Prof. Matt Mitchell: Ever heard of the dinosaur wars? No the term doesn't refer to T. Rex's duking
it out with stegosaurus'. Instead it refers to a way a couple of scientists became downright
nasty in their pursuit of fame, fortune and dinosaur bones. Meet Othneil Marsh and Edward
Cope. These two 19th Century Paleontologist were some of the most successful and esteemed
dinosaur hunters of their day. They wowed the public with their discoveries and attracted
a lot of research money in the process. In the early days, their competition was beneficial
to science. Each drove the other to work hard and each was quick to point out if the other
had made a mistake. Over time, the feelings between them grew less and less friendly.
By 1890 the competition had literally become destructive. Their teams began throwing stones
at one another when digging in the same territory. Both sides allegedly destroyed important sites
with dynamite just to keep them out of the reach of the other. Burying or obliterating
a still unknown number of priceless specimens in the process. This rivalry which at once
pushed these men to advance science, now grown them to undermine it. Here's where their story
can teach us an economics lesson. Under what circumstances does competition of vital force
for innovation and progress actually become destructive? The answer is, the competition
becomes destructive when people start using fraud or force to out-compete their rivals.
By literally destroying the competition's work, an economist would say that each of
these men was attempting to artificially contrive exclusivity. In other words, they were trying
to get an unfair advantage. In today's economy big businesses rarely dynamite
one another but they don't have to because they can use force provided by the government
instead. Economists refer to the profits gain from exclusivity as rents. The attempt to
use government power to get exclusive benefits has been dubbed rent seeking. Rent seeking
is probably the most important economic term that most people have never heard of. It's
everywhere in our economy today. Whenever big corporations and other special interests
ask a government for special favors, they're rent seeking. They do this because government
can offer them a number of special privileges. Some firms like Goldman Sachs, City Group
and GM have obtained the privilege of a federal bail out. Others like major agribusinesses
are privileged with federal farm subsidies. Still others like major Hollywood production
companies are privileged through favorable state and local tax laws.
There have now been studies of rent seeking in the economics of special privilege. These
studies find that whatever it's guise rent seeking is an enormously destructive force.
It wastes resources, it slows the entrepreneurial process and it locks in inefficient technologies.
Beyond this though, it's fundamentally unfair. It allows some to succeed based not on their
ability to please customers, but on their ability to work the political system. Like
the dinosaur wars, rent seeking is an ugly corruption of fair competition and an impediment
to progress. Click here to learn more about the destructive economic consequences of rent
seeking and government favoritism.