THE PATHOLOGY OF PRIVILEGE                 THE CONSEQUENCES OF GOVERNMENT FAVORITISM                               Matthew...
GROWTHThursday, September 27, 12
Thursday, September 27, 12
Doucouliagos and                                        52 Separate Studies of                          Uhubasoglu:       ...
WHY SO LITTLE FREEDOM?Thursday, September 27, 12
SPECIAL                              IDEAS                                      INTERESTS                             MATT...
LEFT     RIGHT                “Government     “Government                 must rein in    is crushing                  bus...
RAISE What did the Tea        TAXES? Act actually do?   CUT                                  TAXES?Thursday, September 27,...
Thursday, September 27, 12
Implicit federal backing                                        $2.25 billion line of credit at                           ...
Explicit federal backing                                        $224,000,000,000                                          ...
Types of PrivilegeThursday, September 27, 12
Types of PrivilegeThursday, September 27, 12
SubsidiesThursday, September 27, 12
Regulations                                             36 States Require                                         “Certific...
Regulations                                               10 States Require                                           Hair...
Expected                              Bailouts                                         Loans at 0.5%                      ...
Tax Credits                                      Sales, Use, Hotel                                      exemptions;       ...
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                  ...
Gains From Exchange              Price                                            The price the     Supply                ...
Gains From Exchange              Price                                                              Supply                ...
Price                                          Privileged Monopolist                                                      ...
Price                                                  Lazy Monopolist   Higher Costs                                     ...
Unresponsive Monopolist              Price                             Consumer                             Surplus       ...
Rent-Seeking Monopolist              Price                             Consumer                             Surplus       ...
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    ...
CHURN                      GROWTH                                 Morck,Yeung, and Fogel (2008)Thursday, September 27, 12
SMALL                                  CHURN                      GROWTH    GOVERNMENT                             Morck,Y...
Thursday, September 27, 12
Undermined Legitimacy of Government and BusinessThursday, September 27, 12
450                300                               $1 in             $486 - $585                             lobbying   ...
Most Important Determinant                            of Italian Success?                    “Knowledge of                ...
What To Do?Thursday, September 27, 12
Generality       “ [The First Amendment] ought           to read, ‘Congress shall           make no law authorizing       ...
THE PATHOLOGY OF PRIVILEGE                 THE CONSEQUENCES OF GOVERNMENT FAVORITISM                               Email: ...
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The Pathology of Privilege: The Consequences of Government Favoritism

  1. 1. THE PATHOLOGY OF PRIVILEGE THE CONSEQUENCES OF GOVERNMENT FAVORITISM Matthew Mitchell Senior Research FellowThursday, September 27, 12
  2. 2. GROWTHThursday, September 27, 12
  3. 3. Thursday, September 27, 12
  4. 4. 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
  5. 5. WHY SO LITTLE FREEDOM?Thursday, September 27, 12
  6. 6. SPECIAL IDEAS INTERESTS MATTER MATTERThursday, September 27, 12
  7. 7. LEFT RIGHT “Government “Government must rein in is crushing business” business”Thursday, September 27, 12
  8. 8. RAISE What did the Tea TAXES? Act actually do? CUT TAXES?Thursday, September 27, 12
  9. 9. Thursday, September 27, 12
  10. 10. 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
  11. 11. Explicit federal backing $224,000,000,000 to $336,000,000,000 in Federal Bailout Image by AgnosticPreachersKidThursday, September 27, 12
  12. 12. Types of PrivilegeThursday, September 27, 12
  13. 13. Types of PrivilegeThursday, September 27, 12
  14. 14. SubsidiesThursday, September 27, 12
  15. 15. Regulations 36 States Require “Certificates of Need” to Open a Health FacilityThursday, September 27, 12
  16. 16. Regulations 10 States Require Hair Braiding LicensesThursday, September 27, 12
  17. 17. Expected Bailouts Loans at 0.5% Lower Interest than CompetitorsThursday, September 27, 12
  18. 18. Tax Credits Sales, Use, Hotel exemptions; Refundable tax creditsThursday, September 27, 12
  19. 19. MonopoliesThursday, September 27, 12
  20. 20. Loan GuaranteesThursday, September 27, 12
  21. 21. Protectionism 2003: Tariffs 8 to 30%Thursday, September 27, 12
  22. 22. Non-Competitive BiddingThursday, September 27, 12
  23. 23. THE CONSEQUENCESThursday, September 27, 12
  24. 24. Gains From Exchange Price The value Supply I obtain Competitive Price The price I pay Demand Competitive Quantity QuantityThursday, September 27, 12
  25. 25. 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
  26. 26. Gains From Exchange Price Supply Consumer Surplus Competitive Price Producer Surplus Demand Competitive Quantity QuantityThursday, September 27, 12
  27. 27. Price Privileged Monopolist Supply Consumer Dead-Weight Monopoly Surplus Loss Price Producer Surplus Demand Monopoly Quantity QuantityThursday, September 27, 12
  28. 28. 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
  29. 29. Unresponsive Monopolist Price Consumer Surplus Monopoly Price Producer Surplus Demand Monopoly Quantity QuantityThursday, September 27, 12
  30. 30. Rent-Seeking Monopolist Price Consumer Surplus Monopoly Price Demand Monopoly Quantity QuantityThursday, September 27, 12
  31. 31. Misallocation of Talent Baumol (1990)Thursday, September 27, 12
  32. 32. Murphy, Shleifer and Vishney (1991) Images by scottchan and Michael MarcolThursday, September 27, 12
  33. 33. Share of 1955 Fortune 500 Firms Still on the List 13% 87%Thursday, September 27, 12
  34. 34. CHURN GROWTH Morck,Yeung, and Fogel (2008)Thursday, September 27, 12
  35. 35. SMALL CHURN GROWTH GOVERNMENT Morck,Yeung, and Fogel (2008)Thursday, September 27, 12
  36. 36. Thursday, September 27, 12
  37. 37. Undermined Legitimacy of Government and BusinessThursday, September 27, 12
  38. 38. 450 300 $1 in $486 - $585 lobbying in TARP Support 150 0 Blau, Brough and Thomas (2012)Thursday, September 27, 12
  39. 39. Most Important Determinant of Italian Success? “Knowledge of Influential People” 80%Thursday, September 27, 12
  40. 40. What To Do?Thursday, September 27, 12
  41. 41. 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
  42. 42. 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

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