TL;DR: parasitic coalitions - unions, subsidized industries, licensed professions, etc - multiply, causing distributive conflicts and allocative inefficiency, and those coalitions can’t be destroyed unless there is radical institutional change, like foreign occupation or totalitarianism.

There are lots of political, social, and cultural implications. But we can't do much about any of that, so instead I wrote about the financial implications - what does Olson's argument mean for our savings and investiments? It's here: http://thiagomarzagao.com/2021/02/11/olson/ ( )

It's pretty rare that you find a book, particularly in a well-trodden field like economics, that manages to feel both original and important. Its main thesis is simplicity itself - that societies over time accumulate interest groups like ships' hulls accumulate barnacles, and over time these groups become more interested in rerouting the benefits of progress to themselves than investing in the future. Think labor unions, manufacturer's groups, advocacy organizations, even charities. He builds on his earlier work, The Logic of Collective Action, in identifying why special interests form, some barriers to their formation and success, and how they persist and operate once formed.

It seems both inarguable and almost obvious, in the way of the best economic logic, but in much the same way that an idea as seemingly non-controversial today as division of labor had to be explained over hundreds of pages way back in the day by Adam Smith, so Olson has to spend his time laying out all the background detail on how groups decide to grab their slice of the economic pie rather than investing in bakeries and making more pies, instead of just condensing his arguments to bullet points and getting on with it. One of the things that endeared this book to me is that it neatly complements the existing schools of economic thought - you can still be a die-hard Friedmanite or Keynesian while still accepting his regressions on the effects of interest groups on growth rates. Additionally, he doesn't take an ideological stance on whether these groups are good or bad; special interests are simply advocating for whatever is special to them, and rare is the reader who won't agree that at least some special interest groups are doing some good overall.

The ultimate implications of his book as I understand them are not so good for the US: once a society becomes encrusted to a point with groups dedicated to redirecting output towards their members (e.g. Social Security and Medicare for the AARP, farm and energy subsidies for the folks in flyover states, the military-industrial complex in its entirety), it becomes almost impossible to dislodge them without some kind of shock to the political system equivalent to a revolution or a defeat in a war (the temporary lack of interest groups is his major explanation for the rapid growth of the seemingly ruined Axis nations after World War 2). So after political shocks, countries can experience years or decades of "catch-up" growth until coalitions start forming to argue for special treatment, and ironically fast-growing societies can sow the seeds of their own stagnation by betting that it's cheaper to buy off these coalitions rather than fight them, until lo and behold they grind to a halt. The United States has been blessed with an unusually stable political system relative to most other advanced nations, and stability is the perfect breeding ground for parasites, so even the recent recession, as traumatic as it is for average people, has made little impact on Capitol Hill where the real action and lobbying and horse-trading have continued practically uninterrupted.

This all has real consequences: if you look at a graph of American GDP growth by decade, each one is inevitably less than the one before, with the sole exception of the 90s as the Baby Boomers entered their working prime. Lacking that irreproducible demographic bonus, and barring future technological miracles (the "New Economy" of internet companies doesn't look like it's going too well), America can look forward to ever-slower growth in spite of all its other advantages like plentiful immigration and its world-class universities, simply because there are so many interest groups trying to grab goodies for themselves. This is of course on top of other challenges like climate change, the steady evaporation of the middle class, and transnationalized businesses that don't really care about the average chump who can't afford their stuff anyway, and so it's kind of tough to see where we can go from here.

However, I'm not really sure his ending arguments about the way that flexible prices operate in an era of stagflation - supposedly the climax of the book and the strongest formulation of his alternative to Keynes - is very accurate, at least with respect to the Great Recession: unemployment has doubled across the board in every industry, in every state, for every educational level, which is something that's tough to explain as the result of distributional coalitions and constrained movement between the "flexprice" versus "fixprice" sectors. Also, a lot of his regression tests seem to have broken down completely in the intervening years (this book was published in 1982), like the relationship between state-level unionization and unemployment, which obviously considerably weakens his theory.

I still think Keynes has the best foundational framework for thinking through the mechanics of recessions. Still, it's an interesting book, even inarguably "true" in parts, and so I think it's a valuable addition to everyone's mental economics toolbox, especially the parts emphasizing how historically dependent a lot of economic theories are. Unfortunately his is too, but that's pretty much unavoidable. Economics is often nothing more than philosophy with a veneer of psychology, rather than the physics with a veneer of politics it pretends to be. ( )

Mancur Olson along with Milton Friedman and Michael Porter may well be one of the key figures of late 20th century economics. In some respects he is more universal in his outlook than the other two as his life's work represented in this book synthesises economics and politics in a sort of evolutionary life cycle view of societies.

He probably wouldn't have liked to hear it but his ideas have a nice Taoist flavour. As a society becomes more successful, advanced and stable it's institutions become more complex and invariably start to turn the favourable stability into undesirable rigidity. Legislation starts to mushroom along with the people who create and administer it and somehow the society finds that the achievements of it's youth are no longer possible.

He identifies various strands in this process of sclerosis, the main one here being the activity of special interest groups. As he puts it; "the larger the number of individuals or firms that would benefit from a collective good, the smaller the share of the gains from action in the group interest that will accrue to the individual or firm that undertakes the action. Thus, in the absence of selective incentives, the incentive for group action diminishes as group size increases, so that large groups are less able to act in their common interest than small ones."

In normal language, this means that somebody lobbying government for the general good is not going to get as much as somebody lobbying for a small group. A fine example of this would be the farmers in the European Common Agricultural Policy. They gain a great deal in subsidies and controlled prices, managing to spread the cost over a large number of taxpayers and consumers. No individual shopper knows how much extra they are paying for their butter etc., it's not going to be very much anyway and they're not going to hire a lawyer to fight about it.

However, keep this process going on long enough and apply it to enough goods and services and you find a magical growth in prices / regulation / administration / number of lawyers and government share of G.D.P.

In a sense this is the old pre-civilisation tribalism in modern guise. "If you have the power use it. " The common-good on this reading has a very local definition and is blind to the good of the society as a whole.

This seems to be a cultural problem and Olson sheds light on the uncomfortable dual nature of economic liberalism. On the one hand competition is good because it promotes efficiency/ choice and lowers prices but on the other it is an anti-society instinct that easily slides out of control.

The book is heavy going since it has to try to be acceptable to the economic "science" theologians. Unfortunately for Olson it is still heretical to suggest that sociological observation or any of the useful established work in psychology has any relevence to economics.

In fact the economics profession itself seems to have undergone the very proccess that Olson describes as the open flexible texts of Adam Smith have turned into a rigid mass of irrelevant mathematics. ( )