See the Dollar Auction in Action

Here’s a video of a public choice teacher running an all-pay dollar auction, and describing its relevance to lobbying (hat tip: Max Borders).

The teacher misquotes WOPR, but at least he got the reference in there. Crampton runs a twenty dollar auction, which is more interesting because people care about the outcome a little more. He clearly needs to start recording his lectures.

Corporatism in Everything or: How to Have Government Work for You without Resorting to Bribery

BK Drinkwater has a couple of excellent posts on established businesses using the force of government to muscle out competitors ( I also like them because they both have my name in them, to paraphrase the man himself). Here’s another interesting example from the story of unlicensed contractor stings I blogged about at Fr33Agents the other day.

It turns out that the guy posing as a customer in order to arrest the unlicensed electrician is himself a state-licensed electrician. That is, a member of the state-protected cartel is helping the police with their job. This subsidy of law-enforcement is similar to Hall and Deardorff’s theory of lobbying as legislative subsidy. When special interests find it difficult to have extra sway over policy through outright bribery, they can provide services to already sympathetic legislators in order to make them more effective. Legislators supported by lobbyists providing research and pre-written speeches will be more able to pursue the legislative goals. Cops supported by unusually public-spirited electricians will be more effective in enforcing cartels.

The CEO and the Senator

Scott Adams has a degree in Economics. Judging by the comic below, he must have studied some Public Choice.

In relatively well-functioning western democracies, politicians accepting outright bribes take a significant political risk. The final two panels illustrate two ways special interests can rent-seek without the need for a brown paper bag full of money.

Special hiring favours like the one suggested in the second panel are one way of making bribes less transparent. Unfortunately, this will usually be more costly than a pure transfer. The Senator’s dimwitted wife might get the equivalent of one brown paper bag of money, but the rigmarole of hiring her as a consultant will add additional costs to the transaction. Opaque bribes are inefficient, and, from a utilitarian point of view, are worse than transparent bribes.

If we ignore the “thief” and focus on the “lazy,” the third panel illustrates the concept of lobbying as legislative subsidy. Let’s say the preferences of the CEO and the Senator are aligned, thereby making bribes unnecessary. The CEO might be a producer and the Senator an ideologically-motivated protectionist. For every bootlegger, there’s bound to be some baptist. The CEO can use his resources to increase the effectiveness of the friendly Senator by offering help drafting legislation and performing other duties which make passage of favourable bills more likely. This will make legislation serving special interests more likely to be passed. At the end of the day, the effect will be similar to bribery, though this will only work with policies which already have some degree of public support.

Dogbert is a very capable rent-seeker. He’ll go far in business, especially in the current environment.

Bailouts and Capitalism

The G-20 protesters in Pittsburgh seem to have some interesting political views:

The marchers included small groups of self-described anarchists, some wearing dark clothes and bandanas and carrying black flags. Others wore helmets and safety goggles.

One banner read, “No borders, no banks,” another, “No hope in capitalism.” A few minutes into the march, protesters unfurled a large banner reading “NO BAILOUT NO CAPITALISM” with an encircled “A,” a recognized sign of anarchists.

The “NO BAILOUT NO CAPITALISM” sign raises some interesting questions about the word “capitalism.” Many self-described leftists (some of whom I come very close to agreeing with) see bailouts and other forms of corporate privilege as part and parcel of capitalism. Many non-left libertarians see bailouts as antithetical to capitalism. Both groups are wrong.

The only useful definition of capitalism in line with its historical and contemporary usage is a system which allows the private ownership and alienation of property. This definition can accommodate a wide variety of institutional arrangements, from a market-anarchism to fascism: there are both good and bad forms of capitalism (full book here!).

By that definition, I am completely and utterly pro-capitalist in the sense that I think any system without private property would be irredeemably awful. History hasn’t exhausted the design-space of propertyless social systems (and I, for one, hope it never does), but it teaches some valuable lessons.  At the same time, I’m completely and utterly opposed to some forms of capitalism. Government funds lining the pockets of well-connecting firms is neither essential to nor inconsistent with capitalism. It is essential to some kinds of capitalism and inconsistent with others.