Authors: Adam Smith
The order states, “Where appropriate and permitted by law, each agency may consider (and discuss qualitatively) values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts” (White House 2011). With equity, dignity, fairness, and distributive impacts now part of the official regulatory lexicon, groups organized around a higher moral purpose should become even more valuable allies for Bootleggers who just want an easier ride to the bank. And with presidents showing new savvy in assembling interest groups for the purpose of forming regulatory cartels, we may expect still wider smiles and louder hallelujahs on the lips of Bootleggers and Baptists.
2. Bootleggers, Politicians, and Pork
Having introduced Bootlegger/Baptist theory and presented four modes of interaction, we need to take a step back and examine just who these Bootleggers and Baptists really are. As a simple definition, a “Bootlegger” is any individual, group, or organization that seeks political favors for financial gain. “Baptists” are individuals or groups that seek political favors for loftier reasons. The favors they seek might take the form of benefits to causes they favor or simply actions that magnify the importance of the values they embrace.
Most groups, of course, are not exemplars of either category: there’s a bit of yin in every yang. Surely firms that pursue economic profit are not totally bereft of moral values (or at least, so they often assure us). Groups that pursue regulation for avowedly public-spirited reasons can’t be wholly indifferent to whether a little cash falls into their coffers. Still, in most situations it is relatively easy to pick out those groups drawn to legislation more for economic gain and those with more of a moral interest in the outcome. It is easy because they identify themselves.
In this and the next chapter, we explore what motivates these Bootleggers and Baptists. We show how politicians find it in their interest to cater to each of these groups when crafting legislation or developing regulations. Our theory is largely a positive or descriptive one, in the scientific sense of aiming to understand and predict human behavior rather than to render value judgments. We want to know how the world works. Still, the theory has obvious policy implications, which we try to draw out. Let’s put it this way. We also want to know if things work out well overall for a society that assigns high value to freedom and wealth-creating opportunities.
Bootlegger/Baptist theory also rests in a much larger body of work that applies economics to politics, which we navigate for the reader as well. The body of research called “public choice” was pioneered by Nobel laureate James M. Buchanan and Gordon Tullock (1962) in their seminal book,
The Calculus of Consent
. Public choice analysis uses standard economic logic to develop a model of how government works—as opposed to a model of how it should work—or what should be done by government regulators to alter human action. James Buchanan (2003, 16) calls it “politics without romance.” Public choice exposes how incentives work in the realm of political theater, just as they do in markets. The differences arise from context, as political institutions create different incentives for people making decisions through politics rather than through economic markets.
We begin this chapter by giving a more complete discussion of public choice theory as it pertains to Bootlegger behavior. (Though we occasionally brush against Baptists as well, they get their turn in the next chapter.) As we look through the public choice lens, we describe four theories of regulation that have evolved in an effort to explain why so much regulation exists. We illustrate these evolving theories by drawing on comments from a series of the
Economic Report of the President
, starting in 1965 and moving forward to 2010.
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By reviewing 45 years of focused commentary from the same source, we are able to describe in crude terms the linkage between theoretical work and recognition of the work by White House officials. In this way, we identify how and when academic theory came to influence political practice. We understand, of course, that White House recognition of anything will be politically biased—but knowing which biases prevail at different times may be illuminating. We close the chapter with some final thoughts about pork-loving Bootleggers.
Politicians, Incentives, and Pork
Let’s start with a simple notion: politicians are people just like the rest of us. They weigh costs and benefits when taking actions. Like most of us, they attach substantial weight to career concerns: which is to say, they want to keep their jobs or advance to better ones. Even the most idealistic politicians, after all, have little opportunity to implement their ideals unless they first get elected and then manage to hold on to their offices. For politicians, employment requires votes. Securing votes requires running costly campaigns that run costly ads. Politicians need revenue. And revenue can come from happy Bootleggers. Like the rest of us, politicians are smart about some things and naive about others. They cannot know everything, so they logically choose to become best informed about things that matter most to their day-to-day pursuits. They, too, are rationally ignorant about many things except those things that keep their enterprise afloat.
Starting from these premises, we infer that what will matter most to politicians, in practice, is whatever matters most to the special interest groups who support their reelection prospects. For example, if an auto assembly plant, diesel engine manufacturer, or major bank headquarters is located in the politician’s state or district, we can bet safely that he will know a great deal about proposed regulations that affect the fortunes of these particular enterprises. If instead the politician hails from a soybean-producing region without a manufacturing plant or bank headquarters within 500 miles, we can just as safely bet that he will know little about regulations affecting manufacturing and banking but an awful lot about agriculture policies related to soybeans.
Politicians, then, predictably engage in activities that provide concentrated benefits to well-identified special interest groups located in their states or districts. But not just any old benefit will do. Improvements in Yellowstone Park or cleaner rivers in faraway regions may be sentimental goals for Bootleggers and their friends, but none of these political outcomes puts money in Bootlegger bank accounts. Businesses, we assume, can most easily justify spending money—whether on capital goods or campaign donations—when they expect to make a return on investment as a result. If they hope to induce Bootleggers to open their pocketbooks, politicians need to provide the sort of benefit that the recipient can take to the bank. Such benefits may come directly, in the form of cash or a government check, or more indirectly, through a restriction on competition in a Bootlegger’s business or industry that increases the Bootlegger’s revenue—as long as the Bootleggers know whom they ultimately have to thank for their fattened wallets.
