Last week, I came across this photo. In my view, it succinctly and accurately sums up our greatest economic and social problem: government-granted privileges to the wealthy and well-connected.
Brilliant though the point is, it is not novel. Market-oriented economists from Adam Smith to Milton Friedman to Luigi Zingales have been making this point for decades (and in some cases, centuries). What is remarkable, however, is that the photo appeared on MoveOn.org’s website. They, in turn, attribute it to the Movement To Strengthen Progressive Values’ Facebook page. A similar sentiment was expressed by the left-of-center Nobel Laureate Joseph Stiglitz at an OWS rally several months ago.
It is heartening that self-described progressives and self-described libertarians can agree on matters so central to our political and economic ailments. My new paper explores these issues in greater depth. Here is the introduction (I plan to blog parts of the paper over the next few weeks):
Despite the ideological miles that separate them, activists 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 market; to the Occupiers, they were a taxpayer-financed gift to the wealthy executives whose malfeasance brought on the financial crisis. 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 occasionally 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 destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector.