence. No matter, though. I have a clear idea of your point of view and will keep it in mind in any future engagements.Report
You are elevating a personal economic preference to that level- establishing that licensing, subsidies and tarrifs are somehow an infringement on a right
Funning the left has no problem with the idea that overly restrictive licensing is of violation of rights when it comes to doctors who provide abortions. I’m sure if Texas passed a price control on a price control on abortions the left would argue that abortion is the one and only part of the economy to states can’t put price control on.Report
even absent any libertarian context, even on its own face, is objectionable and open to accusations of authoritarianism.
Anything is open to accusations of anything. Speech is not actually constrained by reason.Report
@lwa
There’s so much wrong here that I could fisk the whole thing. I’m going to try to stick to just a few points that clearly demonstrate that you have not made any honest attempt to understand.
Yes, we get it- it is difficult to establish the legitimate will of the people.
No. I did not say simply that it is “difficult,” but that there is no certain “will of the people.” And you have made no effort either to rebut that claim or to demonstrate that there actually is such a thing as the will of the people. You’ve made assertions, but no arguments.
Its nice to see some chin-stroking intellectual struggle going on- the mark of a finely tuned intellect.
This is pure anti-intellectualism. It’s akin to flat-eartherism and creationism. You don’t want to be bothered to learn from people who have studied the issue more seriously than you…why? Because people who’ve studied the issue more seriously than you couldn’t possibly have figured out anything worth knowing? Or because it’s inconvenient to your comfortable beliefs?
We either accept the legitimacy of the government or we don’t. It is a pretty binary proposition,
Nonsense. Again you just make an assertion and you utterly fail to provide one bit of argumentative support for it. Of course accepting the legitimacy of government is not binary. First, you–like anyone else–accept it as legitimate for government to do some things, but do not accept it as legitimate for it to do other things. Beyond that, while the concept of government legitimacy is still very poorly understood, it’s abundantly evident that people–taken around the world, in different polities–grant varying levels of legitimacy to their governments, and that those levels can rise and fall. No, it’s binary only in the mind of someone who has never bothered to seriously consider the subject.
When you start talking about limiting the power of the government, along with an admitted suspicion of the existance of the collective will, what becomes clear is that what you are really discussing is limiting not the power of government, but the power of your fellow citizens to act in concert with each other for the gain of the majority.
There are multiple ways this is wrong.
This is false, in that I have absolutely no problem with people working together for mutual gain, provided they’re not harming others. And on this very page I’ve said that I support general safety laws, which I think you have to agree would be a consequence of my fellow citizens acting in concert with each other for the gain of the majority, no? So your claim about my intent and meaning is false.
That’s twice, on this page, LWA, that you’ve made false claims about my intent. I reiterate that you’re the only person on this page who’s done so, and you’ve now done so twice. That in itself is sufficient reason to call you out as someone who appears to have no intent in arguing in good faith.
Second, you assume that collective decisions necessarily work for the gain of the majority. But that’s what’s being debated here, so you can’t continue to use it as an assumption. If you don’t actively defend it with a substantive argument, you’re not arguing in good faith.
Third, the specific subject matter is rent-seeking, which as a matter of fact nearly always benefits a discrete minority. And I have specifically stated that any policy that provides a broad benefit would surely stand under my proposed amendment, so clearly I am only targeting benefits–privileges, in fact, as I have specified–that are for the benefit of minorities, not the majority. That you could get this wrong, in the face of clear and direct language disproving it, demonstrates that you have not yet bothered to understand what you are arguing against.
The more we talk, the more I am coming to see feudal authoritarianism lurking at the heart of the libertarian project. Except for the most radical anarchist, in the libertarian proposals, government still exists as the monopoly of power, which exists not in the service of the people, but at the service of property. Property rights are unquestionable, contracts are inviolable, and We the People are dissolved into powerless individuals.
So banning government from forcing you to pay me $10 for a widget, instead of allowing you to instead buy a $9 widget from someone else, is authoritarian? Sorry, but I can’t follow that logic. And as to the idea that government exists as a monopoly of power to service property, I’ll set aside whether this is an accurate portrayal of libertarianism, and just point out that this has absolutely nothing to do with my proposed amendment. You’re going wildly off-base after a straw man here; unable to mount a coherent rebuttal of my critique of rent-seeking you just resort to that cheap and easy tactic of bashing libertarianism. That’s….impressive.
Your proposal is a good example. It doesn’t protect any rights, (you never bothered to even name any right that is being protected) , it doesn’t empower the people in any way, it only solidifies the privilege of the holders of private power against the ability of the people to collectively challenge and redistribute it.
Well, wow. Let’s take these claims one by one in the context of my proposal, to show just how amazingly dead wrong you are.
it doesn’t protect any rights
It ensures that John Q. Citizen can choose for himself whether to choose from a lower price competitor, and use the savings toward some other benefit for himself (whether that’s savings or other consumption), rather than being told he must buy from a sole provider at a higher price. It also protects the right of the would-be competitor to enter into a market and try to succeed by providing an alternative that people find more desirable.
it doesn’t empower the people in any way,
Several years back a policy analyst wrote an article about anti-jitney laws in Detroit. The limitations on the number of cabs, and the ban on jitneys (unofficial cabbies, folks who used their own cars for hire to take people around), meant that many poor people in Detroit had a very difficult time getting cab service that they could afford and that would even come to their neighborhood. So they relied on illegal jitneys. I’d say breaking the cab oligopoly and allowing jitneys to operate legally would empower these people, both the independent businessmen driving them and the poor people who would have more service available.
it only solidifies the privilege of the holders of private power against the ability of the people to collectively challenge and redistribute it
This demonstrates that you have not yet bothered to understand what rent-seeking is. Rent-seeing is the privilege of holding private power. And my proposal is explicitly a proposal to break down that power. If a business can no longer go to government and ask for special protections against competition, private power is diminished. So this proposal does the precise opposite of solidifying private power.
