Frankly Confused

by Don Boudreaux on August 18, 2008

in Myths and Fallacies, Politics, Regulation, The Economy, The Future

Thomas Frank has a new book (The Wrecking Crew), reviewed in yesterday’s New York Times Book Review.  Its thesis is peculiar, especially in light of Frank’s oft-repeated claim that, since the mid-1990s, free-market idolaters have deviously managed to reduce the power of government over markets.

In his new book, Frank complains that during this time of alleged free-market ascendancy, the lobbying industry in Washington has blossomed and is inflicting great harm on Americans.

I agree that the lobbying industry on the Potomac swamp continues to grow and that its consequences are generally pernicious.  But how in the world can lobbying continue to grow if – as Frank incessantly asserts – markets are increasingly freer?  Freer markets mean less powerful governments.  And governments whose powers are shrinking have fewer rather than more favors to sell to lobbyists.

If Frank’s claim that the role of markets has increased — implying that the power of government over markets has diminished — then lobbying would be not the boom industry he complains of, but, rather, a dying industry.

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{ 28 comments }

Ari August 18, 2008 at 9:19 am

"Freer markets mean less powerful governments."

That isn't necessarily true. Both the growth of Chinese state power and that of economic freedom in the country have proceeded hand-in-hand.

Per Kurowski August 18, 2008 at 9:40 am

That the markets have become worse and worse regulated should not be confused with them having becoming freer.

Also there are many new developments that block the view, like:

New regulators like the outsourced credit risk kommissars, namely the credit rating agencies, namely the risk information cartels.

New non-markets derived from the intellectual property rights boom

New hidden, informal and outright illicit markets that in all are growing at a faster rate than what we normally refer to as the market.

cpurick August 18, 2008 at 9:51 am

It's funny to see one of the pitfalls of over-regulation portrayed as proof that regulation is not excessive. Scary funny.

nicole August 18, 2008 at 10:52 am

Isn't this known as the Naomi Klein Fallacy by now? Republicans talk up the free market while engaging in massive amounts of rent-seeking, and libertarians end up being called corporate shills by the left?

BoscoH August 18, 2008 at 10:57 am

This could be consistent with the old saying that "the politics are so thick because the stakes are so low".

But it could also be consistent with a Cold War among special interests where the lobbyists are deploying just to ensure that a favorable status quo remains. Microsoft had no lobbyists in DC when it was indicted for anti-trust. Stunning, huh?

Lenny August 18, 2008 at 11:03 am

"Both the growth of Chinese state power and that of economic freedom in the country have proceeded hand-in-hand."

It's been my observation – limited as that may be – that the Chinese state has indeed had to give up some state power in exchange for free market benefits.

muirgeo August 18, 2008 at 11:07 am

Lobbying like marketing is profitable, even more so. It often pays back 1000 times for each dollar invested.

"The inevitable consequence of plutocracy, then and now, is bought government."
Thomas Frank

If you make lobbying illegal it might go away. The question is does making lobbying illegal weaken or strengthen the government? With no power protecting the government the market entrepreneurs see the weakened government as a source of revenue and they take it over.

I haven't heard a good explanation of how a weakened government prevents it's overthrow. How do you set that up? How would it look?

If we could agree that say making lobbying illegal weakened the government I could agree but I'm sure some would argue that makes government stronger.

I suggest it is no mere coincidence the boom of lobbying that has followed the last 30 years of relative conservative rule.

Another , better esssay by frank on his position

Oil Shock August 18, 2008 at 12:13 pm

Republicans talk up the free market while engaging in massive amounts of rent-seeking, and libertarians end up being called corporate shills by the left?

For most liberals, Larry Kudlows of the world represent free market capitalism. To my mind Larry Kudlows of the world represent a form of degenerative capitalism where profits are privatized and losses socialized. The principled libertarians end up taking the blame.

Cato institute was founded by Murray Rothbard and he was soon kicked out for being militantly principled. It was downhill from there.

muirgo August 18, 2008 at 12:24 pm

Isn't this known as the Naomi Klein Fallacy by now? Republicans talk up the free market while engaging in massive amounts of rent-seeking, and libertarians end up being called corporate shills by the left?

Posted by: nicole

Can we at least agree that when you have corporations running the government it's not a free market?

cpurick August 18, 2008 at 12:50 pm

muirgeo:
Can we at least agree that when you have corporations running the government it's not a free market?

Only as a subset of government being too involved in business, which is the real problem. Why would corporations waste capital running government if government didn't make it such a good investment?

