Special Interests

Earlier in the course, we identified the incentives that interest groups and lobbyists have to influence politicians to vote for certain laws. These interest groups can also be called special interests. These special interests send thousands of lobbyists to Washington and spend millions of dollars in an effort to get laws passed that benefit their specific interests. In 2018, for example, Facebook spent over $12 million on lobbying. Facebook wants Congress to pass laws, such as net neutrality, that benefit Facebook and allow it to make more money. In addition to lobbying done for large companies, there are interest groups that work on behalf of different groups of people, such as farmers or the poor. The incessant political pressure exerted by these special interests often results in the government passing bad laws that benefit one group at the expense of others or that waste taxpayer dollars. For today's lesson, you'll read two chapters in Economics in One Lesson that discuss how these special interests get their bad proposals turned into laws and some of the economic fallacies that result.

Top 5 Lobbying Groups in 2018¹

These five special interest groups spent the most money lobbying the American government in 2018:

1. US Chamber of Commerce: $94.8 million

2. National Association of Realtors: $72.8 million

3. Open Society Policy Center: $31.5 million

4. Pharmaceutical Research & Manufacturers of America: $28 million

5. American Hospital Association: $23.9 million

"Parity" Prices

Agricultural Goods

Industrial Goods

From 1909 to 1914, farmers enjoyed great prosperity, with crops fetching some of the highest prices in history. This changed over the next two decades, as the prices of crops declined. Meanwhile, the prices of many other goods were rising. Because of this, in the 1930s and 1940s, interest groups for farmers started lobbying the government to pass laws that would raise the prices of agricultural goods until they reach "parity" with other goods.

The argument for parity prices goes something like this: if the average price of goods has risen by 50% over the last twenty years, then the prices of agricultural goods also should have risen by 50%. Because agricultural prices haven't risen that much, the government should institute a price floor that fixes the prices of agricultural goods at that higher level. In other words, the government should fix the prices of agricultural goods so that they have parity with other goods. The prices of the goods that farmers sell should be returned to parity with the prices of the goods that farmers buy.

To simplify this example, we'll create an average price for agricultural goods and an average price for industrial goods. Let's say that, in the year 2000, agricultural goods cost $100 and industrial goods cost $200. Twenty years later, in 2020, agricultural goods cost $120 and industrial goods cost $360. Agricultural goods used to cost one-half as much as industrial goods ($100 / $200), but now they only cost one-third as much ($120 / $360). Advocates of parity pricing would argue that, in order to have parity with industrial goods, the government needs to increase the price of agricultural goods to $180 (one-half of $360).

Of course, we've already learned about many of the issues that come with artificially raising the price of a good or service above its equilibrium price. Government price floors always cause more problems than they solve. Moreover, Hazlitt will demonstrate how parity pricing is "merely a device for subsidizing a special interest." Essentially, parity pricing is just a way to redistribute wealth from one group to another.

READ: Hazlitt, Economics in One Lesson, Chapter 13: "'Parity' Prices." When you've finished, click below to continue with the rest of the lesson.

Saving the X Industry

In this chapter, Hazlitt will continue his discussion of the fallacies created by the lobbying of special interest groups. Lobbyists for a particular industry will often declare that their industry is on the verge of collapse and will only survive if the government gives it a tax break, a subsidy, or some other form of assistance. The "X" industry, in this case, could be the "oil" industry, the "agriculture" industry, or any other industry in the country. As you read this chapter, pay close attention to Hazlitt's discussion of dying industries. Does Hazlitt think the death of an industry is something that should always be avoided?

READ: Hazlitt, Economics in One Lesson, Chapter 14: "Saving the X Industry." When you've finished, click below to continue with the rest of the lesson.

There are legitimate reasons for the government to intervene in the economy. However, most government intervention is made not to solve a problem but instead to mollify a special interest group. These government interventions distort the natural forces of supply and demand, lower production, favor certain groups over others, and increase government spending.