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Lobbying Pays
In a remarkable illustration of the power of lobbying in Washington, a study released last week found that a single tax break in 2004 earned companies $220 for every dollar they spent on the issue -- a 22,000 percent rate of return on their investment.
The study by researchers at the University of Kansas underscores the central reason that lobbying has become a $3 billion-a-year industry in Washington: It pays. The $787 billion stimulus act and major spending proposals have ratcheted up the lobbying frenzy further this year, even as President Obama and public-interest groups press for sharper restrictions on the practice.
From the Washington Post. We will never get the money out of politics until we get the politics out of money.
Posted by Alex Tabarrok on April 13, 2009 at 07:28 AM | Permalink
Comments
We will never get the money out of politics until we get the politics out of money.
Then what would our congress critters do? Focus on the basics?
Seriously Alex, you hit the nail on the head. But it's easier to focus on the former, especially for incumbents.
Posted by: anon at Apr 13, 2009 7:53:18 AM
Government is no different than the mafia. They take bribes and extort rents.
Posted by: Jay at Apr 13, 2009 8:21:40 AM
It is incredibly naive to think we can "get the politics" out of money. This has been going on
since the days of the Roman poet Juvenal who coined the phrase "bread and circuses" as the
cornerstone to successful governance. Its even more naive
to think that all those billions were spent on electing the Obama to do so. Whether or not
he actually bowed before the Saudi King (he did and the spin otherwise
just strains credibility and insults intelligence) its the perfect picture of a politician's
subservience to money.
We can't even stop our state and local governments from handing over billions for the modern
"circuses" equivalent; municipally financed sports stadiums. The game remains the same;
threaten to leave, get money-and player salaries reach higher into the stratosphere.
Meanwhile, Joe Sixpack gleefully supports this venture with his vote and wallet.
There was a reason the founders limited the federal government's ability to tax the citizenry
directly, Lincoln dispatched that with the Civil War and five decades later, the federal income
tax was permanent.
So I ask; how will we ever get "politics out of money" when politicians can take what they
want from who they want when they want?
Posted by: Phil at Apr 13, 2009 8:23:06 AM
The basic story is probably valid, but the reasoning in the Washington Post article seems analogous to this:
"The lottery provides a fantastic return to those who invest in it. We identified all of the winners of the New York State lottery from 2008, and found that on average, they won vastly more than they invested."
How about all of the money spent lobbying for proposals that haven't happened yet?
(I should point out that ssrn is down, so I haven't been able to see the actual paper, which no doubt emphasizes this point.)
Posted by: Robert Bloomfield at Apr 13, 2009 8:27:46 AM
We will never get the money out of politics until we get the politics out of money.
Just because it's chiasmus, doesn't mean it's true (in either direction).
Posted by: beamish at Apr 13, 2009 8:59:08 AM
> a single tax break in 2004 earned companies $220 for every dollar they spent on the issue
does this take into account survivor bias ie does this take into account the lobbying money spent working on tax breaks not received?
Posted by: babar at Apr 13, 2009 9:12:05 AM
How can we honestly trust our politicians to run the economy if they can't even price their own services correctly?
(Not withstanding Bloomfield's point)
Posted by: Rolo Tomasi at Apr 13, 2009 9:17:05 AM
As long as government collects taxes companies are going to lobby for tax breaks so there is no way to get politics out of money. Would it better if companies earned only $20 for every dollar they spent on an issue? Is it not better for the economy if fewer resources are used up in lobbying so the cheaper you can buy favors from the government the better.
Posted by: joan at Apr 13, 2009 9:20:54 AM
You know what doesn't work? Democracy.
Posted by: josh at Apr 13, 2009 9:23:43 AM
It's a fun libertarian aphorism to believe that the government meddled in the economy first, and that was prior to and a necessary condition for the economy meddling in politics, but in reality the causation goes both ways. What does money in politics typically buy? Further meddling.
Posted by: solarjetman at Apr 13, 2009 9:24:32 AM
Tyler would ask: with a 22,000% RoR how come we don't see more lobbying? Could this be a sign that the checks and balances in the US system already work reasonably well?
Posted by: sd at Apr 13, 2009 9:39:02 AM
joan: "As long as government collects taxes companies are going to lobby for tax breaks so there is no way to get politics out of money."
Or, we could constitutionally constrain government to passing legislation that only benefits the "general welfare" instead of particular interest groups (hm... where have I come across that before?), so that no amount of lobbying would allow congress to provide tax breaks specific to certain groups. Businesses would then have to lobby for a tax break for hundreds of millions of people if they wanted to lobby for a tax break.
solarjetman: "It's a fun libertarian aphorism to believe that the government meddled in the economy first"
Is it? I think most libertarian-minded people recognize full well that interest groups have always driven government to expand its reach; the typical answer, though, is that restraining interest groups won't work so long as they have these high pay offs -- only restraining the power of government to meddle will ever work.
Posted by: liberty at Apr 13, 2009 10:18:04 AM
The thing about corruption is that it pays both ways. For the rent-seeking lobbyist, the return on investment that they get from their Congressional "investment" can be really substantial while the politicians at the opposite end of the transactions realize gains through something a lot like a dividend yield.
The reason why the politicians' dividend yields are so low is because this kind of corruption has become a highly competitive, high-volume, low-margin business.
