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The Public Policy
The Road to Legalized Plunder
Why is it that Congressman and Senators will vote for a bill, such as the so-called stimulus package, when they are not sure it will accomplish the intended goal? One might go even further and ask why will they vote for a bill that they know will not accomplish the intended goal? The answer to both questions lies in what economists call the rational ignorance of the voters, what Gordon Tullock labeled rent seeking by special interest groups, and the incentives of the political structure.
People that economists consider rational will undertake an activity if the added benefit to them of the activity is greater than the added cost. For example, you decide to watch American Idol if the pleasure that you get from watching it is greater than your opportunity cost -- the value of the next best thing you could be doing with your time. The so-called stimulus package was in excess of 720 pages at its introduction and ended up over 1,000 pages. The introduced bill was eventually posted on the Internet, and a large number of Americans with a high-speed connection could have sat down and made their way through it. Would it have been rational for them to do so?
It is obvious that there was a significant cost to just read through the bill. To gain even a cursory understanding of what was in it would take several hours. Given that the vote on the Senate substitute occurred within 72 hours of its drafting, you would have had to spend much of your spare time to read the bill in time for the vote. The cost to you was obvious, but the benefit from doing less so. Suppose after reading the bill you found that out of the $800 billion in spending there was $275 billion that you find inappropriate. Did you have any chance of altering the bill? Of course not. Even if you were a Republican Senator it would have been difficult to affect the legislation. Four out of every five amendments offered on the bill by Senators were not even considered for a vote. The chance that you would be able to call your Senator and he or she would take your call, listen to you, be convinced that your ideas are correct, draft up an amendment, get it considered for a vote, and pass the Senate is near zero. Thus, it was not likely that the benefit to you from knowing what is in the "stimulus package" was greater than zero and the costs of learning about it were significant. Thus, Congress could pretty well rely on constituents not knowing what is in the stimulus package. That is why naming the bill was vitally important. If it is referred to as "the stimulus package," then most people will assume it will stimulate the economy.
The mainstream media does little to provide voters with any relevant information about legislation. During the President's press conference, wherein he suggested that most economists agree with the Keynesian argument that government spending stimulates the economy, no reporter asked him about how this position can be reconciled with the letter signed by more than 300 economists, including three Nobel prize winners, that disagreed with the President's statement. There was, however, a question about the President's thoughts on steroid use by Alex Rodriguez of the New York Yankees.
Now suppose that you are the lobbyist for a special interest group, such as ACORN. It is in your interest to know whether an appropriation for ACORN is in the bill. Since you have some ability to affect the outcome you will spend a significant amount of resources attempting to get an appropriation for ACORN in the stimulus package. This is what Professor Tullock called rent seeking -- investing resources to use the political process to get benefits for you. Special interests will thus dominate the political process and the stimulus package is one prime example of this.
A Congressman may personally benefit from placing provisions in legislation for special interest groups that will in turn provide him help in his next campaign, or who might hire him once he leaves office. If so, we might expect a Congressman to vote for an amendment or for a piece of legislation that will not accomplish the goal assigned to the legislation, but will benefit a particular constituent or interest group. The vast majority of his constituents will either not even know the provision is in the bill, or will not have the time or ability to analyze whether the provisions he has added will accomplish the bill's purpose. Of course, we could rely upon our legislators to go against their own self-interest and only vote for bills that will advance the good of the general public. But as Nobel Laureate James Buchanan, the founder of Public Choice Theory, pointed out, we expect legislators to act in their own self-interest when they go to the grocery store so why would we expect them to act against their self-interest once they enter the legislative chamber. While some may do so, we can assume that the majority will act in what is their own self-interest.
The stimulus bill became a massive case of the process just described and what Frederic Bastiat called legalized plunder in his 1850 book, The Law. It is highly unlikely that the prodigious amount of spending in the bill will do much to improve the economic climate of the majority of Americans. It is more likely that the inflationary risks and the increase in debt will cause long-term harm to the economy, and it is likely that many of the legislators who voted for the bill know this. But until those who understand, as Ludwig von Mises pointed out 90 years ago, that only market capitalism and limited government can provide wealth for the masses gain the ability to inform the rationally ignorant voter we will repeat what transpired with the stimulus package -- continued use of government-created crisis to expand government and serve the interests of those who are in control of the political process.
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John| 2.23.09 @ 6:42AM
Occum's Razor applies here. The simplest explanation is the most effective and probably the most correct.
This is the sum of the majority of the spending bills denied to the Democrats since 1994, when either a GOP majority, or a Republican president with a veto proof block was present to stop it.
That is it.
And yes, you are correct, it is legalized plunder. We are a nation of "marks" being willingly victimized by conartists.
Not what what "Marxism" defines, I suppose... but what it amounts to in the end.
