Bootleggers & Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics (28 page)

As we explained in the preface and chapter 1, the Baptist action reinforces Bootlegger efforts to obtain political pork. When the pork is delivered, both groups win: the Baptists may get limits imposed on sin and their values validated, while the Bootleggers walk away with the cash. If regulatory activity subsides, Bootlegger/Baptist activity declines with it. When the pace of regulation accelerates, Bootleggers and Baptists are sure to barbecue while the political fire pits are hot. While they’re gathered around the grill, they reinforce the ties that bind them to each other and to the congressional cooks who supply the pork.

Chapter 1 explained that Bootlegger/Baptist interactions can be grouped into four modes of interaction. In order of increasing complexity—the first three driven by the Bootleggers and Baptists themselves, and the fourth by political actors—these are (a) covert interaction, which involves the use of Baptist rhetoric by Bootleggers; (b) noncooperation with respect to the two groups, where each group independently pursues a shared policy goal; (c) cooperation with direct Bootlegger support for Baptist groups; and (d) coordination from the top with government-led coalition building that organizes Bootleggers and Baptists in support of large-scale cartels encompassing entire economic sectors and the regulatory agencies governing them.

The fourth strategic mode of interaction, in which political leaders coordinate the formation of an all-encompassing industry cartel, is the most costly of all to the overall economy, as we saw with Obamacare. This interaction mode is often driven by emergencies, national crises, sudden changes in the relative prices of important commodities, and canny politicians who spot opportunities to achieve long-standing national desires. In economic terms, these actions occur when major markets are in disequilibrium or when older regulation is being revised. Examples include setting new, higher fuel-economy standards, buffering rapidly changing energy prices, energizing national housing programs when interest rates are unusually low, and nationalizing requirements for personal health care.

The theory can also help predict the composition of interest groups as Bootlegger/Baptist activity moves through the four categories we outlined. As layers of regulation are imposed on different sectors of the economy, related Bootlegger/Baptist activities have cumulative effects on wealth creation. Thick layers of rigid rules reduce the economy’s flexibility in an ever-changing world—the political equivalent of hardening arteries. And the layers themselves may interact, as when environmental regulation shapes the rules governing international trade, which may in turn generate demand for labor and food safety standards.

As Bootlegger/Baptist interaction becomes more prevalent and sophisticated, specialized lobbyists emerge to seek even more pork from the political process. As interest group lobbyists build larger fixed-cost enterprises, operating costs fall as lobbyists expand their political portfolios. At times the bonds linking special interest groups to political agents will seem to slacken, but at the right moment—when a large enough helping of pork is available—tethers tied over a shared history will draw both to the barbecue counter.

We detailed in chapter 2 how Bootlegger/Baptist theory is a part of the larger public choice theory that seeks to explain human action in the public domain through the use of economic logic. Assumptions about political reality, borrowed from the canons of public choice, establish the ideal conditions for flourishing Bootlegger/Baptist activity.

First, rational ignorance on the part of the general voting population enables key players to operate without fear of being held accountable for their pursuits, especially if they establish moral cover. For while rational ignorance applies to the details of policy, the body politic still insists on being assured that government is doing the “right” thing.

Second, voters are most likely to remain rationally ignorant—and pork most easily extracted—when lobbying yields concentrated benefits for coalition members while spreading the cost of providing those benefits across a vast pool of taxpayers and citizens at small cost to each.

Third, the scale and frequency of Bootlegger/Baptist interaction imposes a real deadweight loss on society. In the scramble for pork, the paired interest groups may nearly exhaust the gains obtained from their political struggle. Once Bootleggers and Baptists are locked into a successful coalition, their structural incentives change, making political wealth extraction more attractive than private wealth generation—to society’s detriment. In other words, scarce resources that might be allocated to the production of valuable goods and services become obligated to the task of maintaining the supply of pork provided by politicians.

