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

Chapter Fourteen: Decision-making in Democracy: Public Choice 341 But on net (adding up the value of all three projects), Congressman A would be ahead by $1 if all three projects are approved. Unfortunately for voters in districts D and E, they will have to pay for all the projects and get none of the benefits—the penalty for lack of political power! Society as a whole would lose $9 when you add up the individual costs and benefits of all five members, but the projects would pass nonetheless. What if logrolling were somehow prohibited? Would that stop this result? Unfortunately, no. The same result would happen with pork-barrel legislation . With this type legislation, many projects are all included in one big bill. There are usually just enough “goodies” to secure passage by a majority of the voters. Most of the bills we see coming out of Congress have at least some pork with many features that are objectionable. Yet it is impossible for specific members to vote against those features without voting against the entire bill. One way to assist in passing pork-barrel legislation is to support congressional earmarks , which are projects that are added on to a bill for a specific member’s benefit. Often these earmarks occur separate from the committee process with no congressional debate, and are added on prior to final bill passage. The 2009 Defense Appropriations Bill, for example, was loaded down with over $2 billion in earmarks. With that much money available, many members of Congress found something to like! Of course, not all districts benefit equally; members of congressional appropriations committees benefit disproportionately from congressional earmarks. REAL WORLD REGULATORS In chapter 13, regulation was identified as one possible way to help achieve allocative efficiency (producing all items that were valued at more than their cost, and none that are valued less than their cost). Yet, regulation has its own problems. Now that we’ve discussed the problem of special interests, we can look at why regulation often fails. We know that people respond to incentives—incentives matter, even for regulators! Let’s think about how special interest politics may affect regulator’s behavior. Let’s say we have Dudley Do-Right as the regulator of Smokestack Industries. In most cases, laws are written in general terms and the specific implementation is left to regulators via the regulations they issue. This is probably a good thing—how do we expect legislators to know all the implications of specific rules? And if they get it wrong, they have to repeal the whole law to fix it. Thus it is much easier to provide broad-based guidance and let the executive branch of government determine how best to implement them. The lack of specific legal guidance, however, makes any rule that the regulators come up with subject to interpretation. Smokestack Industries has a strong incentive to lobby for relief from anything our stalwart regulator, Mr. Do-Right, tries to do. If the regulator is too aggressive, they will lobby their congressman to apply pressure on the executive branch. Does this happen? Can you say Keating Five? Or how do you think industries Earmarks: appropriations for specific projects within a congressional member’s district or a Senator’s state. Pork-barrel legislation: legislation that includes many unrelated projects favored by individual members with the goal of securing enough additional votes to pass the entire bill.