The Public Policy

The Road to Legalized Plunder

Rational ignorance, the "stimulus package," and congressional action.

By 2.23.09

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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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About the Author

Gary Wolfram is William Simon Professor of Economics and Public Policy at Hillsdale College and former chief of staff to Congressman Nick Smith.