Welcome to Scribd. Sign in or start your free trial to enjoy unlimited e-books, audiobooks & documents.Find out more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
How Campaign Contributions and Lobbying Can Lead to Inefficient Economic Policy

How Campaign Contributions and Lobbying Can Lead to Inefficient Economic Policy

Ratings:
(0)
|Views: 37|Likes:
The practice of rent-seeking—leveraging campaign contributions and lobbying to influence government policy for private gain—has several negative effects on the U.S. economy.
The practice of rent-seeking—leveraging campaign contributions and lobbying to influence government policy for private gain—has several negative effects on the U.S. economy.

More info:

Published by: Center for American Progress on May 01, 2014
Copyright:Traditional Copyright: All rights reserved

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

08/14/2014

pdf

text

original

 
1 Center for American Progress | How Campaign Contributions and Lobbying Can Lead to Inefficient Economic Policy
How Campaign Contributions and Lobbying Can Lead to Inefficient Economic Policy
By John Craig and David Madland May 2, 2014
Te U.S. Supreme Cour sruck down wo campaign finance provisions in he pas ew  years ha limied independen poliical expendiures by corporaions and oher orga-nizaions and placed aggregae limis on individual donaions.
1
 Te Cour ound ha he provisions inringe on he righ o ree speech and ha he aggregae limis do no preven a narrowly defined version o corrupion.
2
 Since hen, ederal cours have begun overurning sae lobbying regulaions under he logic used by he Supreme Cour.
3
  While here is considerable disagreemen abou wheher he Cour was correc in finding ha hose campaign finance rules ailed o preven corrupion,
4
 imposing limis on campaign financing and lobbying may be jusified or anoher reason󲀔promoing producive economic aciviy.
5
Te primary way ha campaign conribuions and lobbying may dampen economic growh is via a pracice known as ren-seeking󲀔he process o seeking income hrough special governmen avors raher han hrough producive economic aciviy.  When firms and individuals engage in ren-seeking behavior, i has several negaive effecs on economic growh. No only do people spend more ime and money rying o ge a bigger piece o he economic pie or hemselves raher han rying o enlarge he pie, bu he policies hey seek are ofen waseul, inefficien, or even harmul. I ren-seeking is a successul sraegy or businesses or individuals, i can impose grea harm on sociey by slowing or even sopping economic growh. As Nobel Prize- winning economis Joseph Sigliz explains, ren-seeking no only wases ax dollars on unnecessary or inefficien projecs󲀔redisribuing money rom one par o sociey o he ren-seekers󲀔bu i is a “cenripeal orce” ha hollows ou he economy  because “he rewards o ren seeking become so ousize ha more and more energy is direced oward i, a he expense o everyhing else.”
6
 
