Arnold Kling  

The Real Concentration of Power

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Robert Lawson and Richard Alm write,


In 2010, a tiny cabal of 535 individuals -- just 0.00017% of the population -- spent $3.5 trillion, or about 23% of the $14.5 trillion U.S. economy. That leaves 77% for the other 99.99983% of us.

... the members of Congress wield 20 to 25 times more economic power than the same number of richest private citizens in the country.

I made a similar point in the widely-unread Unchecked and Unbalanced.


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CATEGORIES: Political Economy



COMMENTS (21 to date)
Philo writes:

But those 535 are only agents for us, the 300-plus million. We have delegated them to spend it *for us*. We all are the presumed beneficiaries.

Andreas Moser writes:

But members of Congress are REPRESENTATIVES of a far larger number of people while they're spending this money.

Tom writes:

"We all are the presumed beneficiaries."

I don't know anyone whom still presumes that.

Daniel Kuehn writes:

What Philo and Andreas said.

No serious person should ignore the fact that they are agents and not principals. No serious person should forget principal-agent problems either.

I know economist off the top of my head who thinks of those 535 men and women who ignore the principal-agent problems involved. It seems there are more who are willing to deny or obscure the fact that there even is a principal-agent relationship here.

Daniel Kuehn writes:

*I know of no economist off the top of my head...

Hume writes:

Agree with Daniel. Even though the American versions of "democracy" and political "representation" are fatally flawed, illegitimate, and thereby do not produce an obligation to obey the political process (i.e., political obligation), to ignore the social facts of, e.g., laws that proclaim principal-agent relationships is to badly misrepresent the power involved. Even though we do not trust politicians, even if many are "evil" men, they nevertheless feel a pressure to use these funds in an other-than purely self-interested (or self-directed) fashion. This pressure is completely absent (or lacking in a serious degree) from what private individuals feel in the use of their own resources. To put it crudely, this is apples-and-oranges.

CHN writes:

I'd read 'Unchecked and Unbalanced'... if it didn't cost $15.95 on my Kindle.

It seems to be your most expensive book. 'Crisis of Abundance' (which, I believe was not widely-unread) only costs $7.19.

Now, I'm no economist but...

guthrie writes:

Whether agent or principal, this does not deny the fact that the 0.00017% actually wield this power. Why do they need power and control over 23% of the economy?

Are you saying, Daniel, that those who object to, say, the idea of 'corporations running things' are right to ignore the fact stated above? If one objects to inequality, shouldn't the fact that 'we' 'gave' 535 people this power be even a little off-putting?

Those of us who did not directly install these 'agents' have no right-of-exit.

Hume, can you provide any examples or evidence of the 'pressure' felt by these officials? Can you cite where a representative voted in response to this pressure as opposed to pressure exerted by, say, a lobbyist or party boss? How do you know what kinds of pressure they feel in the first place (feelings being what they are)? What are those 'social facts' you are referring to?

another bob writes:

I wonder how far down the list of:
- Members of Congress,
- Members of State Legislatures,
- Members of City Councils,
do you go before you come to the richest individual investor?

Even small city school boards spend > $100M per year.

Mark Little writes:

Unchecked and Unbalanced may be widely-unread but it is not completely unread. I liked it very much and I think it is an important book that makes essential points.

I hope you keep plugging away at this theme. Thank you.

Jonathon Hunt writes:

@ Hume and Daniel

Why are you so quick to assume there is no incentive for private individuals to spend in a way that benefits others? I thought the invisible hand was uncontroversial. Of course, you could make the argument that this invisible hand is being impeded by obstacles put up by the visible hand of government.

The gist here is that the principal-agent problem is being blurred in both government and markets; to ignore the fact that our politicians are acting in "our" interest by consistently ignoring those interests pose a problem for that ideal scenario that is irrelevant to today's reality.

Dain writes:

The principal-agent relationship is strained to the point of being illusory when 535 people are the supposed representatives of 300,000,000 others.

As Hanna Pitkin put it:

"A political representative — at least the typical member of an elected legislature — has a constituency rather than a single principal; and that raises problems about whether such an unorganized group can even have an interest for him to pursue, let alone a will to which he could be responsive, or an opinion before which he could attempt to justify what he has done.… the political representative has a constituency, not a principal."

