Tuesday, June 24, 2014

Lobbying, rent seeking, and opportunity cost

I watched this video today narrated by Milton Friedman about lobbying politicians and it got me thinking about how lobbying for special favors, a form of rent seeking, crowds out productive activities. In fact, Friedman talks about that at the end of the video where he mentions that lobbyists (and bureaucrats for that matter) could be doing other more productive things if the government was unable to hand out money to special interests.


If the government didn't control so much money, money that they can hand out as favors to special interest groups, the demand for lobbying would decrease. This would decrease the wages for lobbyists, all else equal, and would lead some lobbyists to pursue other occupations.

This brings me to opportunity cost. Successful lawyers and lobbyists are likely on average very bright people. The best lobbyists would still likely stay lobbyists since it's hard for me to envision a wold in the near future with no special interests, but the less skilled lobbyists would not be needed. These lobbyists might instead choose to go be engineers, teachers, scientists, doctors, accountants, or any other skilled profession.

The lower wages for lobbyists, all else equal, increases the relative cost of becoming a lobbyists. Specifically, it increases the opportunity cost, since if a person becomes a lobbyist they cannot be a doctor, accountant, or perhaps an economist. By choosing to be a lobbyist they have  forgone the opportunity to earn a living doing something productive in the community. A decrease in the wages of lobbyists makes these other careers relatively more attractive.

This would be good for America because we would have more bright people working to produce goods and services that people actually want instead of competing for government handouts, handouts that are created by taxing workers who are already producing stuff that people want. The world is a better place when more people are creating stuff that other people voluntarily buy than when people are competing in a zero sum game for government handouts.

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