The Tullock Rectangle: The missing cost of health care reform

An important insight into economic theory was offered by Gordon Tullock in 1967. We all remember from economics class that a tax or quantity restriction on a market creates a dead-weight loss. By preventing trades from occurring where all involved would benefit, the government reduces overall wealth. Tullock’s contribution is looking at the costs related to the legislation that modifies markets.

When a person or group uses resources to try to affect legislation, we call that rent-seeking. Those resources could have been used to create new value, but are instead being used to encourage government to make a transfer (or to prevent a transfer). When doctors take time off work to promote tort reform, they may be acting to improve the overall wealth of the market, however they are rent seeking (and hence using productive resources for non-productive use. When considering the cost of poorly constructed tort laws, we have to add in the cost of Tullock’s rectangle: time and money spent resolving the issue.

You might have noticed that during the past year there has been a lot of discussion about new legislation affecting health care. This has involved the cost of using finite air-time to cover this issue in the media. There has also been a lot of protests and activism taking people away from their jobs, leisure and other issues. Behind the scenes there have been many companies paying lobbyists to talk to congress and try to convince them to add features to legislation that will benefit them. Congress itself is spending less time on what might be more pressing issues (such as legal reform or Social Security reform). All of these are real costs and must be figured into the total cost of the recent health care bill. Even if the dead-weight loss created by this bill appear small, and even if the bill doesn’t result in nearly as much spending as it’s supposed to, this is not the complete picture.

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