The Myth of America's Cowboy Capitalism

March 13, 2013

America has long been the home of the starving entrepreneur and die-hard capitalist. To the outside world, America's rugged individualism extends to the U.S. economy, which is free of government interference. However, this view of "cowboy capitalism" is false, say Thomas A. Hemphill, an associate professor at the University of Michigan Flint, and Mark Perry, a scholar at the American Enterprise Institute and a professor of economics at the University of Michigan Flint.

American businesses face an enormous burden in complying with federal regulation.

  • The Federal Register, which contains all proposed rules and regulations, has grown more than 2,848 percent since its first volume.
  • More proposed rules now have an expected economic impact of at least $100 million and spending by regulatory agencies increased more than 1,700 percent in the last 50 years.
  • Regulatory agencies employed 283,615 people in 2012, demonstrating the expanse of regulation.

Government subsidies to firms and industries, referred to as "corporate welfare," reduce free market competition and lower barriers to entry.

  • State and local governments offer up to $80.4 billion in business subsidies each year.
  • Forty-eight companies have received more than $100 million in state grants since 2007.

Despite its cowboy capitalist reputation, the United States has a higher corporate income tax rate than the rest of the Organization for Economic Cooperation and Development (OECD), which includes most developed countries in the world. Indeed, the U.S. income tax rate in 2012 was 39.2 percent, which is almost 14 percentage points higher than the simple average corporate tax rate of 25.4 percent for the other 34 countries in the OECD.

Moreover, the United States has gone from among the most economically free countries in the world in the 1980s and 1990s to the 10th most free country in 2013. Based on regulation, openness to international trade, property rights and the rule of law and the size of government, America ranks 8.5 points below the average for free countries in the Heritage Foundation's Economic Freedom Index.

Taking these factors into account, it seems that the perception of America as a heavily capitalist nation and economy is misguided. In the future, significant policy reforms, reducing the size of government, overhauling the tax system, transforming costly entitlement programs and streamlining regulations will all be necessary to promote a more capitalist market economy.

Source: Thomas Hemphill and Mark Perry, "Myths of American 'Cowboy Capitalism,'" The American, March 4, 2013.

 

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