Skip to content

Why Special Interests Prevail – Milton Friedman, the RAP Tax, and Pet Projects

October 29, 2008

While I’m not going to make any specific references to the RAP tax, the following directly relates to it and other special interest projects funded with public money (tax etc).

Milton and Rose Friedman make an excellent point in their book “Free To Choose“* about why we find ourselves losing to special interests. This comes from a subsection entitled “Concentrated versus Diffuse Interests”:

The benefit an individual gets from any one program that he has a special interest in may be more than canceled by the costs to him of many programs that affect him lightly. Yet it pays him to favor the one program, and not oppose the others. He can readily recognize that he and the small group with the same special interest can afford to spend enough money and time to make a difference in respect of the one program. Not promoting that program will not prevent others, which do him harm, from being adopted. To achieve that, he would have to be willing and able to devote as much effort to opposing each of them as he does to favoring his own. That is clearly a losing proposition.

Citizens are aware of taxes – but even that awareness is diffused by the hidden nature of most taxes. Corporate and excise taxes are paid for in the prices of the goods people buy, without separate accounting. Most income taxes are withheld at the source. Inflation, the worst of the hidden taxes, and income taxes in excess of withholding are directly and painfully visible – and they are taxes on which resentment centers.

The Friedmans argue that special interests have a concentrated focus and goal while the general public does not. As noted above, John Does will have to decide whether it is worth his time and money to fight each, and every, individual special interest which comes along. Ultimately, the cost-benefit analysis is clear. It is cheaper, albeit temporarily, in both time and resources to roll over and not fight. As noted by Friedman, even the special interests face the same problem.

The Friedmans go on in the “Tax and Spending Limitations” section to discuss a tactic which should sound very familiar:

Much special interest legislation is undesirable, but it is never clearly and unmistakably bad. On the contrary, every measure will be represented as serving a good cause. The problem is that there are an infinite number of good causes. Currently, a legislator is in a weak position to oppose a “good” cause. If he objects that it will raise taxes, he will be labeled a reactionary who is willing to sacrifice human need for base mercenary reasons – after all, this good cause will only require raising taxes by a few cents or dollars per person.

Legislators and conservatives have a disincentive to oppose such requests. Doing so gets you are called a black-hearted, selfish cheapskate no matter how much charitable involvement etc you may have, and there’s always the popular race card. It is easy, and common, for special interests to use such arguments against those opposing a “good” cause which just costs “pennies a day”.

The above leads to many, “small” budget items, fee and tax increases adding up to larger, increasingly heavy burdens. At some point in the future, a threshold is reached and the public revolts and tries to stop more spending or remove some (never all) of the frivolous programs that have become unbearable. However, the root cause remains and the process begins all over again.

So what is to be done? Milton Friedman acknowledges that a temporary measure would be to elect legislators who oppose such measures but that, too, would be “doomed to failure” as “each of us would defend or own special privileges and try to limit government at someone else’s expense.” The Friedmans continue:

Our founding fathers have shown us a more promising way to proceed: by package deals, as it were. We should adopt self-denying ordinances that limit the objectives we try to pursue through political channels. We should not consider each case on its merits, but lay down broad rules limiting what government may do…

The merit of this approach is well illustrated by the First Amendment to the Constitution…

…Each of us feels more deeply about not having our freedom interfered with when we are in the minority than we do about interfering with the freedom of others when we are in the majority – and a majority of us will at one time or another be in some minority.

We need, in our opinion, the equivalent of the First Amendment to limit government power in the economic and social area – an economic Bill of Rights to complement and reinforce the original Bill of Rights.

And that’s where I will end. If you want to know more detail about the Friedmans’ position and solution, read their book* in its entirety. I highly recommend it, particularly with the myriad of parallels it has with our current economic situation. You need not be any type of an economic guru, it is written for the economic layman and is an excellent must read.

*Note: I have no affiliation with the linked vendors.

About these ads

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 25 other followers

%d bloggers like this: