The Rent Seeking Drag

Rent Seeking is sort of an arcane economic term for those who seek to obtain benefits for themselves through the political arena. 

It is, of course, not news to anyone that people lobby the government for privileges that the marketplace doesn't afford them. But why is this so bad economically? Beyond the fairly obvious fact that it diverts resources from the most productive uses to ones of lesser value (else why would you need to lobby government in the first place?), there is also an insidious dead weight cost.

Let's say, for example, a steel firm spends ten million dollars lobbying for restrictions on steel imports. Whatever money it gains by succeeding (presumably more than ten million), is not a net gain. From this gain must be subtracted the $10MM cost of seeking the restrictions. Although such an expenditure is still rational from the viewpoint of the firm that spends it, it represents a use of real resources to get a transfer from others and is therefore a pure loss to the economy as a whole.

As more and more economic decisions are made in the political arena rather than the economic marketplace, more and more money will be spent on influencing the decision makers. This dead loss starts to add up to a significant drag on economic growth. It's as if every time you went to the supermarket you had to spend an hour lobbying the store manager to put on sale the particular things that you want to buy. And others did as well. What would that do to the overall efficiencies of the retail food system?