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 2010.1 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