The Betrayed Consumer

Contributors

The solution is not anti-business rhetoric but pro-competition policy.

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The solution is not anti-business rhetoric but pro-competition policy.

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Americans are losing religion successful capitalism. Not because markets stopped creating prosperity, but because excessively galore large firms now profit from politics. A new Gallup poll finds support for “capitalism” astatine a fifteen-year low, yet nan public’s anger is really aimed astatine crony capitalism aliases corporatism: erstwhile industries thrive by subsidies, mandates, and regulatory favoritism alternatively than by serving customers. In a functioning free market, profit is costs for gathering consumers’ needs. In a politicized market, profit is costs for currying favour pinch policymakers and mastering nan appropriations process. The classical wide task is to disentangle capitalism from corporatism truthful voters tin spot that free speech rewards prime and innovation. At nan aforesaid time, cronyism entrenches governmental powerfulness and predetermines winners and losers.

Why Everything Looks Like “Capitalism”

Particularly complete nan past fewer decades, nan nation’s largest sectors person go embedded successful authorities done targeted taxation credits, national purchasing, elaborate standards negotiated pinch incumbents, and immense transportation payments. To astir citizens, it each appears to beryllium business arsenic usual, unaware of nan increasing interplay betwixt authorities bureaucracy and commerce. Economics gives america much precise position for what is happening: rent seeking (investing successful authorities to triumph favors), regulatory seizure (government referees picking winners and losers), and rent extraction (politicians threatening costly action to elicit definite behavior). Seeing these mechanisms astatine activity successful wellness care, finance, tech, transportation, agriculture, housing, and higher acquisition explains why spot successful “capitalism” erodes moreover arsenic competitory markets stay nan motor of progress.

Rent Seeking: Turning Politics Into a Profit Center

If nan authorities is receptive to monetary persuasion, past lobbying becomes a costs of doing business. Economist Anne Krueger built upon Gordon Tullock’s activity diagnosing nan use costs of typical privileges, and named nan behaviour “rent seeking.” Rent seeking describes resources spent not to create worth but to unafraid transfers, subsidies, tariffs, exclusive licenses, aliases rules that hobble rivals. The magnitude spent connected lobbying successful nan U.S. is massive. Billions of dollars are spent each twelvemonth by labour unions, businesses, and waste and acquisition associations. Health attraction is routinely nan apical spender. In 2024, nan health-care manufacture unsocial spent roughly $294 million, while nan broader wellness assemblage topped $562 million, pinch electronics successful 2nd spot astatine about $189 million. Sadly, this money is not an finance aliases investigation budget; it’s purely a governmental budget.

But rent seeking is not conscionable astir checks to K Street; immoderate businesses get imaginative pinch their offers for governmental favoritism. Airlines, for example, lobby pinch airplanes. A 2024 study shows that erstwhile a typical becomes chair of nan House Transportation and Infrastructure Committee, airlines grow departures successful nan chair’s location territory by 5.5%, seats by 9.6%, and seats to D.C. by 4.4%, a targeted, covert measurement to garner favour pinch nan very committee overseeing nan industry.

Real property offers a 2nd illustration. The National Association of Realtors was 2024’s apical spending lobbying group, explicitly aiming to elite “pro-Realtor” candidates to style argumentation connected inventory, adjacent housing, and entree to homeownership. When concentrated manufacture benefits hit diffuse user costs, nan resulting dense governmental finance is predictable.

Finance and overseas nations adhd a 3rd and fourth. In 2025, banks pushed regulators for azygous nationalist standards to curb divergent authorities rules, logical from a compliance standpoint, yet besides a thrust to unafraid a single, friendlier gatekeeper. And nan lobbying crippled is global. Under nan Foreign Agents Registration Act, overseas governments and firms person reported nearly $5.9 billion successful power spending since 2016. The gains to these overseas nations travel successful nan shape of tariff carve-outs, export-control exceptions, and/or procurement access, not benefits for American consumers.

Regulatory Capture: When nan Referee Joins nan Team

George Stigler, a celebrated Chicago schoolhouse economist, developed a mentation that explains what follows successful lobbying: regulators statesman to service incumbents. Government rules raise rivals’ costs, which service arsenic barriers to introduction for smaller and/or newer firms. Industry-specific regulations favour definite technologies, subsidies bolster peculiar products and industries, and authorities contracts guarantee request done nationalist purchasing.

Technology companies person been moving difficult to cozy up to Washington, peculiarly successful the Biden and Trump administrations, and nan efforts are paying off. The 2022 CHIPS and Science Act promised $54 billion successful support of large tech, $53 cardinal for semiconductors, and $1 cardinal for wireless, positive a rich | finance credit. Few uncertainty nan value of chips: nan mobility is whether nationalist transfers entrench incumbents and politicize labour and merchandise choices. The Trump management outright purchased 10% of Intel, singlehandedly turning a loser into an artificial winner. Crypto argumentation poses nan aforesaid risk; regulatory clarity from acts like GENIUS or CLARITY tin thief supply certainty for nan industry, but prescriptive standards tin inhibit a fast-moving marketplace and privilege existing issuers.

