Political Entrepreneurs

The Economic Engine of Political Change

And Lo! The Social Costs of Rent Seeking

April 30th, 2013 by Edward Lopez

Page 96 of Madmen offers a practical definition of that commonly misused term:

The investment of valuable resources into activities that are counterproductive is what economists call “rent seeking.” Theft is a particularly vivid example. So is much of politics.

This morning Tyler Cowen, via Mark Thorson, points to a vivid example in a Guardian news article, “The Vending Machine Robot that Can Steal Free Sodas.”

An enterprising young French man, however, has solved the problems of anyone who has encountered a malfunctioning vending machine by inventing a robot that can go inside one and ‘steal’ any item.

In a video posted to YouTube, user ioduremetallique controls the robot, which appears like a claw, with a hand-held game-pad.

Of course, anyone with half the sense to read a Guardian article knows, to paraphrase Milton Friedman, that there is no such thing as a free soda.

Gordon Tullock would add that once a person has the power to snatch a soda he might easily be enticed to do so even in the absence of “a malfunctioning vending machine.” See Tullock’s famous paper in which he pioneers the concept of rent seeking.

Like crony capitalists who angle for some political gain that transfers wealth to them from consumers, taxpayers, and competitors, the young French man’s investment in becoming an effective thief is counterproductive. It destroys wealth, and it’s therefore a crystal clear embodiment of the social costs of rent seeking.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.

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