Matthew Mitchell at the Mercatus Center:
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.[1] To both, the bailouts smacked of cronyism.
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.
[. . .]
… regulations can be especially useful to firms if they give the appearance of being anti-business or somehow pro-consumer. Regulations are often supported by strange bedfellows. Bruce Yandle of Clemson University has studied the phenomenon extensively:
The pages of history are full of episodes best explained by a theory of regulation I call “bootleggers and Baptists.” Bootleggers … support Sunday closing laws that shut down all the local bars and liquor stores. Baptists support the same laws and lobby vigorously for them. Both parties gain, while the regulators are content because the law is easy to administer.[25]
The moralizing arguments are often front and center in regulatory policy debates, while the narrow interests that stand to benefit from certain regulations are much less conspicuous.
