Category Archives: Public Choice

Sources of Economic Error

George Mason University economist Peter Boettke has a new working paper out that not only tells Economics in One Lesson author Henry Hazlitt’s life story, but goes into great detail about the ongoing tension between pure academics and public intellectuals. Here’s how Boettke describes Hazlitt’s view on why so many people favor bad economic policies. In a prescient anticipation of public choice theory, sometimes it’s on purpose:

[P]ersistent error haunts economic reasoning not only due to the intellectual shortcomings of men. The problem of the special pleading of interest groups in economic affairs means that the inherent intellectual limitations of man are multiplied a thousand times over in the discipline of economics as opposed to physics, mathematics or medicine. Interest groups rely on fallacies to agitate for policies that benefit them at the expense of others.

Peter Boettke, “The Public Intellectual as Economist: The Case of Henry Hazlitt (1894-1993),” p.22.

Public Choice: A Primer


The good folks at the London-based Institute for Economic Affairs have just released an excellent book by Eammon Butler, Public Choice: A Primer. You can order a copy or download a free PDF version at this link. Public choice is essentially applying the economic way of thinking to politics; a volume in the collected works ofpublic choice founding father Gordon Tullock is even titled The Economics of Politics.

Most economics is about private decision-making by individuals or firms. Politicians, regulators, and voters make much more public choices, hence the name of the field. Many people think that politicians and regulators are different from other people. Instead of acting selfishly, they act in the public interest. Public choice depends on the controversial claim that people are people; government acts selfishly, too.

Politicians want to be re-elected. Bureaucrats want to enlarge their mission and budget, and to get that next promotion. These very human concerns affect the decisions they make and how they do their jobs. In short, just as there is market failure, there is government failure. That’s why Butler’s new primer should be required reading for everyone who works on Capitol Hill. If it doesn’t cause a wave of resignations, staffers would at least have a more realistic perception of how their colleagues behave, as well as the people who vote for them.

Other good public choice primers include William Mitchell’s Beyond Politics and Gordon Tullock, Arthur Seldon, and Gordon Brady’s Government Failure (free PDF)

CEI Podcast for March 15, 2012: T. Boone Pickens Amendment Fails


Have a listen here.

The Senate this week voted down a highway bill amendment that would massively financially benefit natural gas mogul T. Boone Pickens. Senior Fellow Marlo Lewis explains why the Senate did the right thing, and why Washington shouldn’t be in the business of picking winners and losers in the energy marketplace.

Institute for Justice Sues the IRS

A new IRS proposal to require licensing all tax preparers would put a lot of people out of work. Not everyone can afford to pay for classes, exams, fees, and continuing education courses. It would also artificially tip the competitive scales in favor of H&R Block and other big tax prep firms. So the Institute for Justice is suing. This video explains why (click here if the embedded video doesn’t work):

The video doesn’t make an important argument: If the IRS has the power to grant licenses, it also has the power to take them away. Tax preparers had better be careful not to fight too hard for their clients’ interests. Nice career you have there. Shame if anything were to happen to it.

Caleb Brown and I wrote about that angle in a piece for Investor’s Business Daily.

Regulation of the Day 204: How to Buy Liquor

UPDATE: Welcome, Reason Hit & Run readers! More Regulations of the Day are here.

Self-checkout lanes have been popping up in grocery stores across the country over the last several years. Some people worry that without the adult supervision of a cashier, underage kids might be able to illegally buy alcohol at these self-checkout lanes. California state Rep. Fiona Ma even introduced a bill that took effect on January 1 that prohibits Californians of any age from using self-checkout lanes to purchase alcoholic beverages.

Has this been a huge problem in the past? Two independent studies have been done to find out. A 2009 UCLA study, cited by Rep. Ma to support her bill, found that underagers failed in 80.5 percent of their attempts. A separate study done by researchers at San Diego State, found that young hooligans had a 90.6 percent failure rate.

So yes, kids can buy booze at self-checkout lanes. But it’s probably less successful than other methods. As Joe Eskenazi put it in SF Weekly’s blog, “The best way to get alcohol remains to rely on a fake ID, theft, or someone’s skeezy 23-year-old cousin.”

Of course, there is another factor in play here, and likely Rep. Ma’s real motivation. That factor is rent-seeking. Many grocery cashier jobs are unionized. The more people use self-checkout lanes, the less they use the cashiers. Unions don’t appreciate the competition, so they work with lawmakers like Rep. Ma to legislate their preferences over consumers’.

According to Maplight.org, labor interests donated $150,450 to Rep. Ma’s campaign fund in 2009-10. They are by far her largest contributors.

This is an example of what economist Bruce Yandle calls a Baptist-and-bootlegger problem. Back in the old days, many Baptist preachers favored Prohibition because they believed drinking was morally wrong. Bootleggers favored Prohibition, too. Black market profits are far higher than in legal markets. So the bootleggers would manipulate the Baptists into favoring a bad policy by using the language of morality.