Bootlegger/Baptist coalitions succeed by driving down the cost of pork production. Politicians shielded by Baptist cover when acting at the behest of Bootleggers are less likely to be challenged in the public forum. Because of this, successful politicians must send signals that demonstrate a regard for the public interest. Doing so lowers the cost of organizing delivery of legislative favors.

But why Baptists? Why the need for moral justification? Why not patriotism? Why not wealth creation? We describe in chapter 3 how the Baptist element in the theory is best understood against the backdrop of our evolved disposition toward cooperation, which in turn supports religious practices that encourage order and community survival. The long history of close interaction between religious and political leaders helps explain why politicians in a secular state still tend to employ moral or religious rhetoric when justifying their actions, and why members of society respond favorably to those justifications.

Use of the political apparatus to impose social norms and achieve moral goals, however, entices Bootleggers to capture pork through the same mechanism. For Bootleggers, piety is a prelude to plenty. Politicians who deliver pork to the Bootleggers can justify their actions by appealing to higher Baptist morality. Those who fail to make the Bootlegger/Baptist connection disappear from the political domain. As poor political players perish and expert players flourish, pork distribution becomes more competitive. Expanding Bootlegger/Baptist activity leads to further specialization in the provision of pork.

Because moral credibility is hard to manufacture, the most valuable Baptists are those with broad bases of support, long institutional histories, and an ability to communicate with the larger public by invoking widely shared social values. Gifted political leaders—and sometimes even Bootleggers themselves—can deploy Baptist rhetoric as well, but being your own Baptist is risky business. The most durable deals require genuine Baptists to raise their voices in support of the outcomes that diligent Bootleggers prefer.

In our applied chapters, we have provided detailed stories about alcohol, marijuana, and tobacco regulation and about climate change, TARP, and Obamacare. We emphasize again that in telling these stories, we have shown how Bootlegger/Baptist theory is most useful in explaining why the details of regulations take the form they do rather than why regulation exists in the first place. The theory can predict that environmental regulation will tend to impose higher standards on new sources of pollution than old ones and that tobacco regulation will eliminate competition and cartelize the industry while providing interest groups preferred marketing restrictions. Lack of Bootlegger/Baptist interaction helps us understand the strange gyrations of TARP, and in contrast, the heavy interaction sheds light on how Obamacare, the political prize unwanted by the public at large, became the law of the land.

Bootlegger/Baptist Regulatory Opportunities,
Consequences, and Prospects

Bootleggers and Baptists make their influence felt as both legislators and regulatory agencies are developing regulations. Common Bootlegger goals include raising the costs of competitors, gaining subsidies, cartelizing industries (in whole or in part), and building protective regulatory walls around their sectors of the economy. The more new rules are issued, the more opportunities Bootleggers have to benefit—and the evidence suggests the stakes are only getting higher: the number of “economically significant” regulations, those whose effect on the economy is estimated at $100 million or more for each year the rules are in force, is growing steadily.

If the number of such rules is rising, we may reasonably infer that Bootlegger/Baptist specialization among lobbyists and accommodating politicians is increasing in tandem, and vice versa. In recent years, the tally of new rules produced by regulatory agencies has risen significantly. In 2001, the number of those economically significant rules stood at 149. The figure then dropped slightly, ranging between 127 and 141 from 2003 to 2006 (Crews 2013, 21–23). In 2007, the number of “significant” rules rose to 160 and kept rising steadily through 2010, when 224 such rules were in the works. In 2011, the count stood at 212. For 2012, the most recent year for which we have data, the count recovered to 224.

Let’s make some back-of-the-envelope calculations. If we assume that each of those 224 rules imposes a cost of “only” $100 million annually, which is the minimum threshold for being called significant, then the 2012 pipeline is loaded with more than $22 billion of projected annual economic impact. By comparison, similar calculations for 2001 yield not quite $15 billion. That would mean we’ve seen a 40 percent increase in annual cost imposed by large new rules, and this is just for the larger impact rules. Separate cost estimates that attempt to take account of the entire regulatory burden show the annual cost riding in the range of $1.7 trillion to $1.8 trillion, or $14,768 for each U.S. household (Crews 2013, 1). Although all such estimates are subject to debate, one thing is certain. The pace and burden of U.S. regulation is rising and large. Almost endless opportunities exist for Bootlegger/Baptist interaction.

