Better than Investing

Former congressman Randy “Duke” Cunningham had a bribe menu for lobbyists who wanted government contracts. Amazingly, it wasn’t just an understanding between friends, or a general concept. He actually wrote it down on his congressional stationery. As Brian Ross reported for ABC News:

The card shows an escalating scale for bribes, starting at $140,000 and a luxury yacht for a $16 million Defense Department contract. Each additional $1 million in contract value required a $50,000 bribe.

The rate dropped to $25,000 per additional million once the contract went above $20 million.

I love the volume discount. And I especially love the fact that Cunningham didn’t think his customers could handle the math involved in “it’s $50,000 for each million.” Instead, he wrote down each increment with “50” next to it. (See the card here.)

Now a Washington Post story ties lobbying fees to specific earmarks. Lobbying fees and earmarks are legal, of course, so this is not an illegal bribe menu. But I was struck by the cost-benefit ratio:

For example, the Institute for Human and Machine Cognition, affiliated with the Florida University system, received an earmark valued at $2.3 million to conduct research for the Navy after paying Copeland Lowery $60,000 last year, according to House records and a spokeswoman for the institute.

The Rochester Institute of Technology received six earmarks valued at $8.9 million after paying Copeland Lowery $440,000 from 2002 to 2005.

The lobbying prices seem higher than Cunningham’s, but of course there was more overhead involved. And I’m no businessman, but I’m betting that it’s pretty hard to turn $440,000 into $8.9 million in manufacturing or other normal economic activity.

So you can see why, as long as Washington has far too much money to hand out, people will spend money to get a piece of it.

Parental Pawns and Window Dressing

There’s no bigger sham in public schooling than “parental involvement,” a concept that educrats trot out whenever they want to show that they aren’t scared of parents or when they’re trying to curry parental favor. Otherwise,  they avoid it like the plague.

Ordinarily, parental involvement translates into sheer window dressing; feel-good activities that let parents do fun things with their children, but that in no way interfere with a school’s daily operations.

An article in today’s Lexington Herald-Leader discusses just such fluff, profiling a Kentucky program in which teams of parents and teachers run art projects in local schools. Apparently, the initiative has hit its public relations mark:

“It’s a wonderful way to get parents and teachers working together,” one parent gushed. “I think any time parents and teachers are working together, it can only benefit children.”

A less common, but more devilish, type of “parental involvement” is when politicians seeking ever-more authority over schools use parents as pawns to get it. The struggle for power over schools in Los Angeles between Mayor Antonio Villaraigosa and the board of the Los Angeles Unified School District (LAUSD) provides perfect examples of such politicized parental involvement.

Yesterday, for instance, Steve Barr, the founder of Green Dot charter schools, announced the creation of a “parents union” that will lobby to give Villaraigosa more power over the district. Of course, the union will only be composed of activists who support Villaraigosa, not parents in general. But, then again, Barr is only responding to the politicized use of parents by the opposition:

Barr said he became convinced of the need to organize parents after traveling to Sacramento last month to testify in favor of the Los Angeles Unified School District reform bill. He was baffled, he said, when he saw 50 parents who had been bused to the state capital by the LAUSD claiming to represent the views of all district parents.

In the end, the only way for all parents to have meaningful involvement in their children’s education is through school choice. Only when they can remove their kids from bad schools, and put them in good ones, will parents be able to force educators to respond to their needs. Of course, that’s one kind of parental involvement educrats will never support.

Rent-Seeking 101

Mike Munger, chair of Duke University’s political science department and a friend of Cato, has a great essay on the waste of political “rent-seeking,” the attempt to get taxpayer money channeled through government to your favored interest (whether hungry children, municipal governments, corporations, or private individuals).

Here’s an excerpt:

In my classes, I ask students to imagine an experiment that I call a Tullock lottery, after one of the inventors of the concept of rent-seeking, Gordon Tullock.

The lottery works as follows: I offer to auction off $100 to the student who bids the most. The catch is that each bidder must put the bid money in an envelope, and I keep all of the bid money no matter who wins.

So if you put $30 in an envelope and somebody else bids $31, you lose both the prize and the bid. When I run that game with students I can sometimes make $50 or more, even after paying off the prize. In politics, the secret to making money is to announce you are going to give money away.

Take a walk along K Street in Washington, DC. It is lined with tall buildings, full of fine offices and peopled by men and women with excellent educations and a real sense of ambition, a desire to make lots of money and achieve great things. What are those buildings, those people? They are nothing more than bids in the political version of a Tullock lottery. The cost of maintaining a D.C. office with a staff and lights and lobbying professionals is the offer to politicians. If someone else bids more and the firm doesn’t get that tax provision or defense bid or road system contract, it doesn’t get its bid back. The money is gone. It is thrown into the maw of bad political competition.

