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.

Having it Both Ways

From p. 396 of Andrew Sinclair, Prohibition: The Era of Excess:

Yet the strangest situation of all had been rendered legal by a decision of the Supreme Court. The Court had ruled that the Bureau of Internal Revenue had the right to request income-tax returns from bootleggers. The Court saw no reason “why the fact that a business is unlawful should exempt it from paying the tax that if lawful it would have to pay.” In the argument of the case, it was even suggested that bribes paid to government officials might be held deductible as business expenses. To this day [1962], the bootleggers of the last dry state in the Union, Mississippi, pay federal income tax and a state tax on their illegal profits.

 

Private Policing I Find Disturbing

Some residents of New Brighton, Christchurch are sick of the police failing to control crime and have taken to patrolling the streets. I would be all for that were these guys not a bunch of white supremacists.

A “white pride” group, Right Wing Resistance (RWR), claims to be patrolling New Brighton streets that “the police and the system has all but given up on”.

The group, linked to North Island-based white power activist Kyle Chapman, says Christchurch is the centre of a “white pride” revival.

Films of their initiation ceremonies were listed on an internet site for “white nationalists” called WNTube.

A message board used by the group, Stormfront.org, said the group was performing “crimewatch patrols” aimed at “cutting down on homie [American rap-style] vandalism and muggings that have become common on the east side of CHCH”.

“The police and the system in general has all but given up on the poor areas and it is left to us to sort this out now,” it said. (…)

Locals were getting very upset with youths, particularly Polynesian youths, standing over people and vandalising.” (…)

If a European youth was found vandalising property: “We’d probably say `Hey, what are you doing? That’s not really the white way’.” (…)

New Brighton Residents Association member George Aorangi Stanley said “boot boys” had been spotted “hanging around looking menacing”.

“I don’t know if you’d consider it patrolling. I just consider them as contributing to the tension.”

The group had correctly tapped into local concern about crime and safety, she said. “It’s the main topic of conversation at the [Residents Association] meetings.”

Aorangi Stanley said the association had discussed doing their own patrols – a “reclaim the night” action – to increase safety.

This is the kind of thing Eric Crampton and I worry about in our paper on meddlesome preferences in anarchy, recently discussed here and here. (New Brighton, by the way, is Eric’s neck of the woods – I wonder if he has noticed anything?) Without government to provide public or quasi-public goods like policing, private clubs will step in to fill the gap. Of course, not all private clubs are created equal and those most able to overcome collective action problems will become more common in anarchy (or, as we see here, dysfunctional government). Further, small groups with intense preferences will have more power relative to large groups with weak preferences in anarchy compared to democracy.

The economics of religion pioneered by Larry Iannaccone, another of the amazingly interesting economists at GMU, suggests that clubs which require costly signals of commitment to the group – often including the internalization of wacky beliefs and efforts to make oneself stigmatized by the outside world –  will be more successful. Iannaccone is interested in sects, but his logic also applies to secular gangs like skinheads. Costly signalling means that we can’t rely on the standard incentive arguments against bigotry being expressed through markets. Beating up Polynesian kids is costly, but if it works to signal one’s commitment to the group, the costliness is a feature rather than a bug. On average, then, high-commitment clubs will instill preferences which favour the violation of others’ rights more than low-commitment clubs. Since these small groups with intense have more say in anarchy (where willingness to pay largely determines outcomes)  than democracy (where the raw numbers supporting some policy largely determines outcomes) , anarchy produces the situation it is least able to handle. So, by the way, does democracy.

Now, if the skinheads in New Brighton really are making the streets safer (which I doubt), the benefits will be enjoyed by residents regardless of whether they join or not. The fact that the group can get a bunch of guys to produce a public good (even if it’s intimidation of Polynesian kids) indicates that they’ll also be pretty good at producing a whole lot of club goods only enjoyed by members. If the role of government decreases, then, the skinheads will attract more members and we should expect more racist violence in New Brighton.

I still favour anarchy, but I do think this is something to worry about. Fortunately, it’s also something that reasonable people can work towards avoiding. The community association conducting its own patrols will reduce the leverage the skinheads can get in the community. More generally, efforts to create non-bigoted groups to voluntarily produce public goods will fill the void sects emerge to fill.

Illiberal Anarchy

John Humphreys critiques the paper Eric Crampton and I are writing on the effect of meddlesome preferences in market anarchy. His argument is that we’re talking about outcomes we don’t like but aren’t really unlibertarian, and that we overestimate the sway crazy bigots could exert under real anarchy.

Eric responds here. See also the comments on John’s post. I have nothing to add here.

Quote of the Day: Mises Edition

Another from the “I want to make a note of this for future reference and a blog post seems like the easiest way to do it” files. From Theory and History, chapter 7:

In the world of reality, life, and human action there is no such thing as interests independent of ideas, preceding them temporally and logically. What a man considers his interest is the result of his ideas.

If there is any sense in the proposition that the interests of the proletarians would be best served by socialism, it is this: the ends which the individual proletarians are aiming at will be best achieved by socialism. Such a proposition requires proof. It is vain to substitute for such a proof the recourse to an arbitrarily contrived system of philosophy of history.

All this could never occur to Marx because he was engrossed by the idea that human interests are uniquely and entirely determined by the biological nature of the human body. Man, as he saw it, is exclusively interested in the procurement of the largest quantity of tangible goods. There is no qualitative, only a quantitative, problem in the supply of goods and services. Wants do not depend on ideas but solely on physiological conditions. Blinded by this preconception, Marx ignored the fact that one of the problems of production is to decide what kind of goods are to be produced.

With animals and with primitive men on the verge of starvation it is certainly true that nothing counts but the quantity of edible things they can secure. There is no need to point out that conditions are entirely different for men, even for those in the earliest stages of civilization. Civilized man is faced with the problem of choosing among the satisfactions of various needs and among various modes of satisfying the same need. His interests are diversified and are determined by the ideas that influence his choosing. One does not serve the interests of a man who wants a new coat by giving him a pair of shoes or those of a man who wants to hear a Beethoven symphony by giving him admission to a boxing match. It is ideas that are responsible for the fact that the interests of people are disparate.

Incidentally it may be mentioned that this misconstruing of human wants and interests prevented Marx and other socialists from comprehending the distinction between freedom and slavery, between the condition of a man who himself decides how to spend his income and that of a man whom a paternal authority supplies with those things which, as the authority thinks, he needs. In the market economy the consumers choose and thereby determine the quantity and the quality of the goods produced. Under socialism the authority takes care of these matters. In the eyes of Marx and the Marxians there is no substantial difference between these two methods of want satisfaction; it is of no consequence who chooses, the “paltry” individual for himself or the authority for all its subjects. They fail to realize that the authority does not give its wards what they want to get but what, according to the opinion, of the authority; they ought to get. If a man who wants to get the Bible gets the Koran instead, he is no longer free.

That’s about the best summation of the subjectivist position I’ve come across.

The CEO and the Senator

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

Dilbert.com

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.