Public-choice economics in a nutshell

If you were looking for a quick summary of public-choice economics, you could just consult Commerce Secretary Wilbur Ross’ comments today on CNBC. Asked how Pres. Trump’s tariffs will impact American families, he said:

You can do the numbers this way: If you have a 10 percent tariff on another $200 billion, that’s $20 billion a year. That’s a tiny, tiny, tiny fraction of 1 percent total inflation in the U.S. Because it’s spread over thousands and thousands of products, nobody’s going to notice it at the end of the day.

Concentrated benefits and dispersed costs are the key feature of public-choice economics. It’s what makes such policies so pernicious. And it’s what tilts the lobbying so strongly in their favor.

Concerning this one, however, I’m tempted to ask: If it’s truly not noticeable, how can it be doing any good? Why do it at all?

But if prices are increased unnecessarily and no one notices it, does it still have negative economic effects? Yes, it does.

Economists have warned about the net negative returns from tariffs since the days of Adam Smith.

It’s poor leadership to bank on people’s ignorance to excuse a bad policy. It’s also the heart of cronyism. As I explained in pages 6–7 of my report on Carolina Cronyism, it takes principled leaders to resist public-choice cronyism.

This same kind of reasoning promotes not only tariffs, but also supports occupational licensing laws, incentives for government-picked “winner” industries, purchase mandates, government restrictions on competition like Certificate of Need laws, and many other government interventions in markets.

As I wrote in 2015 about one of those policies:

What do policymakers choose when they can bestow concentrated big benefits on a single “winner” industry while dispersing the costs across the many? They tend to hear nearly exclusively from the winner industry; why?

  • How does the big-winner industry react? They pour money and effort into lobbying; the potential payoff is worth it.
  • What about private individuals facing real — but smaller, spread out among so many — costs? The time and effort to fight on their behalf is usually too expensive.

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

Reader Comments