Tuesday, February 11, 2003

Smart Mobs

When the government taxes one transaction to pay for another, it's called wealth "transfer". They do this both through explicit taxes, and through rules and regulations that act as implicit taxes. Currently in Chicago, for example, some legislators want to force real estate developers to set aside 30% of all new buildings to low-income housing. This requirement is identical to the government taxing new real estate development and using the proceeds to buy low income housing.

When there is money up for grabs, people will compete for it. This is called lobbying if done by corporate groups, or grass-roots activism if done by non-corporate groups (economists call this behavior "rent seeking"). If the market for favorable political transfers gets very efficient, then the money spent lobbying (or agitating) for these transfers will become equal to the value of the transfer itself. In this situation, there will be no net gain to those courting political favor, and the entire value of the transfer will become dead weight loss (to the detriment of the economy as a whole).

Some people think that the internet, and mobilephone+camera+blog will usher in a new era of grass-roots activism where People Power will rise again and become a potent political force. I don't know about that, but it will make the market for wealth transfer more efficient, resulting in smaller gains from lobbying. This will not result in less lobbying, as people will lobby until the gains for $1 of lobbying bring political benefits of exactly $1, it will just mean that more of the economy-neutral wealth transfer will be consumed by economy-destroying dead weight loss.


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