LWA, please drop the anti-intellectualism. Make a serious effort to understand what rent-seeking is, and to understand how it solidifies private power and harms the poor most of all. Make a serious effort to understand the significance and meaning of the voting choice literature. But as long as you repeatedly demonstrate that you understand neither of those things, and are not interested in understanding how those are relevant to your beliefs, then I will not give you any further attention. I am especially unwilling to give you any further attention as you have now twice on this page made false claims about my intentions, adding on to past false claims you have made about me. I feel no compunction to grant even a modicum of respect to the type of person who would do that instead of arguing in good faith.Report
This argument-
“that there should be limitations – beyond bare democratic rule – on the control that the government can exert over the money taken”
even absent any libertarian context, even on its own face, is objectionable and open to accusations of authoritarianism.
OK, set aside the fact that although I’m being reference, let’s take a serious look at this, and we can see just how little thought has gone into this claim.
First, let’s go to Article 1, section 8, of the ol’ U.S. Constitution, where it says:
To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years/
Voila, we have a limitation on the control government can exert over the money it takes that, being constitutional, is indisputably beyond “bare democratic control”! So, is that clause of the Constitution really “objectionable and open to accusations of authoritarianism”?
Now, let’s go to the First Amendment, which bans the establishment of religion. As interpreted by the Supreme Court, this means no government money can be used to support churches or even religious K-12 schools (except in certain educational, non-religous purposes). So, is the First Amendment “objectionable and open to accusations of authoritarianism”? To avoid accusations of authoritarianism, do we need to ensure that government can use our tax dollars to support religion, as long as their doing so is democratically approved?
Now, unlike when LWA speaks of me, I’m not going to lie about him and say that such absurdities are his intent. They’re just the necessary consequence of his “logic” that any constraint beyond bare democratic rule is open to accusations of authoritarianism.Report
That comment should have begun,
“set aside the fact that although I’m being referenced, those words were not mine”
Man, with that and all my missed end tags today, I’m on a real roll. How can I ever again badger my students about editing without feeling hypocritical?Report
One other point: to some degree considerations analogous to property rights and fair play are at stake. Consider the dispute in Kelo, a municipal government abuses powers of eminent domain to convey someone’s property to a real estate developer. Adjacent to that is the use of general revenues to distribute grants to a variety of politically connected sectors: real estate development, agribusiness, and higher education are the big beneficiaries. Adjacent to that is taxing x more severely to grant abatements to sector y. Real estate and extractive industries are the big beneficiaries.Report
Ok, this isn’t my area…. be kind.
“rent (aka “economic rent”) is a payment greater than what is needed to keep some resource (whether land, labor, equipment or entrepreneuer) in its present use”
I’m getting confused between how this effects a particular worker property vs. some worker or property. If I want this particular flood plane protected for agriculture and must pay the current owner some premium to keep it as such it’s not rent. If I take the product, say apples, and claim that any amount I pay over the global market of quality apples is rent. I’m confused.Report
I’m not sure I understand, so if this mis-states your example, please correct me.
The “extra” amount you must pay the farmer may indeed be economic rent that flows into his pocket. But that’s a product of your desire to use the property for an activity that requires extra costs over the alternative activity (just being a flood plain, which I imagine doesn’t cost much to implement). That’s not the same as the government crafting a policy that creates rent for the farmer.
I’m not trying to eliminate all rent, necessarily. I.e., if I create a new product that everybody wants, and nobody else (initially) manages to create an imitation that people are willing to buy, I’m actually getting (probably temporary) monopoly rents; but that’s ok because it’s just a matter of the market taking some time to catch up, and it’s actually the rents that are stimulating market competition (through envious greed of my delightful rents). I’m only targeting rents that are created as a matter of public policy, and that actually serve to stifle market competition.
Does that help, or did I just muddy things even more?Report
@jm3z-aitch I think it helps. Would you say that in a case where privatization leads to greater costs, the additional costs would be rent?Report
Well, in most cases where privatization (or as I prefer, contracting out, since we’re nearly always talking about a service that is still publicly paid for) is done correctly, it actually lowers costs, so I don’t think this would be a common case. But it’s not an impossibility, so I’ll go beyond my objection and give it a fairer answer. 😉
One of two things could be happening when contracting out costs more. First, it could be because the structure of the public budget hid the true cost of the activity, so that when contracted out it’s not actually a higher cost. Second, it could in fact be a truly higher cost, in which case it probably would involve rents. My guess is that this would occur only in cases where the bidding process was improperly done, because real competitive bidding should–at least in theory!–compete away the rents.
For example, my wife’s hometown “privatized” their library. But there’s apparently only one private library operating firm, and the bid was designed to their tastes. I’m pretty sure there’s some rents involved there.
Or here’s another example. In the hoary past, the lodging concession in Yellowstone National Park was given as a long-term (and possibly no-bid) contract with few constraints on the concessionaire. The properties were not well-maintained, customer service was not high quality, etc., etc. The NPS learned over time, and today there is a true competitive bidding process, with the terms of the contact clearly defined ahead of time (which are now structured to clearly provide for good care and upkeep of the public’s/NPS’s properties in the park), and shorter term lengths so there is the real prospect for turnover of the contract holder (which has in fact happened). A lot, if not all, of the rents are now competed away. I imagine my amendment would effectively require that kind of process, as opposed to the old crony process, which would be clearly challengeable.Report
@jm3z-aitch Those are some excellent examples of the type of thing I was thinking. In general if the inefficiencies of government is less than the return on investment a private entity considers a cost of business then the difference would be rent.
Another example that highlights a different societal cost would be private prisons. By providing a profit motive for incarcerating citizens there is incentive to find more reasons to lock people up with their connected downstream costs. These additional costs would then be rents?Report
Cascadian,
Agreed, wholeheartedly, on private prisons. I’m a big fan of contracting out, or more precisely, of experimenting with contracting out different services to find the most efficient way of providing them to the public. E.g., from my experience in Yellowstone, I’m familiar with the campgrounds both when the NPS ran them and when they were farmed out to a private concession. It’s not that the NPS are screwups, but that lodging is outside their core competencies and the political nature of their funding dictated that their attention go elsewhere. Contracting out the management of the campground has improved quality and service to the public.
