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Rent Extraction

I like very much this letter that my friend Andy Morriss sent today to the Wall Street Journal:


Your story “Hedge Funds Coming of Age Politically” (April
19) reports that hedge funds are beginning to form PACs and engage in political
activity to protect themselves from threatened regulation. It is no coincidence
that this is happening at the same time that politicians are considering
regulatory measures that could prove costly for hedge funds.  Northwestern
Univ. Law Prof. Fred McChesney’s “money for nothing” theory
of regulation
explains exactly this behavior.  Politicians target an
unorganized but wealthy industry by holding hearings, calling for regulatory action,
proposing legislation, and so forth. Alarmed, the industry organizes interest
groups and begins making contributions to the politicians. Miraculously, most
of the threatened regulations then vanish from the agenda, leaving the
politicians richer and the industry poorer but wiser. Whenever a new round of
contributions is needed, another round of hearings on the latest issue can be

Andrew P. Morriss



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