Blagojevich as a Lesson in The Evils of Rent-Seeking

George Mason University economist Donald Boudreaux, writing in the Christian Science Monitor, finds that the Blago contretemps reminds him of the importance of the economic concept of rent-seeking, and how government income transfers do more, and worse, than create a zero-sum game of special interest wins, taxpayer loses. An excerpt:

The income derived from possessing a special privilege is called "rent" (which, by the way, has nothing to do with the monthly payments that tenants make to landlords). Rents themselves are just a transfer of value from some people to others. So, for example, when each American pays an extra $10 annually for sugar because of the special protections that Uncle Sam gives to American sugar farmers, that $10 winds up in the hands of sugar farmers. Each of us who doesn't grow sugar is worse off by $10, while those who do grow it are better off by the sum total.

[But] the very ability of government to create lucrative special privileges diverts resources from socially productive pursuits into wasteful ones.

Knowing that government is willing and able to impose tariffs that will protect them from foreign competition – and knowing that such protection will raise their incomes – sugar farmers understandably spend some of their resources farming government rather than farming their land.

Such lobbying can reap advantages worth millions. So it's understandable that companies spend considerable effort courting politicians who can bestow such privileges. That's wasteful. Time, energy, and other materials that could be used to expand the output or improve the quality of goods and services are instead used to lobby government for narrow benefits that may harm society at large. …..

It's easy to look at the Blagojevich case and see a failure of personal ethics. It is about character. But it's also about how government itself creates the very conditions for corruption. Think of all the special privileges governors can bestow: subsidies for stadiums, public-works contracts, special taxes and fees, not to mention myriad regulations with myriad loopholes. Chief executives – mayors, governors, and presidents – are supposed to be the chief enforcers of the law. Today, though, they are also chief bestowers of privileges…..

……Blagojevich's shenanigans – though probably illegal in ways that grants of other special privileges aren't – are nevertheless appropriately seen as a product of the rent-seeking culture that today's increasingly unconstrained government engenders.