New Mercatus Paper on the Costs of Special Interest Politics

For decades, economists at George Mason University’s Mercatus Center have studied the economics of special-interest politics. Today, Mercatus announces a new series of papers examining the interaction between politics and economics, business and government, and what has increasingly become known as “cronyism.”

First in the series is Matthew Mitchell’s “The Pathology of Privilege” (featured in today’s Washington Examiner). Here are a few key points:

·         Government-granted privilege raises prices, lowers quality, and discourages innovation.

·         Big businesses use privilege to maintain their advantage by restricting smaller, newer competitors.

·         Nations where companies rise and fall based on their performance—rather than government intervention—experience more dynamic economic growth.

·         The more an economy is saturated with government favors, the more businesses devote resources to gaining special treatment rather than to providing for consumer needs. This often results in slower growth. 

While entrepreneurs create value for consumers and society, government-granted privilege wastes resources and slows economic growth over time.