Authors: Adam Smith
Money for Nothing
University of Miami Law School professor Fred S. McChesney (1987) developed the fourth theory of regulation. But unlike the others, this one will never be featured in an
Economic Report of the President
. Instead of focusing on political favors that politicians may provide in exchange for reelection support, McChesney developed a theory of political wealth extraction. Crudely put, politicians run a kind of legislative protection racket in which they are rewarded for doing nothing. As McChesney explains, the legislative vehicles for this kind of wealth extraction are sometimes called “Milker Bills,” proposed statutes the politicians then offer to defeat for the right price (McChesney 1987, 107). Those who get “milked” may simply view the process as political extortion.
Here’s one version of the story. Suppose a group of independent businesses has not yet been subject to regulation. The businesses are not organized politically and provide little in the way of campaign contributions to politicians. In a sense, a politician can do little to benefit or harm an unregulated industry. And that is the point.
To get the industry’s attention, a politician announces that hearings will be held on the possibility of “consumer protection” regulation targeting the industry’s main product or services. Assorted bills are drafted. Some include rather draconian rules. Hoping to escape these burdens, the industry organizes, hires lobbyists, and makes prudent campaign contributions to strategically important politicians. The politicians relax the threat somewhat but make certain to leave a few clouds in the sky. The newly formed Bootlegger organization, however, is unlikely to fade away: having paid the fixed costs of starting a trade association and hiring lobbyists, the businesses are primed to search for fresh opportunities to seek political favors.
This is the theory; McChesney (1987) relates a real-life example. The year was 1975, and Congress had ordered the Federal Trade Commission (FTC) to develop a rule regulating the warranties offered by used car dealers. The FTC delivered a rule tougher than any dealer wanted—one that required costly warranties and defect disclosures, which put small operators without mechanics at a distinct disadvantage.
The draconian FTC proposal brought Congress to the rescue, as solicitous legislators pledged to “save” the industry from the merciless clutches of the FTC. In fact, Congress had conveniently given itself authority to veto the FTC rule. Members of the industry responded on cue; descended on Congress, promising support to those who would help them; and successfully beat back the harsh rule. McChesney reports that of the 251 legislators who supported the regulatory rollback and ran again, 89 percent received contributions from the National Automobile Dealers Association.
Of course, even in Washington, undisguised extortion is unseemly. The FTC Used Car Rule in its original form posed a credible threat because it enjoyed the support of an array of Baptist groups, including national consumer organizations and state attorneys general. But who were the Bootleggers? It seems likely, of course, that new car dealers were interested in raising rivals’ cost. But in this case, perhaps the real Bootleggers were the politicians who, abetted by good Baptists, seized the opportunity to feather their reelection nests just by preserving the status quo.
5
Final Thoughts
The public choice perspectives we’ve explored shed considerable light on the Bootlegger side of our story. Our theories view politicians as highly specialized brokers who seek to balance competing demands for valuable political favors. If the brokers are to survive, the balance they strike must yield benefits to appropriately located special interest groups while at the same time providing citizen services to the folks back home. These theories remind us that all special interest groups are not created equal. Larger is not necessarily better. Those who have the most to gain or lose will persist longer and pay more in pursuit of political favors, and groups that are smaller and more homogeneous will be better equipped to play politics than larger, more diverse groups.
The Baptist element has not been the focus of this chapter but still plays a critical role in the story. Votes for a policy that transfers wealth from the broader electorate to a small interest group can be obtained far more cheaply if the supporting rhetoric includes a Baptist appeal—transforming a potentially embarrassing political liability into fodder for a politician’s press releases. Even when politicians themselves play the Bootlegger role, as in our tale of wealth extraction, Baptist support is critical.
The survey of White House economic reports gave us the opportunity to show how regulatory reasoning made its way into official political dialogue. As regulation became a larger force in the life of the nation, presidents learned there was more to the story than straightforward efforts to serve the public interest. Implicit references were made to capture theory, to special interest theory, and finally to Bootlegger/Baptist explanations.
