Study of American Capitalism

Free-market capitalism is an indelible part of the American identity, but is the U.S. economy completely—or even mostly—free?

No economy is completely free. Like other countries, the United States is a mixed system, a hybrid of capitalism and government involvement. As such, can Americans legitimately claim to have a mostly free economy?

In a free market, businesses compete on a level playing field. Those who earn success do so by providing the best goods or services for the best price. The government’s role is limited to that of a neutral umpire who establishes the rule of law and then polices against theft and fraud.

Increasingly, American businesses compete on an uneven playing field. They court policymakers who in turn sway the umpire to call shots in favor of some companies and against their competitors. Under this system, success no longer hinges on providing the highest-quality goods at the lowest price; it depends on political favoritism.

What are the implications of this emerging character of the American economy? Does it make any difference to average Americans whether ours is a more or less free market? What is at stake for the standard of living in the United States? What about public perceptions of the legitimacy of government and business? What can policymakers do to ensure competition and to credibly commit to equality of opportunity?

The Mercatus Center at George Mason University will address these and related questions through our Project for the Study of American Capitalism. Drawing on hundreds of academics from around the world, this project aims to help scholars and policymakers investigate the nature of these problems and identify real and sustainable solutions.

Research

Do State Campaign Finance Reforms Reduce Public Corruption? Adriana Cordis, Jeff Milyo \| Apr 24, 2013 The Supreme Court has long held that campaign finance regulations are permissible for preventing corruption or the appearance of corruption. Yet the implied hypothesis that campaign finance reforms are effective tools for combating public corruption has gone essentially untested. We conduct the first systematic evaluation of the effects of campaign finance laws on actual corruption rates in the states. We examine the effects of state reforms on both convictions and filings in public corruption cases over the last 25 years.	Luigi Zingales, A Capitalism For the People Matthew Mitchell \| Feb 01, 2013 In the end, he endorses a “zero tolerance” approach to subsidies and tax loopholes while he is more comfortable with regulatory interventions. This is curious. The regulatory process is opaque and complex, arguably making the code of federal regu- lations an easier place to hide a targeted privilege than the federal budget or the tax code. But Zingales hasn’t enough time to dwell on such considerations; he has too many other interesting and creative ideas to consider.
Economic Freedom and Economic Privilege Matthew Mitchell \| Jan 10, 2013 Since at least the days of Adam Smith, economists have suspected that economic freedom was a necessary, if not sufficient, condition for human prosperity. Smith wrote of freedom as a “system of natural liberty” and declared that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.”…	A Trillion Little Subsidies: The Economic Impact of Tax Expenditures in the Federal Income Tax Code Jeremy Horpedahl, Brandon Pizzola \| Oct 25, 2012 This study documents the economic distortions and inefficiencies that result from a tax system filled with tax expenditures. We review each of the ten largest tax expenditures for individuals and corporations, focusing the following distortions of economic activity: spending on goods and services, capital allocation, the distribution of income, and lobbying and rent-seeking.
Crony Capitalism: By-Product of Big Government Randall G. Holcombe \| Oct 24, 2012 The ability to target those benefits is a result of the spending and regulatory power of government, so cronyism is caused by big government. One remedy often suggested for cronyism is more government regulation and oversight of the economy, but this remedy misunderstands the cause of cronyism. The economic literature on the components of crony capitalism shows that big government is the cause of crony capitalism, not the solution.	Gauging the Perception of Cronyism in the United States Daniel J. Smith, Daniel Sutter \| Oct 17, 2012 This paper surveys the research on cronyism and the available methods of measuring it—in particular, using surveys to measure the perception of cronyism. We also make suggestions for improving our measurements of cronyism.