Who benefits from that system? Is it the contractors, all those companies and organizations with offices on K Street? Not really. Playing a rent-seeking game like that means those firms spend just about all they expect to win. It is true that some firms get large contracts and big checks, but all the players would be better off overall if they could avoid playing the game to begin with.

This is a large part of why I think Jonathan Chait is daffy for saying that Warren Buffett should dump some large fraction of his billions on “slick political operatives” on K Street. The competition for political rents is zero- and often negative-sum. The rent-seeking game has features of both a commons tragedy and an arms race — neither being a good model for a prosperous and peaceful society. But that’s what big-government types, left and right, are asking for when they insist on keeping government money and power on the table.

Chait is no doubt right that if his political tribe had more billionaire patrons, they could win more “auctions.” Unless the other tribe has even more motivated billionaire patrons, that is. He seems not to grasp that this a mug’s game — a low-grade civil war — flatly inconsistent with the general welfare. It’s a huge waste of financial and human resources. And once the game gets started, you often get sucked in, whether or not you’d like to, just to survive. Munger:

My students ask why anyone would play this sort of game. The answer is that the rules of our political system have created that destructive kind of political competition. When so much government money is available to the highest bidder, playing that lottery begins to look very enticing. The current Congress has, to say the least, failed to stem the rising tide of spending on domestic pork-barrel projects. Political competition run amok has increased spending nearly across the board. And sometimes, you have to bid just to keep from having money taken away from you through regulation.

I think once you really grasp the logic behind the tremendous loss of welfare through destructive political competition for rents, it becomes difficult to defend big, relatively unlimited government. Chait notoriously claimed that limited-government, market liberal types (i.e., Cato types) are evidence-immune ideologues, while statist liberals like him are just plain old empiricists, following the evidence where it leads. Well, Jon Chait, open-minded empiricist, I’d like to introduce you to my friend Mike Munger.

Mexican Election Outcomes

Felipe Calderon has officially won Mexico’s presidential election, an outcome that will be challenged in the courts by Andres Manuel Lopez Obrador and in the streets by his supporters.

The election has been a triumph for modernity and democracy. Calderon’s vision of Mexico’s future is a modern one: openness, more competition, and higher growth based on wealth creation. Lopez Obrador’s vision is based on backwardness: more government spending, protection of national industries, and arbitrary rule based on his own notion of “the will of the people.”

The election so far has been a victory for democracy, or perhaps better put, the rule of law. The electoral commission (IFE) has, by all independent accounts, run the elections with the utmost professionalism, transparency, and strict regard to election rules, thus making charges of fraud difficult to sustain. Luis Carlos Ugalde, the head of the IFE, is a sophisticated scholar and public servant and a student of public choice theory who understands well the dynamics of collective decisionmaking and the importance of the rule of law.

In large part because of the IFE’s performance, I expect that the electoral tribunal that will consider Lopez Obrador’s legal challenges will do so fairly and uphold the official outcome. The IFE’s performance and Lopez Obrador’s own antics will also influence the court of public opinion in a way that does not benefit the leftist candidate. Despite all its problems, Mexico really is more modern today than it was 10 or even six years ago. As Mary O’Grady notes in her Wall Street Journal column today, many Mexicans “have moved on” from the way things were done in the past. To add to Lopez Obrador’s difficulties, leading members of his own party, including rival leaders and those elected to governorships and congress, have little interest in seeing an annulment of the election results.

The other headline from the elections is the marginalization at the national level of the PRI party that monopolistically ruled Mexico for 71 years until Vicente Fox’s election in 2000. The PRI received only about 22 percent of the vote — an outcome that was unthinkable as recently as six years ago. The new political landscape — a divided congress reflecting a divided country — means that Calderon will not be able to easily push through the reforms he favors. But he appears to be more politically savvy than President Fox, so the expectations for a growth agenda that Fox promised but did not deliver are running high. 

Tom Delay Is a Virginian

One of the best arguments for term limits is that we have reached the point where members of Congress are no longer “representatives” of their districts. The latest evidence of that came in this morning’s newspaper, which says Tom Delay will be on a Texas ballot in an upcoming election even though he has now declared himself to be a Virginian. Whether Delay wants to participate in that election or not, it is interesting that he has announced his status as a “Virginian” so fast. Or perhaps it’s not fast by modern standards.

Let’s see: Bob Dole returned to Russell, Kansas, to announce his candidacy for president. When he lost, he decided to live at the Watergate here in D.C. A few years later, his wife Elizabeth went to North Carolina to become a senator. The Clintons left Arkansas and are now New Yorkers. William Weld was governor of Massachusetts, but came down to New York to run for governor there. And there’s plenty more.

