1. Matthew Mitchell
Senior Research Fellow
THE PATHOLOGY OF PRIVILEGE
THE CONSEQUENCES OF GOVERNMENT FAVORITISM

2. “Government
must rein in
business”
“Government
is crushing
business”
LEFT RIGHT

3. RAISE
TAXES? CUT
TAXES?
What did the Tea
Act actually do?

5. 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

6. Image by AgnosticPreachersKid
federal backingExplicit
$224,000,000,000
$336,000,000,000
to
in Federal Bailout

7. Types of Privilege

8. Types of Privilege

9. Subsidies

10. 36 States Require
“Certificates of Need”
to Open a Health Facility
Regulations

11. 10 States Require
Hair Braiding Licenses
Regulations

12. Regulations
10 States Require
Hair Braiding Licenses

13. Expected
Bailouts
Loans at 0.5%
Lower Interest
than Competitors

14. Tax Credits
Sales, Use, Hotel
exemptions;
Refundable tax credits

15. Monopolies

16. Loan Guarantees

17. Protectionism
2003:Tariffs 8 to 30%

18. Non-Competitive
Bidding

19. THE
CONSEQUENCES

20. Anti-Competitive
Lower
QualityHigher
Prices

21. Privilege-Seeking Costs
$1 - $3.5 Trillion Annually

22. Misallocation
of Talent
Baumol (1990)

23. Images by scottchan and Michael Marcol
Murphy, Shleifer andVishney (1991)

24. Inflation-AdjustedDollars
$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

25. Inflation-AdjustedDollars
$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

27. What Happens when the
political process fails to
predict customer desires?

28. Undermined Legitimacy of Government and Business

29. 0
75
150
225
$220
in Tax
Savings$1 in
lobbying
Alexander, Mazza and Scholz (2009)

30. Most Important Determinant
of Italian Success?
“Knowledge of
Influential
People”

31. WHAT TO DO?

32. [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

33. We’ve socialized
losses and privatized
gains - that’s not
capitalism.
“
”
-Joseph Stiglitz, at Occupy Wall
Street rally, 2011
An End to Privilege

37. MMitchell@Mercatus.gmu.edu
www.Mercatus.org
www.NeighborhoodEffects.com
@MattMitchell80
Email:
Web:
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THE PATHOLOGY OF PRIVILEGE
THE CONSEQUENCES OF GOVERNMENT FAVORITISM