The Corner

Capture the Flag

My second Ross Douthat plug of the day. He has a nice rejoinder to Jonathan Chait’s efforts to wave away concerns about regulatory capture. I thought this bit was particularly well stated:

First, there’s an obvious distinction — as Wilkinson notes in his reply to Chait — between regulatory regimes and straightforward tax-and-transfer programs. A program like Social Security isn’t vulnerable to industry capture in exactly the way that, say, a cap-and-trade regime tends to be, because it isn’t a regulatory structure. Ditto the Earned Income Tax Credit. The minimum wage, on the other hand, is a regulatory structure — and it’s also an example of how even the most simple and straightforward regulation can become a tool for big corporations to use against their smaller competitors. (What, you thought Wal-Mart spoke up for minimum-wage increases out of the goodness of its corporate heart?)

It’s also worth noting that not all “captures” of government programs look like textbook cases of regulatory capture. (They aren’t all as straightforward and egregious as, say, the exploitation of certain alternative-energy tax credits by some clever paper manufacturers.) Where the big programs that Chait is defending are concerned, it’s usually more complicated than that. The capturer isn’t usually some completely mercenary corporation that’s figured out how to game the system. Instead, it’s often a group or organization that’s integral to the purposes the government is trying to pursue, but (all-too-understandably) ends up putting its own interests, or those of its members, ahead of the common good. So the welfare state gets “captured” by the teachers who benefit from uncompetitive workplaces, the public-sector unions who benefit from inflated salaries and gold-plated benefits, the doctors and hospitals who benefit when the government subsidizes unnecessary treatment, the pharmaceutical companies who benefit when the government subsidizes their drugs, the lawyers and lobbyists who benefit from the complexities of the estate tax, the mortgage lenders and real estate brokers who benefit from the home-mortgage deduction, and so on and so forth.

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