No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Fourteen: Decision-making in Democracy: Public Choice 337 certainly didn’t happen in this case. Instead, the Jewish leaders of the day stirred up a mob to demand Jesus’ crucifixion. It seems likely that the overall population had not turned against Jesus, but that rather a very vocal minority who had political influence was able to force its will on a majority (Luke 23:27) . Today we would call the vocal minority that pushed for Jesus’ crucifixion a special interest group . Special interest groups are very effective because of the 2nd Law of Economics—incentives matter. The special interest group always has a much greater concern in the outcome than the overall electorate. This means that they will have a strong incentive to engage politically to achieve a given outcome. And conversely, the general electorate will not have much interest in opposing the special interest group, since whatever the particular issue is, it doesn’t really affect them very much. A common example in American politics today is the presence of ethanol subsidies, where in 2008, the U.S. government spent $4 billion propping up the industry . Four billion dollars is a lot of money to corn farmers, and they have a high interest in lobbying the Congress to obtain the legislative benefit. Yet $4 billion divided by all Americans is only about $13 each in direct costs (and we also pay indirectly through higher food prices). It’s hard for citizens considering all their costs to really focus on $13—and that assumes they are even aware (remember, they are likely rationally ignorant on this issue as well!). Nevertheless, we have had years of supporting ethanol at the tune of billions of dollars per year. The ethanol lobby has a powerful incentive to ensure the continuation of this benefit, and the taxpayers have little incentive to even be aware of the issue since it really doesn’t cost them very much. It also helps the ethanol lobby that the first presidential primary is in Iowa, a heavy corn producing state. Politicians with aspirations for the presidency tread lightly on this subject. Figure 14.4 illustrates the effect of a subsidy to ethanol producers. By providing the ethanol producers with tax credits, they lower the overall cost of production, shifting the supply curve to the right. Ethanol is therefore a cheaper product to the purchaser than it otherwise would be, the difference in price being paid by the taxpayer. This outcome shows a central conclusion of special interest group issues; if the benefits of a particular position are highly concentrated, Figure 14.4, Effect of a Subsidy to Producers. A subsidy to producers lowers the cost of production and results in an increase in the supply curve, which shifts the curve to the right, which results in lower prices and higher quantities. P ($) Q (#) Q 1 Q 2 D P 1 P 2 S 1 S 2 The special interest group always has a much greater concern in the outcome than the overall electorate. This means that they will have a strong incentive to engage politically to achieve a given outcome. Special interest group: a group of individuals with a strong interest in a particular issue. This interest overcomes the tendency toward rational ignorance, and leads to disproportionate influence on public policies.