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Law, Power, and Status

January 17, 2012

Laws are created by the politically powerful, by definition. A reasonable starting point for analysis is that laws help the politically powerful and hurt the politically weak. There are plenty examples, from kleptocracies simply voting themselves money to U.S. insider trading laws exempting Congress.

Economic inequality stems from inequality of economic power – capacity to produce, ability to get people to pay for your services, etc. Political inequality stems from inequality in political power – fundamentally capacity for violence, but more commonly, ability to build consensus and control the political system. In order to deal with economic inequality, groups can use what political power they have to transfer resources to themselves. But is there a feedback mechanism to reduce political inequality? Is there any a priori reason to expect that economic inequality will be greater than political inequality?

Median Voter Hypothesis
Who can expect to have greater than average political power? Since the winners of elections are those who appeal to the median voter, one theory is that those close to the median voter in terms of values and interests would have a higher amount of power. If people can be expected to vote in their self interest, the theory implies that both of the extremes of the income distribution will be hurt by policy so that the middle class is benefited. The rich are where the money is, so the median voter hypothesis has somewhat progressive implications in terms of the distribution of political power.

Regulatory Capture
Regulatory capture is when a government agency that starts out serving the public winds up serving the firms and organizations they were assigned to regulate. The Logic of Collective Action pointed out that small organized groups have a clear incentive to capture the political process and large disorganized groups do not; the transactions costs are simply too large to be worth organizing for a small benefit. The larger the polity, the larger the problem of rent seeking becomes. The benefit from rent seeking grows as the tax base gets larger. Likewise, the transactions costs to the majority organizing against the special interests grow. Thus, in large societies like America, political power is often distributed more narrowly than in smaller societies. Regulatory capture is becoming pervasive among government agencies, and the only cure is depoliticization. More political control over the economy simply ups the ante.

Laws Restrict the Low Status
Low status people are punished more, restricted more, and their hypocracy is tolerated less. High status people are better at lying.

Minimum wage – Why not require that doctors must earn $200,000 a year or be arrested? Or require that companies must pay anyone with a bachelor’s degree at least $50,000?

Working restrictions – Required hours, paid overtime and safety requirements are all aimed toward low status professions. Because of compensating differentials, such laws may benefit low status individuals, but the effect is unclear.

Diet restrictions – Always aimed at restricting food that low status people consume. Politicans complain about McDonalds, when Starbucks is just as unhealthy. Four Loko was outlawed, but rum and coke, and Irish coffee carry on.

Drug war – Low status people are punished, high status people are tolerated. If you need examples, check any tabloid.

Crime and Punishment – Low status individuals, especially minorities, are punshed much more harshly for trivial infractions. Even Batman beats up petty criminals rather than going after white collar criminals commiting fraud and embezzlement. Superman goes after bank robbers rather than central bankers. Even our heros target the low status.

High status people almost always frame such restrictions as actually helping the lower classes, but if they were really helpful, why are they never imposed on high status people? Paternalists are often unconcerned about the actual outcomes for the low status people affected by the law, because the point of the law is to demonstrate their high status, not actually help anyone. Placing restrictions on someone else’s behavior is an act of dominance, not charity.

I don’t mean this as a critique of our current society. Rather, it is an aspect of human nature that people should be aware of. Pointing to something and saying “this is bad” does not imply that it can be improved significantly.

Both political and economic outcomes are often unequal. Which is better requires detailed institutional analysis. It can’t simply be assumed that political distributions are more equal and therefore politicizing decisions currently left to the market may make outcomes less equal.

Further Reading/Media
Video on Regulatory Capture
SMBC on Regulatory Capture
Theory of paternalism
Director’s Law More here.

2 Comments leave one →
  1. January 17, 2012 4:26 pm

    At this level of abstraction, how are you differentiating between economic and political power?

    • January 17, 2012 4:46 pm

      I realize they can be intermingled, but basically, I mean that economic power is how well you are able to produce things that people want to buy voluntarily and political power is your ability to influence the government.

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