Hot Dogs, Salads and Rent Seeking

Imagine that you are a vendor selling salads on a busy city street. Business is decent but you notice that a lot of people prefer the hot dog stand a few yards away. Your locally produced organic salads are obviously healthier, so you conclude that people are making poor food choices and need help making better decisions. What do you do?

Would you lobby city officials to restrict hot dog sales? Would you appeal to consumers and compete for their business on market terms? Ideally, you would respect other people’s decisions. You wouldn’t be so self-important as to attempt to use the police powers of the state to impose your preferences upon others.

Advanced Energy Economy (AEE), an organization representing low-emission and energy efficiency businesses, is seeking to pad its bottom line by lobbying the government to create a new energy market. If successful, AEE’s efforts will hamstring the operations of cheap and reliable sources of electricity. AEE’s lobbying, termed rent seeking by economists, is alarming and economically wasteful.

Rent seeking describes the behavior of individuals and groups who lobby the government for special privileges, such as regulations that restrict competition. The economist Gordon Tullock pointed out that rent seeking is a net loss to the economy: when businesses spend money to lobby the government for special favors, the money is not spent on wealth-creating activities. Instead it is spent on activities that result only in transfers of wealth to well-organized special interests. In the end, everyone but the successful rent seeker loses.

In a motion to intervene in court on behalf of the EPA’s Clean Power Plan, AEE representatives stated they have grounds for intervention because AEE’s member businesses will “benefit substantially” from the anticipated growth in the demand for clean energy and energy efficiency services. AEE “participated extensively” in the regulatory process that produced the CPP, and AEE’s member organizations anticipate a gain of as much as $20 billion in the advanced energy market per year through 2030.

This politically bestowed windfall comes as coal and even some natural gas electricity producers get booted to the sidelines by the visible foot of government rather than by the invisible hand of the market.

An argument based on the expectation of earning a lot of money because the government forces consumers to buy your product should never be an acceptable position to take. Do you think that you, as a salad stand operator, should have the right to get the city to restrict hot dog sales just so that you can earn more money? Such an argument is outrageous, but AEE is making it with a straight face.

Rent seeking is alarming because it may stifle innovation. It is inherently political, which means that entrepreneurs with big ideas but small pocketbooks are at a disadvantage. Rent seeking can be used to limit competition, but competition is what drives prices down and makes goods and services accessible to ordinary consumers.

While you may agree with efforts to reduce greenhouse gas emissions, you can also agree that enabling rent seeking keeps government firmly in the hands of crony corporate interests. The solution to fossil fuel cronyism shouldn’t be more cronyism, even if it is of the green energy kind. Competition is a breeding ground for innovation, and innovation is what we need to find reliable, cheap and clean energy sources.

So, do you lobby city officials for restrictions on hot dog sales? Would you support other vendors in their efforts to do so? Competition leads to lower prices by aligning them with costs and eventually driving down profits to normal levels. Rent seeking consumes scarce resources, keeps prices and profits above normal levels, and enriches lobbyists, lawyers and politicians. Unfettered competition, not heavy-handed government intervention, is what will best address our energy needs and climate change concerns.