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Commentary

Getting Rich Through Special Privilege


     
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There are four ways to get rich. You can get rich by offering goods and services that other people want at prices they are willing to pay; in other words, you can build a better mousetrap and watch the world beat a path to your door. Innovations in mousetraps, metals, and mobile devices are directly responsible for the explosion of wealth in the western world of the last two and a half centuries, and if the economist Deirdre McCloskey is to be believed, a newfound esteem for innovators and entrepreneurs is what is causing the explosive growth in China and India.

Building mousetraps is hard, though, and it might be boring. If building mousetraps bores you, you can also get rich by stealing things that don’t belong to you. You can become a garden-variety cat burglar or a mugger. About 150 years ago you could still make a nice living in Memphis as a slave trader. Unfortunately, plunder has always paid quite well, and the fact that it typically does so is one of the reasons human beings have been mired in poverty for the better part of our existence.

Maybe theft itself makes your conscience uneasy. This raises a third way to get rich: you can pay the government to take things from others and give them to you. Perhaps you wouldn’t actually break into a neighbor’s house and help yourself to the contents of his wallet, but you might be able to elect someone to do it on your behalf. Perhaps he will even exalt you for it as you might be a member of a favorite “hard-working” group. A big part of the business of government is to redistribute resources from taxpayers to “hard-working” farmers, hard-working families, or just the generic “hard-working Americans.”

There is yet a fourth way to get rich. Maybe you don’t want the government to actually write you a check. Maybe you want to go out and earn an honest living. You might need some help, though, and another way is to enlist the government to threaten violence against those who might compete against you.

This is usually done in the name of “public safety,” but economists in the twentieth century noticed something odd: firms participating in a particular industry don’t resist and sometimes actively call for more regulation. This doesn’t appear to make sense at first: why would a firm want the government to raise its costs? It doesn’t make sense, of course, until you realize that this means the government is raising costs for the firm’s potential competitors, as well.

To consider one example, long-haul trucking companies are trying this by seeking federal regulations that would require independent truckers to install expensive GPS tracking systems in their trucks. Naturally, the lobbyists are saying “public safety,” but I think the real story is that this will allow bigger, established trucking companies to shield themselves from smaller, independent competitors.

Sometimes people take it. Sometimes, though, people fight back. In the case of Bokhari v. Nashville, the Institute for Justice is challenging Nashville’s Metropolitan County Council on limousine and sedan rules that essentially hobble potential competitors (here’s an IJ summary of the case). These include rules about where a limo or sedan can pick up passengers, where they can be dispatched from, how old the vehicles can be, and how long they have to wait before picking up customers. It also imposes a $45 binding price floor. In the words of an Institute for Justice representative, “(t)his ordinance was written by the high-end limo companies, for the high-end limo companies.” The winners are powerful special interests.

The losers are their smaller competitors and those who serve less-opulent segments of the market. In econ 100, I teach that the problem with a monopoly is that it provides too little output and charges too high a price. When there is competition, it’s virtually impossible for a firm to restrict output and raise prices. When firms can get a government to restrict that competition on its behalf, over-charging consumers while skimping on output is much cheaper.

We say that the USA is the Land of Opportunity, and indeed for all of the margins on which we fall short, we do a decent job. If we’re going to maintain this standard and if “land of opportunity” is going to be meaningful, this has to be the land of opportunity for everyone and not just special interests.

 


Art Carden is a Research Fellow at the Independent Institute in Oakland, California, and Assistant Professor of Economics at Samford University.
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