The Shape of Regulatory Capture

Yesterday, I wrote about the problem of regulatory capture:

Ultimately, the people chosen as central planners have a track record of enacting policies that enrich themselves more than everybody else. The people lining up at Davos calling for a new system, i.e. more government, are the same elite who have ruined the old one. As Jonathan Weill writes: “It’s becoming hard not to suspect that the annual gathering in Davos has become a conclave for global elites to promote crony capitalism and state-backed enterprise, ensuring that national coffers remain available to be tapped for private gain.”

Here’s a chart that illustrates the shape of that:

Plenty of money for bureaucracy, welfare, warfare and weapons contractors. But for basic science?

Not so much.

And that’s sad — because basic science seems to be one of the few arenas where government investment really does pay for itself.

From Nature:

A report by Families USA, a Washington DC-based health-advocacy group, found that every US$1 spent by the NIH typically generates $2.21 in additional economic output within 12 months.

Not as good as the Apollo program, but much better than war spending, which not only yields less output, but then goes and destroys the things it produces.

16 thoughts on “The Shape of Regulatory Capture

  1. If you believe these studies about the economic impact of scientific research, then you should believe the economic studies about the impact of Obama’s magical stimulus.

    Needless to say, all of these are rubbish pseudo-scientific nonsense. You cannot estimate something as fuzzy and inestimable as the economic impact of spending X on Y. Merely attempting to do so means that you do not understand the concept of opportunity cost. Once one understands that Obama’s magical stimulus and the Apollo program necessarily involve taking away resources from people, then it becomes clear that an attempt to compare ‘the economic impact’ of keeping the money in these people’s hands to ‘the economic impact’ of taking it and spending it on X is a fool’s errand. Or an academic’s errand, to be precise.

    • I am not, not, not spouting off the old nonsense that “government should spend more on science” in the name of stimulus like many in the blogosphere are.

      This post — and more importantly, my post yesterday — are about the problems of taxing and spending, although from a slightly different perspective to Austrian economics. I tend to believe the multipliers in the strictest sense that they show which forms of taxing and spending have a higher return than other forms of taxing and spending . This, of course, does not take into account the opportunity cost of the taxation. On the other hand, there might also be another kind of opportunity cost for not funding popular and effective projects like NASA for which people are happy to pay taxes to achieve through government, so opportunity cost is not just something that applies to private citizens.

      What I was trying to get at is actually the fact that government tends to emphasise the “bad” forms of taxing and spending is evidence of the inevitable and huge trouble of regulatory capture.

      If I didn’t get that across effectively then I apologise.

  2. The capture is via democratic process and voted by the voters. This is because few people understand Science but all of them do seem to understand how to get someone else pay for their healthcare and expenses of daily livings in dollar term that need a strong military to defense its ($) value in purchasing power.

    • Totally agreed.

      Unions developed their powerbase with slogans such as 40 hour week, more pay for less work, go slow practices in the name of health and safety.

      The same with socialist politicians offering health care fore the sick, welfare for the unemployable, and pensions for the elderly who did not save for retirement.

      When citizens have a selfish vote that drains State finances, the State goes bust. Greece a case in point.

      • All said, I believe everyone regardless one’s ability should be entitle to work. The difference is the kind of work they do. Everyone should have their basic need getting taken care of however they also have to fulfill their share of the contribution to the society. That’s called humanity and basic human rights. That’s to say that everyone should contribute to humanity according to one’s capability. But contribution must be make regardless.

  3. Capture is via the ruling class through fractional reserve. Those who can borrow directly from the central bank at lower rates and then loan to others at hire rates rule the system. They also distort the whole economy by giving loans to big businesses that would never survive in a system without fractional reserve banking and without state protection.

    The workers have largely lost out with real wages being stuck at 1970 levels. Trade Unions help the ruling class to manage the workers.

    • On the other hand, managed workforce is infinitely better than unmanaged. Chaos is not a choice by any standard. Chaos get nothing done besides bring in destruction on everything. No one want to live with chaos.

      Chinese workers wages on the rising. China’s political and social problems are much large deeper then you know all because their workers have no bargain right and their environment is in despair dismay become unlivable. The Chinese slave workers are fed up with the leeches capitalists who are sucking their blood dry. They are getting old and dying without health benefit or retirement. Social group protests is increasing from hundreds to thousands now in tens of thousands. Some of the Americans multinational corporation already take the social political risks into their account starting to move their industry base back to the U.S.A. For example, Ford motor.

      • Thankyou Rice, I assume you are living in China. This is good information. I feel the USA government understands the risk and is getting their corporations out of China to protect the USA interests.

        It appears that the wealthy in China are preparing to flee which we will a disaster for the poor, and the Communist part will have to nationalise industry.

        • I recommended a few months ago that American corporations prepare contingency plans. The problem is that so much of the supply chain is now threaded through China. Moving will be difficult.

        • They actually have been preparing more than a year….

          Building up Political/social risks and tensions are not only happening in China but also inside the U.S.A as well. Politicians must look out for their own backyard and their own backs within the U.S.A. The cost of breaking down collapsing one’s country is much much higher than all the profit in the world the multinational corporations can make. The price of collapse one’s country is priceless – too high to put a number on it. Printing some dollar bills in comparison is trivial.

          It isn’t a joke.

        • Foxconn is only one side of the Chinese economic story and it can not represent the whole big picture of China. How long Foxconn’s model will last?

        • Rice,

          Goodluck in China.

          I suggest you study in Australia. Last time the Communist government cracked down on dissidents, they let students stay in Australia for a new life.

          We need smart people like you in Australia.

 for immigration rules.

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  5. @rice

    “On the other hand, managed workforce is infinitely better than unmanaged. Chaos is not a choice by any standard. Chaos get nothing done besides bring in destruction on everything. No one want to live with chaos.”

    No trade unions, no central banks, no fractional reserve, no state intervention on behalf of the the new ruling class, does not mean chaos…it means freedom. You only think it is chaos because you have been educated to believe that you need a mass of wage slaves who sell their labour to the owners of capital. Industrialism is unsustainable, China could never build a consumerist society, if it did it would need the resources of several earths to meet its demand. Humans can never be satisfied by the limited and finite world, we always desire more, if we all were like that we would destroy the earth, our desires were meant to be met by seeking the Spirit and the Everlasting Perfection (God). Lets say you make 40k a year, in 5 years time you want to make more, this can go into millions, but even 100 million is not a billion….and you will want more, but there again you will die and leave it all behind….all your life spent trying to get something that you will leave behind! It is madness, a mad way to live and a mad culture (the few at first) gives birth to mad individuals on a mass scale.

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