The Tyranny of Minorities

Professor Shannon teaches in the Department of Economics, College of industrial Management and Textile Science, Clemson University.

One of the basic premises underlying a free market economy involves voluntary exchange. Continuing trade between two individuals or groups must be mutually beneficial; each party expects to improve its well-being as a result of the transaction. Were that not so, trade would not continue, for who would voluntarily and knowingly make himself worse off?

Furthermore, such trade enhances opportunities for specialization, the so-called division of labor. As Adam Smith pointed out a while back, this process, too, improves the wealth of nations by increasing productivity.

To the extent that any agency limits specialization and trade by closing markets or seizing income, there is a high risk that a reduction in social well-being will follow, for voluntary exchange is hindered and disrupted. Can we expect, then, that we are apt to get a political structure that will minimize such disruptions?

A democratic political system may be preferred to a monarchy or oligarchy on the ground that it is less likely to reduce social welfare. Presumably, the collective intelligence of individuals, as gathered and expressed by their representatives, greatly exceeds that of either a single individual or a small group of people.

In America we talk much of our devotion to both democracy and free markets. Indeed, just recently, in 1976, we celebrated the bicentennial of the intellectual origins of both, as represented by our own Declaration of Independence and Adam Smith’s Wealth of Nations. Yet we are also often deeply disturbed by the prevalent tendency of our government to subvert the market system. Government, of course, is not some malicious, autonomous being, a demon to be feared and exorcised. Just like the market, it is a vehicle for expressing our desires and achieving our goals. But now the element of compulsion intrudes. Now one party’s gains tend to be at another’s expense. Exchanges cease being voluntary and mutually beneficial.

Serving Special Interests

Why do such intrusions occur? They are largely, if not solely, the result of efforts by special-interest groups. That thesis is certainly neither novel nor particularly shocking. But its familiarity should not breed contempt—much less content. A simple but vivid illustration will help provide some insight into the matter. It involves government subsidies for sugar farmers.

There are now in the United States about 20,000 sugar farmers.1 Recently, Congress agreed to support the price of sugar at 13 ½¢ a pound.² Since sugar had been selling for about 100 a pound, Department of Agriculture officials estimate that American consumers will pay an additional $660 million for sugar.3

These substantial benefits will be spread over relatively few producers and processors, so each one stands to gain a considerable amount. Their enthusiasm for such legislation is understandable. (If all that increase goes to sugar farmers themselves, on the average each one would stand to glean an additional $30,000 in net revenue; refiners, however, are apt to get a share.)

There are other interested parties who will also benefit. Companies who make sweeteners from corn need a higher price to be competitive with cane and beet sugar; they took an active interest in the proceedings of Congress.⁴ Besides these, there are also many nutritionists who despair of our sugar intake and the health problems it may provoke. They may likewise take delight in any price increase, for it will discourage consumption.

Such matters aside, however, consider the financial impact of such a subsidy on sugar consumers. The possibilities for spending that hard-earned $660 million on other goods and services certainly are considerable. Why, then, was there not a great outpouring of outrage? Why were our legislators permitted to carry out such a massive transfer of wealth?

Exactly what does this policy mean to the average individual? Since our population is now about 220 million, the sugar subsidy of $660 million works out to about $3 per person. Figured another way: our average annual consumption of sugar is estimated at about 100 pounds.⁵ Since the price-support program raises the price of sugar about 3¢ per pound, that also works out to $3 per person. Thus, preventing the program will effectively raise one’s disposable income by $3.

Counting the Costs

A letter to one’s legislator denouncing the subsidy costs 13¢ for a stamp and a few pennies more for stationery. A post card costs even less. But as all students learn in their first economics class, cost is not simply money paid. Cost refers to opportunities foregone. And in a case such as this, these opportunities may be extensive.

An individual who writes a Congressman must be both reasonably articulate and informed. That means at the very least keeping up with the news—spending time and money subscribing to and reading newspapers and magazines and watching TV news programs. Furthermore, the letter itself takes time to write.

What does all this time, effort, and postage add up to? A legal minimum wage of $2.30 an hour suggests that our time is, by and large, worth at least that much. For most people, in fact, hourly wages are much higher; for those people most apt to pay a keen attention to matters such as pending sugar subsidies, the hourly income is almost certain to exceed $3.

In short, the full cost of notifying one’s legislator about one’s personal stand and inclination is apt to be more than the $3 one expects to gain by preventing the sugar subsidy. It is simply not worth the trouble. In other situations, of course, the benefits of curtailing such legislation may very well exceed the cost: after all, many people do send letters to Washington. Nonetheless, the basic elements of the situation by now should be apparent.

Here we have a clear and simple case of the political system being used to subvert the market system and cause an overall reduction in our welfare. Specialization requires a market; if the free market is not adequate to provide a satisfactory income, then one may try to use the political system to improve it. But one then gains income by compulsion; the taxpayers receive nothing in return. Yet the populace permit such losses to occur, because they will lose even more by trying to prevent them.

Sugar is but one example. Others abound. Besides sugar, there are wheat, milk, and many other farm products which receive similar treatment. Likewise, the domestic producers of textiles, shoes, steel, television sets and other items have recently sought relief from foreign products.

To the typical consumer, the effect of individual quotas and subsidies may be trivial. They mean just a few cents more for fabric—or a few dollars more for a TV set that sells for $400. A total farm program costing as much as $6 billion per year will cost an individual only $30 in taxes. For a family of four, of course, that quickly adds up. Nonetheless, in a great many such cases, it is entirely rational for an individual to ignore what Congress is about to do and simply tend his own garden. For in a great many of those cases, it appears evident that his welfare will be reduced even more if he takes steps to protect himself!

Eternal Vigilance

What remedy do we have? One is strongly inclined to endorse political candidates who are stalwart foes of such government intrusions. But they are hard to find. What’s more, the advantages to legislators of supporting such special interest legislation are so great that one cannot reasonably expect them to be totally immune to such pressures.

Nor can the problem be alleviated by insisting that the government balance its budget each year. The damage is clearly done in such programs, even though the government may collect enough in tax revenue to finance the subsidy payments in full. In fact, in the case of tariffs, the government even stands to gain revenue from such programs, with no offsetting costs.

In short, it is a tormenting dilemma. Constitutional amendments which strictly forbid any and all government subsidies and trade restrictions may very well be the sole solution. Perhaps a public interest lobby will arise to advocate such amendments. But what likelihood is there of adopting them—or keeping them, once adopted? The combined efforts of those who stand to gain from such subsidies and restrictions may very well outweigh the moral fervor of those supporting such amendments. Unless such steps are taken, however, it appears inevitable that we will continue to have the scope of voluntary exchange reduced and our wealth and well-being continually eroded through the tyranny of minorities.6

—FOOTNOTES-

^¹"The Sugar and Cream Boycott," Wall Street Journal, April 8, 1977; "The Squeeze on Sugar Cane," Business Week, October 4, 1976, p. 32.

² Dan Morgan, "Corn Refiners Pushed Sugar Support Bill," Washington Post, August 10, 1977, p. A2.

^³ "New Plan to Subsidize Sugar on Early Basis is Studied by Carter," Wall Street Journal, August 22, 1977.

‘Morgan, op. cit., p. A2.

⁵ Charles G. Burck, "The Tempest in the Sugar Pot," Fortune, February, 1977, pp. 106ff.

6 The pioneering work in this area has been done by James Buchanan, Anthony Downs, Gordon Tullock, and others. For a summary of their views, and references to further reading, see James D. Gwartney, Microeconomics: Private and Public Choice (New York: Academic Press, 1977), Chapter 4.