Quotation of the Day…

by Don Boudreaux on August 6, 2014

in Other People's Money, Politics

… is from pages 201-202 of my colleague Richard Wagner’s insightful 2007 book, Fiscal Sociology and the Theory of Public Finance (links added):

Rent seeking describes what people have in mind by lobbying.  It refers to the payments people make to secure political favors.  A sports magnate would like special tax treatment for a stadium he is building.  He lobbies to get this enacted.  Or, more likely, hires someone to do this for him, most likely a defeated or retired legislator.  But rent seeking is only part of the story of money and politics, and perhaps only the minor part.  Rent extraction may be even more significant.  It refers to the payments people make to avoid being victimized by politically harmful measures.  If rent seeking were called bribery were it to occur between private persons, rent extraction would be called extortion.

There is one significant difference between rent seeking and rent extraction that should not be ignored, which may explain why the former has received more attention than the latter.  With rent seeking, politicians are portrayed as relatively passive victims.  They are deluged by lobbyists, and on occasion capitulate to those interests.  The politician is caught in a squeeze between the intensity of special interests and the quietude of the public interest.

With rent extraction, politicians are in the forefront of the action.  They are the initiators who continually look for targets.  Those targets have a choice.  They can ignore the politicians and lose a lot of wealth.  Or they can participate politically, thereby softening their losses.

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