Naked Economics: Undressing the Dismal Science pdfdrive com

to be small. Gary Becker, the same University of Chicago Nobel Prize winner

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who figured so prominently in our thinking about human capital, wrote a
seminal paper in the early 1980s that nicely encapsulated what had become
known as the economics of regulation. Building on work that went all the way
back to Milton Friedman’s doctoral dissertation, Becker theorized that, all else
equal, small, well-organized groups are most successful in the political process.
Why? Because the costs of whatever favors they wrangle out of the system are
spread over a large, unorganized segment of the population.
Think about ethanol again. The benefits of that $7 billion tax subsidy are
bestowed on a small group of farmers, making it quite lucrative for each one of
them. Meanwhile, the costs are spread over the remaining 98 percent of us,
putting ethanol somewhere below good oral hygiene on our list of everyday
concerns. The opposite would be true with my plan to have left-handed voters
pay subsidies to right-handed voters. There are roughly nine right-handed
Americans for every lefty, so if every right-handed voter were to get some
government benefit worth $100, then every left-handed voter would have to pay
$900 to finance it. The lefties would be hopping mad about their $900 tax bills,
probably to the point that it became their preeminent political concern, while the
righties would be only modestly excited about their $100 subsidy. An adept
politician would probably improve her career prospects by voting with the
lefties.
Here is a curious finding that makes more sense in light of what we’ve just
discussed. In countries where farmers make up a small fraction of the
population, such as America and Europe, the government provides large
subsidies for agriculture. But in countries where the farming population is
relatively large, such as China and India, the subsidies go the other way. Farmers
are forced to sell their crops at below-market prices so that urban dwellers can
get basic food items cheaply. In the one case, farmers get political favors; in the
other, they must pay for them. What makes these examples logically consistent
is that in both cases the large group subsidizes the smaller group.
In politics, the tail can wag the dog. This can have profound effects on the
economy.