So I’ll admit I supported experimenting with private prisons. But from my perspective it’s been a failed experiment with terrible outcomes. Not only has it promoted rent-seeking (and it’s a lot harder to change prison contractors than lodging contractors), but it’s come not just via extracting more money from people, but from lobbying for longer sentences, at the expense of people’s lives. It’s horrible. As libertarian as I am, I agree that there are certain core functions that need to be done by public agencies. Not that they’ll be perfect, or even anything approaching idea (I don’t think anyone could argue that public prisons have ever been anything like ideal), but they’ll be significantly less bad.Report
Why the jump to a consitutional change?
See the federal tax code. Politicians cannot be trusted with discretion over certain questions.Report
Probably unwise to enshrine economic theories into the Constitution, particularly dubious ones. Among other things, patents and tariffs are under some conditions considered good economic policies by many economists, as is the establishment of legal monopolies for certain utilities. One can argue the benefits in each specific case, but foreclosing the argument using a constitutional amendment is not how economics advances.Report
You have to go a decent way out toward the fringe to find economists in favour of tariffs.Report
The infant industry argument is certainly not fringe. You may disagree with it, but you don’t get to foreclose debate on it with a constitutional amendment.Report
The infant industry argument is certainly not fringe.
Do you mean among those who give serious study to such things, or among those who don’t?Report
Import substitution isn’t really all that fashionable these days, but subsidies for industries you want to encourage in the developmental model are something else entirely.Report
Do you think the views of either group should be enshrined in the Constitution?Report
Economic theories shouldn’t be part of a constitution.Report
Economic theories shouldn’t be part of a constitution.
So the Founders fished up in making the states a free trade zone through the interstate commerce clause?
That’s….interesting.Report
The interstate commerce clause could just as easily been used by the Feds to levy tariffs between states I would imagine. But let’s say Jean-Baptiste Say was the big influence on Hamilton and not Adam Smith. Would you still think having that economic theory embedded in the constitution is a great idea?Report
As to the ICC, there’s absolutely no doubt that the intent was to eliminate the screw-your-neighbor problem. That’s an economic theory, plain and simple.
Look, we’ve embedded all kinds of theories in the Constitution. A constitution is nothing but an embedding of theories. Most of them are political theories, and by god a hell of a lot of our political theories are no more well-grounded than our economic theories, and some a lot less well so.
I would not argue for embedding an economic theory that was still a subject of fierce disagreement in the profession. I’m pretty monetarist, and I think Krugman’s fiscal arguments are wrong, but no way in hell would I argue for embedding monetarism in the Constitution because the lack of concensus is really telling about whether we can reasonably commit that seriously to it. But there’s just not that much real debate in the economics profession about whether rent-seeking has negative or positive economic effects.
I think the invocation of “not embed economic theories” is simplistic. It’s labeling, not analysis. But if the underlying point is that all economic theories are too uncertain, I would simply say that I think you’re flat wrong.Report
I generally think that embedding too SPECIFIC theories into constitutions is a bad idea. This goes for everything from voting models to economics on taxation or monetary theory. Could you imagine just how hellish it would have been to deal with the fallout of the end of Bretton Woods if gold-buggery had been written into the constitution?
The overall underpinning of the constitutional systems of liberal democracies is, unsurprisingly liberal economics and liberal political theory. That seems fine to me.Report
Aren’t competitive markets a foundational touchstone of liberal economics? Wouldn’t a policy that explicitly promotes that foundation and constrains direct violations of that foundation be reasonable for consideration?
Back to the U.S. as a free trade zone/ Madison and Hamilton clearly recognized the devastating economic effects of the states’ beggar-they-neighbor policies* –do you think it was a mistake to embed a specific theory about free trade and a common currency among the states?
___________________________
*Although, oddly, they didn’t see the extension to international economics, even though the states actually were independent countries engaged in international trade. Very weird, that.Report
One, I’m not entirely sure if beggar thy neighbor policies have gone away, actually. They’re structured differently today than they were say 250 years ago, but the stuff Texas is doing viz California, or how Delaware’s incorporation laws work viz. everywhere else in the US seems as much a beggar thy neighbor policy as interstate tariffs were.
I don’t think it was a mistake to allow very broad Federal supremacy in interstate commerce and monetary issues. Had they made the language more specific, though, and say required a gold-backed currency, the results would have been substantially different and possibly disastrous despite the fact that the orthodoxies of specie convertibility was pretty much universal at the time.Report
@clawback
Among economists? Yes it is.Report
Nob,
Agreed. The ICC closed off some routes toward beggaring they neighbor, but it couldn’t close off all routes to it. And humans are infuriatingly clever at finding alternatives. My friend Dave has Dave’s law of loopholes: For every rule you create, you create two loopholes. But I think it’s arguable that the current type of beggar thy neighbor policies are at least not as bad as what was happening under the Articles, and to the extent they rely on favorable tax preferences would be further constrained under my proposed amendment (although it would not eliminate all possibilities for beggaring).Report
The theory of rent-seeking is quite different from, say, the debate between monetary and fiscal policy. Anyway, I explicitly provide for the protection of patent and copyright, as you’ll see in my next installment (although I know that would cause some potential supporters to howl that I’m not going far enough–really, I think my toughest sell is getting people to understand how comparatively moderate my idea is).Report
Finding a way to drive their pet policies through the loopholes you carve into your amendment should be fun and challenging for rent-seekers. Anyhow, patents seem like the purest type of rent-seeking possible, so if you think the theory behind rent-seeking-as-always-evil is settled, surely that theory applies to them too.Report
I cannot figure how delineating property rights constitutes ‘rent seeking’. Patent, trademark, and copyright protection is temporary and allows the producers a return on their (non-physical) product. There might be better means of accomplishing that, but it is something that moves the society to more productive endeavour, not less.Report
Taxicab licensing is just protecting the “property rights” of the medallion holders. Professional licensing just protects the “non-physical” property rights of incumbents. See what I mean? Fun and challenging.Report
clawback,
I won’t deny that intellectual property rights are a difficult issue. That’s why we have continuing debate over them. I don’t think many people really object much to our current patent regime, because it seems to work a reasonable balance between the constitutional goal of promoting “the useful arts” by ensuring inventors have an opportunity to recapture their investment (which is not rent-seeking, since “normal profits” include recovery of investment costs), and long-term monopoly rents. People object to our copyright law because it doesn’t seem to strike that balance.