Posted by: Ironman at Apr 13, 2009 10:27:45 AM
I like how economists pretend there could exist some morally neutral position as it concerns money and government. Government *is* money. Beyond some buildings, a few agencies, and a treasury, governments are nothing.
The sooner we move past two joint suppositions (the assumed libertarian right to your earnings, and the possibility of a money-neutral government), the sooner we can discuss real alternatives. What's the system of government that can provide the most consistent expected growth? What is the system of government that harms people the least?
A politics devoid of money is no politics. The two are the same thing, money and politics. We could enter into a philosophic, theoretic, or literature debate if you'd like--or you could just do like the rest of the economists do and assume a benevolent dictator.
Posted by: Bill at Apr 13, 2009 10:39:04 AM
I agree with sd. The remarkable thing is how much smaller $3bn of lobbying is than $3+ trillion of federal spending. And how is one to interpret the high rate of return? Certainly it suggests that the market for government influence is not a normal competitive market. What one really would like to know, of course, is what rate of return the *marginal* dollar of influence-buying earns.
Another question: Would we be better off with less money in politics, or more? Grower interests who have helped to eviscerate evil immigration laws are American heroes in my book.
Posted by: Nathan Smith at Apr 13, 2009 10:56:36 AM
So is this _not_ an example of rent-seeking behavior? If all the actors were guaranteed a return, their lobbying investment was not wasted as in the standard story of rent seeking behavior. I guess it was plain bribery instead. Or perhaps it is a sort of lottery established by the government to ensure players keep entering the game. An easter egg of sorts.
Posted by: mc at Apr 13, 2009 11:27:27 AM
[i]We will never get the money out of politics until we get the politics out of money.[/i]
Sorry, what does this even mean? How do we get "politics out of money"? The institution that we call government is the social near-monopoly on force. Situations will always come up when individuals and organizations in government will have every incentive to have "politics in money." And at the same time, separate outside institutions and individuals will see situations where manipulating the government is in their best interest.
It's hard to envision a situation where this is not the case; even if there were an "optimal" government-society state where every person would unambiguously benefit if we transitioned to it, there's no way to get there. Hundreds of millions of separate individuals just can't coordinate to reach it. The most anyone can hope for is for people to build other separate, competing outside institutions.
The strongest analogy I can find to Tabarrok is to a flower-child of the Sixties.
[i]Imagine there's no politics
It isn't hard to do
Nothing to kill or die for
And no corruption too
Imagine all the people
Living life in peace...[/i]
Posted by: Zephyrus at Apr 13, 2009 11:47:38 AM
Well, I fail at italics tags.
Posted by: Zephyrus at Apr 13, 2009 11:48:14 AM
This strikes me as inaccurate reporting. It's like calcualting the profits from oil prospecting based on one giant strike. The 22,000 percent return is spectacular precisely because it is rare.
For every lobbyist successful at bringing home the bacon there must be another one on the other side of the issue lobbying for some result they didn't get.
Posted by: Hydra at Apr 13, 2009 12:10:37 PM
Do we know that this wouldn't have passed without the lobbying? Would nothing like it have passed without the lobbying? Commenters keep harping on the cherry-picked data point; even for this data point to be as favorable as they claim, they have to make assumptions that uniformly strengthen their position.
Posted by: dWj at Apr 13, 2009 12:33:40 PM
I vaguely recall some public choice literature from around 30-40 years ago claiming that the government cannot give away money because the total cost of lobbying for it will equal the amount given away in equilibrium. I cannot find any citations on the web in a hurry.
Posted by: Martin at Apr 13, 2009 12:38:32 PM
Even correcting for the failed bills, I suspect that the return for lobbying is very high. After all, all you need are a few lobbyists and a couple of million dollars.
If that's true, than companies are not spending nearly enough money on lobbying. These days, a President controls indirectly about 10 trillion dollars in spending, while a Senator, especially one on an important committee, has a lot of power as well. Bribing these people seems to have enormous returns even in equilibrium, without bearing much risk.
Posted by: Thorfinn at Apr 13, 2009 1:22:19 PM
We will never get the money out of politics until we get the politics out of money.
Hey, that's my line! ;-)
Seriously, did anyone think there would be all this lobbying if it didn't pay?
sd: The 20,000% return is not to marginal case! It's an extreme example of something that happens all the time, though usually to a lesser degree.
Zephyrus: "Get[ting] the politics out of money" means getting the government out of the business of determining who gets money. Examples range from agricultural and industrial subsidies to narrowly-defined tax breaks to professional licensing rules to zoning to redistributive taxation to the sugar import quota (good for the maker of corn syrup!). Obviously, we could not get 100% attainment of "get the politics out of money" -- after all, Congress would have to buy from somebody the paper to print the Congressional Record. But the government was a lot less in the business of money in the past, and it could in there be less in the business in the future.
Posted by: Robert Book at Apr 13, 2009 2:26:56 PM
The study is a farce because it miscalculates the return the companies received on their money. If the bill had not passed, they would simply have left their money abroad. The government lost nothing and the companies gained nothing except the convenience of banking in the United States. If Obama restores inconvenience, the money will once again flow overseas.
Posted by: John Locke at Apr 13, 2009 3:02:30 PM
"sd: The 20,000% return is not to marginal case! It's an extreme example of something that happens all the time, though usually to a lesser degree."
Ok, but to reprase what I was asking earlier: what does this tell you about the shape of the supply curve and the overall workings of the US system?
Posted by: sd at Apr 13, 2009 3:03:19 PM
