Indirect costs of government intervention are substantial but difficult to measure and are
usually dispersed across a large number of firms and households.- Rent Seeking
Private firms, households, and business groups can use political influence
to seek economic rents from the government in ways that impose costs on
society as a whole—a phenomenon known as rent seeking. These
economic rents can come in the form of legislated quotas or price
controls, favourable regulations or direct subsidies, or even lucrative
contracts that do not use public funds in a prudent manner. In all cases
the individual or firm involved will be better off and will likely argue that
their private interests are aligned with the public interest. Unless there is
a significant market failure to be corrected, however, it is more likely that
the government is simply pandering to a vocal and well-organized
interest group by redistributing resources in their direction. And these
resources do not come for free; they must be provided in some way by
the taxpayers who finance government activities.
Rent seeking is endemic to mixed economies. Because of the many things
that governments are called on to do, they have the power to act in ways
that transfer resources among private entities. Because they are
democratic, they are responsive to public pressures of various kinds. If a
government’s behaviour can be influenced, whether by voting, campaign
contributions, lobbying, or bribes, real resources will be used in trying to
do so.