Effective politicians want to find low-cost ways to reward Bootleggers who favor them. Doing so is easier when the cost of those rewards is spread across so many naive taxpayers that no one really notices what’s happening. We know a lot about our homes, our families, and the ins and outs of earning a living. Only a few people know a lot about the finer details of 2014 EPA fuel-economy standards for motorcycles, diesel engine emission protocols, the Food and Drug Administration’s proposals for regulating the sale of mentholated cigarettes, and proposals to limit the charges retailers incur when debit cards are used. Even when a particular ill-conceived policy imposes costs on the ordinary taxpayer, it seldom makes sense for any given individual to spend hours researching the issues—let alone mobilize resources to seek policy changes.
The ideal scenario, from a politician’s perspective, occurs when he can provide valuable benefits to a few firms or organizations in his district or state and spread the costs across the entire nation. The smaller the number of Bootleggers pursuing a fixed benefit package, the better. This not only lowers the cost of organizing and agreeing on desired outcomes but also enlarges the benefit each Bootlegger receives. Small is beautiful as far as pork-hungry Bootleggers are concerned. Therefore, concentrated benefits and diffused costs are the stock in trade of the successful politician. And this is just when the Bootlegger side of the matter is considered. Things get more interesting when the Baptist side of the story enters the picture—but we’ll get to that later.
The political distribution of benefits to specific local interests often goes by the name of “pork barrel politics,” and Bootleggers love pork. Perhaps the best-known pork delivery system is the much-maligned “earmark,” where a legislator writes into the government’s budget expenditures that benefit specific parties or groups in his district alone while sticking the larger population with the bill. In recent years, the U.S. congressional practice of making such targeted distributions of government largess to home states and districts through earmarking has received enormous attention. The practice is condemned as though it was a chief cause of the yawning federal deficit or as if earmarking is somehow anti-American.
The fact is, however, that most government-provided goods and services are not really “public” at all. They are bundles of private goods that redound to the benefit of specific individuals, communities, and organizations rather than society as a whole (Aranson and Ordeshook 1981). These benefits do not spring randomly from public wells but are generated by the behavior of particular special interests—Bootleggers—working with particular political entrepreneurs (R. Wagner 2007, chaps. 4–5). Earmarking is clear evidence of Bootlegger success in bringing home more pork. But the competition for pork is tough. And pork does not fall from the sky; flying pigs are rare! Bringing home the bacon requires work—and that work takes time, money, and resources.
Tullock’s Foundation for Thinking about Bootleggers and Baptists
This brings us to a key public choice insight developed by Gordon Tullock (1967). Tullock’s seminal idea relates to just how much Bootleggers spend when they lobby politicians for more pork. Are there limits? What determines them? Tullock looked at the standard model of monopoly found in any introductory economics textbook and asked a simple question: How much would a budding monopolist be willing to spend for a government license that delivered full monopoly power with all the associated profits? Put more concretely: How much would you be willing to pay for the exclusive right to serve all cell phone users in the state of Illinois?
Tullock argued that in a chase with other firms in pursuit of the same goal, the budding monopolist would logically be prepared to spend up to the expected value of what might be gained from the resulting monopoly power. In a political economy where special interests struggle to obtain political benefits, firms eager for government protection may exhaust their hoped-for gains in a vain pursuit of the political prize. Of course, not every bridesmaid becomes a bride, and not every aspiring monopolist wins the permit. But everyone who tries will spend valuable resources doing so.
Monopolies generate an obvious loss to consumers when they produce below competitive levels, but Tullock identifies another loss or waste of resources that occurs in the course of pursuing the monopoly. All those visits to politicians and contributions to campaigns take time, money, and other resources—resources that could otherwise have been devoted to producing goods and services. Sadly, especially from the perspective of the Bootleggers, the amount spent on wasteful lobbying efforts can be as large as the expected profits sought.
Now, just for the moment, let’s get some Bootlegger and Baptist interaction in the story. When considered in the context of the Tullock model, a winning Bootlegger/Baptist coalition lowers the cost of organizing demand for political favors. Because passing legislation with some plausible public interest justification is itself an electoral benefit to politicians, Baptist support may reduce the other forms of inducement—such as campaign contributions—needed to motivate legislators to act in particular instances. As those costs go down, regulatory activities increase, and with that increase come more lobbying expenditures from more Bootleggers and larger corresponding losses that spring from the resulting output restrictions.
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Declining lobbying costs on the demand side reinforce falling costs on the politician-supply side because enormous fixed costs are associated with forming trade associations, opening Washington offices, and keeping lobbyists on retainer. Once the office doors are open, the average cost of chasing bundles of pork gets smaller and smaller (Murphy, Schleifer, and Vichny 2003). In contrast, running a business or operating a factory tends to be an increasing or constant cost endeavor.
Business firms then have a choice. Will they seek gains at the margin through lobbying or by putting more scarce capital into producing products and services? Once the lobbying machinery is built, the calculus will be biased in favor of the former. Indeed, fledgling Bootleggers may even be spared the trouble of building their own machinery by channeling resources through Baptist groups that have already built the necessary infrastructure. We thus get fewer bread factories but more lobbying lawyers and economists doing benefit-cost analysis. Bootlegger/Baptist interaction helps grease the rails that lead to increased regulation and an expanded public sector.
But All That Glitters Isn’t Gold
As we saw in chapter 1, regulation takes the edge off GDP growth. Fortunately, the Bootlegger’s search for pork has limits. We must remember that the political process is competitive. Lots of Bootleggers would love to bend the politician’s ear, but only a few can be successful. Chasing politicians and sharing views with them—lobbying—is costly business. As Tullock teaches us, even the most successful Bootleggers may end up with little in the way of additional net cash flow once the costs of currying favor are tallied. Even the winners of the pork race may discover that their barbecue cookout on the National Mall doesn’t serve up the prime cuts they’d hoped for.