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Testimony & Comments

A Guarantee for Failure: Government Lending Under Sec. 1705 Veronique de Rugy \| Jul 18, 2012 The Department of Energy’s loan guarantee programs have been the focus of much public attention since energy companies Solyndra, Beacon Power, and Abound went bankrupt, leaving taxpayers to shoulder hundreds of mil- lions of dollars in loan guarantees. The evidence strongly suggests that these programs fall short of their stated goals of developing clean energy and creating jobs.	The Administration's Auto Bailouts and the Delphi Pension Decisions: Who Picked the Winners and Losers? Todd Zywicki \| Jul 10, 2012 Much of the government’s political intervention in the bankruptcy cases appears to have been motivated to benefit the UAW rather than the companies themselves over U.S. taxpayers, who put billions of dollars at risk to fund the bailouts.
Assessing the Department of Energy Loan Guarantee Program Veronique de Rugy \| Jun 19, 2012 For obvious reasons, more than any other recent events, the waste of taxpayers’ money due to Solyndra’s failure has attracted much attention. However, the problems with loan guarantees are much more fundamental than the cost of one or more failed projects.	Transparency, Transition, and Taxpayer Protection: More Steps to End the GSE Bailout Anthony B. Sanders \| May 25, 2011 Anthony Sanders testified before the House Committee on Financial Services about steps to end the GSE bailout.
Who's Watching the Watchmen? Todd Zywicki \| May 24, 2011 Todd Zywicki testified before the House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs.	Roundtable to Examine Oversight of Credit Rating Agencies Lawrence J. White \| Apr 15, 2009 This statement for a roundtable of the U.S. Securities and Exchange Commission examines the changes in regulation that elevated the judgments of the credit rating agencies about the creditworthiness…

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Speeches & Presentations

Cronyism: History, Costs, Case Studies and Solutions

Adam Thierer | Nov 09, 2012

Cronyism generally refers to an unnatural and unhealthy closeness between government and special interests. �…

Expert Commentary

Tesla Is No Success Story U.S. News and World Report By Christopher Koopman \| Jun 03, 2013 Tesla Motors, the California-based electric car start-up, has been the subject of a great deal of hype. With the recent news that it repaid its $465 million low-interest loan from the Department of Energy, it's nowbeing heralded as a success story worthy of redeeming the failures of a green-energy subsidy program that has included the likes of Solyndra, Abound, Ener1, and Fisker Automotive. Since then, Tesla's stock value has more than doubled and the company is currently valued at around $12 billion.	The Film Tax Credit Farce Pittsburgh Tribune-Review By Antony Davies, James R. Harrigan \| May 22, 2013 Everyone loves a good movie, but with an average cost of more than $8, most Pennsylvanians have to choose carefully what they will spend their money on. Too bad we don't have that same luxury with our tax dollars, which subsidize the film industry to the tune of $60 million a year. If lobbyists for the “film tax credit” have their way, this will increase to $100 million in short order.
Hard To Find the Return on Green Energy Investments Washington Examiner By Veronique de Rugy \| May 20, 2013 Wind energy is the darling of the green energy sector. Over the past 35 years, the industry has received nearly $30 billion in federal subsidies and cash grants, and Washington has promised another $12 billion in subsidies over the next decade.	Get Uncle Sam Out of the Green Startup Loan Business Washington Examiner By Veronique de Rugy \| May 03, 2013 Meet the Solyndra of the electric car industry: Fisker Automotive. In 2009, the company was awarded a $529 million loan through the Advanced Technology Vehicles Manufacturing program. It is in bankruptcy, and has now fired 75 percent of its workforce.
Film Tax Credits Don't Give States An Economic Boost U.S. News and World Report By Eileen Norcross \| Apr 16, 2013 From Massachusetts to North Carolina, Michigan and Iowa, a similar picture is emerging: Film tax credits don't deliver to state economies what they cost to treasuries and taxpayers.	How Big Business Benefits From Regulation Washington Times By Antony Davies, Ryan McCarl \| Mar 13, 2013 When government enacts policies to micromanage our decision-making, it erodes our personal freedom. Yet that’s not the whole story. It turns out that big business often loves regulation, because the regulations frequently end up applying only to small or disfavored businesses. Ultimately, more regulations simply mean more ways for big business to manipulate the law to shut out competition.

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Charts

Renewable-Energy Subsidies and Electricity Generation

This chart uses data from the US Energy Information Administration to compare federal investments in green energy and the share of green energy in electricity generation.

