Transfers Rather Than Transactions: Rent-Seeking Is Costly – Econlib

In 1967, Gordon Tullock published a paper titled “The Welfare Costs of Tariffs, Monopolies, and Theft” that described the mechanics of what Anne O. Krueger would later call “the rent-seeking society.” Rent-seeking might seem a little abstract, but if you understand why robbery makes the world worse off, on net, then you understand why the rent-seeking society is such a drain.

We got an object lesson in that recently when I checked my texts and saw one from my wife saying I needed to cancel a credit card because her wallet was stolen. She had gone kayaking with a friend and when they returned to their car, the window had been shattered and their wallets had been stolen. It’s easy to cancel the credit cards, but the cash they were carrying is, obviously, lost.

From an economy-wide perspective, the transfer doesn’t really matter. Instead of us spending $100, someone else does. The stolen money is a cost to us, but it isn’t a cost to “society.” It just changes hands.

Tullock and Krueger explained that rent-seeking is inefficient because people consume real resources trying to effect a transfer rather than a transaction. Others consume real resources trying to prevent transfers. The thieves could have used their time and tools producing things, and if they had produced something they could sell at a price greater than their cost, they would have created value. They could have built a birdhouse or swept someone’s garage or a practically infinite number of things.

Instead, they used their time and tools merely redistributing things. The cost to society is what they could have created when they were busy stealing plus whatever they destroyed in the process (a van window, in this case, plus the time we had to spend canceling credit cards and will have to spend monitoring transactions).

Lobbying—and distributive politics more generally—is like breaking into a car and stealing a wallet or robbing a record store. Instead of creating something new, lobbyists and special interests spend their money trying to take something that already exists. The world is worse off to the tune of what they could have done instead.

If you look at the Federal Register, you can see example after example after example of special privileges being doled out to visible and sympathetic interest groups. People celebrate when they win because after all, who doesn’t like free money? It isn’t free, of course, despite declarations that the additional spending will stimulate the economy. As Frederic Bastiat reminds us, the money has to come from somewhere. Importantly, as well, the time and money spent lobbying Congress to secure the privilege could have been spent making instead of taking—just like thieves could use their time and talents for something else.

Art Carden is Professor of Economics & Medical Properties Trust Fellow at Samford University, and he is by his own admission as Koched up as they come: he has an award named for Charles G. Koch in his office, he does a lot of work for and is affiliated with an array of Koch-related organizations, and he has applied for and received money from the Charles Koch Foundation to host on-campus events.