Hammer August 18, 2008 at 2:07 pm

Exactly CPURick, if the government could not kick one's competition or one's self in the shins, no business would care about it much. There is a good reason Microsoft doesn't lobby the government of the Congo for anything, and not just because the government there changes weekly. There is simply nothing to be gained.
If you put in incentives for buying off politicians, or even just bugging them till they say yes so you will shut up, people will do it. It is just like children who cry because they know it will make their parents give them the attention they want. As soon as they learn the parents will not respond, they stop crying in such a fashion.

Thus it is that a government will always be under the control of the most powerful of those whom it can affect for good or ill. Once the government does not have the power to help or hinder a business, that business will stop having interest in government, and in degrees of such as well.

nicole August 18, 2008 at 2:08 pm

Can we at least agree that when you have corporations running the government it's not a free market?

Yeah, that's what I (thought I) was implying in my original post. cpurick is right on.

Derrill Watson August 18, 2008 at 3:01 pm

One of the problems here is what happens when someone gets demand and supply curves mixed up. Frank observes (in the article to which you link):

"The increasing supply of lobbyists should have driven the price of lobbying down, not up. … The reason companies started buying, in other words, was that Congress began selling."

Lobbyists are an intermediate good, used in the production of government favors, if you will. Put another way, they are the price firms pay in order to get government favors. If the supply of favors decreases, the price of the remaining favors increases. Businesses are expected to engage in more lobbying in order to get the same favors.

So we _could_ actually be seeing a decrease in government interventions resulting in higher lobbying … though that might put me in the position of simultaneously disagreeing with both sides.

muirgeo August 18, 2008 at 4:32 pm

I'm sorry to see this post get pushed down the list so fast. It gets at the most basic principle, IMO, of how we set up the best government and economy while optimizing liberty.

The libertarian view claims government needs to have less power so they can't give money/ favors to corporations and so corporations won't look to the government as a cash cow and an institution that can actually protect them from competition.

But NO ONE has ever explained how we make government less powerful. An economic system of belief is empty without a form of government that allows it to work efficiently and too be stable.

My short answer is that the economy and money needs to be separated like church and state is separated.

I don't fear government. It's absolutely necessary so to me it all comes back to a government truly run by the people. and powerful enough to protect itself from outside influences.

muirgeo August 18, 2008 at 4:54 pm

correction or this will definitely end up a murpidity;

"My short answer is that the economy and money needs to be separated like church and state is separated."

My short answer is that the economy and politics need to be separated like church and state are separated.

muirgeo August 18, 2008 at 4:56 pm

Oh and two other thoughts;

We are have to accept majority rule in one form or another as expedient. The need for government arises because absolute freedom is impossible.

The Dirty Mac August 18, 2008 at 9:18 pm

I work in that totally deregulated laissez faire financial industry. I can't take a shit without regulatory approval. Often, my shit is predicated upon approval by more than one regulatory agency. Luckily, I only need opinion of counsel to take a piss.

Oil Shock August 19, 2008 at 1:08 am

“So long as the state exists, there is no freedom. When there is freedom, there will be no state.”
—Vladimir Ilyich Lenin,
The State and Revolution,1918.

LowcountryJoe August 19, 2008 at 5:25 am

My short answer is that the economy and politics need to be separated like church and state are separated.

Posted by: muirgeo | Aug 18, 2008 4:54:17 PM

Are you conflicted? I find it hard to believe that you wrote this. Of course, you had to do something about the other manner in which you had it worded.

vidyohs August 19, 2008 at 6:22 am

Frank is easy to explain.

He and muirduck are of the same religion, attend the same church, and are engaged in the same proselytizing.

They aren't interested in you or I, they are looking for the young and impressionable, oh hell…..maybe the older and stupid as well.

Hammer August 19, 2008 at 10:06 am

"But NO ONE has ever explained how we make government less powerful. An economic system of belief is empty without a form of government that allows it to work efficiently and too be stable."

Now, that's not true Muir. There is pretty specifically a clause in the Constitution outlawing Congress writing laws to affect trade, except in the case of interstate commerce. Unfortunately, the framers did not foresee the possibility of a huge increase in interstate commerce due to the industrial revolution, nor did they foresee that the Federal Government would use it as an excuse to issue a horrific amount of regulation.

The trick to limiting government power in this case would be to issue a much more clear and restrictive amendment, something along the lines of "Congress shall pass no law restricting trade within the United States in any form." Perhaps a really forward thinking amendment would not limit that to within US borders, but there might be an argument to be made about the government limiting trade with certain nations.

