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Saturday, May 12, 2007

Bryan Caplan: Special-Interest Secret

Since we're talking about spin, this is Bryan Caplan in the WSJ talking about a related topic:

Special-Interest Secret, by Bryan Caplan, Commentary, WSJ: Behind every policy that does more harm than good, there's a special interest that favors it anyway. The steel tariff was bad for consumers, steel-using industries and foreign steel producers... Farm subsidies are bad for both taxpayers and unsubsidized farmers... The minimum wage is bad for consumers, employers and low-skill workers who get priced out of their jobs...

But why do politicians listen? Social scientists' favorite explanation is that special interests pay close attention to their pet issues and the rest of us do not. So when politicians decide where to stand, the safer path is to satisfy knowledgeable insiders at the expense of the oblivious public.

This explanation is appealing, but it neglects one glaring fact. "Special-interest" legislation is popular.

Keeping foreign products out is popular. Since 1976, ... Americans who "sympathize more with those who want to eliminate tariffs" are seriously outnumbered by "those who think such tariffs are necessary." Handouts for farmers are popular. A 2004 ... Poll found that 58% agree that "government needs to subsidize farming to make sure there will always be a good supply of food." In 2006, ... over 80% of Americans want to raise the minimum wage. ... These results are not isolated. It is hard to find any "special interest" policies that most Americans oppose.

Clearly, there is something very wrong with the view that the steel industry, farm lobby and labor unions thwart the will of the majority. The public does not pay close attention to politics, but that hardly seems to be the problem. The policies that prevail are basically the policies that the public approves. ... To succeed, special interests only need to persuade politicians to swim with the current of public opinion.

Why would the majority favor policies that hurt the majority? ... The majority favors these policies because the average person underestimates the social benefits of the free market, especially for international and labor markets. In a phrase, the public suffers from anti-market bias.

Economists have spent centuries explaining how markets channel greedy intentions into socially desirable results; how trade is mutually beneficial both within and between countries; how using price controls to redistribute income inflicts a lot of collateral damage. These are the lessons of every economics textbook. Contrary to the stereotype that they can't agree, economists across the political spectrum, from Paul Krugman to Greg Mankiw, see eye to eye on these basic lessons.

Unfortunately, most people resist even the most basic lessons of economics. ... The principles of economics are intellectually compelling; but emotionally, they fall flat. It feels better to believe that greedy intentions imply bad consequences, that foreigners destroy our prosperity and that price controls are a harmless way to transfer income. Given these economic prejudices, we should expect policies like steel tariffs, farm subsidies and the minimum wage to be popular.

None of this means that special interests don't matter, but it does put their activities in a new light. Special interests do not have to sneak behind the majority's back; they just need to ask for the right favor in the right way. The steel lobby could have demanded a big handout from the federal government. But that would have struck many voters as welfare for the rich...? Instead, the steel lobby took the crowd-pleasing route of blaming foreigners and asking for tariffs. ...

If special-interest legislation were fundamentally unpopular, public relations campaigns would ... serve only to warn taxpayers about plans to pick their pockets. Since the public shares interest groups' critique of the free market, however, there is room for persuasion. Left to its own devices, the public is unlikely to spontaneously fret about the plight of the steel industry. But a good public relations campaign can -- and often does -- change the public's mind. ...

In many cases, though, a public relations campaign is overkill. Special interests can make money by maneuvering around the indifference of the majority. Even though most people are protectionists, for example, they are fuzzy about specifics. Which industries need protection? How much? Should we use tariffs, quotas or what? To most citizens, these are mere details; within broad limits, they will accept whatever happens. As far as special interests are concerned, however, these details mean the difference between feast and famine. When it is time to determine details, special interests have a lot of influence -- in large part because no one else cares enough to quibble. ...

In a democracy, ... no one likes to blame the majority for bad decisions. So instead of blaming the majority, critics point their fingers at special interests. But ... The majority often makes bad decisions; and in any case, if special interests are hurting the country, isn't it the majority's fault for listening to them? ...

I commented on parts of this here in response to something else Bryan wrote at the Britannica blog. A couple of quick questions come to mind:

If this is correct and people are fundamentally irrational - if they can carry biased beliefs such as anti-market views and prejudices for centuries - and if markets rely on rational behavior to work, then why should we believe that markets won't have a tendency to fail in one dimension or another as these irrationalities express themselves in the marketplace? Or are agents only irrational about the market in ways that don't affect their interactions with the market?

In the phrase "when politicians decide where to stand, the safer path is to satisfy knowledgeable insiders at the expense of the oblivious public," does the term "knowledgeable insiders" include "campaign donors"?

    Posted by on Saturday, May 12, 2007 at 02:43 AM in Economics, Politics | Permalink  TrackBack (1)  Comments (40)


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    » http://asecondhandconjecture.com/?p=1069 from A Second Hand Conjecture

    Bryan Caplan makes an argument which in addition to his explicit points, also goes to part of my rationale for opposing most campaign finance reforms and many other good government initiatives. They dont attack the real problem. Th... [Read More]

    Tracked on Sunday, May 13, 2007 at 09:21 PM


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