Mancur Olson

So Michael asked for a model in this book, and here's how I understood the argument, and I'll explain this in a moment.

I think the argument is sometimes Hayek is right, sometimes Gershenkron is right, but Mansur Olson is always right.

There's rent-seeking up and down, and we need to think about institutions that prevent that.

So what does that actually mean? So the Hayekian insight of the book is that you need an openness to the new, that the sort of control, particularly over flows of information, dampens innovation at the frontier, and that any institution that tries to sort of fundamentally centralize control over information will fail to allow innovators that are thinking about things differently to emerge.

It seemed obvious, like, of course, you know, you're going to have the tragedy of the commons.

One of my heroes in economics is Mancur Olson, you know, the logic of collective action, etc., etc., And, you know, one sort of premise, the way one looked at the world based on that, and then it was very easy to sort of throw your hands up and say, is that man, these are tough problems, this can't be solved or this, whatever.

But Ostrom almost came at it with the tenacity and the positivity which seems to typify the women in your family.

And I guess in some manner of speaking, she's a woman in your family only.

So first question essentially is, you know, why do we see so much regulation? And, uh, sometimes regulation is actually done to protect certain interests.

And this goes back, you know, to Mancur Olson's famous insight.

Many regulations, there are few large winners who have a lot of interest to lobby for that, and the, the, the losses are dispersed among the average citizens, and they don't can co-organize themselves the same way as few large winners can organize themselves.

The other thing is that most of our regulations don't have a sunset provision, so even if the environment changes, technology changes and everything, they stay in power or they stay, and they're outdated, and they don't change, and they accumulate.

If an industry is extracting billions of dollars from the public through rigged rules, the logical question is, why doesn't the public just vote the politicians out and rewrite the rules?

To answer that, the authors lean on Mancur Olson, who is one of the most important political scientists of the 20th century.

He came up with this logic of collective action.

Which points at a sort of fatal flaw in how democracies work.

Subsidize the resistance.

What does that look like in practice?

It goes back to Mancur Olson's collective action problem.

The diffuse public will never organize on their own because it's mathematically irrational for them to do so.

And if the utility was publicly owned, the politicians inevitably used the utility jobs as patronage, packing the payroll with their unqualified cronies.

This historical observation aligns perfectly with Mancur Olson's economic theory of institutional decay.

How so? Olson argued that over time in any stable static system, small, highly organized interest groups will eventually figure out how to game the rules to extract wealth from the disorganized, broader public.

The longer a system remains unchanged, the more entrenched and sophisticated the corruption becomes.