We need term limits before the next generation simply assumes that this is all perfectly normal and appropriate.

How Soccer Explains the Dead Hand

This year’s World Cup hasn’t converted me to soccer fandom, but it did motivate me to read a good book. I’m talking about TNR editor Frank Foer’s How Soccer Explains the World: An Unlikely Theory of Globalization.

The book, which came out in 2004, offers a series of fascinating, compulsively readable profiles of soccer’s cultural and political underbelly — its connection to, among other things, war crimes, sectarian conflict, racism and anti-Semitism, political corruption, and culture wars. The beautiful game, perhaps, but what goes on off the pitch is frequently anything but. The picture, though, isn’t all bleak: Foer also tells how soccer has figured into resistance to fascism in Spain and Islamist tyranny in Iran.

The book is heavy on storytelling and light on argument, but through soccer’s prism an interesting picture of globalization emerges. And my apologies to Frank if I’m stretching here, but the picture is quite similar to that offered in my own book about globalization. Soccer, of course, is the global game par excellence — played and loved and marketed around the world. The best teams compete for talent and fans without regard for national boundaries. At the same time, though, this thoroughly cosmopolitan product is consumed in a world where national boundaries — and racial, religious, ideological, and class divisions as well — remain very real and continue to exert an often pernicious influence.

Soccer, then, is the global economy in microcosm. Goods, services, and capital flow across political boundaries as never before, but the global division of labor must contend with local institutions, interests, and mindsets that are frequently profoundly hostile to the market order. At the World Cup as in the larger world economy, the invisible hand of the market and the dead hand of anti-market forces struggle for mastery.

Whether or not you follow soccer, the book offers a wealth of great stories and an overarching perspective that makes our highly interconnected, highly conflicted world a little more comprehensible. And if you are a “football” fanatic, you might also want to check out Frank and friends’ World Cup blog as we head into the final weekend.

Federal Ban on Internet Gambling Marches On

Yesterday, I spoke with an aide to a Republican congressman who, as far as congressmen go, is somewhat libertarian. The aide told me that much to his chagrin, said congressman will be backing the ban on Internet gambling. What’s more, the aide said the congressman actually understands the economics of prohibitions, he just thinks that this will be the one time they don’t apply.

“For some reason, he thinks this is one instance where government can actually pull it off,” the aide said.

Unbelievable.

Internet gambling is already illegal, of course. That’s why gaming sites set up and operate offshore (several are actually traded on the London Stock Exchange). Yet, it’s still a $12 billion industry in the U.S. That means government already is trying, and failing, to prohibit it.

I guess the thinking is — as it is with the drug war — that if we try just a bit harder, spend just a bit more, harass private citizens just a bit more, and give government a bit more power, we’ll be able to buck history and finally make a vice prohibition stick.

Or perhaps lawmakers know it won’t work, and don’t care. The symbolism of trying to take a moral stand against gambling is more important than the policy actually working.

According to the New York Times, the gambling ban moves to the House floor for a vote next week, where it’s almost certain to pass. Here’s the kicker:

The majority leader, Representative John A. Boehner, Republican of Ohio, announced a few days ago that the measure would be voted on this summer as part of what the Republicans call their American Values Agenda.

So because the Republicans have garnered public scorn for the unethical, corrupt, morally bankrupt way they’ve governed over the last decade, they’ve decided to make a last-ditch attempt to hold on to power by passing judgment on the morals of their constituents (most of whom, polls show, oppose the bill).

Super.

The Times piece also looks at the free trade implications of Internet gambling prohibition, often overlooked in the debate. The Goodlatte-Leach bill will certainly exacerbate existing trade tensions between the U.S. and the 80 or so countries that allow online gambling. But many of those tensions have been bubbling over for years.

This bill brings up some new problems.

Because the bill effectively deputizes banks to sniff out and eradicate gambling among their customers (the creepy privacy implications of that alone ought to kill this bill), it amounts to a piece of blatantly protectionist legislation. Its practical effect will be to shield a domestic company (PayPal, which is owned by eBay) from foreign competitors like FirePay and Netteller.

I’ve explained a bit more about how this will work here.

Thus far, when countries like Antigua have challenged the U.S. gambling ban on free trade grounds, the Bush administration has fought tooth and nail to preserve its right to police the private behavior of American citizens. That means the administration has used millions of taxpayer dollars to prevent more liberty-minded countries from making too much freedom available to U.S. taxpayers over the Internet.

Of course, kicking Antigua around is one thing. When Britain mounts a challenge, as it likely will, this will all get much more interesting.

Gotta love the party of limited government.