Wednesday, April 22, 2009

Competition in lobbying

The Washington Post recently reported on a study that found businesses on average realized a 22,000% return on lobbying for a 2004 tax cut, an amazing return on investment that beats most private investment.

In 2008, total lobbying spending in the US was estimated at over $3 billion by That sounds like a lot, but is it really? Compared to other welfare wasting spending, such as the military (about $800 billion), its small change.

Another way to look at this number is in comparison to the potential prize businesses could be getting. The US federal budget totals almost $3 trillion, with about $1.1 trillion (38%) being discretionary. That means lobbying is at 0.27% of discretionary spending alone. This of course does not include tax breaks and deregulation benefits to lobbying, or the fact government could have access to a much larger pool of money if they wanted to.

We of course don't want private interests influencing our governments decisions, but my first thought about these numbers reveals I am a political economist at heart: why isn't lobbying bigger? If there is money to be made, shouldn't businesses be competing for the prize, thus making lobbying a bigger cost than only $3 billion? That is, if politics was a free market, businesses would be competing against each other to get the (at least) $1.1 trillion prize money, and lobbying spending would be at least 100 times bigger.

But lobbying is not a monopoly enterprise. Theoretically, anyone could get into it. I think the answer here is that social norms and regulations that make taking special interest money ugly are actually working in the US, to at least some degree. Of course, we'd always like to see that decreased.

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