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Experts

Veronique de Rugy

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the federal budget, homeland security, taxation, tax competition, and financial privacy issues.

Matthew Mitchell

Matthew Mitchell is a senior research fellow at the Mercatus Center at George Mason University and the lead scholar on the Project for the Study of American Capitalism. His primary research interests include economic freedom and economic growth, public choice economics, and the economics of government-granted privileges to businesses.

Eileen Norcross

Eileen Norcross is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include fiscal federalism and institutions, state and local governments, and economic development.

Adam Thierer

Adam Thierer is a senior research fellow at the Mercatus Center at George Mason University with the Technology Policy Program. His primary research interests are technology, media, Internet, and free speech policy issues, with a particular focus on online child safety and digital privacy policy issues.

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Videos

Veronique de Rugy on FOX to discuss the French Work Ethic and Entitlement

Veronique de Rugy | February 26, 2013

Antony Davies Discusses Big Business Working with Big Government on The Blaze

Antony Davies | January 29, 2013

Podcasts

Keith Hall at Regulation University: The Employment Costs of Regulation

Keith Hall | June 14, 2013

Keith Hall at Regulation University: The Employment Costs of Regulation

Download the MP3

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Recent Events

Capitol Hill Campus: The Pathology of Privilege: The Consequences of Government Favoritism

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. But when it comes to government-granted privileges to particular firms or industries the bailouts were just the tip of the iceberg.

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Books

Liberalism and Cronyism: Two Rival Political and Economic Systems

Randall G. Holcombe, Andrea Castillo | Apr 23, 2013

By examining how real governments have operated, this book demonstrates why—despite their diverse designs—in practice all political and economic systems are variants of either liberalism or cronyism.

More Media Clippings

Do State Campaign Finance Reforms Reduce Public Corruption? Adriana Cordis, Jeff Milyo \| Apr 24, 2013 The Supreme Court has long held that campaign finance regulations are permissible for preventing corruption or the appearance of corruption. Yet the implied hypothesis that campaign finance reforms are effective tools for combating public corruption has gone essentially untested. We conduct the first systematic evaluation of the effects of campaign finance laws on actual corruption rates in the states. We examine the effects of state reforms on both convictions and filings in public corruption cases over the last 25 years.	Luigi Zingales, A Capitalism For the People Matthew Mitchell \| Feb 01, 2013 In the end, he endorses a “zero tolerance” approach to subsidies and tax loopholes while he is more comfortable with regulatory interventions. This is curious. The regulatory process is opaque and complex, arguably making the code of federal regu- lations an easier place to hide a targeted privilege than the federal budget or the tax code. But Zingales hasn’t enough time to dwell on such considerations; he has too many other interesting and creative ideas to consider.
Economic Freedom and Economic Privilege Matthew Mitchell \| Jan 10, 2013 Since at least the days of Adam Smith, economists have suspected that economic freedom was a necessary, if not sufficient, condition for human prosperity. Smith wrote of freedom as a “system of natural liberty” and declared that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.”…	A Trillion Little Subsidies: The Economic Impact of Tax Expenditures in the Federal Income Tax Code Jeremy Horpedahl, Brandon Pizzola \| Oct 25, 2012 This study documents the economic distortions and inefficiencies that result from a tax system filled with tax expenditures. We review each of the ten largest tax expenditures for individuals and corporations, focusing the following distortions of economic activity: spending on goods and services, capital allocation, the distribution of income, and lobbying and rent-seeking.
Crony Capitalism: By-Product of Big Government Randall G. Holcombe \| Oct 24, 2012 The ability to target those benefits is a result of the spending and regulatory power of government, so cronyism is caused by big government. One remedy often suggested for cronyism is more government regulation and oversight of the economy, but this remedy misunderstands the cause of cronyism. The economic literature on the components of crony capitalism shows that big government is the cause of crony capitalism, not the solution.	Gauging the Perception of Cronyism in the United States Daniel J. Smith, Daniel Sutter \| Oct 17, 2012 This paper surveys the research on cronyism and the available methods of measuring it—in particular, using surveys to measure the perception of cronyism. We also make suggestions for improving our measurements of cronyism.

