Rent-Seeking and Ignorance

The Machinery of Freedom (Friedman)A politician who can regulate an industry gets much more by helping the industry, whose members know and care about the effects of the regulation, than by helping the mass of consumers, who do not know they are being hurt and who would not know if they were being protected. An astute politician can — as many have — both help the industry and get credit for protecting the consumers. The consumers, whose relationship to the industry is a very small part of their lives, will never know what prices they would have been paying if there were no regulation.

— David Friedman, The Machinery of Freedom (New Rochelle: Arlington House, 1973), pp. 58–59.

This paragraph implicit holds two arguments that encapsulate my view,

  1. Rent seeking is possible because voters are radically ignorant of certain things, including the impact of certain political actions and that these actions were taken at all (I also think the fact that politicians don’t have to be perfect to be re-elected is another factor; if we think of a politician as a bundle of goods, certain aspects of this bundle might override other aspects — a voter might vote for a rent seeking politician over a non rent seeking politician if the former better satiates other, more important voters’ concerns);
  2. There is an interest in exploring the unknown unknown. In a bout of circular reasoning (on my part), this interest is also a function of what you know, but if you perceive something to be unimportant then you won’t fill in your lack of knowledge of the radically unknown. I’ll also repeat my case for why I still think economics is relevant. The relatively irrelevant aspect is the person’s utility function. The relative aspect is how an institutional framework influences the agent to explore the unknown unknown, which can be thought of as an economic question.

Also, I want to take this opportunity to urge you to consider reading David Friedman’s The Machinery of Freedom. I started reading the book two days ago, temporarily abandoning G.L.S. Shackle’s Epistemics and Economics because the writing is impenetrable and I need to read it when I have time to toil through it. Friedman’s book is definitely one that I will recommend when someone asks me for good introductions to economics. The prose and logic are clear, and the topics covered are those which more people ought to read a contrarian take on. If I have one reservation it’s that since the book was first published there have been some changes to the industries used as examples (e.g. with the airline industry), but I have an older edition and I’m not sure if the newer edition has been revised to reflect these changes. But, even without the changes, the reader will still find it to be mostly relevant to the modern day — for the most part, the examples still work well. If you haven’t read The Machinery of Freedom, you’ll definitely gain by picking it up.

(Unrelated: I apologize for these short posts. I’ve been particularly busy this semester because some of the classes I’m taking are especially technical and I have to spend most of my day studying for them. The good news is that by May I’ll be mostly done.)

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