So what can we say about the Bootlegger’s story? First, it is a story we can tell on its own: even when Bootleggers lack Baptist allies, they will always seek political favors, sometimes successfully. But far better days arrive when Baptists join the Bootlegger cause—and the time has come to put the spotlight on the Baptists’ side of the stage. We begin the next chapter with a simple question: Why Baptists?
In the last chapter, we examined how Bootleggers influence political action. Baptists entered the story along the way to show how the political costs facing Bootleggers could fall when Baptists joined their cause. In a sense, though, this is question begging. Indeed, we are so used to the sentiment that American politicians need to offer a moral explanation for their actions that we seldom ask the question that motivates this chapter: Why Baptists?
The question may seem trivial, given that we all seem to know instinctively that making naked deals with big business is bad politics. But why? Why is it that the typical person seems to have a hard-wired understanding that moral justification is required for successful politicking? Shouldn’t a political party’s justification be enough? Or just an appeal to economic necessity? After all, big business does mean big jobs, higher incomes, extended life expectancies, better health care, and lots of other things people love. Charlie Wilson, a former auto executive who served as secretary of defense under Eisenhower, famously claimed, “What’s good for General Motors is good for the country—and vice versa.” So why can’t politicians get away with saying that the Bootlegger groups represent vital economic interests that must be served? Why not straight talk?
Economist Paul Rubin, who has worked at both the Consumer Product Safety Commission and the Federal Trade Commission, notes that special interest groups routinely claim to deserve politically provided benefits for specific public interest reasons. Rubin offers a sample of public interest rhetoric: “Farmers are the backbone of America; steel producers are suffering from ‘foreign excess steel capacity and market-distorting practices’” (Rubin 2002, 166). So why is interest group advocacy not enough? Why do groups, Bootlegger or Baptist, invariably describe their efforts in terms of fairness and serving a broad public interest? Is something deeply ingrained in the electorate that demands a moral justification for political action? And if so, why do some groups manage to satisfy that demand while others fail?
We address these questions, not just because doing so serves our theory but because the questions, often assumed away as obvious or trivial, are relevant to anyone interested in understanding American political behavior. Accordingly, this chapter focuses on the Baptist element in the Bootlegger/Baptist theory. Standard economics assumes that politicians will respond to those who contribute to their campaigns, employ their constituents, and invest in the communities, districts, and states they represent. Quid pro quo is explanation enough for these actions. But as James M. Buchanan (1994, 73) indicates, there is no obviously comparable quid pro quo with the moral community. Instead, there are evolved habits of the heart that, in every functioning society, operate as low-cost order-generating bonds. Seeking to serve private interests alone is not enough: successful politicians must clothe their actions in a public interest cloak woven from the familiar moral fiber that binds together the community they serve.
We begin our analysis by drawing on the moral philosophy of Adam Smith and David Hume. We then relate their notions of other-regarding or unselfish behavior to research in experimental economics, which directly tests the hypothesis that an other-regarding element is indeed at play when ordinary people engage in trade or other economic transactions. The literature we survey suggests that unselfish human behavior is every bit as fundamental as the self-interested striving of “homo economicus”—a fact that can and will be accounted for by successful political agents. Our discussion at this point lays the foundations of our answer to “Why Baptists?”