The authorities acting arsenic a customer magnifies regulatory capture. As portion of a United States Department of War program, Lockheed Martin secured a $534 cardinal statement to create Navy technology. Instead of issuing a competitory bid, nan authorities offered Lockheed Martin a sole-source award, securing nan institution arsenic nan only supplier of nan technology. This exclusivity has its downsides, erstwhile a fistful of firms waste to a azygous authorities purchaser pinch wide discretion, commercialized strategy adapts to governmental priorities. That’s why a White House reappraisal of SpaceX’s national contracts mattered successful nan aftermath of the fallout betwixt President Trump and Elon Musk, billions successful gross intelligibly hinge connected goodwill successful Washington.

The national authorities has been subsidizing various industries for decades, from healthcare to housing. And, not surprisingly, while nan prices of astir user equipment have fallen, nan prices of these subsidized equipment person risen dramatically. Federal wellness insurance subsidies were 7 percent of GDP, which amounted to astir $1.8 trillion successful 2023 and are projected to summation to $3.3 trillion by 2033. Between 2008 and 2022, per-enrollee spending by backstage security grew by 61 percent, Medicare accrued 40.8 percent and Medicaid accrued 21.7 percent. And wellness security premiums are expected to emergence by a median of  percent by adjacent twelvemonth successful 2026.

The Department of Housing and Urban Development (HUD) has been subsidizing mortgages to summation entree to affordable housing; however, complete nan past 20 years, nan median location value has accrued by much than 75 percent. The national authorities has been subsidizing student loans for almost 75 years, and conscionable successful nan past 20 years, in-state tuition astatine nationalist universities increased 133 percent. Of course, galore different factors person led to these expanding costs trends But pinch nationalist money arsenic a large portion of nan business model, authorities becomes a ample attraction of these industries, astatine nan expense, literally, of nan consumer.

Rent Extraction: How Threats Become Currency

Fred McChesney’s rent-extraction mentation completes nan image of crony capitalism: politicians frighten value controls, licence withdrawals, aliases caller regulatory burdens to elicit governmental support and/or compliance. Following nan 2008 financial crisis, Dodd-Frank tightened banks’ superior requirements, established nan Consumer Financial Protection Bureau, and implemented nan Volcker Rule for financial institutions. Whatever one’s position of those goals, adaptable enforcement and norm elasticity springiness officials bargaining chips to straight power bankers and springiness banks reasons to put successful politics.

The Obama Administration’s car and power-sector rules functioned similarly. Post-bailout Corporate Average Fuel Economy (CAFÉ) standards astir doubled from 2012 and climbed toward 54.5 mpg by 2025. Obama’s Clean Power Plan pushed utilities to diminish ember arsenic a root of power and move towards little businesslike forms of renewable energy. Environmental objectives aside, looming mandates turned waivers, carve-outs, and tailored compliance into valuable bargaining currency.

The Biden Administration’s posture toward tech created a different extraction channel, online speech. Congressional investigations person outlined how, complete respective months, nan Biden White House leaned connected Facebook, Google, and Amazon to suppress books, videos, posts, and different online materials. By nan extremity of 2021, Facebook, YouTube, and Amazon had adjusted their moderation rules successful nonstop consequence to nan administration’s complaints.

Tariffs nether President Trump connection a clear existent example. Section 232 duties connected alloy and aluminum, and broader automotive tariffs, became leverage successful waste and acquisition talks and a marketplace for exemptions. Studies of his first word recovered alleviation much apt for politically aligned firms, and successful 1 year, expenditures connected tariff lobbying accrued by 277%. Once a tariff exists, nan executive can extract rents by trading relief. Trump has turned manufacture protection softly into nan waste of indulgences.

The Consumer Pays Twice

Politically motivated profit-seeking does much than move money; it distorts information. Prices bespeak clout, not scarcity; barriers to introduction emergence pinch compliance costs; finance shifts from labs to regulatory affairs. That is why sectors soaking successful subsidies and bespoke rules present precocious prices without commensurate quality, and why startups struggle to situation incumbents who tin navigate complexity aliases bargain exemptions.

Disentangling Capitalism from Corporatism

The cardinal to rebuilding consumer-driven capitalism is reducing governmental power connected nan economy. Replace targeted subsidies pinch neutral, transparent, and sunsetted tools, aliases amended yet, simplify taxes and regulations crossed nan board. In procurement, grow title and limit sole sourcing that skips normal bidding processes. Narrow executive discretion to assistance waivers connected tariffs, biology rules, aliases financial enforcement by favoring general, predictable rules complete advertisement hoc permissions. Apply a generality trial to caller regulations: if identifiable firms benefit, nan default should beryllium “no.” Strengthen revolving-door restrictions and trim backmost connected wide delegations that make agencies susceptible to capture. When possible, let states to compete successful regulation. Decentralized testing provides valuable insights into regulatory ratio and prevents a azygous captured regulator from mounting nationwide standards.

Let Markets Work Again

Public skepticism of “capitalism” will diminish only erstwhile citizens spot ample firms being disciplined done entry, exit, and user prime alternatively than governmental ties. Many salient industries are “big" partially because they excel astatine politics. If we want vitality, we must make it feasible and profitable to service customers alternatively of courtiers. Otherwise, we stay successful nan aforesaid place: a wellness assemblage that outspends everyone successful Washington while outcomes plateau; universities supported by national loans; and tech companies treating authorities arsenic their main client. The solution is not anti-business rhetoric but pro-competition policy, which involves separating markets from nan authorities and giving consumers greater control.

Julia R. Cartwright is simply a Senior Research Fellow successful Law and Economics astatine nan American Institute for Economic Research.