Political economists describe the process whereby government officials end up being the servants rather than the masters of the firms they are regulating as the “capture” by the industry of their regulators. When regulators are captured, much of what they do is motivated, consciously or not, by a desire to help the companies they are regulating, even when the social goals that the regulators should pursue are very different. A famous illustration of capture is given by the way airlines were regulated under the Civil Aeronautics Board (CAB) from 1940 to 1978. Large airlines of those times, like American and... Gary Becker

The phenomenon of regulatory capture—the transformation of a regulatory agency into an anticompetitive tool of the regulated industry—is real, but I think Fannie Mae and Freddie Mac are more accurately regarded as examples, though no less unlovely, of something else: a capitalist-socialist hybrid. They were not regulatory agencies; until they collapsed during the financial crisis of 2008 and were taken over by the federal government, they were private corporations that had been chartered by Congress to promote home ownership. Their status as GSEs (government-sponsored enterprises) created an expectation that the government would guarantee their debts. This expectation enabled them to... Richard Posner

A great many colleges give preference in admission to children of alumni. (This includes public colleges because few colleges any more rely entirely on public funding.) It is widely believed, with some evidence, that alumni give more generously to their alma mater if their children are admitted to, and especially if, having been admitted, they attend, the college that they (the alumni) attended. This is the passionate belief of admissions officer, and if it were false it would have been abandoned, because it attracts a good deal of criticism. The “legacy” preference is not a mere tie breaker; as in... Richard Posner

A college’s policy of legacy admissions means that the children of graduates of the college are more likely to be accepted by the college when they apply than are other applicants with similar records. Such a policy has the biggest effect on acceptances by elite colleges, partly because they are the hardest schools to get into. Although many colleges do not reveal data on admissions rates of legacies compared to others, the limited data available indicate a large gap. For example, in 2008 Princeton admitted about 40% of all legacy applicants compared to less than 13% of other applicants. Dartmouth’s... Gary Becker

The dotcom boom at the end of the 1990s was a classical and magnificent bubble. Venture capitalists and other investors were throwing tens, and often hundreds, of millions of dollars at Internet startups and fledgling biotech companies that usually were not making profits, and frequently did not have any sales. The bubble burst in 2000, and the huge valuations placed on these companies disappeared, along with many of the companies. It is only a decade later, but a second dotcom boom has begun, and some early signs are surfacing of a possibly another bubble. This boom is being fueled mainly... Gary Becker

I want to consider what an investment bubble is, why it arises, whether it’s irrational, and whether the current valuations of social network enterprises such as LinkedIn and Facebook are a bubble phenomenon. Many finance theorists regard the price of an asset, such as a corporation, as the discounted value of its predicted profits. Assets thus are overvalued ex ante if the prediction is unrealistically optimistic and are overvalued ex post if, though it may been the most sensible prediction given what was or could be known when made, it turned out to be exaggerated. Because of uncertainty such disappointments... Richard Posner

The Medicare program subsidizes medical care for the elderly so heavily as to create serious concern about the fiscal soundness of the federal government. And, as longevity rises, the size of the subsidy rises, and the rise in cost is compounded by the increasing cost of medical technology. Among possible measures that would reduce the rate at which the cost of Medicare is increasing would be means-testing and—the focus of this piece—shifting the balance of subsidized R&D so that more is spent on increasing the quality of life of elderly people and less on extending their (our) lives. We need... Richard Posner

The federal government subsidizes basic and applied research on both the quality of life and the length of life. An example of research on quality is the efforts to find implantable artificial kidneys that can replace dialysis for persons with severe kidney disease since dialysis is a limited and very confining procedure. Research into finding cures for breast and prostate cancers exemplifies research on extending the length of life. It might seem clear that research on extending the lives of frail persons over say age 80 does not produce much value to these persons or to society, but economic analysis... Gary Becker