Let me reiterate, my proposal is more moderate than people are expecting it to be. I think that in itself is causing some confusion, as people are interpreting me as surely proposing “THIS ONE THING THAT WILL SOLVE ALL PROBLEMS,” as that seems to be the norm for political proposals these days. I’m more humble than that.Report
Taxicab licensing is just protecting the “property rights” of the medallion holders. Professional licensing just protects the “non-physical” property rights of incumbents. See what I mean? Fun and challenging.
No, there is no virtual property incorporated into operating a taxicab. It is a service with little or nothing in innovative human capital applied to it. There is no analogue to copyright or patents. You do not discourage the production of jitney services by refusing to ration licenses. You do discourage innovation by a regime which does not allow innovators revenue. A rough analogy would be with common property resources, not cab licensure.Report
It is a ‘dubious’ economic theory that we should refrain from haphazardly formulated tax preferences to politically-connected sectoral lobbies?Report
Clawback, I think the only argument in favor of tariffs would be that such was the optimal means of revenue generation given available information sets. That does not apply in any advanced economy. The ‘infant industry’ argument is hoary and was grounded in (at one time) theoretically ill-grounded conceptions of the product cycle as a driver of international trade. It really would not apply to an advanced economy’s goods. Notions of optimal tariffs presume no retaliation.Report
My research into American agricultural products is a bit less concrete than in the Japanese case, but it’s been my experience that this behavior is due to the retail model inherent in produce delivery and the reality that the current customers for agriculture products isn’t the end-consumer, but rather 1. the distribution chains that supply major market chains and 2. the market chains themselves. That is the “cartel” behavior is actually more a result of oligopsony buyers for the product rather than oligopoly pricing by the producers of agricultural goods. One of the persistent problems for small to medium sized farm producers has been that they don’t have any control or even transparency on how farm produce pricing goes, while the companies that they deal with have substantial market power to force them to sell at or below break-even prices.
I think one of the more under-appreciated elements of supply chains is that they substantially complicate who “consumers” are within the chain of product custody. Contra your point above for misshapen products, it’s the retail chains and distribution buyers who make the calls here, rather than the producers. They demand perfect products because that’s what their stores require. It’s the negotiations between say Wal-Mart and Cargill that’s important here, not between the “orange cartel” and mom and pop shops.Report
Nob,
You’re right in your comments about supply-chains fuzzing up who the consumer is. But there’s a substantial amount of work demonstrating that these cartels are actually driven by the larger producers leading the cartelization because they have the most to gain from it. That all begins with Olson’s Logic of Collective Action. Either way, the important metric is the effect on the consumer. And the idea that a small ag producer has to sell to the major supply chains to be successful is contradicted by any number of examples in non-cartelized ag industries (Michigan apples, as one example).Report
The contradictory element of large scale retail outlets is that the interests of the end consumer, the cartel producers, and oligopsony buyers might actually all converge, all to the detriment of consumer choice, quality, small scale producers and even competition. This is particularly true on a global scale, where there’s transnational rent-seeking that in some cases results in effective rent-subsidization of one market from another one.Report
I’m skeptical, but that’s a lot to get into. It sounds like the old Wal Mart is bad for consumer argument, which I’ve consistently found unconvincing, merely elitist. That is, it always looks to me like someone trying to dictate to others what their real interests are, if only they knew it, poor souls. If I’ve read that wrongly and uncharitably, please straighten me out.
As to trans-national rent-seeking, we can’t solve all problems. I don’t see any reason to believe, though, that the costs of not responding to that with corrective subsidies would be greater than the benefit of eliminating extant domestic rent-seeking. Especially when we get past the pure economic theory of corrective subsidies and look at the political reality of how those subsidies will be decided upon, which we can be absolutely certain will have less to do with what’s justified in economic theory than with political influence. Look, for example, at the Bush steel tariffs, and the tire tariffs, or damn near any successful claim of dumping, which always relies on extremely spurious assessments of what the “real” cost of production in the other country is.
No, by opening up the door to that game the social loss is inevitably more than the social gain. I’m a hard-core public choice guy when it comes to that kind of thing. If real economic analysis guided decisionmakers, I’d be all in, but real economic analysis guides them about as much as real political philosophy does.Report
My contention isn’t that Wal Mart is bad for consumers (though I do think extensive industrialized agriculture is bad for PEOPLE because the externalities don’t appear on any of the prices) but that the way the rent allocations go in large scale production in a global supply chain have a different economic model viz the losers in a cartel structure than we had in the past. That is: the oligopoly producers and oligopsony buyers aren’t taking their rents at the expense of the consumer in terms of consumption dollars, but through a different subsidization model.
As for the transnational rent-seeking, my point is more that the reality of it might prompt extensive problems in how the US might deal with free trade issues for domestic constituent purposes than it does at the moment. To some extent providing subsidies as a corrective is a pressure release valve and a useful method for say providing concessions during free trade negotiations.Report
Nob, I agree with the second point and consider it a price worth paying. Your first point isn’t developed enough for me to follow. That may be my own sluggishness, but even so I need more help in understanding you.Report
Nob, I agree with the second point and consider it a price worth paying.
Let me expand upon that just a bit. I think every conceivable rule involves tradeoffs, so I don’t take the mere fact of some downsides as very important on its own. However I do think each downside should be exposed and considered so that we can make more meaningful estimates of the net benefit/cost of any proposed rule. So just pointing out that a downside exists makes me shrug my shoulders a bit, whereas explaining how it really is costly is more likely to make me sit up and take notice.
But from what I’ve learned studying economics, a country’s better off free trading even if others don’t (I know that’s not popular wisdom, folks, but that’s what I learned in the textbooks from the folks who’ve studies this more carefully than most of you have, so please excuse me for believing them rather than you), so negative effects on our ability to extract trade concessions, at least at first pass, don’t seem to me to be a very significant cost.Report
On point 1, I’m willing to admit that it’s kind of an undeveloped idea.
