Monday, July 20, 2009

Dispersed Costs, Concentrated Benefits

Bums are brilliant economists! They sit on the corner and beg for change from all passersby. And while they are not millionaires, they apparently get by. Why are these guys so smart? They only ask for change and over the course of a day, that change adds up.

Actors apparently learned economics from bums (no insult to bums intended). The oodles of money that actors make is a result of millions of people giving up a few dollars to see a movie. Once again, the individual cost is small but it eventually adds up.

We have a concept; lots and lots of small amounts add up to big amounts. Not earth shattering.

Government is a collector of small amounts and those small amounts add up to a lot of money. How does government decide how to spend that money? Well, since government apparently also learned economics from bums there must be a parallel. I got it, lobbyists are the bums of government.

The simplistic answer then, is to get rid of lobbyists. This won't happen and to see why let's revisit the economics of the bum. Most of us want him to put the money to good use, but no one will follow up to ensure that their quarter is spent wisely. The bum on the other hand has collected much more than a quarter. He would fight you a lot harder for the right to waste his money than you would to stop him.

Our lobbyists are no different. The passersby are the taxpayers and each taxpayer pays a relatively small amount. The lobbyist on the other hand is vying for a say on how to spend a large amount of money. Who do you think will fight harder, the individual taxpayer who is out a few bucks or the lobbyist who stands to make millions. We know the answer, which is why DC is larded with lobbyists.

There is no way to reform the lobbyists. They are a consequence of the incentive structure and the only way to get rid of them is to change the structure. Absent that, as the sun rises, the bums will come to Washington.


Geoff said...

Hmm... I find your argument hard to follow.

"lots and lots of small amounts add up to big amounts. Not earth shattering." I agree - the concept is not earth shattering. And it's not necessarily bad either.

"The simplistic answer then, is to get rid of the lobbyists." What was the question? How does the government decide how to spend its tax revenue?

"I got it, lobbyists are the bums of government." "The passersby are the taxpayers..." Wouldn't the government by the passersby? Or are you saying they are a proxy (albeit a poor one) for the taxpayers?

I think I agree with your underlying statement, but I had to work really hard to find it.

I'm not sure the analogy completely works for me though because I don't think my 28% marginal tax rate is "a relatively small amount" like the $0.25 you used in your article. I'm pissed when I see the government waste my taxes.

Are you suggesting that lobbyists serve _no_ useful purpose? Do you believe that money can be thought of as free speech? Isn't my donation to a political, economic, or charitable organization that lobbies the government on my behalf a reasonable way to influence policy? How would you "change the [incentive] structure?"

Adam Freund said...

The implicit question is how will the pot of money be spent. The government is the pot of money, the lobbyists the bums, and the taxpayers the passersby.

The analogy may not work for you but I don't see you setting up shop in DC for your 28%. There are lots of organizations however that have many, many shops all dedicated to getting our collective 28%. And it is not the entire 28% we are talking about, it is the difference between 20% and 28%.

I am not making a statement regarding the useful purpose of lobbyists. Lobbyists are a tool. In this argument I am arguing that they are a symptom of a problem: dispersed costs and concentrated benefits.

Adam Freund said...

As an aside, probably not my best work :)

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