June 16, 2015

Political Self-Interest and Lobbying Lead to Bad Regulation

Liya Palagashvili

Affiliated Scholar
Summary

Although many Americans are often bewildered by how so-called bad policies are consistently being pushed in Washington, economists have an explanation for this. Public choice, or the economics of politics, illuminates how it all comes about. By analyzing the choices of the relevant decision-makers from their perspective (i.e., taking into account their individual goals, opportunities and constraints), we can make sense of the results of such choices.

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Although many Americans are often bewildered by how so-called bad policies are consistently being pushed in Washington, economists have an explanation for this. Public choice, or the economics of politics, illuminates how it all comes about. By analyzing the choices of the relevant decision-makers from their perspective (i.e., taking into account their individual goals, opportunities and constraints), we can make sense of the results of such choices.

Politicians, for example, are in the business of maximizing votes, staying in office and increasing campaign contributions. On the other hand, special interest groups are in the business of protecting and advancing their interests via lobbying and campaign contributions to politicians who facilitate such goals. This means so-called good policies that harm certain special interest groups are unlikely to be supported by politicians whose goals are facilitated by the same special interest groups. Similarly, a policy that is beneficial for long-run economic growth but is highly unpopular with voters will not be passed because there is a risk of political suicide.

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