Powerful because of wealth versus Powerful because of influence. I’ll take the former.

Hayek in the Road to Serfdom makes the point that in a socialist economy the only way to advance is through successfully lobbying the government so that your group is accorded greater privileges. If you have the misfortune to belong to a group with little political clout then you are doomed. Even if wealth affords one more power in a market based economy than the rest of the populace, is that worse than the alternative? Hayek says “And who will deny that a world in which the wealthy are powerful is still a better world than one in which only the already powerful can acquire wealth?” (Location 3315.) Rent seeking – lobbying for rules that work in your favor – is a huge problem in this country, maybe the biggest problem. However the solution is not more government control for that only increases the opportunities and scope of rent seeking. The solution is smaller government. If the government is firm about keeping its fingers out of a particular niche in the economy then there will be no incentive for anyone to lobby them about that particular niche.

Addendum September 15, 2011. Milton Freedman makes the point that businesses by lobbying for special treatment to get a leg up on their competition are fighting against capitalism. See his interview with Russ Roberts on EconTalk. (Thanks to Russ Roberts‘ post.)

Addendum October 31, 2011. Sheldon Richman at The Freeman Online makes the point that in an economy so tightly bound by regulations and laws, the rich have the upper hand in forming policy and will lobby for changes that enhance their wealth. However, expecting government to solve a problem it largely created is unrealistic. The best solution is not to ask for the government to redistribute wealth but for the government to back out of trying to micromanage the economy.

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