Regards,
John
drudge ette obama| 2.23.09 @ 7:05AM
I was dissapointed that so few Democrats voted against the so-called Stimulus Bill. Even the conservative blue dog democrats, like Jim Marshall of Macon GA, voted for this waste. This former law professor and mayor of ailing Macon GA signed off on this. Is is claiming to have read this? Doubtful.
The answer is that which we all know: sheep want to keep their jobs. But they eventually end up in mutton stew.
stonepony| 2.23.09 @ 7:45AM
As much as Marshall and the AJC would like one to believe he is a conservative democrat, at the end of the day he is no different than John Lewis.
It seems the people of his district are as stupid as the people in Lewis's.
drudge ette obama| 2.23.09 @ 8:14AM
Stonepony, you are right. Marshall was cherry-picked to run based on his pro-military positions and pro-gun stance, but he really is just the academic at heart and a former mayor who accomplished very little for declining Macon. His progressive wife stays out of the limelight. She's a bankruptcy trustee (Camille Hope-Middle District GA) and I imagine she's for the residential cramdown provisions by bankruptcy judges. Also, as a Catholic, people might be interested to know his stand on abortion. That he voted for largest wad of toilet paper in American history makes him no different than Nancy Pelosi. Remember, he voted for the first TARP at stage 1. Jim " I never met a spending program I didn't like" Marshall.......
Robert Rosencrans| 2.23.09 @ 8:31AM
No man, woman or child in America is safe while Congress is in session.
Pingback| 2.23.09 @ 8:53AM
Stimulus » The Road to Legalized Plunder links to this page. Here’s an excerpt:
Pingback| 2.23.09 @ 9:40AM
American Idol » The Road to Legalized Plunder links to this page. Here’s an excerpt:
Jim| 2.23.09 @ 10:42AM
Unfortunately too many Americans are fully focused on the present and what they perceive they will receive from the stimulus rather than the long term ill affects it will have on us all. I can only hope that this short-sightedness doesn't ruin us all.
bobmontgomery| 2.23.09 @ 12:04PM
Thank you, Eric Holder. WE are indeed a nation of cowards, not in matters of race, but in standing up to thugs from Chicago.
Thomas| 2.23.09 @ 12:39PM
Government in general, and the Federal Government in particular, have become even more of a comedy that before. Congress has proven that they all graduated from the Governor William G. Le Petomane [Mel Brooks character in Blazing Saddles] School of Governance. His famous quote is "Holy underwear! Sheriff murdered! Innocent women and children blown to bits! We have to protect our phoney baloney jobs here, gentlemen! We must do something about this immediately! Immediately! Immediately! Harrumph! Harrumph! Harrumph! " Do something, anything. It is unimportant if it is successful. It is enough to be seen as doing something.
Shamus| 2.23.09 @ 2:13PM
The Pimpulus Bill -- they take your money and you get screwed.
David Govett| 2.23.09 @ 2:22PM
I realize now I was wrong in labelinging Democrats as "tax-and-spend Democrats." I was wrong. Rather, they are "spend-and-tax Democrats."
brutus| 2.23.09 @ 3:47PM
Too bad those Rationally Ignorant Voters will never even read this very educational and brief column, much less the so-called stimulus package.
Ray Brown| 2.23.09 @ 4:33PM
Even if the legislators knew that the bill would cause harm in the long run, the odds are that 1) they will not be around when it’s time to pay the piper, and 2) if they are, they can always blame someone else.
Bill Hussein O'Stalin| 2.23.09 @ 4:44PM
The results are already pouring in, to wit:
http://www.boston.com/business/articles/2009/02/23/for_now_laid_off_and_loving_it/
For now, laid off and loving it
Some are finding respite in a life without work
Until it wasn't. Adler has quickly learned to appreciate some aspects of his unexpected unemployment.
The 42-year-old spends his days doting on his 6-month-old daughter, visiting museums with his family, and preparing for a possible exhibit of his photos at a local coffee shop in Dedham. Living off savings, unemployment, and severance packages, Adler knows he has to get a job eventually and has started the search. But for now, he's cherishing every moment. "It's our first child and I love watching her grow," Adler said. "And it's nice to have time off and get in touch with my old hobbies."
As the ranks of the nation's unemployed grows, more Americans are facing the reality of life without work. Despite the grim task of making ends meet (firing the nanny, bailing on Whole Foods, applying for unemployment), there is a newly forming society of people who are making the best of being laid off. They are rediscovering hobbies. They are greeting kids at the school bus. They are remembering what daylight actually looks like.
And the massive layoffs by companies nationwide - nearly 600,000 jobs were lost last month - has helped remove the stigma and shame of being unemployed, according to John A. Challenger, chief executive of Challenger, Gray & Christmas, a Chicago outplacement firm.
