Friday, April 6, 2007

Must Democracies Stagnate?

Yes, because of political favors granted to reduce competition.


1. Business groups, to maximize profits, demand that the government prohibit competition -- domestic (with restrictive licenses) and foreign (with tariffs).

2. The politicians in government are then pressured to grant these favors, at the risk of not being re-elected.

3. With competition lessened by the government, innovation drops, supplies become artificially low, and we pay high prices.

4. But since each political favor to a business interest costs us pennies, we don't care. No one will petition Congress to save a few cents, on say, sugar -- especially when sugar companies have pressured Congress to maintain quotas that have brought them millions of dollars.

5. However, when all the favors to the many business groups are summed, it costs us a lot.

6. But to stop these favors, each of these hundreds (or thousands?) of laws must be defeated one-by-one. Given the constraints of Point #4, above, this will not happen.

Here's an example:

Recently, President Bush went to Brazil to discuss the substitution of gasoline with sugar-based ethanol. This would make Americans less reliant on foreign oil suppliers, and would reduce the cost of transportation. But although Brazilian farmers were willing to sell cheap ethanol to Americans, Bush indicated that he would not permit the imports without a punitive tariff -- the reason being to "protect" American farmers who are already making corn-based ethanol. But what alternative did Bush have? To anger the farmers, and ruin the chances that his party would win elections?

So, who's the bad guy here:

The politicians, for abusing their power by taking from everyone to give to a privileged few? (But what other choice do the politicians have, if they want to be re-elected?)


The businesses, for pressuring the government to abuse their power? (But since when is it a crime to support whomever you please in a democratic election? Don't individual citizens do that all the time when their senator fails to "bring home the bacon" from Washington?)

Are both the bad guys? Or is everyone just an honest victim doing their best within a system that will only reward someone else if they fail to follow their incentives?


Lexcen said...

If a politician does favors for an organization or individual in return for contributions to the electoral fund, then that is bribery. Lobbying is one thing but any transaction that involves money is bribery.

JohnM said...

I don't think faQster is discussing bribery. The problem is "rent seeking".

It is indeed a potential problem for any democracy and it may be unavoidable.