Fast-forward to today. Almost nobody wants increased underage drinking. And unions don’t want competition. So the bootleggers make up a story about how automated checkout lanes are causing runaway underage drinking. Social conservatives jump on board, wanting to strike a blow for morality. The bill gets passed, the Baptists feel good, and the bootleggers financially benefit. So do legislators.

Consumers, of course, are left out of this coalition.

Regulatory Capture

Businesses, especially larger ones, aren’t afraid of regulation. They often welcome it. They can use rules to stifle competitors, or can pad their profits by forcing consumers to pay higher prices. There’s a reason so many businesses have a Washington office. They’re trying to influence regulations and regulators alike.

This is called regulatory capture, and George Washington University’s Susan Dudley gives some examples in the video below. Click here if the embedded video below doesn’t work.

For the Children

The people of Illinois don’t expect their government to be corrupt; they insist on it. That’s why nary an eyebrow was raised when it recently came out that two lobbyists for the Illinois Federation of Teachers were able to qualify for generous teachers’ pensions by working as substitute teachers for one day.

One man could receive up to $3.8 million if he lives to age 84. This is in addition to the 401(k) the union gives him as an employee. The Chicago Tribune reports:

Preckwinkle’s one day of subbing qualified him to become a participant in the state teachers pension fund, allowing him to pick up 16 years of previous union work and nearly five more years since he joined. He’s 59, and at age 60 he’ll be eligible for a state pension based on the four-highest consecutive years of his last 10 years of work.

His paycheck fluctuates as a union lobbyist, but pension records show his earnings in the last school year were at least $245,000. Based on his salary history so far, he could earn a pension of about $108,000 a year, more than double what the average teacher receives.

Nationwide spending on K-12 education is around $13,000 per child per year. Not all of that spending is actually for the children, contrary to popular rhetoric. Fortunately, it appears only two people took advantage of this scheme. But the real kicker is that one of the two actually helped write the legislation that made it possible.

New Math: Lobbying Edition

State and local governments across the country are looking for fat to trim from their budgets. One place many are considering cutting is lobbying the federal government. That particular expense has gone up sharply over the last decade:

The trend is clear: Spending on federal lobbying by municipalities and other nonfederal governments soared from $37.2 million in 1999 to $93.3 million in 2009, according to data compiled by the Center for Responsive Politics. But that figure dipped slightly in 2010, and this year, it’s seems it will barely crack the $80 million mark.

One lobbying firm that gets a lot of its business from state and local governments would like to get that spending back up. That’s why it is running an ad claiming that “Lobbying is no 4-letter word.”

Correct. “Lobbying” is an 8-letter word.

Tim Carney on Rick Perry

Washington Examiner columnist (and former CEI Warren Brookes Fellow) Tim Carney has a must-read column today on Texas Governor and presidential candidate Rick Perry’s economic policies. They appear suspiciously similar to Bush and Obama’s policies:

“I’m a pro-business governor — I don’t make any apologies about it,” Rick Perry told the crowds in Iowa this week. He’s right, but we can get more specific. Perry is pro-Merck, pro-Boeing, pro-Mesa Wind, pro-Texas Instruments, pro-Convergen, and pro-dozens of businesses that donate to his campaigns and hire his aides as lobbyists.

Perry promises to “get Americans back to work,” but his policies — from backroom drug company giveaways to green energy subsidies — eerily mirror the unseemly big business-big government collusion that has characterized President Obama’s presidency. Judging by his record in Texas, Perrynomics might just be low-tax Obamanomics.

Pro-business politicians like Perry and Obama are a dime a dozen. What the economy needs to recover are more pro-market politicians. Instead of putting their thumbs on the competitive scales to favor one business or another, Congress and the president should allow an open, competitive market process.

That means the rules of the game would be both clear and few; they would also be consistently enforced. Unlike Perry and Obama, markets respect no special interest. If they did, no company would bother with a Washington office.

Consumers do a much better job of picking winners and losers than politicians with campaigning and fundraising on the brain. They should be allowed to try it sometime.

What a shame that no presidential aspirant is likely to admit that; such is the curse of “do-something” bias.

License to Rent-Seek

Few regulations are more blatantly anti-competitive than occupational licensing. Incumbents place barriers to entry to keep pesky competitors out of the market. Licensed occupations also enjoy an artificial 15 percent wage premium because of the supply restrictions. The Economist recently ran a column on licensing’s rent-seeking aspects:

But the people who care most about this issue—the cartels of incumbents—lobbied the loudest. One predicted that unlicensed designers would use fabrics that might spread disease and cause 88,000 deaths a year. Another suggested, even more alarmingly, that clashing colour schemes might adversely affect “salivation”. In the early hours of May 7th the bill was defeated. If Republican majorities cannot pluck up the courage to challenge a cartel of interior designers when Florida’s unemployment rate is more than 10%, what hope has America? The Licence Raj may be here to stay.