The general gist of it is that I think modern oligopolies and large businesses extract their rents in different ways than classical oligopolies. Specifically, the globalization of supply chains and the more specialized roles taken in each step of the manufacturing or production process means that certain firms can function as BOTH an oligopsony buyer and an oligopoly seller. The separation of market spaces also allows them to cross-subsidize one facet with another. So a firm might extract maximum rents as an oligopsony buyer in the country of production to reduce the impact of them being oligopoly sellers on consumers at their country of consumption.
Further the way the welfare state operates, certain sellers also get to subsidize their margins and marginal costs through social services to their employees. The figures about how much in social safety net services Wal Mart employees consume varies, but it’s of a figure that if borne entirely by Wal Mart itself, would likely result in higher prices across the board and thus require that consumers take that hit. By spreading it out into their local community, they make the oligopoly impact of their market position less visible. I’m not arguing in favor or against this particular phenomenon, simply that it appears to happen.Report
My skepticism here isn’t economic, or rather it’s not macroeconomic. It’s on whether FTAs would make much political sense for US Congress critters and presidents to push for, and US firms if they’re not able to soften the initial impact.
My point wasn’t actually that it’d hinder US ability to EXTRACT concessions, but rather that it could hinder US ability to PROVIDE concessions.Report
So a firm might extract maximum rents as an oligopsony buyer in the country of production to reduce the impact of them being oligopoly sellers on consumers at their country of consumption.
I can see that as a theory, but I’m disinclined to believe it absent some empirical evidence.
Further the way the welfare state operates, certain sellers also get to subsidize their margins and marginal costs through social services to their employees.
I think that economically that’s dead wrong, because it treats wages as set by the value of social services, which I’m pretty sure is a rather unorthodox economic theory. If the argument is correct, then if welfare disappeared, Wal Mart would have to raise wages to attract workers, but why do we assume that? For a wage to be attractive to an employee, it must be superior to their opportunity cost. For someone who is not going to be employed otherwise, the opportunity cost is the value of their (badly named, in this case) leisure time.
Since the workers accept the current wage, by definition it is currently superior to the value of their leisure time. But what would happen to the value of their leisure time in the absence of welfare? For your approach to be correct–that Wal Mart would have to pay them more–the value of their leisure time must increase as they become poorer, because it takes more pay to tempt them to labor instead of leisure. Is that logical?
And doesn’t that effectively contradict what liberals here keep saying about people in desperate straits effectively being coercible; that you can persuade them to work for less because they have nothing else? I don’t think we can have it both ways.
This isn’t my strongest area, so it’s possible I’ve erred, but it seems to me that in the absence of welfare (and minimum wage laws), Wal Mart could actually get by with paying people even less. The short version of this argument is that welfare makes people less desperate, so they can refuse even lower wages, and that lack of welfare would make them more desperate so they would have to accept even lower wages, just as the criticism of sweatshop labor says.
So I’m pretty sure the popular view that’s taken hold has it all backwards, and is based on feel-good hatred of Wal Mart rather than on any solid economic analysis.Report
t’s on whether FTAs would make much political sense for US Congress critters and presidents to push for, and US firms if they’re not able to soften the initial impact.
Oh, dear, then we’d just have to rely on explaining economic reality to them, and if they didn’t listen we could let them continue to beggar themselves for our benefit. I just don’t see the problem with that.Report
I’m going all into heterodox economics today, because ever since I started looking into value-added trade metrics, I’ve grown increasingly skeptical of traditional metrics in a modern economy. That’s not to say that they’re ALL wrong, but I think there’s a lot more very strange things going on than most trade analyses actually measure.
On the wages and services argument, from what I understand the empirical data is rather strange there, too. It’s the combination of how social services benefits are structured plus the minimum wage laws that makes Wal Mart (and McDonald’s) style wage structures sustainable by making part-time minimum wage work livable in most areas. In the absence of both, we would, in fact likely see a substantially different set of incentives playing out, particularly absent massive deflationary pressure.
Also, note that my general condemnation of sweatshop labor is different from taking advantage of low wage labor costs. My usual problem with sweatshops is a lack of redress for egregious practices, not for low wages.Report
It’s the combination of how social services benefits are structured plus the minimum wage laws that makes Wal Mart (and McDonald’s) style wage structures sustainable by making part-time minimum wage work livable in most areas.
Well, my general response to such claims is that if your policies are creating perverse incentives, then quit wasting time blaming people for reacting rationally, and change the fucking policies.
I’m pretty short-tempered about that kind of thing. As a policy guy, I’d hope that’s where you’d go, too.Report
Well I’m not really making an argument as to whether or not it’s good, I’m fine with changing the incentive structure since it’s so perverse, but I was more using it to describe the reality of how firms are very adroit at adapting to rent seeking opportunities and using socialized cost structures to hoist costs onto the public even on laws with good intentions.Report
Nob,
This sounds to me like about the third version today of the argument that “we can’t eliminate it entirely, so why try to eliminate any of it?”
Yes, people are clever little buggers that will search relentlessly for any loophole, any edge, any exploitable niche, in any policy structure. That, of course, should be the dominant lesson of any policy education. But it’s not itself an argument that eliminating this most blatant method of rent-seeking isn’t worthwhile. It is, of course, good to be aware of the limits of my proposal. I absolutely want to avoid over-selling it, because I don’t want to become the kind of dishonest political entrepreneur I despise.
But while it’s certainly possible my amendment may not be worthwhile, if it’s not then it’s not for an entirely different reason than that it won’t eliminate all forms of rent-seeking in toto.Report
That wasn’t what I was trying to get at. My point was more that some of the policy problems we look at vis-a-vis large firms and rent-seeking behavior might not as conventional in its rent-seeking behavior as we’re led to believe. I absolutely think it’s worthwhile to reduce rent-seeking by firms even if only at the margins.Report
some of the policy problems we look at vis-a-vis large firms and rent-seeking behavior might not as conventional in its rent-seeking behavior as we’re led to believe
I don’t doubt it. But *shrug.* You can’t do everything, and you shouldn’t do nothing, so I’m just trying to do something.Report
Sure. Bear in mind this is as much me puzzling out things for myself as it is about critiquing your approach.Report
That’s fair, and I’m probably not taking into account that I’m at an unfair disadvantage since I actually know where I’m going.Report
J & N (mainly J),
I was thinking about compensation incentives created by welfare tonight, too, and I came to the same (similarly tentative) conclusion as James does here – that the account of some liberals that welfare allows businesses to pay lower wages – that welfare acts as a subsidy to low-wage-paying businesses – doesn’t make much sense. It could happen that way due to some quirk of our current welfare structure, but as a first-blush matter, it seems like if you put a month’s rent in someone’s bank account at the start of every month, and you’ll find that you have to pay them more to get them to do the same work for you. (Although employers can hold employees’ jobs over their heads to get them to work the amount of hours they want out of them, so long as a minimum income leaves people in need of some employment).
