United Liberty

Dr. Matthew Mitchell is a senior research fellow at the Mercatus Center at George Mason University. His primary research interests include economic freedom and economic growth, government spending, state and local fiscal policy, public choice, and institutional economics.

When he’s not researching, Dr. Mitchell blogs for Neighborhood Effects, a blog which touches on state, local, and global economic policy, often in a conversational way. You can follow his freedom-loving Tweets @MattMitchell80.

Matt Naugle: How did you become a libertarian?

Matt Mitchell: I credit my brother and the Institute for Humane Studies (IHS). Since I was 13 or 14, my brother and I have been debating politics and ideas. We agree on 95 percent of issues but like to focus on the 5 percent where we disagree. Through those discussions—and the reading I had to do to inform them—the edges of my worldview were gradually shaped.

When I was in college, I attended a weeklong IHS seminar and came to the realization that I could debate like this for a living. Basically from that point on, I set my sights on studying public choice economics at Mason, followed by a career discussing ideas. (My brother became a physician; as our friend puts it, I became “a doctor of silly diagrams”).

MN: As a member of the Joint Advisory Board of Economists for Virginia, does the state follow your advice?

MM: Mine is one voice among many. The state uses models to forecast economic growth and revenues; they then look to the Board members to help them decide which predictions seem most plausible. The interesting thing is that, in recent years, political uncertainty has made economic forecasting—informed guesswork—even more difficult than it already was. So, the subjective opinions of the board members have probably had a little more weight in recent years.

MN: In your recent paper, you tackle the hot issue of government favoritism toward big business, which seems to animate both the Tea Party and Occupy movements. Just how much does government help big business at everyone else’s expense?

MM: I think it is an enormous problem. Federal, state, and local governments routinely dispense privileges to particular firms and particular industries. Among others, these can take the form of subsidies, bailouts, tax expenditures, monopoly rights, and regulatory privileges. While people often talk about government interference with the market as burdensome, the truth is that government interventions are often inequitably-burdensome: they harm some firms but benefit others. As a general rule, these types of privileges tend to favor well-heeled, well-established, and well-connected firms at the expense of the relatively poor, relatively new and relatively unknown. Think of a regulation that mandates the use of a certain technology (compact fluorescent light bulbs come to mind). The firms that already exist and are already using that technology actually stand to gain from such a mandate. It is would-be competitors, the new guys with new ideas, who stand to lose (along with consumers).

MN: Should companies ever be bailed out by government?

MM: No. A lot of moderate libertarians from Hayek to Friedman—are comfortable with a limited safety net (especially if the incentives are well-constructed and it is administered by state and local governments). But, safety nets should be for people, not for the corporations into which people have organized themselves. When the idea of a safety net comes to apply to a corporation, a large number of problems begin to emerge. Resources are wasted, economic growth is hampered, macroeconomic stability is threatened, and the legitimacy of both government and business is undermined. I go into these problems—and much more—in my new paper, The Pathology of Privilege.

MN: With their low salaries, shouldn’t DC-area taxi drivers be protected from competition from San Francisco-based Uber?

MM: No. Uber offers a product that customers seem to like (I’ve never used the service myself, so I can’t speak from experience). And, customers offer Uber money that it seems to like. Both sides benefit from the exchange. If taxicabs are losing their customers, it is because they are failing to provide as much value to riders as Uber. These taxicab drivers have no more of a right to these customers’ cash than a boy has a right to date a particular girl. If he can’t offer her a better deal than the next guy, it is her prerogative to dump him; the state shouldn’t stand in her way. And, if a taxi can’t offer a customer a better deal than Uber, it is the customer’s prerogative to dump the taxi.

MN: How does the issue of government favoritism affect health care?

MM: Well, for one thing, the tax code favors a particular health insurance model over others. Because compensation that is offered in the form of insurance goes untaxed (while cash compensation is taxed), the system is biased in favor of employer-provided health insurance. This makes the consumer of health care one step removed from the process and therefore less responsive to quality and cost concerns. Now that people can be compelled to buy insurance, that industry enjoys another extraordinary privilege that no other industry enjoys. There are other ways that favoritism manifests itself. Local insurance companies benefit from the fact that states make it difficult to buy insurance across state lines (it’s a form of protectionism). And, local health facilities benefit from “Certificate of Need” laws, which require new competitors to petition the state for the right to open up shop. Doctors also benefit from laws, which prohibit knowledgeable professionals—such as nurse practitioners—from writing prescriptions. All of these privileges benefit existing providers, but they raise prices, lower quality, and harm consumers.

MN: The farm bill may be brought to a vote in Congress soon. Do farm subsidies help poor rural farmers?

MM: I’m sure there are some beneficiaries of the program who might be characterized as poor. But, for the most part, the program redistributes from relatively poor food-consuming families to relatively wealthy food-producing agribusinesses. Just 10 percent of U.S. farms collect 74 percent of all subsidies. And, the average household income of farms receiving $30,000 or more is $210,000.

MN: When tariffs against countries like China are debated, the issue of “national security” is used to support them. Is this ever a legitimate argument?

MM: Not in my view. Of course, this is a very old argument (Hamilton used it). But, remember, barriers to trade—even though they benefit particular firms—make a nation poorer than it otherwise would be. They raise prices, discourage specialization based on comparative advantage, and limit the gains from trade. Elementary trade theory shows that these costs outweigh whatever benefits the privileged producers obtain. One need look no further than the Dark Ages. That was the first “successful” buy local movement. I’d argue that the total collapse of trade made people quite a bit less secure, not more so.

MN: Why do so many people not have a basic understanding of economics?

MM: I think Paul Rubin of Emory University has one of the more convincing explanations for this. He points out that, evolutionarily, we did not evolve to deal with a world of impersonal trade. We didn’t evolve to deal with a world in which exchange is positive-sum. Instead, our brains are hard-wired to cope with a world of small hunter-gatherer bands. In that environment, it makes sense to be suspicious of outsiders, to be self-sufficient, and to follow a closed and highly structured social hierarchy. I think this may explain why people find it so unintuitive that trade is mutually beneficial, that strangers are potential trading partners instead of enemies, that competition is good, that we are made wealthier the more we depend on others.

MN: When you’re not bemoaning the decline of economic liberty in America, what do the young Austrian economists at GMU such as yourself do for fun?

MM: I celebrate the most important things in life that have nothing to do with politics: my wife, my daughter, and the outdoors.

MN: Your wife Megan is Sen. John Cornyn’s communications director. Does this cause political arguments at home?

MM: We agree on most things and we disagree just enough to make for fun debates over beer. I also have a lot to learn from her about effective communication.

MN: As a new father, what is the most important thing you want your daughter to learn from you?

MM: That life is a wonderful gift; have fun with it.

MN: Final words of wisdom from Matt Mitchell?

MM: Ideas matter.