"There's less of a 'why aren't you working attitude' that is giving people some extra space and freedom to explore new directions and just take time off to do the things they've wanted to do, whether it's spending more time with children, taking a class, or traveling around the world," Challenger said.
John Stephen Dwyer so far isn't missing his job or former office overlooking Chinatown. The 41-year-old Boston native was laid off in November from his $40,000-a-year job as education coordinator for the Clinical Research Graduate Program of Tufts University Sackler School of Biomedical Sciences. And he hasn't started seriously looking for new work.
Don't get Dwyer wrong - times aren't exactly easy. He has applied for unemployment and now takes the subway instead of taxis. But he has started doing things he enjoys: taking a class in history and ethics of biotechnology at the Harvard Extension School; cooking food for the homeless; and attending weekday Mass at churches around Boston.
"I want this year to be the year in which I transition from doing something just because it's a good job and pays well to doing something I'm interested in," Dwyer said.
As bad as it feels to lose a job, temporary unemployment can provide a much-needed intervention to workaholics who can benefit from such a break, said Douglas T. Hall, a professor at the Boston University School of Management.
"It's the success syndrome. You work hard, you do well. It's very satisfying and that gets you more involved to start working even harder," Hall said. "It's a success spiral that people get into. And sometimes it takes some extreme experience to get out of that spiral."
Kendra Winner, who in September lost her $95,000-a-year job designing teacher professional development training, described her escape from the spiral: "I'm loving being home because I no longer feel like the Eiffel Tower is crushing my skull. I was squeezing so much into limited bandwidth as a working mom. Now, I don't feel like I'm chronically overcapacitated."
Winner's epiphany has come at a price. The 46-year-old has cut back on the nanny, slashed last year's Christmas budget in half to $400, and started shopping for less expensive groceries at Market Basket. The usual February ski vacation is being replaced by a stay-at-home vacation with the kids.
"We're trying to cut down any place we can," Winner said. "That's not fun, but we're focusing on making memories."
And these days, Winner has a hard time imagining going back to the crushing schedule of a full-time job and missing out on the simple joys, like staffing her first school field trip.
She is looking for work, particularly because she's concerned her husband's job at an advertising technology firm isn't safe. And after spending a recent week home with her sick 3-year-old, Winner was starting to miss work.
Almost.
Bob Knutson| 2.23.09 @ 9:06PM
Mark Twain said it best, "They should have stopped with.....Congress shall make no law".
Howard Ino| 2.23.09 @ 10:26PM
Like the Republicrats, the Democrans have exhibited their arrogance and disdain for public dioscourse! Cram theit ideals down Americas' throat without even a conversation!
I say FIRE ALL incumbents... Farmers and Workers understand America better than this crowd of corrupt lawyers!
VOTE AMERICAN... VOTE AGAINST ALL INCUMBENTS IN 2010!
No complaints then| 2.25.09 @ 12:39PM
Ask George W Bush how much it cost America to slaughter innocent Iraqi people. Bush Bankrupted America on the war on Terror got the American people hiding from their own shadow.
Afraid to look in the mirrow, incase they saw themselves. Bush and friends looted America, and Obama got to do the dirty work picking up the bits. If Bush was held accountable he could not have done what he did.
People in America and the world couldn't wait to see the back of this president who was retarded as one radio station said. People are complaining because Obama is spending money to put back the bits that is broken.
There is no doubt that, that Obama has a chellenge on his hand.
Bush was picked out because the establishment was looking for some one with a disability, a mental disability.
djc-illinois| 2.25.09 @ 2:42PM
It’s Too Late Now
By now everyone’s figured out that the $787 billion in the recently passed “stimulus” bill amounts to a little over $2500 for every man, woman and child in the U.S. However, nobody, at least so far as reported by the press, seems to think that simply sending a family of four a check for $10,000 is a good idea. The best idea, apparently, is to allow partisans in Congress to spend that money on causes that are designed to promote their political tenure, doing little to no good for that family of four.
The explanation for this seems to be that, heaven forbid, that awful family will simply save the money so we cannot possibly let them have it. Guess what, among other things, happens if, in fact, they do save it—the banking problem gets fixed immediately.
$787 billion deposited, by families, in banks shores up their financial condition and provides the capacity for those banks to lend almost $8 trillion. Since lending is pretty much the only way banks make profits for their investors, their motivations to lend to qualified borrowers would surely be highly “stimulated” by all that additional capacity. And no need for Barney Franks and his traveling circus of a congressional committee; American savers have proven extremely competent in tending to their own money.
Oh, and if that $8 trillion were loaned to businesses, large and small, to invest in expansion or start-ups it would be sufficient to create 20 to 30 million new permanent jobs.
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