Growth of the parasitic economy.

• Author: Rauch, Jonathan

DURING THE 1992 presidential campaign, Ross Perot was fond of saying that the giant sucking noise you heard was the sound of jobs being vacuumed up by low-wage countries south of the border. He was wrong. The giant sucking noise was the sound of the whirlpool in Washington, sucking up investment capital, talent, and energy.

By definition, government's power to solve problems comes from its ability to reassign resources, whether by taxing, spending, regulating, or simply passing laws. That same ability energizes countless investors, entrepreneurs, and ordinary Americans to go digging for gold by lobbying government. In time, an entire industry--large, sophisticated, professionalized, and, to a considerable extent, self-serving--emerges and assumes a life of its own.

In the late 1920s, a Congressional investigation found about 400 lobbies in the Washington phone book; in 1950, a Congressional commission counted more than 2,000. Though the numbers were small, the growth was impressive. The big movement toward organizing into groups began about half a century ago and sped up in the last two or three decades. Perhaps most striking, because of the sheer number of people involved, is the explosion of membership of the American Association of Retired Persons. As recently as 1965, the group boasted fewer than 1,000,000 members, meaning that only one in 30 Social Security beneficiaries had enrolled. In the 1970s, the elderly began joining with a vengeance; between 1980 and 1990, membership tripled. By the early 1990s, membership included the vast majority of Social Security recipients. The organization's headquarters in Washington had grown so large as to have its own ZIP code, a legislative and policy staff of 125 people, and 16 registered lobbyists with a $3,500,000 budget.

AARP's story is not special; it is typical. The American Federation of State, County and Municipal Employees was founded in 1936. By 1955, the group had organized about one in 25 of its potential members; by 1975, it had more than one in eight. Or consider the American Society of Association Executives, the people who run associations. After its founding in 1920, the group grew steadily through the 1960s, then took off, with membership increasing sixfold from 1970 to 1990.

There are many cultural and technological explanations for that growth. Yet, it is a mistake, when dealing with human beings, to overlook crass, material reasons. Like the bank robber Willie Sutton, Americans look for cash where the money is. If the costs of a certain activity fall over time, and if the potential benefits grow, more people can be expected to engage in it. That is what has happened with group forming.

In 1929, the U.S. government's entire budget occupied three percent of the economy. Even through the 1930s, when the economy was shrinking and the New Deal was in full flower, the Federal government still took up just 10% of the economy, on average. Many objective measures--the numbers and length of laws, regulations, and court decisions--suggest that the big jump in the level of Federal activism came in the Johnson and Nixon years, around the same time as the rate of group formation took off.

Today, the Federal budget is almost onequarter of the entire economy. To the direct spending must be added thousands of laws and regulations that redirect private money, time, and energy. Economists estimate that regulations now cost Americans several hundred billion dollars a year, or several thousand dollars per household per year.

Doesn't transfer seeking create jobs? After all, if I hire a lobbyist to win a subsidy, that money doesn't disappear into a black hole. Rather, it hires secretaries, rents office space, buys a Xerox machine, etc. True, but from an economic point of view, paying people to capture more of other people's money is like hiring people to steal cars. If I hire workers to build cars, the result is new jobs and new cars. If I hire thieves to steal existing cars, however, I merely have moved jobs out of the productive sector and into the car-theft sector. No one would think those jobs were making society as a whole better off. They create activity, but destroy wealth.

In America, only a few classes of people have the power to take your money if you don't fend them off. One is the criminal class. Thieves aren't the only ones who play the distributive game, though. Legal, noncriminal transfer seeking is perfectly possible--on one condition. You need the law's help. That is, you have to persuade politicians or courts to intervene on your behalf.

The Commerce...