In 1983, Professor Bruce Yandle of Clemson provided an economic perspective on prohibition. His paper, “Bootleggers and Baptists: The Education of a Regulatory Economist,” described how an alliance of bootleggers and Baptists, who for quite different reasons, had incentives to seek restrictions on the Sunday sale of alcohol. Baptists sought moral improvement, while bootleggers supported prohibition to eliminate competitors.

Yandle helps us understand why companies often support regulation of their industry. While businesses frequently claim to support regulation out of concerns for safety or the environment, in reality they understand that the costs of regulatory compliance are often steep. This can work to their advantage as smaller competitors, unable to bear these costs, exit the market.

Ron Bailey, writing in Reason, offers a current example regarding climate change. The bootleggers are the U.S. Climate Action Partnership (USCAP), a group comprised of energy producers and users (e.g., General Motors and Shell). The Natural Resources Defense Council, the Pew Center for Global Climate Change, and the World Resources Institute are the Baptists. The groups have formed a coalition to support federal legislation for a cap-and-trade system to lower CO2 emissions.

Bailey asks, “What’s in it for the members of USCAP?” Turns out quite a lot. The emissions allowances in a cap-and-trade system are valued in the trillions of dollars. The USCAP wants a big chunk of these allowances allocated to its members—for free.

A 2007 report from the Congressional Budgets Office reports the upside. “[I]f all of the allowances were distributed for free..., stock values would double for oil and gas producers and increase more than sevenfold for coal producers, compared with...values in the absence of a cap.” Bailey concludes that the “USCAP Baptists have agreed to this because they see it as a bribe to get the bootleggers on board with carbon rationing.”

When I meet with university students and explain the logic of such behavior, some think me a cynic. But no, I’m a realist. My analysis flows from the work of Nobel Prize winner James Buchanan. Buchanan’s public choice theory blends economics and political science to explain how politicians’ self-interest affects government policy. Buchanan described this perspective as “politics without romance.”

Public choice theory predicts that electing “better people” will not alone lead to better government. Character matters a great deal, but institutions are even more important. All individuals, be they voters, politicians, or bureaucrats, make decisions based on information and incentives. And institutional arrangements determine the quality and strength of both information and the incentives to act.

These insights help us understand the recurrent trade dispute with Mexico. Under the North American Free Trade Agreement (perhaps President Clinton’s greatest achievement), the U.S. allows Mexican truckers to deliver goods across the U.S. border. Congress recently terminated the pilot program allowing Mexican trucks onto American roads. In retaliation, Mexico has threatened to raise tariffs on $2.4 billion of U.S. exports.

Opposition to Mexican trucks comes from the Teamsters union (bootleggers), which claims (counter to the evidence) that these trucks are unsafe. The Baptists, Public Citizen and the Sierra Club, have joined in opposition. They claim Mexican trucks emit more pollution than U.S. trucks and a ban helps keep America’s air cleaner.

The Teamsters union simply seeks government protection to insulate against competition from Mexican truckers. The Sierra Club’s environmental concerns seem weak since Mexican trucks must meet U.S. environmental standards and are surely as fuel efficient as U.S. trucks. More interesting is the behavior of Public Citizen, which poses as a consumer advocacy group. It supports legislation that can only lead to one outcome—an increase in the price of goods and a reduction in choice for the consumers they claim to represent. (Would they like all goods to be transported around the country via the rickshaw haulers union?)

Today’s best investment opportunities lie in politicians. This beats competing by producing products that people want at attractive prices. This pathetic outcome is the predictable consequence when politicians allocate opportunities and constraints. Is this the change we want?