A Guarantee for Failure: Government Lending Under Sec. 1705 Veronique de Rugy \| Jul 18, 2012 The Department of Energy’s loan guarantee programs have been the focus of much public attention since energy companies Solyndra, Beacon Power, and Abound went bankrupt, leaving taxpayers to shoulder hundreds of mil- lions of dollars in loan guarantees. The evidence strongly suggests that these programs fall short of their stated goals of developing clean energy and creating jobs.	The Administration's Auto Bailouts and the Delphi Pension Decisions: Who Picked the Winners and Losers? Todd Zywicki \| Jul 10, 2012 Much of the government’s political intervention in the bankruptcy cases appears to have been motivated to benefit the UAW rather than the companies themselves over U.S. taxpayers, who put billions of dollars at risk to fund the bailouts.
Assessing the Department of Energy Loan Guarantee Program Veronique de Rugy \| Jun 19, 2012 For obvious reasons, more than any other recent events, the waste of taxpayers’ money due to Solyndra’s failure has attracted much attention. However, the problems with loan guarantees are much more fundamental than the cost of one or more failed projects.	Transparency, Transition, and Taxpayer Protection: More Steps to End the GSE Bailout Anthony B. Sanders \| May 25, 2011 Anthony Sanders testified before the House Committee on Financial Services about steps to end the GSE bailout.
Who's Watching the Watchmen? Todd Zywicki \| May 24, 2011 Todd Zywicki testified before the House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs.	Roundtable to Examine Oversight of Credit Rating Agencies Lawrence J. White \| Apr 15, 2009 This statement for a roundtable of the U.S. Securities and Exchange Commission examines the changes in regulation that elevated the judgments of the credit rating agencies about the creditworthiness…

Tesla Is No Success Story U.S. News and World Report By Christopher Koopman \| Jun 03, 2013 Tesla Motors, the California-based electric car start-up, has been the subject of a great deal of hype. With the recent news that it repaid its $465 million low-interest loan from the Department of Energy, it's nowbeing heralded as a success story worthy of redeeming the failures of a green-energy subsidy program that has included the likes of Solyndra, Abound, Ener1, and Fisker Automotive. Since then, Tesla's stock value has more than doubled and the company is currently valued at around $12 billion.	The Film Tax Credit Farce Pittsburgh Tribune-Review By Antony Davies, James R. Harrigan \| May 22, 2013 Everyone loves a good movie, but with an average cost of more than $8, most Pennsylvanians have to choose carefully what they will spend their money on. Too bad we don't have that same luxury with our tax dollars, which subsidize the film industry to the tune of $60 million a year. If lobbyists for the “film tax credit” have their way, this will increase to $100 million in short order.
Hard To Find the Return on Green Energy Investments Washington Examiner By Veronique de Rugy \| May 20, 2013 Wind energy is the darling of the green energy sector. Over the past 35 years, the industry has received nearly $30 billion in federal subsidies and cash grants, and Washington has promised another $12 billion in subsidies over the next decade.	Get Uncle Sam Out of the Green Startup Loan Business Washington Examiner By Veronique de Rugy \| May 03, 2013 Meet the Solyndra of the electric car industry: Fisker Automotive. In 2009, the company was awarded a $529 million loan through the Advanced Technology Vehicles Manufacturing program. It is in bankruptcy, and has now fired 75 percent of its workforce.
Film Tax Credits Don't Give States An Economic Boost U.S. News and World Report By Eileen Norcross \| Apr 16, 2013 From Massachusetts to North Carolina, Michigan and Iowa, a similar picture is emerging: Film tax credits don't deliver to state economies what they cost to treasuries and taxpayers.	How Big Business Benefits From Regulation Washington Times By Antony Davies, Ryan McCarl \| Mar 13, 2013 When government enacts policies to micromanage our decision-making, it erodes our personal freedom. Yet that’s not the whole story. It turns out that big business often loves regulation, because the regulations frequently end up applying only to small or disfavored businesses. Ultimately, more regulations simply mean more ways for big business to manipulate the law to shut out competition.