The Pathology of Privilege: The Consequences of Government Favoritism
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The Pathology of Privilege: The Consequences of Government Favoritism

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The Pathology of Privilege: The Consequences of Government Favoritism The Pathology of Privilege: The Consequences of Government Favoritism Presentation Transcript

  • THE PATHOLOGY OF PRIVILEGE THE CONSEQUENCES OF GOVERNMENT FAVORITISM Matthew Mitchell Senior Research FellowThursday, September 27, 12
  • GROWTHThursday, September 27, 12
  • Thursday, September 27, 12 View slide
  • Doucouliagos and 52 Separate Studies of Uhubasoglu: Economic Freedom & Growth “ Regardlessof economic freedom and the of the sample of countries, the measure level of aggregation, there is a solid finding of a direct positive association between economic freedom and growth. Doucouliagos, Chris and Mehmet Ali Ulubasoglu, “Economic Freedom and ” Economic Growth: Does Specification Make a Difference?” European Journal of Political Economy, Vol. 22 (2006): 60-81.Thursday, September 27, 12 View slide
  • WHY SO LITTLE FREEDOM?Thursday, September 27, 12
  • SPECIAL IDEAS INTERESTS MATTER MATTERThursday, September 27, 12
  • LEFT RIGHT “Government “Government must rein in is crushing business” business”Thursday, September 27, 12
  • RAISE What did the Tea TAXES? Act actually do? CUT TAXES?Thursday, September 27, 12
  • Thursday, September 27, 12
  • Implicit federal backing $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) Image by AgnosticPreachersKidThursday, September 27, 12
  • Explicit federal backing $224,000,000,000 to $336,000,000,000 in Federal Bailout Image by AgnosticPreachersKidThursday, September 27, 12
  • Types of PrivilegeThursday, September 27, 12
  • Types of PrivilegeThursday, September 27, 12
  • SubsidiesThursday, September 27, 12
  • Regulations 36 States Require “Certificates of Need” to Open a Health FacilityThursday, September 27, 12
  • Regulations 10 States Require Hair Braiding LicensesThursday, September 27, 12
  • Expected Bailouts Loans at 0.5% Lower Interest than CompetitorsThursday, September 27, 12
  • Tax Credits Sales, Use, Hotel exemptions; Refundable tax creditsThursday, September 27, 12
  • MonopoliesThursday, September 27, 12
  • Loan GuaranteesThursday, September 27, 12
  • Protectionism 2003: Tariffs 8 to 30%Thursday, September 27, 12
  • Non-Competitive BiddingThursday, September 27, 12
  • THE CONSEQUENCESThursday, September 27, 12
  • Gains From Exchange Price The value Supply I obtain Competitive Price The price I pay Demand Competitive Quantity QuantityThursday, September 27, 12
  • Gains From Exchange Price The price the Supply seller obtains Consumer Surplus Competitive Price Demand The costs she incurs Competitive Quantity QuantityThursday, September 27, 12
  • Gains From Exchange Price Supply Consumer Surplus Competitive Price Producer Surplus Demand Competitive Quantity QuantityThursday, September 27, 12
  • Price Privileged Monopolist Supply Consumer Dead-Weight Monopoly Surplus Loss Price Producer Surplus Demand Monopoly Quantity QuantityThursday, September 27, 12
  • Price Lazy Monopolist Higher Costs Supply Consumer Monopoly Surplus Price Producer Surplus cy ci en Demand effi X -in Monopoly Quantity QuantityThursday, September 27, 12
  • Unresponsive Monopolist Price Consumer Surplus Monopoly Price Producer Surplus Demand Monopoly Quantity QuantityThursday, September 27, 12
  • Rent-Seeking Monopolist Price Consumer Surplus Monopoly Price Demand Monopoly Quantity QuantityThursday, September 27, 12
  • Misallocation of Talent Baumol (1990)Thursday, September 27, 12
  • Murphy, Shleifer and Vishney (1991) Images by scottchan and Michael MarcolThursday, September 27, 12
  • Share of 1955 Fortune 500 Firms Still on the List 13% 87%Thursday, September 27, 12
  • CHURN GROWTH Morck,Yeung, and Fogel (2008)Thursday, September 27, 12
  • SMALL CHURN GROWTH GOVERNMENT Morck,Yeung, and Fogel (2008)Thursday, September 27, 12
  • Thursday, September 27, 12
  • Undermined Legitimacy of Government and BusinessThursday, September 27, 12
  • 450 300 $1 in $486 - $585 lobbying in TARP Support 150 0 Blau, Brough and Thomas (2012)Thursday, September 27, 12
  • Most Important Determinant of Italian Success? “Knowledge of Influential People” 80%Thursday, September 27, 12
  • What To Do?Thursday, September 27, 12
  • Generality “ [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, 1978Thursday, September 27, 12
  • THE PATHOLOGY OF PRIVILEGE THE CONSEQUENCES OF GOVERNMENT FAVORITISM Email: MMitche3@gmu.edu Web: www.Mercatus.org Blog: www.NeighborhoodEffects.com Twitter: @MattMitchell80Thursday, September 27, 12