Monday, March 5, 2012

Concentrated Benefits, Dispersed Costs

The concepts of concentrated benefits and dispersed costs, when applied to government, or, more specifically, to the creation of legislation, go a long way toward explaining why it is that government always gets bigger, never smaller. When examined in the light of the Cronyism Model of legislation in contrast to the Civics Class Model of legislation, these concepts also go a long way toward explaining why it seems that as government grows bigger, it tends to benefit the citizenry less and the politically-connected One Percent more. Finally, when one understands the full importance of the two concepts taken together, one recognizes the fundamental truth of Thoreaus's statement, "That government is best which governs least."

Even at the simplest level, it's fairly easy to understand why the twin concepts of concentrated benefits and dispersed costs are popular with the legislature, and in many cases, with the citizenry as well. Let's take the case of benefits for the veterans of our armed services as an example almost everyone might support. Only a small fraction of the citizenry ever belongs to the military, and this small group has shown a willingness to step forward and defend the rest of us from barbarians at the gates, so to speak. (Whether those willing to so act have been wisely deployed by their civilian leadership is a topic for another conversation.) In this case, the argument that taking a few pennies from each citizen, and thereby amassing dollars to assure the continued welfare of the much smaller group who fought in their stead becomes an easy sell. Properly packaged, even those paying for the benefit consider the legislation a good deal all around.

And there we have a textbook example of benefits concentrated while costs are dispersed. Relatively small sums taken from a large group can become large sums when shared among a few recipients.

Once one grasps the general concept, it's easy to recognize many legislative acts that share these twin concepts as a major feature. From food stamps to school loans, from urban transit to disaster relief, dispersed costs to provide concentrated benefits are a bedrock of any modern political system.

As we learned in "On Law and Sausages - SOPA, PIPA and Cronyism," laws do not always come into being solely with the best interests of the general population in mind. In that essay, we contrasted the difference between the Civics Class Model of legislation written to benefit the citizenry and protect them from evildoers with the Cronyism Model of legislation that's designed by a corporation or interest group to shovel some money into their pockets or to protect them, either from the citizens in general or from competition.

Many industry subsidies are textbook examples of dispersed costs and concentrated benefits merged with the Cronyism Model of legislation. Subsidies are a major reason there are more licensed lobbyists than legislators in Washington DC. They are also major contributors to those twin problems mentioned in the first paragraph, the ever-increasing size of the federal government and the tendency for government to benefit the politically-connected One Percent at the expense of the middle and lower classes. Legislation of this sort is actually more common than the example of veteran's benefits we discussed earlier.

Because of the concentration of benefits, it pays for a special-interest group to hire lobbyists to promote legislation that benefits their group, and to make massive donations to politicians who will help assure that those concentrated benefits continue to roll in every year. For example, tobacco subsidies amounted to $194 million in 2010, although the health risks of smoking are well known. Encouraging the growing and marketing of tobacco can hardly be considered beneficial if the same government spends additional millions (offset by tax revenues) to encourage people not to smoke. Almost $200 million is hardly chump change, however, and certainly worth keeping a few lobbyists employed full time, wining and dining legislators, taking them on expensive junkets, and otherwise keeping the lines of communication open to assure those yearly checks don't stop coming.

On the other hand, because of the dispersed costs, which in this case amount to a little more than sixty cents for each man, woman and child in the country, the people footing the bill are highly unlikely to consider tobacco subsidies one of their most pressing issues when it comes time to vote, and the likelyhood that any but the most vociferous tobacco-hater would even bother to contact their representatives to complain is slim.

In many cases, legislation is sold to the voters on the premise that it is intended to provide benefits to them, yet when the legislation is examined closely, the benefits actually accrue to the well-connected rather than to the citizenry. Outstanding examples include the bank bailouts, sold as the solution to a failing economy that has still failed to recover, and the healthcare restructuring, which benefited insurance and pharmaceutical companies much more than doctors or their patients.

When you consider that there are more than 2,000 separate subsidy programs under the control of the federal government and some 14,000 lobbyists who have careers promoting more new subsidies every year, it's obvious that the time even the most concerned citizen can devote to stopping the flow of funds from their pocket to those of the special interests is inconsequential in the grand scheme of things.

Downsizing Government describes the true scope of the problem as part of their plan to cut spending and balance the federal budget.
The federal government operates more than 2,000 separate subsidy programs, a doubling of subsidy programs since the mid-1980s. The scope of federal activities has greatly expanded in recent decades, along with the size of the federal budget. The federal government subsidizes farm businesses, retirees, school lunches, rural utilities, the energy industry, rental housing, public broadcasting, job training, foreign aid activities, foreign purchases of weapons, urban transit services, and many other types of activities and people.

Each subsidy program costs money, generates a bureaucracy, spawns lobby groups, and encourages more people to demand freebies from the government. Individuals, businesses, and nonprofit groups that become hooked on federal subsidies essentially become tools of the state. They lose their independence, they have less incentive to innovate, and they shy away from criticizing the government.
So the next time you're wondering how government got so big and so out-of-control, what's happening to the middle class, why taxes always seem to go up but the government's always out of money, why the One Percent seem to be flourishing and corporations are announcing record profits while the economy on Main Street tanks, remember the lesson of concentrated benefits and dispersed costs, and how it fits together with the lessons of the Cronyism Model of legislation and the definition of the One Percent.

...and that's all I have to say about that.

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