The list of leading agencies that are issuing rules—large and small—gives a clue to where the Bootleggers and Baptists seem to be working hardest and tells us which economic sectors are most subject to regulatory artery hardening. In 2012, the Department of Treasury was king of the mountain—no surprise in the wake of TARP, Dodd-Frank financial reform, and other banking-related regulation. Treasury was followed by the departments of Commerce, Interior, Agriculture, and Transportation (Crews 2013, 24).

When it comes to production of higher impact, economically significant rules, EPA leads the pack, followed by the Department of Labor, the Department of Transportation, and the Department of Homeland Security (Crews 2013, 26). Based on these measures of activity, it seems certain that opportunities for Bootlegger/Baptist interaction stand at a very healthy level across the gamut of government activity.

The budgets of federal regulatory agencies provide another metric for assessing the incentives for Bootlegger/Baptist activity. What is happening with social regulation, as opposed to economic regulation, provides the more sensitive metric. Included in this category are rules affecting consumer safety and health, homeland security, transportation safety, the workplace, the environment, and energy. Using data from a recent report by Susan Dudley and Melinda Warren (2012, 5), we find that the ratio of budgeted expenditures on social versus economic regulation surged from 2.25 in 1970 to 4.90 in 1980 and rested at 4.37 in 1990. The ratio stood at 4.53 in the 2013 budget. Between 1970 and 2013, total budgets for both categories rose from $2.86 billion to $50.45 billion in constant 2005 dollars (Dudley and Warren 2012, 22).

These dry numbers are nevertheless significant to our story. First, social regulation is prime territory for Baptist lobbying that yields Bootlegger benefits—as illustrated in the chapters on the environment, “sin” substances, and health care. (We note that economic regulation is hardly devoid of Bootlegger/Baptist opportunities, especially during times of national crisis, as we saw in the discussion of TARP.) Second, regulatory activity for both categories as measured by budgeted expenditures has grown apace, rising more than 17-fold over the last 43 years. Obviously, not all of that growth is attributable to the machinations of Bootlegger/Baptist coalitions. But we would argue that such tag-team operations have been running in overdrive since 1970, contributing to the growth and burden of regulation in the United States. We note that even if there were consistent, all-inclusive estimates of the regulatory burden imposed by federal rules, we believe one major element of cost would not be—and perhaps could not be—quantified and included. This is the cost of the potential for wealth creation that is lost as special interest groups, firms, industries, organizations, and politicians discover that the pursuit of regulatory pork pays better than production—and allocate their resources accordingly.

Our Final Thought

We close with one final thought: no matter how blatant Bootlegger/Baptist practices may become, and no matter how heavy the associated economic burden, there is no foreseeable end to the story of Bootleggers and Baptists. The Bootlegger/Baptist phenomenon is driven by forces rooted deeply in the human psyche. Self-interest is the driver for both Bootleggers and Baptists—and in a deeper sense for the society that fosters these interest groups.

It is a safe bet that people will always seek better, safer, and more comfortable lives for themselves and those they love. It is an equally safe bet that there will always be individuals and groups whose happiness comes from envisioning a morally better world—and striving mightily to get there. Any recognizably human community will have a body politic, and within the political institutions that exist there, people with power will need to satisfy constituencies of some kind to maintain their positions. The ingredients for Bootlegger/Baptist interaction will always be present.

On the upside, given that there will be Bootlegger/Baptist interaction as far as the eye can see, we in the United States or others who enjoy similar freedoms can rejoice quietly in the fact that the greater the level of freedom, the higher the costs imposed on those wishing to grab power for themselves without going through the rigors of open political competition. Winning coalitions do expire and new ones are formed, but open political and economic competition does limit the loss that will be imposed in a Bootlegger/Baptist infected society.