Naked Economics: Undressing the Dismal Science pdfdrive com

CHAPTER
8

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The Power of Organized Interests:
What economics can tell us about politics
M
any years ago I took a vacation with a group of friends. As the sole academic
among the bunch, I was the object of mild curiosity. When I explained that I was
studying public policy, one of my peers asked skeptically, “If people know so
much about public policy, then why is everything so messed up?” On the one
hand, the question was idiotic; it’s a bit like asking, “If we know so much about
medicine, why do people keep dying all the time?” One can always come up
with clever rejoinders a decade later. (At the time, I mumbled something like
“Well, it’s complicated.”) I might have pointed out that in the realm of public
policy, as in medicine, we have achieved some pretty good wins. Americans are
healthier, richer, better-educated, and less vulnerable to economic booms and
busts than at any time in our history—the recent economic downturn
notwithstanding.
Still, the question has stuck with me for years, in large part because it hints at
an important point: Even when economists reach consensus on policies that
would make us better off, those policies often run into a brick wall of political
opposition. International trade is a perfect example. I am not aware of a single
mainstream economist who believes that international trade is anything less than
crucial to the well-being of rich and poor countries alike. There is just one small
problem: It’s an issue that literally causes riots in the streets. Even before the
violent antiglobalization protests in places like Seattle and Genoa, agreements to
expand trade, such as the North American Free Trade Agreement, caused
ferocious political battles.
Meanwhile, pork-barrel legislation sails through Congress, lavishing money
on small projects that cannot possibly be described as promoting the national
interest. For nearly forty years, the federal budget included a cash payment to
American mohair farmers. (Mohair comes from the Angora goat and is a wool
substitute.) The mohair subsidy was created in 1955 at the behest of the armed
forces to ensure a sufficient supply of yarn for military uniforms in the event of a
war. I won’t quibble with that. But the military switched to synthetic fibers for its
uniforms around 1960. The government continued to give large cash payments
to mohair farmers for another thirty-five years. The mohair subsidy was
eventually eliminated when it became the poster child for pork-barrel politics
and was doomed by its sheer absurdity.
And then, when the rest of us turned our attention elsewhere, it came back.

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The 2008 farm bill includes subsidies for wool and mohair producers for the
crop years 2008 to 2012. How does this happen?
It is not because the mohair farmers are enormously powerful, well funded, or
politically sophisticated. They are not any of those things. In fact, the small
number of mohair farmers is an advantage. What the mohair farmers have going
for them is that they can get large payments from the government without
taxpayers ever really noticing. Suppose there are a thousand mohair farmers,
each of whom gets a check from the federal government for $100,000 every
spring, just for being a mohair farmer. The farmers who get that subsidy care a
lot about it—probably more than they care about any other government policy.
Meanwhile, the rest of us, who pay mere pennies extra in taxes to preserve an
unnecessary supply of mohair, don’t care much about it at all. Any politician
with a preference for job security can calculate that a vote for the mohair subsidy
will earn the strong support of the mohair farmers while costing nothing among
other voters. It’s a political no-brainer.
The problem is that mohair farmers aren’t the only group lining up to get a
subsidy, or a tax break, or trade protection, or some other government policy that
puts money in their pockets. Indeed, the most savvy politicians can trade favors
with one another—if you support the mohair farmers in my district, then I’ll
support the Bingo Hall of Fame in your district. During my days as a
speechwriter for the governor of Maine, we used to refer to the state budget as a
Christmas tree. Every legislator could hang an ornament or two. I currently live
in the Illinois Fifth Congressional District, the seat held for decades by Dan
Rostenkowski (and later by Rahm Emanuel). We Chicagoans can drive around
the city and literally point to the things that Rosty built. When the Museum of
Science and Industry needed tens of millions of dollars to build an underground
parking garage, Dan Rostenkowski found federal funds.
1
Should taxpayers in
Seattle or rural Vermont have paid for a parking garage at a Chicago museum?
Of course not. But when I took my children to the museum last weekend in a
downpour, I was delighted to be able to park indoors. That helps to explain why
Dan Rostenkowski, not long out of federal prison, can still command a standing
ovation at political gatherings in Chicago.
The stimulus bill passed by the Obama administration during the depths of the
financial crisis was a giant legislative Christmas tree. I will argue in the next
chapter that the stimulus was a reasonable thing to do under the circumstances.
No sane person, however, would have designed that particular bill, which
included funding for things ranging from “green” golf carts to a polar ice

