Congress doesn’t know enough to stop people enriching themselves at the public expense. Here’s how to fix this.

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Other Writing
Publication Date: 
October 20, 2017

Brink Lindsey and Steve Teles’s new book, The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth and Increase Inequality, looks to build a new account of how rent-seeking shapes the U.S. political economy, and what we can do about it. I asked Lindsey (who is vice-president at the Niskanen Center) and Teles, an associate professor of political science at Johns Hopkins University, about the book.

HF — People have criticized “rent-seeking” in the U.S. economy for a long time. In a pithy phrase, you suggest that rent-seeking has now “moved upmarket.” What does this mean?

BL & ST — There is no plausible quantitative measure of rent-seeking, and we do not think that there can be. But it is reasonable to observe that the most powerful uses of state power to provide systematic, non-market advantages to politically mobilized groups used to benefit those further down the income spectrum more than they do today.

Airline and trucking regulation, for instance, provided significant rents to corporations, but unionization ensured that some of that rent went to workers — that’s why businesses and their unions so often were on the same side in politics up through the ’70s. Today the most consequential uses of political power to provide non-market subsidy and protection direct benefits to the relatively wealthy, with little mechanism for ensuring that some of that goes to average workers.

The financial sector has massively expanded as a result of mortgage securitization, implicit or explicit guarantees of bailouts, and massive subsidy of asset management through the tax code. The government protects existing homeowners in expensive areas against new construction (thereby jacking up the price of their homes) and subsidizes their mortgage interest, with very little trickling down to ordinary people. This pattern can be seen across the economy, and we think justifies the idea that rent-seeking has “moved upward.”

HF — What are the major factors that make it easier for these upwardly mobile rent-seekers to prosper in the face of democratic pressures toward more even distribution?

BL & ST — It’s easy to see why one might want to argue that there are “democratic pressures toward more even distribution.” But we’re not sure, in the abstract, that’s true. Certainly democracy may be useful in providing some checks against the use of the state to entrench some kinds of inequalities. But democracy also provides lots of opportunities for the expression of particularly intense preferences, and lots of openings for those with resources, reputation and information to triumph over those who lack them.

Relatively wealthy rent-seekers can use their resources and intense preferences to dominate low-visibility political venues. In an era in which congressional staff and other analytical capabilities of government have been cut back, policymakers’ deep dependence on industry sources of information gives insiders a powerful advantage in shaping rules to their benefit.

Furthermore, wealthy rent-seekers enjoy class advantages — not just more money, but common educational backgrounds and cultural tastes they share with policymakers — that heighten their ability to exert influence. We do argue, in contrast to traditional public choice analysts, that democracy has some valuable antibodies against rent-seeking, and the answer to rent-seeking is to strengthen them, rather than to radically shrink the scope of government. We seek what Madison called “a republican remedy for the diseases most incident to republican government.”

Read the full piece at The Washington Post