I am saddened to say that economist Gordon
Tullock passed away on Monday in Des Moines, Iowa at the age of 92. Professor
Tullock is often considered one of the fathers of public choice theory, which
is the use of economics to solve traditional problems of political science.
Professor Tullock formulated the idea of
“rent-seeking,” which most often is associated with the act of individuals and/or
firms lobbying government for handouts, exemptions, or even regulations. Rent-seeking is inefficient not only because
it amounts to the government picking winners and losers in the marketplace, but
also because the money used to lobby government could have been used in other
ways to enhance consumer welfare.
Public choice theory is very applicable
to the rule-making process. Voters, politicians, and regulators are all
rational, self-interested individuals. Without questioning the intentions of
FCC regulators, we should consider that adopting Net Neutrality rules would
increase the FCC’s responsibilities, future budget, and overall power within
the United States. Public choice theory tells us that public officials respond
to incentives, such as these, in the same manner that private individuals do.
Professor Tullock also created the
theory of the “transitional gains trap,” or the trap that individuals or firms
fall into when protectionist government regulations are lifted. This is evident
today in the sharing economy. (See “The Sharing Economy:
A Positive Shared Vision for the Future”) Traditional hotels and taxicab drivers
are worse off in regions where applications such as Airbnb and Uber have
emerged absent government interference. These traditional businesses have spent
thousands (or sometimes millions) of dollars to be protected by regulations and
licenses, while Airbnb hosts and Uber drivers have not been subjected to the
same rules. Even if regulations on traditional hotels and taxicab drivers were
lifted (as they should be), it would still put the traditional businesses at a
disadvantage due to the regulatory burdens they already have incurred. This is
why traditional businesses have been calling for regulations to be levied on
the sharing applications, despite that such regulations would inhibit
competition and ultimately hurt consumers. The proper response in the face of
new competition is to “regulate down,” not to “regulate up” to try to “level
the playing field.”
[Tullock had] one of the most creative, original, pioneering,
fruitful, and insightful minds of the last 100 years. He deserved the Nobel
Prize, but never got it.
Although Professor Tullock is gone, his
contributions to the field economics will always live on.
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