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breaker. Yes, the process that has generated decades of cash payments for
mohair farmers is alive and well. Let’s talk about ethanol, a corn-based gasoline
additive with putative environmental benefits. Gasoline blended with ethanol is
taxed 5.4 cents less per gallon than pure gasoline, ostensibly because it burns
more cleanly than pure gasoline and because it lowers our dependence on
foreign oil. Of course, neither scientists nor environmentalists are convinced that
ethanol is such a great thing. A 1997 study by the General Accounting Office
(which later changed its name to the Government Accountability Office), the
nonpartisan research arm of Congress, found that ethanol had little effect on
either the environment or our dependence on foreign oil. The ethanol subsidy
had, however, cost the Treasury $7.1 billion in forgone tax revenues. Worse,
ethanol may actually make some kinds of air pollution worse. It evaporates
faster than pure gasoline, contributing to ozone problems in hot temperatures. A
2006 study published in the Proceedings of the National Academy of Sciences
concluded that ethanol does reduce greenhouse gas emissions by 12 percent
relative to gasoline, but it calculated that devoting the entire U.S. corn crop to
make ethanol would replace only a small fraction of American gasoline
consumption. Corn farming also contributes to environmental degradation due to
runoff from fertilizer and pesticides.
2
But to dwell on the science is to miss the point. As the New York Times noted
in the throes of the 2000 presidential race, “Regardless of whether ethanol is a
great fuel for cars, it certainly works wonders in Iowa campaigns.”
3
The ethanol
tax subsidy increases the demand for corn, which puts money in farmers’
pockets. Just before the Iowa caucuses, corn farmer Marvin Flier told the Times,
“Sometimes I think [the candidates] just come out and pander to us,” he said.
Then he added, “Of course, that may not be the worst thing.” The National Corn
Growers Association figures that the ethanol program increases the demand for
corn, which adds 30 cents to the price of every bushel sold.
Bill Bradley opposed the ethanol subsidy during his three terms as a senator
from New Jersey (not a big corn-growing state). Indeed, some of his most
important accomplishments as a senator involved purging the tax code of
subsidies and loopholes that collectively do more harm than good. But when Bill
Bradley arrived in Iowa as a Democratic presidential candidate back in 1992, he
“spoke to some farmers” and suddenly found it in his heart to support tax breaks
for ethanol. In short, he realized that ethanol is crucial to Iowa voters, and Iowa
is crucial to the presidential race. Since then, every mainstream presidential
candidate has supported the ethanol subsidy, except one: John McCain. To his
credit, Senator McCain generally opposed ethanol subsidies during his

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presidential runs in both 2000 and 2008. While Senator McCain’s “straight talk”
is admirable, let us remind ourselves of one important detail: John McCain is not
currently president of the United States. That would be Barack Obama—an
ethanol subsidy supporter.
Ethanol is not a case of a powerful special interest pounding the rest of us into
submission. Farmers are a scant 2 or 3 percent of the population; even fewer of
them actually grow corn. If squeezing favors out of the political process were
simply a matter of brute strength, then those of us who can’t tell a heifer from a
steer should be kicking the farmers around. Indeed, America’s right-handed
voters could band together and demand tax breaks at the expense of the lefties.
And we could really have our way with those mohair farmers. But that’s not
what happens.
Economists have come up with a theory of political behavior that fits better
with what we actually observe. When it comes to interest group politics, it pays