Evidence of other-regarding behavior observed in experimental economics can be seen as grounds for a genetic tendency to cooperate and thus survive in groups. We pursue this line of reasoning by delving into an evolutionary explanation of what may be going on in the experimental economics studies we survey. Here we describe the role and rise of religion, first as a survival mechanism in human communities and later as a governing mechanism. Communities with a high degree of cooperation and other-regarding behavior—a prerequisite for successful defense against raiders from other bands—were better adapted for survival. Groups that cooperated best in battle lived to see another day. Groups whose members fought isolated struggles, refusing to risk their individual safety for the benefit of their fellows, never left the field of battle. Evolutionary psychologists, zoologists, and religion scholars tell us that over the millennia, human communities characterized by a high degree of cooperative behavior survived (Ridley 1996; Wade 2009; Wright 1994). Those characterized by defection did not (Nowak 2011). Group survival in a Hobbesian jungle required altruistic behavior that religion can promote (Rubin 2002, 59–63; Wade 2009, 72). Religion and religious practices evolved as apparently low-cost mechanisms for inducing cooperation and perpetuating community social norms and moral values (Wade 2009, 48–51). Populations in surviving cooperative communities passed on cooperative genes. Those in defecting communities did not. Having laid another round of stones in the Baptist foundation based on evolutionary forces, we then show how moral appeals by politicians can be seen as necessary and desirable. Bootleggers and Baptists then emerge as a winning coalition.
In the chapter’s final section, we turn to both recent and historical American protest movements to show how rational ignorance inflamed protesters’ passions—and how politicians seized the opportunity to pass pork to favored Bootleggers. This gets to the heart of our theory: the good intentions of the many often unexpectedly pave the way for the private interests of the few. Our final message is a cautionary one: when unconstrained favor-seeking behavior becomes endemic, bets on Bootlegger/Baptist coalitions yielding efficiency gains will tend to be losing wagers. Instead, as Tullock (1975) argued, the pursuit of government favors ends up consuming resources while producing little or no wealth.
A note to our readers before proceeding. We get a bit technical in some of the discussion that follows, which may turn off some readers. Others may simply find the answer to the motivating question “Why Baptists?” to be self-evident. Nevertheless, we believe those who are interested in more than just an unpacking of the old familiar story of private interests swindling the public will find something new here. Indeed, the Bootlegger/Baptist theory is far deeper than most realize. It is not only about pork and politics but also about what ultimately binds us together as a society—and accordingly, about how politicians must appeal to that underlying fabric.
Morality, Trust, and Swapping Favors
All special interest groups are mutual admiration societies. They are formed by self-selection. Those who join agree with the group’s purpose, and members tend to like each other. More to the point, special interest groups believe so strongly in their cause that they find it odd that further justification may be needed for the political support they seek. Downtown merchants associations see themselves as forming the economic backbone of downtown, something every citizen should welcome. Isn’t that enough to justify a tax break when big-box retailers threaten? Engineering societies believe their members are making the world a safer and more humane place. Petroleum trade associations express deep belief in the broader purpose they serve: providing safe, low-cost energy to light the nation’s homes and power the factories. Labor unions see themselves as serving the interests of hard-working people who may not always get a fair deal from their employers. The difficulty comes in getting the outside world, the political world, to agree that these justifications are sufficient grounds to deliver pork. To get their way in the political arena, the Bootleggers must move beyond claims that their group is especially deserving and make an appeal to commonly held norms of what is right.
Organization leaders can’t simply walk into a senator’s office, unarmed with broad public interest justification for their particular pursuit, and expect a positive response. Bootleggers must appeal to a common value to which the public will respond. Put another way, the Bootleggers have to help the politician prepare a good explanation for assisting them. When pursuing ethanol subsidies, for instance, the Bootlegger corn producers made an environmental appeal. When opposing free-trade agreements that would allow more low-cost Asian goods to enter U.S. commerce, U.S. producers and labor unions may invoke the immoral foreign use of child labor.
As the philosopher David Hume (2000, 266) said most famously in his magnum opus,
A Treatise of Human Nature
, “Reason is, and ought only to be the slave of the passions.” Translated into our narrative (and southern vernacular), he might well have said, “Any Bootlegger worth his salt better make a Baptist appeal if he hopes to bring home the bacon.” We all fancy ourselves sterling examples of reason and common sense. Yet more is going on in our heads than what our conscious minds report. Lurking behind the rational mind is an unconscious mind laden with emotional beliefs that shape our actions. If Bootlegger organizations want to win the day on Capitol Hill, they must send the appropriate signals to the treacherous domain of the passions.