As well, financial-industry profits are increasingly disconnected from the success of the economy. And if there was ever any doubt that Wall Street banks have grown too big to regulate, in part through the implicit subsidy they receive as so-called "too big to fail" institutions, it vanished during the recent cycle of financial crisis and bailouts (both acknowledged and hidden). The rules of the game are broken, and the amount of lobbying done by the big banks, the revolving door between the public and private sector, and the serial failure of the state to prosecute wrongdoing are further signs that successful reform will require breaking up the big banks.
Housing policy: Tax law ought to treat renters and owners equitably, rather than permitting mortgage interest but not rent to be deducted. In high-rent cities, permitting more construction at a lower cost would be a huge boon to most renters. Matt Yglesias has made this point over and over again with respect to the building-height limit in Washington, D.C. In suburbs, there is a much higher demand among working-class families for apartments than there is supply, because incumbent homeowners, fearing crime and traffic, almost never want multifamily units built near their neighborhoods. Eliminating all zoning laws isn't the right fit for every community, but moderate free-market reforms that reduce incumbent veto power would benefit poor and working class households.
Corporate welfare: The Export-Import Bank, ethanol subsidies, sugar subsidies, the part of the Pentagon budget that is protecting the interests of American-run multinationals more than taxpayers: End it all, along with the countless other examples of corporate welfare coursing through our system. There is so much of it that one could go on for pages about this problem alone.
Teacher incentives: One of several factors that prevents public education from performing as well as it might is a system of incentives for teachers, defended by powerful teachers' unions, that makes it (a) very difficult to fire the worst teachers and (b) very difficult to incentivize better teaching with pay, because so much of compensation is based upon seniority (along with masters degrees in education that don't seem to do much to improve teacher quality). Merit based pay need not be tied to test scores. In fact, I'd much prefer a system that empowered principals to reward the best teachers in their schools from a larger total pool of salary money.
The payroll tax: As Tim Carney puts it, "It's a tax on employment. It's a tax on someone's first dollar. And it's specious to say that it funds Social Security and Medicare -- both entitlements are funded on the margin by general revenues. So give up the charade and abolish a regressive federal tax."
Occupational licensing: One nonprofit that gets less attention than it deserves is the Institute for Justice, a public-interest law firm that fights on behalf of the rights of small food-truck entrepreneurs to compete against established restaurants, monks to sell simple wooden caskets without jumping through hoops favored by the funeral industry, eyebrow threaders to service clients without attending expensive beauty schools that don't even teach the technique, and interior designers to practice their art without obtaining permission from a professional cartel. Throughout the economy, entrenched interests and politicians with college degrees are passing laws that have the effect of disadvantaging would be entrepreneurs who lack the start-up capital of wealthier analogs, or else have more trouble navigating the bureaucracy, whether because they are immigrants with a language barrier or unable to afford attorneys or consultants.
The tax code: The complexity of the current system effectively rewards tax attorneys, accountants, and the people rich enough to pay the best of them, at a huge deadweight cost to the economy.
The patent system: There is reason to believe that it is doing as much to stifle innovation as to encourage it. Additionally, as Tim Lee writes, "a 'property' system that makes it impossible to figure out who owns what is economically inefficient, and should be reformed for that reason alone. But a property system that exposes anyone who enters a particular industry to unavoidable and potentially crippling legal liability should also offend our sense of justice. People should have a reasonable shot at following the law, and at a minimum the penalties for failing to do the impossible shouldn't be too harsh. A legal regime that's practically impossible to comply with, and which imposes potentially crippling liability on infringers, is incompatible with the rule of law."
Drug policy and the criminal-justice system: Take a poor kid from a rough neighborhood and a rich kid from a wealthy suburb. Each is pulled over with an eighth of marijuana in their car. What's likely to happen to them next, on average, illustrates one of the most profound inequalities in how rich and poor people are treated in the criminal-justice system, and that the effects touch everything from incarceration rates to job prospects to the likelihood of having an absent father. It seems to me that, along with all its other unintended consequences, drug prohibition and the black market it spawns imposes far higher costs on the worst off Americans -- and higher costs still on even poorer people who live in countries with cartels empowered by black markets.
(There is, as well, something deeply pernicious about a private prison industry and public-employee unions composed of prison guards who lobby for policies that would incarcerate more people.)