pathology privilege

Matthew Mitchell

Senior Research Fellow

THE PATHOLOGY OF PRIVILEGETHE CONSEQUENCES OF GOVERNMENT FAVORITISM

“Government must rein in business”

“Government is crushing business”

LEFT RIGHT

RAISE TAXES? CUT

TAXES?

What did the Tea Act actually do?

Image by AgnosticPreachersKid

Implicit

$2.25 billion line of credit at the Treasury

Exemption from state and local taxation

Exemption from SEC filing requirements

Lower capital requirements (1/4th)

federal backing

Image by AgnosticPreachersKid

Implicit

federal backingExplicit

$224,000,000,000

$336,000,000,000

to

in Federal Bailout

Types of Privilege

Types of Privilege

Subsidies

36 States Require “Certificates of Need”

to Open a Health Facility

Regulations

10 States Require Hair Braiding Licenses

Regulations

Regulations

10 States Require Hair Braiding Licenses

Expected Bailouts

Loans at 0.5% Lower Interest than Competitors

Tax Credits

Sales, Use, Hotel exemptions; Refundable tax credits

Monopolies

Loan Guarantees

Protectionism

2003: Tariffs 8 to 30%

Non-Competitive Bidding

THECONSEQUENCES

Anti-Competitive

Lower QualityHigher

Prices

Privilege-Seeking Costs

$1 - $3.5 Trillion Annually

Misallocation of TalentBaumol (1990)

Images by scottchan and Michael Marcol

Murphy, Shleifer and Vishney (1991)

Infla

tio

n-A

dju

ste

d D

olla

rs

$0

$6,111

$12,222

$18,333

$24,444

$30,556

$36,667

$42,778

$48,889

$55,000

1975 1980 1985 1990 1995 2000 2005 2010

$42,662

Actual Per Capita Production

Infla

tio

n-A

dju

ste

d D

olla

rs

$0

$6,111

$12,222

$18,333

$24,444

$30,556

$36,667

$42,778

$48,889

$55,000

1975 1980 1985 1990 1995 2000 2005 2010

$42,662

$54,071

Actual Per Capita Production

Per Capita Production with

Less Rent Seeking

What Happens when the political process fails to

predict customer desires?

Undermined Legitimacy of Government and Business

0

75

150

225

$220 in Tax Savings$1 in

lobbying

Alexander, Mazza and Scholz (2009)

Most Important Determinant of Italian Success?

“Knowledge of Influential People”

WHAT TO DO?

[The First Amendment] ought to read, ‘Congress shall make no law authorizing government to take any discriminatory measures of coercion.’ I think that would make all the other rights unnecessary.

“

”-FA Hayek in interview with James Buchanan, 1978

Generality

We’ve soc ia l ized losses and privatized gains - that’s not capitalism.

“

”-Joseph Stiglitz, at Occupy Wall Street rally, 2011

An End to Privilege

MMitchell@Mercatus.gmu.edu www.Mercatus.org

www.NeighborhoodEffects.com

@MattMitchell80

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THE PATHOLOGY OF PRIVILEGETHE CONSEQUENCES OF GOVERNMENT FAVORITISM