2. The Economics of Politics “Pork Barrel Spending”  A public expenditure that is larger than the total benefit it creates, but that is favored by a legislator because his or her constituents benefit from the expenditure by more than their share of the resulting extra taxes

3. Sources of Inefficiency in the Political Process Logrolling  The practice whereby legislators support one another’s legislative proposals Rent-Seeking  The socially unproductive efforts of people or firms to win a prize.

4. Rent-Seeking Inefficiency occurs when: The gains from a government program are concentrated in the hands of a few beneficiaries. The costs are spread among many.

5. Rent-Seeking Example Assume  Price support bill will raise sugar prices by $0.10/lb.  Average American consumes 100 pounds of sugar per year.  Demand for sugar is inelastic

6. Sources of Inefficiency in the Political Process Why don’t citizens vote out legislators who support such bills? Rational ignorance Free riders Even though this is a hugely inefficient way to redistribute income (in this case, from sugar consumers to domestic sugar producers), it is exactly what the government does.

7. Problems peculiar to Government Bureaucracy and politicking  Slow decisions, not always rational outcomes  Rent seeking Lack of Information  Don’t know costs or benefits as well as firms or consumers do Restriction on choice  Any laws to alter market outcomes require some sort of restriction

8. The Moral to this Story: Government is an alternative, not the solution.  Don’t rule out government intervention dogmatically  But don’t automatically assume it can fix things Economic theory helps us predict when government intervention will work.