“Concentrated benefits and dispersed costs” is the economic principle Bob Zadek invokes to explain why legislation that harms the public at large survives. The benefit of a government privilege falls on a narrow, identifiable group, which therefore has both the incentive and the means to organize for it; the cost falls on a vast, anonymous public in amounts too small for any individual to contest. The result is that the beneficiaries lobby hard, the losers do nothing, and the privilege persists.
The mechanism
Zadek sets out the arithmetic directly. A corporation that realizes a $10 million benefit from a special tax break imposes a cost of four cents each on you and me. “So I’m not going to go storming the Bastille to save four cents in taxes,” he says. With dispersed costs, no one cares about the cost; with concentrated benefits, people care intensely. The corporation will therefore spend a great deal of money lobbying for the benefit because it is worth it, while none of us will spend more than a second of our time opposing it, because it hurts us only in principle and not economically. Where benefit is concentrated and cost dispersed, Zadek concludes, it is unlikely the tax loophole will be cured How the Free Market Will Save the Planet (2014).
He pairs the principle with a second observation about taxation: an old tax is a good tax. A tax that has been around a long time has been adjusted to, and the inertia that follows diminishes the likelihood of change even when the change would be beneficial. The corporate income tax, in his account, is inefficient and survives for reasons of cronyism rather than economics.
The corporate income tax
Zadek’s illustration is the corporate income tax, which he describes as a job-killing statute that should be eliminated. He notes that the economist Laurence Kotlikoff, in a New York Times op-ed responding to poor unemployment numbers, raised the same proposal. Zadek’s argument is that corporations cannot pay taxes: they write checks, but the expense is built into the sales price paid by customers, into the wages the business can afford to pay workers, and into the dividends paid to owners, who are for the most part 401(k)s and pension plans funding individuals. Taxing a corporation is therefore a decision to tax owners, workers, suppliers and creditors, all of whom are ultimately humans How the Free Market Will Save the Planet (2014).
Why, then, does the tax persist? Zadek’s answer is that it is a home for cronyism. Corporations go to Congress seeking tax breaks and special tax bills, and the benefit is hidden: voters rarely learn when a corporation is given a tax benefit, and there is no way to find out. It is a private deal between the corporation and the legislature. The concentrated-benefit dynamic explains why the loophole is not cured, and the old-tax principle explains why even a beneficial change is unlikely.
Occupational licensing
The same principle reappears in Zadek’s discussion of occupational licensing with Michael Tanner, author of The Inclusive Economy: How to Bring Wealth to America’s Poor. Zadek observes that almost none of the licensed activities became licensed because the public demanded protection; in almost every case the sponsors of licensing legislation have been the people who already do the work, and their goal is to keep away the competition. Licensing imposes a cost on everybody, since the cost of the license is added into the price of the product, but paying 25 cents more for a hairdo or a shampoo will not move anyone out of the state. The benefits to licensees, by contrast, are substantial, so it pays them to lobby for the statute while it does not pay anyone to spend time opposing it. Licensing therefore proliferates Libertarian Anti-Poverty Policy (2019).
Tanner supplies the concrete case. In Louisiana, becoming a beautician or cosmetologist requires a lengthy course, the purchase of a textbook, payment for instruction, and a test given only twice a year and only in Monroe, Louisiana. The test takes two days, must be paid for, and includes a large number of questions on subjects such as chemistry. A poor single mother who wants to get off welfare must scrape together the course fee, arrange childcare, find transportation to Monroe, and pay for a hotel room for two nights; if she fails, she waits six months and repeats the process. Tanner describes such requirements as designed to protect the monopolies of those already in the profession and to keep out competition, and he notes that they have a long and racist history of trying to keep out competition by people of color, an effect he says persists today.
Decriminalization and the labor force
In the same episode, Tanner extends the analysis to criminal justice. He cites scholars at Vanderbilt University for the estimate that reforming the criminal justice system and decriminalizing many offenses could reduce poverty by about 20 percent, a saving both in the cost of incarceration and in the cost of welfare. Arresting young men for something like a drug crime and tagging them with a criminal record makes it harder for them to become employed, makes them ineligible for many education programs and scholarships, may make them ineligible for housing where landlords can ask about convictions, and makes them ineligible for occupational licensing. Tanner notes that in most states a felony conviction bars a barber’s license. Zadek adds that applicants for a barber’s license in many states must satisfy a board of their “good character,” which a convicted felon cannot do Libertarian Anti-Poverty Policy (2019).
Across episodes: no development
The two episodes that touch the topic — the 2014 discussion of the corporate income tax and the 2019 discussion of anti-poverty policy with Michael Tanner — present the principle in the same form, as a settled explanatory tool applied first to tax breaks and later to licensing and criminal records; the excerpts show no development or revision of the concept between them.
What the sources do not cover
The excerpts do not state the outcome of any legislative effort to repeal the corporate income tax or to reform occupational licensing, nor do they name the statutes or bills involved. They do not give the full reasoning of the Vanderbilt estimate beyond the figure Tanner reports, and the 2014 excerpt breaks off mid-sentence before Zadek finishes his point about inertia. No source describes an organized attempt by the dispersed public to overcome the asymmetry the principle describes.