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The Pathology of Privilege

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The Pathology of privilege
Intro
* Privileges (monopoly status, favorable regulations, subsidies, bailouts, loan guarantees, targeted tax breaks, protection from foreign competition, and noncompetitive contracts) that governments occasionally bestow upon particular firms are and extraordinary destructive force. * It misdirects resources, impedes genuine economic progress, breeds corruption and undermines the legitimacy of both, the government and the private sector
I. Gains from exchange * Free and voluntary trade results in gains for both sellers and buyers * Voluntary exchange is mutually beneficial * The national economy is simply a very large number of beneficial trades * The collapse of this trades is a Recession * Specialized production permits grater productive efficiency and allows us to do more with less * In a healthy market, there will be so much exchange that the gains from trade are maximized * Markets are competitive * When property rights are well defined, costs of transacting are minimal, and there are no barriers to enter or exit the industry
II. Types of privilege * Monopoly privilege * Sole and exclusive rights * Governmental legal challenges fines to private carriers out of business * Regulatory privilege * Many firms enjoy regulatory preferences that give them a measure of monopoly power * “The part of the wisdom is not to destroy the commission, but to utilize it” * Subsidies * Privileges that are more obvious * Federal government transferred over $191 billion to farmers * Loan Guarantees * A number of firms and industries receive support trough loan guarantees * If the firm succeeded the loan would repay its debt, if not taxpayers would pick the tab * Tax Privileges * Tax cuts * Federal tax credit

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