It is a safe bet that most readers have read or heard the term ‘rent seeking.’ It is an even a safer bet that few readers fully understand what it means, unless, of course, your college economics course is not too far back in your rear-view mirror. So let’s first clear up any confusion and describe what this is all about.
It’s actually a fairly simple concept. When resources are diverted from production of a product or service into political action to avoid further improvement of a product or service, economists call it rent seeking.
On the bigger stage, it is how lobbyists twist the arms of legislators and politicians of all kinds, to do their bidding, where an exchange of power and money can be placed on the gaming table for distribution. And, it certainly is a game, one that the public always loses.
We do not mean to place all lobbyists in a bad light. Their actual purpose, as perhaps the second oldest profession, is to educate those in power about complicated issues that they are asked to rule upon. However, too often, those paying the lobbyists to educate, have a dog in the race, whose ultimate victory benefits the dog owner, rather than the public served by the ruling politician.
It all stems from the ability of government, through force, to promote the goals of some citizens at the expense of others. In all cases of rent seeking, resources are diverted from production to political action.
While the government has always had the ability to take stuff from some to benefit others, the Constitution intends that this power is granted to benefit the overall general welfare of a community, state or nation.
One such example, in which Dr. Jay Lehr, the senior author of this article was peripherally involved, was a regulation of refrigerants under the Clean Air Act. Commonly used refrigerants were outlawed under the guise of reducing gases in the atmosphere which were erroneously thought to be destroying the ozone layer. High altitude ozone, an inorganic molecule with the chemical formula O₃ (in contrast to the more common O2 molecule), is thought to protect our eyes from damaging radiation from the Sun.
We now know such concerns were immensely exaggerated. Regardless, the use of an inexpensive refrigerant was temporarily outlawed in favor of a patented refrigerant costing nearly ten times as much.
In a rare victory for the good guys, EPA’s ruling against the inexpensive refrigerant was over-turned. In the court case the plaintiffs (the good guys here) correctly said, “industry intervenors are rent-seekers trying to use the government to foreclose their competitors’ products, not to foster the development of new ones.” In the environmental arena such deviousness is common.
Unfortunately, the output-expanding, positive-sum activities of market discovery, innovation, and production are increasingly being replaced by rent-seeking behavior depending on political clout. People redirect their energies to gaining political influence, and thus taking more time and energy away from other productive activities. Many businesses invest heavily in lobbying because they see it as a cost-effective way to beat their competition.
They also do it to slow the rising costs of complying with environmental regulations which now make up a major portion of the $1.9 trillion cost of all Federal regulations. Many of these regulations are the result of successful lobbying by environmental activists. Examples of this are the ever-smaller allowable concentrations of emissions from industrial processes that cannot possibly cause harm to the public.
Environment radicals have dramatically increased their political clout with left-leaning government employees who participate in the ‘sue and settle’ game with the government that actually finances their continual efforts to thwart industry. The US Chamber of Commerce explains:
“Sue and Settle” refers to when a federal agency agrees to a settlement agreement, in a lawsuit from special interest groups, to create priorities and rules outside of the normal rulemaking process. The agency intentionally relinquishes statutory discretion by committing to timelines and priorities that often realign agency duties. These settlement agreements are negotiated behind closed doors with no participation from the public or affected parties. As an example, between 2009 and 2012, EPA chose not to defend itself in over 60 lawsuits from special interest advocacy groups. These cases resulted in settlement agreements and EPA publishing more than 100 new regulations – including the Clean Power Plan.
Alternative energy companies invest hundreds of millions of dollars a year on a form of rent seeking, namely lobbying government officials to require utilities to purchase their products and taxpayers to pay for their subsidies and tax breaks.
Examples of rent-seeking in the heavily-subsidized wind and solar power industries are easy to find. NextEra Energy Inc. is a Florida-based utility that has grown into a green Goliath almost entirely by taking advantage of government support. It then sells its ‘green power’ to utilities around the country that are required by their states’ laws to produce a portion of their energy from so-called renewable sources.
Excelon Nuclear, a division of Exelon Generation which operates the largest fleet of nuclear power plants in the US, is another case in point. Excelon has been a vocal supporter of the dangerous man-made global warming hypothesis, while hyping its emission-free energy, and lobbying for a ‘carbon tax’ that it’s fossil fuel competitors would have to pay. Similarly, Chesapeake Energy, once a major supplier of natural gas, gave $26 million to the Sierra Club to attack its rivals in the coal industry.
And, of course, environmental advocacy groups invest in lobbying to advance their own agendas, and their resources rival or exceed those of the business community. Organizations like Environmental Defense use fear of catastrophic climate change to raise money using slick direct mail campaigns.
Rent-seeking sometimes makes strange bedfellows, a phenomenon Bruce Yandle, Dean Emeritus of Clemson University‘s College of Business and Behavioral Science, labeled “Bootleggers and Baptists” in a 1983 article. These two special interest groups involved worked together to outlaw alcohol sales in some counties and on Sundays (see here for a history of this phenomenon).
Rent-seeking behavior negatively affects more than just the efficient use of resources. When the public realizes the extent to which interest groups and elite members of society use rent-seeking for their own benefit, the legitimacy of government suffers and the very foundation of our democracy is eroded. It is something we should highlight and roundly condemn at every possible opportunity.
Note: Portions of this article were excerpted from Climate Change Reconsidered II: Fossil Fuels (CCRII: Fossil Fuels), produced by the Nongovernmental International Panel on Climate Change (NIPCC) published by The Heartland Institute, with permission of the editors Joseph Bast and Diane Bast. The authors strongly recommend the book for a complete exposé of the fallacies behind the climate delusion.