fil-ter

The president of the U.S. would like to see greater economic efficiency in the U.S. as a whole. Individual congressmen, however, will push for pork-barrel legislation that benefits their district even if the cost to the overall economy is hundreds of times greater than the benefit (their constituents will pay 1/435th of the cost and receive 100 percent of the benefit). This leads to a perennial conflict between the president and Congress.

Unions or cartels of businesses slow an economy’s response to change because they require the assent of many members in order to effect a change. This makes wages and prices much stickier than in a classical free-market economy. Unions will negotiate agreements that favor senior workers at the expense of junior members and young people just entering the workforce.

Olson would not be surprised by the current auto industry bailout: “Special-interest groups also slow growth by reducing the rate at which resources are reallocated from one activity or industry to another in response to new technologies or conditions. One obvious way in which they do so is lobbying for bail-outs of failing firms, thereby delaying or preventing the shift of resources to areas where they would have a greater productivity.”

Special interest groups create complexity, by getting special rules established for their benefit, and thrive on complexity. If a tax or tariff code were only three pages long, an average citizen would be able to spot the sweetheart deals. If a code runs to 1000 pages, however, nobody will ever understand all of it.

Special interest groups may create government regulation. Prior to the Ford Administration’s mid-1970s push to deregulate railroads, trucking, and airlines, for example, the U.S. government was very effective at ensuring profits and excluding new entrants to the market.

Long, depressing, but worth a read. A conclustion

What practical advice can an individual citizen draw from this book? On the surface, it would seem to be a useful investment guide. Short New York and California; go long on Alaska and Hawaii. Invest in countries that have recently gone through a revolution or are recovering from an invasion (Cuba? Iraq?). One problem with the latter strategy is that instability itself makes it tough for an investor to make money. Only in hindsight do we know that World War II was the last war to rage through France and Germany during the 20th Century or that Red China’s conversion to running dog capitalism would last for decades.

How about as a guide for voting? Olson suggests that a rational voter should remain as ignorant as possible about politics and policies. Even if special interests manage to siphon off 80 percent of the voter’s income, the voter is better off devoting his or her energy to earning more rather than attempting to change the system (likely to require full-time effort, reducing income to $0, and be futile because the voter has no money compared to the special interests). If we ever had the opportunity to vote for something that would restrict the influence of lobbyists and special interests, we should do it, but Olson would predict that such an opportunity will never arise.

One thing an individual can do is choose where to live and in which industry to work. The logical conclusion from reading this book is to prefer a new state to an old state, a newly stable state to a long-stable state, and a new industry to an old one. The worst thing that a young person could do, for example, would be to move to Michigan to work for G.M.’s automobile division. The second best thing would be to move to Alaska or an up-and-coming foreign country and work to extract some new kind of energy. The very smartest choice would be to move to Washington, D.C. and work as a lobbyist for a decaying industry that is bleeding the U.S. economy and taxpayer…