Russ Roberts

Sumner Follow-up

EconTalk Extra
by Russ Roberts
Benn Steil on the Battle of Br... Continuing Education...Benn St...

The Continuing Education entry for last week's episode with Dan Sumner asked the following two questions for you to respond to:

1. Mancur Olsen and Gary Becker argue that small groups have greater political power than larger ones, which seems counter-intuitive, as they would muster less influence (fewer votes and less money). Explain why it would be the case that their political influence would increase. Roberts notes that over recent decades, the agriculture industry has become increasingly concentrated into smaller number but larger firms. To what extent has this borne out Olsen and Becker? What does this suggest about the political power of agriculture going forward?

2. How do crop insurance programs differ from direct payment subsidies, according to Sumner? How do the effects (intended and unintended) of each type of program compare? What was Greg Page's case for his support of the switch in the 2014 farm bill from the latter to the former. What do you think Sumner would say in response to Page about which is preferable?

Everyone chose the first question--why are small interest groups relatively powerful. You'd think they'd be irrelevant. They have fewer votes to offer and potentially less money.

Rick Groves got off on the right track when he noted:

Invariably, the interests of larger groups are more complex, nuanced, and diffuse. Small groups can sustain a clear, consistent set of requests that can be addressed directly and engaged with more reliably.
A listener named Warren got to the heart of the matter by pointing out that political lobbying has a collective-action problem--it's tempting to let another peanut farmer do the lobbying and work because you might get the benefits, anyway. Smaller groups find it easier to overcome this problem, as Warren argues:
The smaller the collective action group, the more likely that the group will be able to overcome the collective action problem. (1) Because in a smaller group it is easier to monitor as to whether or not people are able to be free-riders and to then introduce some kind of mechanism to encourage them to join the collective enterprise. And (2) smaller groups will find it easier to organize politically. The farming lobby, being very small in proportion to the public as a whole, are much easier to organize politically than the whole public. Therefore, the farming lobby is able to impose negative externalities on the general population at large. We have a government failure generated by structural incentives within the political process.
The only thing missing here is the relevant jargon, which is "transaction costs." Smaller groups have lower transaction costs and while they may have fewer resources than larger groups, their incentives to employ those resources politically and their ability to encourage the employment of those resources politically are larger than for small groups. To take a simple example, crop insurance of $20 billion per year costs the average American about $60. That amount is so small that most Americans are unaware of it. And if you are aware of it, how much time are you willing to spend to stop that from happening? Not so much. It's just not worth it. But if you are a farmer who gets tens of thousands of dollars from the program, you will be very interested in the program, eager to help politicians who implement the program, and eager to coordinate with your fellow farmers to make it happen. From the New Republic summary of the most recent farm bill:
Referring to beneficiaries as "farmers" underplays how giant agribusinesses really benefit from subsidized crop insurance. There have traditionally been no limits to premium support, meaning the richest businesses reap the most benefits. A provision from Sen. Tom Coburn to reduce payouts for farmers with over $750,000 in income was stripped from the final bill, despite passing the Senate twice. The Environmental Working Group, a critic of crop insurance, estimates that 10,000 policyholders receive over $100,000 a year in subsidies annually, with some receiving over $1 million, while the bottom 80 percent of farmers, the mom-and-pop operations, collect only $5,000 annually. These are educated guesses, because under current law, the names of individual businesses receiving support are kept secret, a provision maintained in the new farm bill. The House version included a measure that would disclose which members of Congress receive subsidies, but that was dropped.

So congrats to Rick Groves and to Warren for doing an excellent job.

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COMMENTS (1 to date)
michael writes:

That interview you did with Greg Page was one of the best you've ever done. Great stuff! He brought up some very differentiated points that challenged conventional economic thinking - certainly great for debates no matter which side you end up on.

I think more economist should go beyond the academic and get into the field - and focus on how industries actually work, not how they should work.

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