I’m not exactly sure why so many liberals have taken up this critique of welfare/minimum income, except, as James says, to demonize WalMart and so forth. (In fairness, I’d say it’s more defensible given the way our welfare policies are currently structured, where they are often linked to employment, have maximum benefits over time, and the like. I can certainly see WalMart trying to figure out if these kinds of welfare structures would allow them to limit wages; I’m just less sure they actually do.) There is something admirable, I guess, about the recent liberal turn away from “pity-charity liberalism,” but in a sense it’s not much other than a traditional conservative reaction against government stepping in to help people for whom self-reliance hasn’t worked out so well. I tend to chalk this up to the effects of the deterioration of the welfare system that Clinton ushered in – the more meagre a welfare program is, the less people want to try to preserve it. It’s basically playing right into the politcal economy theories that the welfare reformers’ had in mind when they set out to shred the system.
What I am more sure about is why this reality ends up pushing the negative income tax plank that many libertarians and some conservatives occasionally make reference to supporting so far to the bottom of the agenda for institutional libertarian and conservative advocates: ensuring that people have some rent & food money in their pockets makes them less desperate, and thus less easy to entice into employment at lower and lower wages. Major corporations and rich individuals tend to be the people who fund libertarian and conservative advocacy organizations (tend – nothing exclusive here); it seems plain enough to me that broad-based guaranteed income isn’t very much in their interest). It’s an interesting question to me why libertarian think-tankers hold on to a NIT proposal at all in this context – but the reason seems fairly clear: it’s always offered as a policy that would only be agreed to in exchange for the complete dismantlement of all existing social insurance structures. That’s basically the Holy Grail, so I guess you need something to at least make your proposals politically possible in even a theoretical world.
But suffice to say, if we put, say, $500 in everyone’s bank account every month regardless of income (which I think we could and should do, perhaps with a high cutoff where the $6,000 stairstep is unlikely to change behaviors all that much – say, at $250,000 – while adjusting taxes accordingly so that for some this would essentially be a wash, and then possibly allowing the Fed to make discretionary determinations of how much of it should simply be printed in a given year), then I agree with James – you’d expect the WalMarts of the world to have to raise wages somewhat to get the same number of hours of the same quality of labor. Some liberals might object to this for reasons I don’t quite understand, but I think the vast majority of them would be very much on board if it didn’t come with the kind of political stigma that has attached to welfare and through it to liberals during the last half of the last century. Some libertarians are, from what I gather, in favor of something like this but only if it comes in exchange for certain other reforms, which is reasonable, except that if that ask is politically impossible, then the position amounts to something of a nullity, and in any case they tend to greatly de-emphasize the position. Conservatives I assume would oppose it. I’d be interested in hearing people’s reasoning about why we should or should not do this.Report
Michael,
Re: The NIT. That thought came to me, too, last night, after I went to bed. I’ve got no substantive response of any kind, but, yeah, my own argument is making me rethink the idea. I’m glad you caught that, too.Report
Though these days, the NIT is at most, the 70th best solution to any problem.Report
As for the rest, I’m more interested in the actual text of the solution. So much depends on that that it’s impossible to comment further without it.Report
Should we be leaving the power of discretionary spending in the paws of politicians anyway? It’s not really necessary. We could pay ourselves a dividend instead, sort of like Alaska’s oil dividend or Singapore’s land dividend. Fair and efficient. See more or help make it happen at progress.org.Report
Well, there are things that are reasonably considered appropriate–at least by the vastly overwhelming majority of the public–for public provision. So I think there’s at least some room for discretionary spending, even if one thinks that currently there’s far too much of it.Report
You’re right, J, and to find out how little we need to have politicians spend for us, we should create that Citizen’s Dividend. To expand it, more of us will work harder to curb waste. Won’t take too long to see we don’t need others to make our choices. Fortunately, there is some progress, as you can see at progress.org.Report
You might like this story, Jeff.
I once had a couple of my students ask me how I would reform student government. I told them I’d strip it of the power to allocate funds, but while not changing the amount of student fees just let students allocate their own fees. Their faces literally went white,* and one stuttered, “But, that would take away almost all our power!. Yes, I agreed, it would.
_________________
*Really, truly. I was astonished at just how deeply shocked they were. They were good kids, and I was concerned for a moment.Report
You’re right, J, I did enjoy your student story. If only government would evolve to a land trust that paid dividends. Help give it a push, if you like, at the site. Best,Report
“See more or help make it happen at progress.org.”
“Fortunately, there is some progress, as you can see at progress.org.”
“Help give it a push, if you like, at the site.”
ORDER THE FRIES, EARTHLING.Report
rent-seeking by firms–or more precisely, rent-granting by government
As I began to read, this is exactly the thought that popped into my head, before I came to this phrase above. Will he really propose an amendment that will outlaw natural responses to incentives created by government policy? That sounds like a position he usually criticizes others for taking… So I’ll be interested to see if the text of the proposed amendment turns out to be an anti-rent-granting amendment.
My primary doubt about the idea is whether courts would ever be up to the task of enforcing this new filter on restriction on legal law. When you first mentioned it, I thought the problem of definitions would be a big one, but assuming you’re specific enough with those to make it so that courts would know what to do with the thing, the problem shifts to whether they’d really impose the kind of broad disruption of existing political economy that this kind of constitutional limit would require. …Unless, I suppose, it was written to apply only to newly passed law, which would pretty considerably mute its effect, though over time it would still have considerable impact.
So I’ll be interested to see how you deal with those issues.Report
filter on/restriction on – take your pick.Report
James,
I like the idea of informative posts such as this, and this one is extremely professional.
