Once you have an equalization instrument in place, as you have in Canada, there arise tremendous bureaucratic values - bureaucratic rent so to speak - in maintaining the system that you have. To shift to a system that paid the transfers directly to individuals, by having differential rates of federal income tax levied to adjust to provincial fiscal capacities, which would be my preference, you would have huge bureaucratic opposition. People would try to protect the rents they have in the current system of institutions.
James M. BuchananWe want to limit the exploitation of the fiscal capacity of the richer regions by keeping down the rate of immigration to a level that would be meaningful and efficient. One way to do that is to have a scheme of equalization which essential bribes people to stay in the poorer regions.
James M. BuchananBuilding on the public's unwillingness to act on principle in support of market solutions to apparent problems, whether real or imagined, these interest groups secure arbitrary restrictions on voluntary exchanges and, in the process, secure rents for their members while reducing both the liberties and economic well being of other members of the economic nexus, both domestically and internationally.
James M. BuchananPolitically, sometimes you get situations where rent control will go through. It is especially true in an emergency, where there is a sudden, sharp increase in demand for housing or a cut back in supply. People will simply not allow the marketplace to allocate housing resources and so you get pressures for rent control. Once you have it, it is hard to eliminate.
James M. BuchananIt is much more difficult to get implemented politically what might be desirable economically. Even if you came out with an economic argument in favor of equalization - and I think there are arguments on both sides - I would still come down in favour of some sort of a scheme on strict economic grounds.
James M. BuchananYou can get a coalition of senators from particular states in America, for example, who want to construct highways or dams or ports which may well be very inefficient. The taxes would be paid by the people over the whole country, but the benefits would go to the few people in those particular locations. This type of spending is a rather gross waste of resources that worsened over the years as the government has been allowed to do more particularized things.
James M. Buchanan