Thursday, November 13, 2008

Politicizing markets to rob the poor and reward the rich.

Numerous historians and economists, from all sides of the political spectrum, have noted that Big Business is able to use the Regulatory State to protect itself from competition and to transfer wealth from taxpayers to themselves. What we have is an Iron Triangle of Interests which harms the economy and make all, but the favored few, worse off as a result.

The most obvious partner in this Iron Triangle of Interests is Big Business itself. These corporations use the political process to buy influence with politicians. And politicians are very anxious to sell that influence to the various bidders. Of course, when it comes to purchasing influence with the political elite it is always the rich and powerful who are able to do so.

The poor and the powerless simply don’t have the wealth or influence that will benefit politicians. At best the needy are merely the excuse used for the accumulation of power by the political elite, power which is then used to benefit those who can actually compensate the politicians for their services.

A basic principle of human nature is that people want to improve their conditions with the least amount of effort necessary. Taking what others produce is often easier than producing it yourself. And Corporations are not different from individuals when it comes to this tendency. If the political process has the power to benefit Corporations then they will use it for just that reason. If they are unable to transfer wealth by political pull they will have to seek profits by competing with others to satisfy the needs and wants of people.

In depoliticized markets Corporations must produce goods or services which consumers desire. There must be an exchange of value for value. This is necessary because a depoliticized market is a voluntary market. Without coercion an exchange is only consummated when all partners believe they will benefit. When the political elite are able to interfere with such transactions they are able to force individuals into making non-optimal exchanges. This element of force is what allows them to distort the process so that wealth is transferred to their favored interest groups.

It is no surprise that Big Business is quite happy to use the political process as a form of profit-seeking. What would be surprising would be a world where this didn’t happen.

But Big Business is only one party to this Iron Triangle of Interests. What we need to ask is who else participates and why.

We can see how the political elite benefits from pure self-interest. The more power they have to interfere in markets the more able they are to secure funding from those anxious to use that power. But well-intentioned politicians, from both Left and Right, who actually think they are working for the benefit of society, continue to participate in this process and allow it to survive. While a substantial number of politicians are fully aware that they are transferring wealth from the bottom of the economic ladder to the top, many would be horrified at the thought of being used this way. Yet they continue to participate. So why does this happen?

On the Left, well-intentioned politicians have some understanding of how Corporate Elites can profit at the expense of the poor in society. Where these politicians go wrong is on two levels. First, they believe that voluntary exchanges, in a depoliticized market, are inherently exploitative. But worse yet, they honestly believe that the Regulatory State is the cure to the exploitation. One result is that they are used by Big Business to “reform” the system through regulations which are wrongly believed to even out the playing field.

Consider a department which is set up to regulate industry X for the “benefit of all.” They are given powers which effectively politicizes the market. The rules they write can dramatically change wealth outcomes. Those most effected, the industry itself, becomes intensely interested in the actions of the agency and the rules they impose. The big interests in that industry, with the most resources, are willing to spend a chunk of those resources in order to assure that the rules and regulations happen to favor themselves.

The less powerful in that field are keen to skew the rules in their favor as well. But their ability to do so is significantly lower due to their relative dearth of resources. And those politicians who are knowingly selling their favors will use their influence to skew these rules in favor of the corporate interests most likely to reward them. Over time the natural tendency of the politicized market is for it to come under the influence of the very interests which it was designed to control.

Left politicians, hoping to limit the power of Big Business, actually enhance that power through the Regulatory State. They create the mechanism by which involuntary exchanges can be introduced.

The third element in this Iron Triangle is Right politicians. These individuals buy into two myths as well. One is the idea that what’s good for business is good the country. To them Big Business is some sort of mythological hero acting for the benefit of all. They look at the results of a depoliticized market, which is wealth-enhancing, and foolishly conclude that such results are the deepest desires of business interests. In a depoliticized market all participants enhance their wealth by exchanges. But that is not the case in politicized markets. Conservatives fail to recognize this. So they assume Business is merely interested in producing wealth -- which is not the same thing as accumulating wealth.

From this they assume that measures which help Business will eventually help society as a whole. This is not the case. The rent-seeking businessman can thus use both sides of the political spectrum to their benefit.

When the Left dominates they lobby for regulations which end up skewing the market in favor of their preferred interests. Of course, when such politicized markets exist there is competition between different interest groups wanting the regulations skewed in their direction. A change in the political elite offers special interests previously unfavored by the political process to distort the market in a different direction -- their own. They sell this new distortion as a form of “deregulation”.

Of course deregulation itself can be used as a form of market distortions. This is hard for some on the Right to grasp. Consider an electric company which has used regulations to limit competition. In return for that privilege the Left pushed through rules which attempted to restrict the income they could earn. When the Right comes to power the company then pushes to deregulate the price controls but doesn’t lobby to open the market to new competition.

Another example would be when government places a tax on all production. The tax is the same for everyone. But the Right pushes through selected tax cuts which reduce the tax burden in only one field of production. The result is that the profits in that field are pushed to higher levels merely because the tax burden is lower. In a depoliticized market that field may not be one which would attract new investment at all. But because of selective deregulation this field appears more profitable because other forms of investment face higher taxation. Investment flows to this industry instead of where it would naturally.

Of course the Right is also open to politicizing markets for various reasons as well. They will intervene in markets to prevent consumers from spending resources on “immoral” products. They might argue that a certain field is “necessary for national security” and thus has to be politicized -- fields such as energy production and agriculture are two prime examples that the Right loves to pamper.

As the country swings from Left to Right and back again the rhetoric changes, but the ability of the Corporations to use the political process to enrich themselves remains the same. And the prime reason is that neither Left nor Right is quite willing to depoliticize markets.

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