Here are my top of mind thoughts on this topic, some of which may be addressed in your actual Amendment.
First, I have never liked the term “rent seeking”. It is economics jargon which translates poorly to those not educated in the discipline. I understand the history of the term, but calling something by a word which means something very different in normal usage is always a matter of concern. I actually prefer the term privilege* seeking, or more specifically privilege granting, or to be extremely specific THE GRANTING OF ECONOMIC PRIVILEGES BY GOVERNMENT.
I noticed you started using the term privilege in the body of your post, and that you stressed it was granting rather than seeking in the comments. I agree completely with this and would only suggest that they also be built into your amendment.
Second, one issue that I think privilege granting or rent seeking will run into is that some people believe that it is specifically the role of government to grant privileges to offset an inherent lack of privilege. As an example, some argue that workers need protection because they are less powerful than employers, thus the government needs to step in to right the balance. In other words, an anti rent seeking amendment runs against major threads of at least one political party, and probably all of them.
The third general issue is that just about any political change creates economic winners and losers. All kinds of seemingly benign regulations change the rules of the game and thus the payout or economic rents. A change in zoning law can reduce the future supply of homes thus increasing home prices and thus privileging existing home buyers and harming potential builders and new buyers.
Fourth, is that any rent seeking activity can be dressed up to look pretty. Nobody pushes for higher wages so workers can be fat and happy. They push for living wages and fair wages. Nobody pushes for regulations which discriminate against the Chinese, they push for regulations which save jobs. Thus the key to successful rent seeking is to create poster child winners and either hard to see losers or nefarious losers ( as long as rich people lost it is ok because they are bad, greedy lizards).
*Note that privilege is a tricky word too though as fast discussions prove. It means not just special rules which harm others (my usage) but also translates to “any advantage”.Report
Roger, I agree with every jot and tittle here.
As to the term, the economists themselves seem to unanimously complain about the terminology, but damned if they can seem to settle on something better. I do use the term privilege in the amendment text, and think I managed to avoid the word “rent” altogether.Report
Do you agree that policies designed to raise the wages of people making low wages in the American context are rent-granting policies that you’d like to have the courts review? That “low-wage workers” are a rent-seeking constituency whose behaviors in seeking policies they think will raise their wages are a dead-weight loss that this amendment would be aimed at cutting? Or are the parameters for being such a group more specific, i.e. ‘low-wage workers in the hospitality industry’? Or are you not concerned with rent-seeking by groups divided along broader social categories (income level etc.) (which is a kind of grouping Roger suggested), and just mean to target rent-seeking by groupings along lines like industry, etc. (i.e. rent seeking by the hospitality industry vis-a-vis the restaurant industry, etc.)?Report
@michael-drew It seems to me that the problem with labor would be similar to stock dilution. The worker seeks to gain the advantage that they would have gained if the labor force had remained somewhat constant. By immigration their stake is diluted and their value decreased. What constitutes rent or privilege seems to depend on whose ox is getting gored or maybe I’m still in the weeds on this.Report
Michael,
I’m much less concerned about “rent-seeking by groups divided along broader social categories.” But I couldn’t find a good way to make that coherent distinction, so I didn’t try. I think there’s plenty of wiggle room for legislators and courts to define anything operating on broad social categories as being based on social benefit rather than discrete group benefit, especially when it’s so possible to move up from that category or down into it–even with U.S. economic mobility being somewhat less than we might desire, those categories are far less rigid than, say, the ability to get a taxi medallion. So I have a pretty considered belief that the Courts would happily apply it that way.
That means some harder-core anti-rent seekers might think I’m being too soft. But I fully think that my proposal will be seen by many liberals as going too far, and by many libertarians as not going anywhere near far enough. And come hell or high water, I purposely shot for that in-between ground.Report
Your second footnote reminds me of that often-misappropriated quote from The Wealth of Nations: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
For reasons having only to do with economy of space, and not at all ideological, I’m sure, that sentence is almost never quoted in context:
And it goes on.Report
What Smith is referring to in that passage is the medieval guild system, which superficially resembles a union (which I assume you’re aiming your sights at; if I’m wrong about that I apologize). Unions as we know them didn’t exist then. The guilds were more like local trade associations. Imagine a chamber of commerce with teeth. The salient point is that the guild members weren’t employees of some business but rather were otherwise independent small businessmen.
FWIW, I know some folks who actively advocate for the return of guild system among other features of the high middle ages which they consider the height of civilization. They are also theocratic monarchists who pine for the return of Christendom under the pope and despise communists, liberals, and libertarians alike. Also unions. And corporations. And… the list is impressive in its scope.Report
You know these people…how? (I’m thinking family get-togethers might be awkward, like when my cousin claims Obama was born in Kenya, or the Clintons ran a devil-worshipping cult school in Arkansas (by which I always assumed she meant the UA law school)).Report
Rod, Given the subject of the post, I took Brandon’s comment not so much a swipe at unions (though he’s a skeptic of those) but rather of tradesgroups using the government for ill-gotten advantage.
James, I know some guild people, too. I can’t find it, but I remember arguing with someone around here (not a fly-by-night commenter, either… but again I can’t remember whom) for the taxi medallion system specifically for the sake of protecting taxi drivers’ profits, which is along similar lines.Report
@jm3z-aitch
Thanks for writing this piece, J. I had only a passing understanding of rent-seeking and this is very helpful.
A few questions:
1.) Wouldn’t a truly free market allow for collusion? Provided the companies colluding had no special privileges or protections from government, it would seem reasonable to allow this as a business strategy with it being balanced by the ability of competitors to circumvent whatever the agreement was.
2.) Despite my liberalish tendencies, I agree with you about licensing requirements. But do you think there are any industries which could be justified in remaining licensed? Or, absent that, would you be okay with the government offering (but not requiring) its own form of certification. So, for instance, you could be board certified by a private group or you could be government certified. Any preference for one over the other would be market driven.
