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June 15, 2012

The Political Incentives Perversion

In a democratic political system you would assume that if 500 people oppose a bill, and two support it, that the bill in question is doomed to defeat, right?

Well, you’d be wrong.

Welcome to the ” Political Incentives Perversion.”

The formula, Concentrated Benefits versus Dispersed Costs, describes the advantage the smaller side enjoys.

Concentrated benefits are the rewards that interest groups and State contractors expect to receive for their lobbying efforts. We say these benefits are concentrated because a small number of people get these State resources.

This is in deep contrast to those of us who pay the bill! Our costs are dispersed widely. We all pay for this concentrated benefit.

Lobbyists provide specialized knowledge and represent organized interests. They are legitimate players, particularly in a society that values a robust First Amendment.

Nevertheless, virtually everyone understands that the political system has perverse incentives and perverse outcomes.

Populist instinct says restrict or ban lobbying. But a ban would be a cure worse than the disease. The State’s regulatory machine would run you over. Lobbyists defend industries from undue regulation — perhaps even yours. They also work to protect the rights of individuals, be they gun owners, pot smokers, or vitamin consumers.

But when concentrated benefits trump the dispersed opposition in a game to get special privileges, we need to recognize that we have a problem with INCENTIVES. 

Budding beneficiaries stand to gain large potential windfalls, dispersed over a small group. The members of the small group are highly motivated to organize and lobby, because of their potential profit. They gain leverage — disproportionate influence over decision-makers.

Likely losers, on the other hand, will bear the costs. But they find that those costs are so low that they have little incentive to fight. Maybe the program will cost them a nickel, a dime, a quarter, or even a dollar, per month, per week, or even per day. Is laboring for victory worth it, at a dollar per day or less?

Low profitability, busy lives, an overwhelming number of similar battles to fight, and most significantly, the belief that they’ll lose anyway, combine to form what we call “Rational Apathy.” This apathy destroys the incentive to fight. As a result, the opposition, which will pay the bills, lacks ability to lobby the government effectively.

This means that, in the American system of government, policy decisions are likely to be prejudiced to favor the side of concentrated benefits — the tax-eaters — over the dispersed cost side — the taxpayers.

Methods of overcoming the Political Incentives Perversion — this problem of perpetual statist growth — is the most pressing strategic need of voluntaryists, individualists, constitutionalists, and libertarians.

Some ideas for tackling it include . . .

  • Making it very simple and virtually free for individuals to lobby their representatives
  • Building armies that are so large and socially organized that the representative cannot afford to ignore them
  • Using those large forces to spread their message so far and wide that their position attains a dominant place in the debate
  • Creating rules which make it costly and challenging for politicians distributing windfalls at taxpayer expense

In fact, I just described, the Downsize DC strategy. In each of these instances we’ve lowered the cost to activists and diminished apathy while increasing the expenses and burdens politicians must suffer should they continue to pass out favors. We’re leveling the incentives.

Can you think of other techniques?  

Copyright (c) 2012 by Jim Babka. Permission to distribute this blog post for educational purposes is granted, if done with attribution to the author and the Downsize DC Foundation. Permission to use for commercial purposes is denied.

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