Pathology privilege

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Pathology privilege

  1. 1. Matthew MitchellSenior Research FellowTHE PATHOLOGY OF PRIVILEGETHE CONSEQUENCES OF GOVERNMENT FAVORITISM
  2. 2. “Government must rein in business”“Government is crushingbusiness”LEFT RIGHT
  3. 3. RAISE TAXES? CUT TAXES?What did the TeaAct actually do?
  4. 4. Image by AgnosticPreachersKidImplicit$2.25 billion line of credit atthe TreasuryExemption from state andlocal taxationExemption from SEC filingrequirementsLower capitalrequirements (1/4th)federal backing
  5. 5. Image by AgnosticPreachersKidfederal backingExplicit$224,000,000,000$336,000,000,000toin Federal Bailout
  6. 6. Types of Privilege
  7. 7. Types of Privilege
  8. 8. Subsidies
  9. 9. 36 States Require “Certificates of Need” to Open a Health FacilityRegulations
  10. 10. 10 States Require Hair Braiding LicensesRegulations
  11. 11. Regulations10 States Require Hair Braiding Licenses
  12. 12. ExpectedBailoutsLoans at 0.5% Lower Interest than Competitors
  13. 13. Tax CreditsSales, Use, Hotel exemptions; Refundable tax credits
  14. 14. Monopolies
  15. 15. Loan Guarantees
  16. 16. Protectionism2003:Tariffs 8 to 30%
  17. 17. Non-Competitive Bidding
  18. 18. THECONSEQUENCES
  19. 19. Anti-CompetitiveLowerQualityHigherPrices
  20. 20. Privilege-Seeking Costs$1 - $3.5 Trillion Annually
  21. 21. Misallocation of TalentBaumol (1990)
  22. 22. Images by scottchan and Michael MarcolMurphy, Shleifer andVishney (1991)
  23. 23. Inflation-AdjustedDollars$0$6,111$12,222$18,333$24,444$30,556$36,667$42,778$48,889$55,0001975 1980 1985 1990 1995 2000 2005 2010$42,662Actual Per Capita Production
  24. 24. Inflation-AdjustedDollars$0$6,111$12,222$18,333$24,444$30,556$36,667$42,778$48,889$55,0001975 1980 1985 1990 1995 2000 2005 2010$42,662$54,071Actual Per Capita ProductionPer Capita Production with Less Rent Seeking
  25. 25. What Happens when thepolitical process fails topredict customer desires?
  26. 26. Undermined Legitimacy of Government and Business
  27. 27. 075150225$220in TaxSavings$1 in lobbying Alexander, Mazza and Scholz (2009)
  28. 28. Most Important Determinant of Italian Success?“Knowledge of Influential People”
  29. 29. WHAT TO DO?
  30. 30. [The First Amendment] oughtto read, ‘Congress shallmake no law authorizinggovernment to take anydiscriminatory measures ofcoercion.’ I think that wouldmake all the other rightsunnecessary.“”-FA Hayek in interview withJames Buchanan, 1978Generality
  31. 31. We’ve socializedlosses and privatizedgains - that’s notcapitalism.“”-Joseph Stiglitz, at Occupy WallStreet rally, 2011An End to Privilege
  32. 32. MMitchell@Mercatus.gmu.eduwww.Mercatus.orgwww.NeighborhoodEffects.com @MattMitchell80Email:Web:Blog:Twitter:THE PATHOLOGY OF PRIVILEGETHE CONSEQUENCES OF GOVERNMENT FAVORITISM

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