3.) In the example with taxi cabs, you mentioned having safety inspections of all cabs. Would this be a free service offered by the government? If not, if there was a cost involved, does this not risk creating yet another form of rent-seeking, wherein the inspections themselves become a financial barrier to entering the marketplace?Report
@kazzy
re: question 1:
I think a free market regime, though perhaps not the market itself, would or could allow for collusion. In this sense, antitrust policy in at least some of its manifestations and effects, is ironically anti-free market. I think a free-market regime could account for potential exceptions, such as the following: There may be instances in which special access to certain resources and in certain environments might lead to collusion that is unconscionable (say, an agreement to corner all the available grain in a starving locality that has no meaningful access to other food). There may be a collusion that is maintained by violence (mafioso-style collusion). And more plausibly, there may be collusion to predatorilly drive someone out of business, maintained, for example, by boycotts of businesses run by a disliked minority, or in the much hyped (but perhaps not well attested) claim that mega-businesses like Walmart price out local businesses and then raise prices in a captive market.Report
Pierre,
Re: Antitrust law. You’re familiar with the old joke about the 3 businessmen in prison? One’s there for predatory pricing, one’s there for price-gouging, and the one’s there for charging the same price as his competitor.Report
Yes, I have heard that one before. I believe you had told it to me, probably on my blog. 🙂Report
Kazzy,
1. A truly free market might legally allow for collusion, as in there might be no law against it. But a truly free market doesn’t allow for it in the sense that collusion–if there are more than just a small number of colluders–is an unstable situation, what game theorists would call a disequilibrium, because any one participant could actually do better by unilaterally changing their strategy from collude to compete. Ironically, this ultimately results in worse outcomes for them, when the other colluders also shift to competing, but the individual logic is determinative. Read up on the logic of the prisoner’s dilemma and you’ll see this, because it’s directly applicable. In fact collusion among firms is one of the few areas where we can be grateful for the logic of the prisoner’s dilemma; usually it just leads to sub-optimal social outcomes. (I know that’s a lot of compressed info, so in a nutshell, google prisoner’s dilemma and study it a bit.)
2. I’m open to arguments that licensure may be best in some occupations. I think the burden of proof for that is on those proposing licensing, though. I can’t say say government certification is wrong, but I’m leery of it because people tend to naively assume it’s more valid. Thus it would remain a route for rent-seeking, as some could propose government certification standards rigged in their favor and people would naively assume it necessarily reflected greater qualifications than offered by private sources. E.g., the last time I bought a bike helmet I noticed that, unlike all my previous ones, it didn’t have ANSI and Snell stickers, just a CPSC sticker. Now I don’t think there’s anything inherently wrong with the CPSC setting standards, and helmet manufacturers informing me they’ve met those standards, but are the CPSC standards actually higher? I don’t know that they are. In fact I wouldn’t be shocked if the standards aren’t higher, and the manufacturer opted to comply with CPSC standards because the bar is lower for approval. I’m not saying that’s the case, just that a business would reasonably respond that way to a lower government standard because for many people, “the gov’t approved it” is a satisfactory answer.
But I don’t think anything in my proposed amendment would constrain government from setting their own standards.
3. That’s a good question. I think the cabbies would have to pay. Yes, that cost would be something of a barrier to entry, but I don’t think anybody proposes to limit all barriers to entry. E.g., the cost of a car itself is a barrier to entry (as are the cost of fuel, insurance, and maintenance), but that doesn’t mean government is obligated to give away cars to would-be cabbies. Because we’re talking about basic consumer safety (in a case where information about unsafe conditions is too easily obscured from customers, so that it’s reasonably defined as a potential market failure), I would argue that the safety inspections are just a cost of doing business. And if you can’t cover your basic costs of doing business, too bad for you, eh?
3.
2.Report
@jm3z-aitch
Thanks. I think you’ve thoroughly answered my Qs.
Re: 2; I made that very point to Roger on his license plate essay: people put too much stock in government endorsement. As for industries, I’d argue for medicine. I’d also what some mechanism for any industry the gov involves itself. For instance, I’d want public school teachers to be subject to some sort of verification system.
Thanks.Report
A great post James, and a generally excellent comment thread. I’m sad I came to it late.
I only have one question that hasn’t already been kicked around up thread James. Wouldn’t a ban on privilege granting like what you’re proposing eviscerate what I understand to be pretty much the only libertarian accepted system for dealing with commons tragedy problems?
If I’m off base here feel free to correct me but isn’t the libertarian solution to commons to try and assign ownership of said commons to the group of people who most commonly use it. Catch share and the like, for instance, on local fisheries etc? Isn’t this definitionally privileging one group over the rest of the groups by, as in my example, granting only a select group the right to extract from a given fishery?Report
Usually the proposal is to auction off property rights in commons, I think. Solves the tragedy of the commons and allows the government to lower income taxes (well, in principle, if they weren’t grossly irresponsible spendthrifts who would just spend the extra revenues).Report
North,
Thanks, and I agree about the quality of the comments (with one exception).
Brandon’s right, and I think that solves the problem of the “libertarian solution.” But when it comes to the commons, I’m not tremendously libertarian. I would argue that the solution you mention, is not really the approach libertarians most tend to favor, but is the approach broadly favored by those of us who have studied under Elinor Ostrom. But, yes, the amendment’s potentially problematic for that approach. Ironically, it could push the solution in the direction Brandon suggests, a direction a little more libertarian than I personally want to go, or alternatively toward top-down command-and-control regulation of the commons, which is also a direction I wouldn’t want to go. ;).Report
What’s your objection to auctioning off property rights to commons rather than giving them to incumbents for free?Report
Brandon,
In the case of a new common pool resource, I think that’s the best way. In the case of CPRs with long-established users, I cringe at the idea of simply auctioning off de jure rights that they have been de facto exercising. In that case I’d grandfather in existing de facto rights, making them de jure, and of course transferable.
A case in point would be coastal fishing where rights were not, historically, officially granted as individual rights. If we need to limit entry to avoid overfishing, I wouldn’t simply define a discrete number of rights and auction them off, because existing users had made investments in reliance upon the system as it was. So I would forgo the auction and just grant them the rights. The ultimate distribution of rights, after offers and sales, might turn out the same, but the proceeds of this “distributed auction” (if I may coin a phrase) would go to the prior resource users rather than to the public/government (whichever formulation might be preferred).Report
Thanks James, I’m looking forward to part two!Report