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  • Conflicts of Interest Inside of Government

    Posted by Shannon Love on February 23rd, 2011 (All posts by )

    You know, it amazes me that people never see conflicts of interest internal to government itself. The USDA guidelines are a prime example.

    Think about it. The guidelines purport to be an objective assessment of what food we should all buy and consume, but what is the USDA primary mandate? Oh, yeah, to advance the interests of agricultural producers in the US. It’s the Department of Agriculture, not the Department of People Who Eat.

    Like all “regulatory” agencies USDA has long ago succumbed to regulatory capture, and now exists largely as just a means for people who make their livings in agriculture to advance their economic interests using the power of the state. The USDA only has an institutional incentive to advance the welfare of food producers. The USDA has no institutional incentive to look out for the welfare of food consumers.

    By sheer coincidence, the USDA recommendations for the percentage of a particular type of food we should eat always seems to roughly parallel the relative economic size of the agricultural sector that produces that food. I wonder why?

    One of the biggest reforms we could make in government would be to legally separate promotional, regulatory and research powers.

    The USDA shouldn’t be involved in promoting agriculture, regulating the food produced by agriculture and then researching what people should eat. These three functions are at odds with each other. Regulation decreases promotion, and the foods good for consumers’ health may not be the foods produced by agricultural interests.

    Likewise, the EPA shouldn’t have both the power to regulate pollution and also be in the business of doing research to see what regulation is needed. The Labor Department should not both enforce labor laws and conduct studies that say that more labor laws are needed.

    We readily see conflicts of interest in the private sector. We are deeply suspicious when a company, someone who once worked for the company, or someone who walked by the company’s headquarters once, conducts a study that claims to prove that people need to buy more of the company’s products.

    Yet somehow, we almost always forget that people in government institutions follow self-interest just like people in business do. No matter how pure their intentions, they will inevitably be drawn to conclusions which justify giving their government institutions more money and power. Human nature, not economic sector, causes our self-interested behavior.

    When we cram contradictory functions into the same departments, we create instant conflicts of interest which distort the implementation of those very functions. We should plan for those conflicts of interest and separate the functions as widely as possible within government itself.

     

    5 Responses to “Conflicts of Interest Inside of Government”

    1. Anonymous Says:

      [This comment is referring to typo in the original since changed. Still the point is valid — Shannon]
      Great post.

      Human nature, not economics, causes our self-interested behavior.

      At the risk of Sophistry, Shannon, it’s more accurate to say that human nature is economics. Economics, properly defined, is that aspect of behavioral psychology that focuses on how and why people apply their labor, accumulate capital, and spend the resources they gain.

      That’s why Mises titled his magnum opus “Human Action”. That title may sound like overreach, but it neatly captures his central insight into the nature of economic exchange.

      Anyone who approaches economic as if it were one of the physical sciences is fooling themselves. Trying to create a differential equation to predict even a small subsection of human activity — as if we were all passive load-bearing members of some big bridge — is the height of absurdity.

      Rather, examining the rewards and punishments that people receive for a given behavior in a given system, as you’ve done here, is the very soul of economic analysis.

    2. setbit Says:

      Comment above is from setbit.

    3. Shannon Love Says:

      Setbit,

      Actually, I made a typo. It supposed to be: Human nature, not economic sector, causes our self-interested behavior.

      Not sure how I did that.

    4. Joseph Somsel Says:

      This was the same argument used to bust up the Atomic Energy Commission. For a nuclear engineer, those were the Golden Years when technology advanced by leaps and bounds and the US kicked off commercial nuclear power.

      Of course, as a bureaucracy, they also got in the way. Case in point was Fermi I, a liquid metal breeder reactor near Detroit. First, they refused to allow them fuel, since the only the government could own fissile materials. Then the AEC insisted on the addition of a core catcher at the last minute under the core. One of the metal plates eventually broke off, blocking a fuel channel and causing a near melt-down.

      But for the Dept. of Agriculture recommending specific alotments of foodstuffs that mirror, US production, isn’t that just recognizing what our culture can grow and likes to eat? If they did otherwise, it would be driving changes in production. Imagine the French equivalent saying stop using butter and start using olive oil.

    5. Shannon Love Says:

      This was the same argument used to bust up the Atomic Energy Commission.

      Actually, I was going to use that example but decided to leave it out for brevity. The dual mandate of AEC was used against nuclear power back in the 60s and 70s by Leftists who claimed it could honest regulate what it was supposed to promote.

      I would prefer a system of compulsory insurance to autoregulate all industries. The government always has conflicting motives and regulators don’t have any skin in the game. The BP spill resulted in part because the bureau tasked with regulating oil drilling was also task with collecting significant revenues from drillers. Overtime, they just stopped looking so closely. A private external insurer on the hook for tens of billions of dollars would never grow so cavalier.