Now, there might have to be a subclause along the lines of "And any member of Congress putting forth such law or regulation for consideration by the legislature shall be hung by the neck until dead."
At any rate, simply making it very clear that interfering with trade is very illegal for the government and then enforcing that rule should do the trick nicely. You could even let the state governments pass whatever they want, so long as the Fed. stays out. There are enough states with enough direct accountability to at least have small labratories of economic policy.

muirgeo August 19, 2008 at 10:43 am

My short answer is that the economy and politics need to be separated like church and state are separated.

Posted by: muirgeo | Aug 18, 2008 4:54:17 PM

Are you conflicted? I find it hard to believe that you wrote this. Of course, you had to do something about the other manner in which you had it worded.

Posted by: LowcountryJoe

OOPS you are right. Let me try a third time.

My short answer is that money and politics need to be separated like church and state are separated. ( still admittedly oversimplified but the idea is the only reward for government service should be government pay and the satisfaction knowing you represented your constituents to the best of your ability.

That's what happens when you try to write short answers to complicated issues. But still I want to know how the libertarian would set up a political system that could not be bought and made to do the bidding of those with wealth. A "free market" is always going to want to maximize profits. Being in control government is a great way to add to your profits. The idea that if government regulations just went away so would the lobbying is naive at best.

This is a really important question is it not LCJ? I really want earnest discussion on it but too many here really don't want earnest discussions disrupting them in their comfort zone so they find it easier to call me a troll rather then discuss the nitty gritty details of what they really believe.

Unit August 19, 2008 at 11:41 am

Muirgeo,

if you're honest about wanting a discussion, please read this before you go on trumpeting the New Deal:

http://www.mackinac.org/archives/1998/sp1998-01.pdf

Oil Shock August 19, 2008 at 1:42 pm

Unit,

That was a condensed version of "America's great depression" by Murray Rothbard. Thanks for sharing.

I found this analogy very interesting

A brief analogy will illustrate
this point. If a thief goes house to
house robbing everybody in the
neighborhood, then heads off to
a nearby shopping mall to spend
his ill-gotten loot, it is not assumed
that because his spending
“stimulated” the stores at the mall
he has thereby performed a national
service or provided a general
economic benefit. Likewise, when
the government hires someone to
catalog the many ways of cooking
spinach, his tax-supported
paycheck cannot be counted as a
net increase to the economy because
the wealth used to pay him
was simply diverted, not created.
Economists today must still battle
this “magical thinking” every time
more government spending is
proposed — as if money comes
not from productive citizens, but
rather from the tooth fairy.

Martin Brock August 19, 2008 at 4:26 pm

Free markets haven't thrived in recent decades nearly as much as "free market" political rhetoric. Reagan may have been sincerely inspired by classical liberals, but like Buckley and the neocons (excluding Buckley from the latter), he essentially swallowed the dubious assumption that liberal democracies could only defeat illiberal states by adopting their methods, and since state power is intoxicating, this attitude means that we now have no liberal party in this country at all.

Libertarians are to the Republican party what blacks are to the Democratic party, a marginal voice that can be expected to tow the line because the only other option is even more distasteful. We're even less influential than the Religious Right, another marginal faction of the Republican coalition, if only because they outnumber us. The real powers in the Republican party are the corporatists in the military industrial complex, the farm lobby and similar groups.

Of course, these groups could hardly care less about free markets. The farm lobby on the contrary is the most protected productive sector on Earth, while the military industrial complex essentially has a single customer in the state.

Oil Shock August 19, 2008 at 4:55 pm

I agree with Martin. By aligning with a party that gives just lip service to liberty, we all get stamped as corporatists.

But I wouldn't leave out the democrats, they are equally evil fascists. The differences between the two parties are the groups they want to steal from and the group they want to do favors for.

vidyohs August 19, 2008 at 9:27 pm

Well, I agree with Oil Shock, which means by default I agree with martin to the same extent of Oil Shock.

The government (not party) is the problem, not the solution. And, government seems to be on a blue light special these days.

However, the Republicans since being defeated in the first Clinton presidency on the shutdown of the government budget battle, have become just as socialistic as the democrats. So I agree with martin about the obvious hypocrisy we see in the Republican party.

BTW, Check out this just for grins:

http://www.ridelust.com/the-real-price-of-oil-dollars-gold-and-the-price-of-tea-in-china/

Sam Grove August 21, 2008 at 1:48 am

I don't fear government.

How about the state?

It's absolutely necessary so to me it all comes back to a government truly run by the people. and powerful enough to protect itself from outside influences.

Who are "the people"?

The more powerful the government, the more it exceeds the function of prohibiting aggression and fraud among the people, the more "the people" will be divided over what else the government should do.

The more divided "the people" the more the government will be managed by a relative few.

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