 
2 Center for American Progress | How Campaign Contributions and Lobbying Can Lead to Inefficient Economic Policy
 While i is impossible o quaniy he economic harm done by ren-seeking o he  American economy, his issue brie reviews he lieraure and finds ha he harm is likely quie significan.Cerainly, no all money in poliics is spen or he purpose o capuring privae avors,  bu here is evidence ha a leas a significan percenage o i is. Mos Americans do no make campaign conribuions or lobby poliicians.
7
 Raher, he vas majoriy o money spen on hese aciviies comes rom wealhy ciizens and business ineres groups.
8
 Moreover, sudies find ha businesses wih he mos o gain rom avorable public policy engage in he mos poliical aciviy.
9
 Even worse, research indicaes ha campaign conribuions and lobbying ofen help shape policy oucomes, which suggess ha ren-seeking effors are ofen successul.  While disagreemen exiss abou how much influence campaign conribuions and lobbying have,
10
 money in poliics seems o be mos effecive in shaping he oucomes o issues ha are less visible and less ideological,
11
 exacly he ype o special avors one  would expec ren-seeking o arge. Furhermore, here have been several findings ha show a clear relaionship beween specific insances o lobbying or campaign conribu-ions and governmen avors. o ake jus a ew examples:One sudy ound ha increasing lobbying reduces a corporaion’s effecive ax rae,  wih an increase o 1 percen in lobbying expendiures expeced o reduce a corpora-ion’s nex-year ax rae beween 0.5 percenage poins and 1.6 percenage poins.
12
  Anoher sudy based on daa rom 48 differen saes ound ha a $1 corporae cam-paign conribuion is worh $6.65 in lower sae corporae axes.
13
 Finally, ederal conracs were more likely o be awarded o firms ha have given ederal campaigns higher conribuions, even afer conrolling or previous conrac awards.
14
 Tese findings are deeply roubling or our democracy and our economy. And, unless acions are aken, he damage is likely o grow worse in he uure. Wih recen cour rul-ings knocking down imporan resricions on money in poliics, ren-seekers will have even greaer opporuniy o seek special avors, doing urher harm o he economy.
Rent-seeking
Mos economiss agree ha ren-seeking causes a ne socieal loss ha harms he economy.
15
 Ren-seeking involves spending resources o influence a division o profis, insead o creaing a good or service ha oher businesses or individuals are willing o pay an amoun ha exceeds he cos o producing said good or service.
16
 While ren-seeking exiss in boh privae and public orms,
17
 he scope o his paper is he discus-sion public ren-seeking and specifically wo public ren-seeking aciviies󲀔lobbying and campaign unding.
 
3 Center for American Progress | How Campaign Contributions and Lobbying Can Lead to Inefficient Economic Policy
 When engaging in ren-seeking rom public insiuions, businesses and individuals may seek avors rom he governmen hrough boh legal aciviies󲀔lobbying and conribuing o poliical campaigns󲀔and illegal sraegies󲀔bribery and corrupion.
18
 Wha idenifies ren-seeking behavior is ha resources are spen in an atemp o influence policy in order o obain a greaer share o benefis. Te benefis argeed by ren-seeking vary bu include: profis rom sae-creaed monopolies, avorable governmen conracs, beneficial regula-ions, ariffs ha dampen oreign compeiion, and ax preerences and subsidies.Te major economic concerns o ren-seeking can be caegorized ino hree ypes o inefficiencies: 1. Resources are wased engaging in ren-seeking.2. Policies sough by ren-seeking resul in an inefficien use o resources.3. Ren-seeking policies may prove so desrucive ha hey cause resources o si idle.Te firs inefficiency creaed by ren-seeking is ha privae resources are inenionally  wased on pursuing and compeing or rens raher han producing economic gain.  An imporan cavea o his wase is ha i is irrelevan wheher or no he ren-seeker achieves he sough-afer policy goal. Wha riggers his wase is he ac ha ime, effor, and resources were divered away rom producing goods or rendering services ha oh-ers are willing o pay or and insead used o influence policy or privae gain. Te second economic concern o ren-seeking behavior is ha he policy posiions sough and proeced creae a misallocaion o governmen or privae resources. In he case o governmen resources, i may be ha scarce governmen revenue is used o creae a special ineres ax subsidy insead o invesing in research or inrasrucure ha would  be more beneficial o sociey as a whole. Privae resources may also be misallocaed.  Wihou proper regulaions, or example, banks may overleverage hemselves i hey  believe ha he ederal governmen will bail hem ou. Finally, ren-seeking could prove so harmul o he economy ha no only are resources no used in he mos efficien manner possible, bu hey are acually idle. During a recession or is afermah, or insance, workers are unemployed and significan capial remains on he sidelines. Indeed, some argue ha he 2008 financial crisis󲀔he effecs o which we are sill suffering rom󲀔was ueled by ren-seeking behavior.
19
 A paper on ariffs and monopolies by Gordon ullock o George Mason Universiy emphasized his idea󲀔ha boh he ends and means o ren-seeking can wase resources󲀔nearly 50 years ago.
20
 Originally, only he increased cos on consumers was recognized as a domesic economic effec o ariffs and monopolies, as hey allowed domesic firms o charge a higher price han hey could wih unresrained compeiion.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->