Rate of Return on Bank Lobbying

This working paper is already getting substantial attention, and it’s not hard to see why. They find that banks that lobbied more in the years leading up to the Troubled Asset Relief Program (TARP) of 2008 received more money through TARP. What’s particularly astounding is the rate of return, which they estimate at between $485 and $585 per dollar spent in lobbying.

I suppose there are two ways to look at this. One is to become outraged at the profitability of lobbying and the fact that money buys influence in Washington — but who is really surprised by that? The other way to look at it is that despite the flood of rents available, rent-seeking seems to be far less than theory would predict. Theory predicts that banks should spend up to about 1/2 the amount they could reasonably expect to receive, and that total expenditures on rent-seeking could even be greater than the rents available. Perhaps the reason standard rent-seeking models don’t apply in this case is that a program the size of TARP was unforeseeable until just days before it happened.

In any event, the findings certainly betray the common assertion from political leadership that the program was simply a practical response to the financial crisis aimed at preventing another Great Depression.

3 thoughts on “Rate of Return on Bank Lobbying

  1. Over 50 years ago Ayn Rand’s magnum opus, Atlas Shrugged ,uncannily predicted the future. In that book she wrote about something called “The Aristocracy Of Pull.” In other words people weren’t judged or rewarded by their abilities in the market,but instead were judged and rewarded by who they knew and could influence in the hall’s of power. In the 21st Century of today,sadly,her predictions have come true.

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