Money for Nothing: Politicians, Rent Extraction, and Political Extortion (Hardcover)

~ (Author) "Until some thirty years ago, only certain forms of government regulation-public utility regulation, for example-were of much interest to economists..." (more)
Key Phrases: regulatory auction, rent creation, rent extraction, Tax Reform Act, Finance Committee, Social Security (more...)

Editorial Reviews

Review

McChesney has kept his study concise and easygoing despite including technical economic analysis. He has a fine sense of humor, reflected in the witty epigrams at the start of each chapter and the occasional cartoon that he has included...As one of the first economists to study in depth how private parties make payments to avoid regulation, McChesney has broken new ground and written a provocative book.
--Gregory E. Maggs (The Green Bag )

Sherlock Holmes is not the only sleuth who detected the significance of the dog that did not bark. In his important book on rent extraction, Fred McChesney outlines with theoretical rigor, and demonstrates with concrete evidence and pointed anecdotes, the politician's pastime of threatening harmful legislation to extract political contributions from well-heeled private institutions. Everyone now knows the dangers of excessive government regulation. Now McChesney demonstrates that even when the political waters seem still, powerful forces are at work beneath the surface. Only those who are satisfied with the present political process can afford to ignore McChesney's sobering contribution on the dangers of big government.
--Richard A. Epstein, University of Chicago

Product Description

Surveys reveal that a majority of Americans believe government is run for special interests, not public interest. The increased presence and power of lobbyists in Washington and the excesses of PAC and campaign contributions, in-kind benefits, and other favors would seem to indicate a government of weak public servants corrupted by big private-interest groups.

But as Fred McChesney shows, this perspective affords only a partial understanding of why private interests are paying, and what they are paying for. Consider, for example, Citicorp, the nation's largest banking company, whose registered lobbyists spend most of their time blocking legislation that could hurt any one of the company's credit-card, loan, or financial-service operations. What this scenario suggests, the author argues, is that payments to politicians are often made not for political favors, but to avoid political disfavor, that is, as part of a system of political extortion or "rent extraction."

The basic notion of rent extraction is simple: because the state can legally take wealth from its citizens, politicians can extort from private parties payments not to expropriate private wealth. In that sense, rent (that is, wealth) extraction is "money for nothing"--money paid in exchange for politicians' inaction. After constructing this model of wealth extraction, McChesney tests it with many examples, including several involving routine proposals of tax legislation, followed by withdrawal for a price. He also shows how the model applies more generally to regulation. Finally, he examines how binding contracts are written between private interests and politicians not to extract wealth.

This book, standing squarely at the intersection of law, political science, and economics, vividly illustrates the patterns of legal extortion underlying the current fabric of interest-group politics.

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Product Details

• Hardcover: 240 pages
• Publisher: Harvard University Press (May 30, 1997)
• Language: English
• ISBN-10: 0674583302
• ISBN-13: 978-0674583306
• Product Dimensions: 9.5 x 6.3 x 0.8 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (3 customer reviews)
• Amazon.com Sales Rank: #1,380,502 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

11 of 12 people found the following review helpful:

5.0 out of 5 stars Excellent Addition To Tullock's Work On Rent Seeking, October 3, 2001

By	Michael D. Mallinger (Woodbridge, VA USA) - See all my reviews (REAL NAME)

Fred McChesney's book "Money For Nothing" builds upon public choice economist Gordon Tullock's work on how lobbyists obtain economic benefits from politicians. While Tullock's theory - known as "rent-seeking" - is gaining mainstream appeal, many economists now offer similar explanations for other aspects of legislative behavior that aids some interest groups while harming others. McChesney's theory of "rent-extraction" breaks new ground not yet covered by these economists.

McChesney defines rent extraction as "the political practice of extorting payments from private parties by making threats to expropriate wealth." In other words, he claims that politicians can take money from citizens by threatening to harm them and accepting bribes in the form of campaign contributions to leave them alone. He points out that if individuals have accumulated wealth and wish to keep it away from the government, they will be willing to pay politicians to leave them alone until the costs of doing so exceed the benefits of doing so.

Therefore, while Tullock's theory involves politicians accepting payments to create political favors in the form of rents, McChesney's involves politicians accepting payments to avoid destroying existing private rents. He explains the differences between the two by stating: "With the former (rent-creation/bribery), the beneficiaries of political action compensate the politician for increasing their welfare. With the latter (rent extraction/extortion), persons whose welfare would otherwise be diminished by political action compensate the politician for not effectuating that diminution."

He does point out that constitutional protection of private property and freedom of contract can prevent politicians from acting upon their threats. However, he claims the erosion of these protections has made the problem much more severe during the late nineteenth and twentieth centuries.

To support his view that rent extraction imposes enormous costs on the economy, McChesney provides a wealth of evidence from recent policy debates. For example, he cites the United States Federal Trade Commission's efforts - at the request of Congress - to impose warranty and defect disclosure requirements on used car dealers as an attempt by individual members of Congress to obtain campaign contributions in exchange for voiding the rules. In this instance, he provides statistics on contributions made by the National Auto Dealers' Association to members of Congress who voted to repeal the regulations. In discussing the Supreme Court's response to the wheeling and dealing, he points out that the dealers were essentially tricked into paying to repeal legislation that Congress never intended to enact anyway.

On the Clinton health care plan, he states that stock prices of pharmaceutical firms began to fall before the policy was formally proposed. He emphasizes that investors knew that once price controls became an issue, the firms involved would have to spend money fighting the legislation by making campaign contributions. Thus, the firms were expected to lose enormous sums of money whether or not the bill was actually passed. Most importantly, he points out that the firms were never able to recover any of the money they lost in the process.

In addition to legislative threats to impose price caps, he cites situations in which politicians threaten to repeal existing price caps to obtain contributions. For example, he states that proposals to raise admission fees at Yellowstone National Park have met with resistance from local merchants and users who benefit from lower prices. In other words, politicians can even threaten regulatory systems that they inherited from previous regimes in order to extract contributions from the firms that benefit from those systems.

McChesney relates his theory to law and economics by applying the Coase Theorem to his logic. He claims that, in a world without transaction costs, there would be no regulation because markets would allocate goods to their highest bidders. Therefore, in his model, the existence of regulation is treated as a political market failure in which private individuals fail to accurately appraise the credibility of threats made by politicians.

McChesney offers a simple, straightforward way to make sense of much of the regulatory excess observed throughout the economy. Although his treatment of tax code reform may require some clarification, his model will eventually enjoy the same mainstream appeal that has been afforded to Tullock's over time.

4 of 4 people found the following review helpful:

5.0 out of 5 stars Keen and Original Analysis, July 16, 1999

By	Donald J. Boudreaux (Burke, VA United States) - See all my reviews

Fred McChesney here develops his original idea of rent extraction -- and it's an idea that renders understandable much of what the government does. (Want to know why the NRA and politicians perform a perpetual, public dance with each other? Read this book. McChesney's explanation will surprise you.) This book is a marvelous example of the best in public-choice scholarship: clearly written and cogent.

3 of 3 people found the following review helpful:

5.0 out of 5 stars A must read for those interested in the way politicians work, March 14, 1998

By A Customer

What motivates politicians? How do they act? If you are interested in those questions your should read this. The author starts from earlier work in the area by Stigler and Posner - but then extends their models in a number of areas. McChesney has a remarkable ability to take a complex area of economics (public choice) and write in an interesting and understandable fashion. This book is probably going to be read mostly by academics but deserves a wider audience.