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The Pathology of Privilege: The Economic Consequences of Government Favoritism

The Pathology of Privilege: The Economic Consequences of Government Favoritism

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Whatever its guise, government-granted privilege is an extraordinarily destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector.
Whatever its guise, government-granted privilege is an extraordinarily destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector.

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03/25/2014

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THE PATHOLOGY OF PRIVILEGE
The Economic Consequences of Government Favoritism
 BY MATTHEW MITCHELL
 
Copyright © 2012 by Matthew MitchellSecond printing, March 2014Mercatus CenterGeorge Mason University3434 Washington Blvd., 4th FloorArlington, Virginia 22201(703) 993-4930mercatus.org
 
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D
espite the ideological
miles that separate them, activ-ists in the Tea Party and Occupy Wall Street movements agree on one thing: both condemn the recent bailouts of wealthy and well-connected banks. To the Tea Partiers, these  bailouts were an unwarranted federal intrusion into the free mar-ket; to the Occupiers, they were a taxpayer-financed gift to the wealthy executives whose malfeasance brought on the financial crisis.
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 To both, the bailouts smacked of cronyism. In this paper, I show that the financial bailouts of 2008 were  but one example in a long list of privileges that governments occa-sionally bestow upon particular firms or particular industries. At  various times and places, these privileges have included (among other things) monopoly status, favorable regulations, subsidies,  bailouts, loan guarantees, targeted tax breaks, protection from foreign competition, and noncompetitive contracts. Whatever its guise, government-granted privilege is an extraordinarily destruc-tive force. It misdirects resources, impedes genuine economic
1. According to Occupy Wall Street activists, “Corporations . . . run our govern-ments . . . have taken bailouts from taxpayers with impunity, and continue to give Executives exorbitant bonuses.” New York City General Assembly, “Declaration of the Occupation of New York City,” http://www.nycga.net/resources/declara-tion/ (accessed April 30, 2012). And according to the Tea Party Patriots, “The Tea Party movement spontaneously formed in 2009 from the reaction of the American people to fiscally irresponsible actions of the federal government, misguided “stim-ulus” spending, bailouts, and takeovers of private industry.” Tea Party Patriots, “About Tea Party Patriots,” http://www.teapartypatriots.org/about/ (accessed  April 30, 2012).

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