Wednesday, February 15, 2017

The Principle of Rerouting and Entrenchment

Actually Existing Democracy, Part Four

"Concentration of wealth yields concentration of political power. And concentration of political power gives rise to legislation that increases and accelerates the cycle." — Noam Chomsky
That which the government punishes causes rerouting.

That which the government rewards causes entrenchment.

If the state punishes an economic activity the activity does not go away. It simply reroutes around the obstruction. A clear example of this is child labor laws. When you make it illegal for children to work the need for money does not go away. It is still there. So often homeless teenagers will pursue "voluntary" prostitution. Banning child labor increases levels of child prostitution. The market demand is not for child labor. It is a market demand by impoverished children for wages.

Another example is the whiskey business. The market demand for alcohol is so great that when Prohibition occurred an entire gang industry was created to provide for it. Al Capone was just a business man like any other. He even operated a soup kitchen! Men like Capone performed a crucial rerouting function for the state. Nations are generally unaware that they need the black markets they suppress in order to function. A lot of state regulation is simply insane or impossible to comply with. When that happens the market outsources to other jurisdictions, or goes dark.

That which the state rewards causes entrenchment. This is because the people who are subsidized have richer fortunes, which allow them to purchase more favorable regulations through their relationships and campaign contributions. It is a cycle; more money from the state allows more gifts to Congressman. More gifts to Congressman buys more money from the state. Most of these reciprocal gifts are arcane; a favorable regulation here, a small market distortion there. It is embarrassing to give people money in an obvious way, so regulations are written in subtle ways to provide rent-seeking. The vast majority of gifts are simply market distortions created for powerful actors. Anytime the supply of something is limited it is corruption. Any licence that excludes people is designed to artificially inflate costs. Let us go through some examples;

Legal behavior                              Way the corruption works

open space / green belts         restricts the supply of housing to raise its cost
Canadian drug import ban      restricts supply of drugs to raise their price
occupational licenses             restricts supply of workers to raise wages
college subsidies                    increases the supply of knowledge workers to suppress wages
illegal immigrants                  maintain a class of labor with fewer regulatory costs
"right to work" laws                union busting
taxi medallions                       limit the supply of taxis to create a middle class wage for drivers
uber                                          destroy the above drivers
Dodd-Frank Act                      destroying small lending competitors to the major banks

Democracy is basically a machine for doing these things. It is a coercion market. It gains support from potentially hostile power centers by selling them rent-seeking. This co-opts those power centers into its structure and reduces the cost of suppressing them. It formalizes a deadly game to determine succession of power. By turning the creation of rent-seeking, the appointment of laws, and the interpretation of them into a market, it converts a overtly violent struggle into a cultural one. But its openness to co-option encourages a broadening of the conflict.

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