Jesse made reference to the fact that I thought it was harder for the Government to deliver benefits to special interests than many people think, so I thought I would expand on the point.

Let’s consider an example. Let’s say that the beef lobby has sought favours from Government through donations and votes, and the Government wants to help their supporters out. Let’s say they decide to give $500 per hectare to every beef farmer. This will, in fact, not help the beef farmer. After all, before the intervention the return to sheep farmer and beef farmers were about equal (otherwise they would switch business), and so the effect of the subsidy will merelylead to many sheep farmers converting their farm to beef farming. In the process, the return on the actual production on beef will drop – and it will ultimately balance out the benefit. You may get $500 per hectare from the Government, but the return on the sale of beef will drop by $500 per hectare.

Or take another example, which leads to one-off beneficiaries. The restriction on entry into the taxi industry is common around the world. Often, taxi drivers have to purchase medallions from the Government. Initially, this will restrict supply, driving up the prices that taxi drivers can charge. However, as those medallions are exchanged in the market, the higher prices you can charge become capitalised into the value of the taxi medallion. The second generation taxi drivers can charge high prices – but that is compensation for the massive price of the taxi medallion.  So, taxi medallions deliver a one-off gain to current taxi drivers, but no ongoing benefit for taxi drivers.

Generally speaking, the more concentrated benefits will occur in those areas where the Government also limits supply – doctors, lawyers, accountants, etc. That’s why the typical first act of lobbying is for registration or other restrictions on entry. Sometimes these restrictions pose as uniform regulations, the fixed cost of which affects more heavily those who engage least in the industry, and who will be dissuaded from competing.  See here.

This also explains why the Government has a tendency to deliver services rather than goods. Goods can be exchanged easily – recipients can sell them. If you deliver goods in a discriminatory way (i.e., don’t give them to certain races or income groups), there will be an incentive to trade them to those who value them the highest – i.e., those who would have got them in the absence of intervention. However, services are typically non-transferable, and so it provides an effective way for the Government to discriminate.


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