The resource masters within the private sphere, in contrast, have no pretense to representation. So yes it's apples and oranges in that way. But I'll take exit over voice any day, especially when my voice is being drowned out by one of the largest choirs ever assembled in the history of democracy.

UnlearningEcon writes:

'I thought the invisible hand was uncontroversial.'

Think again, as:

(1) It's just a weird, pseudo-religious metaphor that has never been 'proven'.

(2) Adam Smith did not use the term to describe self-interest leading to optimal outcomes.

Thomas Boyle writes:

Every individual endeavours to employ his capital so that its produce may be of the greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than he really intends to promote it.

- Adam Smith, The Wealth of Nations

Seth writes:

@Philos, Andreas & DK: Your statements ignore public choice and knowledge problems.

@Hume:

...even if many are "evil" men, they nevertheless feel a pressure to use these funds in an other-than purely self-interested (or self-directed) fashion.

Read about Friedman's Type IV spending.

Greg writes:

I have to be honest: I only read the first couple of chapters of Unchecked and Unbalanced, as fascinating as it was. Consider this my New Years resolution to read it in full.

Jonathon Hunt writes:

@ UnlearningEcon

1) Just like exploitation theory?

2) No one needs Adam Smith's word to come to that conclusion; you're acting as if it's not part of economics unless Smith explicitly stated it in bold, underlined letters saying LOOK AT ME. In summary, it's called implications brobeans. Also, I don't think Thomas made up that excerpt.

Daniel Kuehn writes:

guthrie asked:
"Whether agent or principal, this does not deny the fact that the 0.00017% actually wield this power. Why do they need power and control over 23% of the economy?"

Because we, the principals, have an interest in that 23% and we can't very well hold a plebiscite every time we want a public good. I'm very much with Arnold's competing governance structures, but the argument for that starts to fall apart once exclusion gets harder and adverse selection in competing governments pops up.

"Are you saying, Daniel, that those who object to, say, the idea of 'corporations running things' are right to ignore the fact stated above? If one objects to inequality, shouldn't the fact that 'we' 'gave' 535 people this power be even a little off-putting?"

If you're getting at the question of whether I think OWS is almost as absurd as the Tea Party in a lot of cases, yes, I do. There are things to be concerned about when it comes to inequality, but whining about corporations is usually pretty wrong headed.

This is not to say that corporations can do no wrong, any more than I was saying governments can do no wrong.

Unfortunately, both libertarians and leftists have a habit of reading me that way.

Daniel Kuehn writes:

Jonathan:

re: "Why are you so quick to assume there is no incentive for private individuals to spend in a way that benefits others?"

I've never assumed anything like that and agree with most of the rest of your post. What in the world makes you think I'm assuming this?

guthrie writes:

Thank you Daniel! You're probably not reading this far down, but I appreciate your response. If on the off-chance you are, I would ask this: What if, instead of a plebiscite, we simply reduce the funds in their control? I would guess as the principals to their agents, we would have the power to do so, wouldn't you think? Of course, then there's the whole discussion of 'what is a public good', but I think in light of the OWS (and Tea Party for that matter) such discussions might take a slightly different tack then in decades past (then again, what do I know?).

And I actually wasn't reading you that way, per se. The focus of the linked article is pointing out an apparent hypocrisy within the OWS 'philosophy', and if that's the focus, then it's valid (IMO) to point out the presumed discrepancy and see if that alters the focus (and perhaps discern why or why not). I thank you, however, for your clarification. It would be a bit of a knee-jerk reaction if I assumed your counter to Arnold's post represented a defense of the OWS folks or any other 'movement's' position, and that wouldn't be right.

I seriously doubt many of the OWS or Tea Party folks are thinking in terms of 'regulatory capture' or 'adverse selection' or the like, but I think you already know that!

guthrie writes:

Oh, there was also the dichotomy between 'voice' vs. 'exit'. I'm curious, Daniel, as to where you might fall (as we know that Arnold prefers exit to voice)?

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