Crony capitalism is a burden on us all
America now has a largely Fascist economy, with all the costs and inefficiencies implied by that
The awarding of a $36 billion tanker contract to Boeing illustrated the well-known difficulties caused by crony capitalism in the awarding of government contracts. However what is less well appreciated is the damaging effect that crony capitalism has in a number of other ways, making the economy less efficient and providing rent-seeking opportunities that are both morally and economically repugnant.
Let’s begin with a definition of crony capitalism. In a truly free market, government is small, so gives out few contracts. It also passes few laws that affect business, so for even large corporations there is no point in hiring lobbyists. This was the position in Calvin Coolidge’s America. It still appeared sufficiently true even in the 1990s that Microsoft spent no management attention on Washington lobbying “virtually ignoring the Washington power game” according to the New York Times – and was surprised in 1998 by a massive antitrust suit.
As Microsoft found to its cost (though it survived the antitrust suit and has made up for it since with massive lobbying activities) that is not the America – or world – in which we now live. Crony capitalist companies seek through campaign contributions and strategic placement of their alumni to produce legislation favoring their business, to get access to lucrative government contacts, to rewrite the tax laws in their favor and to create rent-seeking mechanisms whereby their profits (and management bonuses) can be enlarged at public expense.
The costs of crony capitalism became apparent in the 2008 financial crash and bailout. Two episodes stand out in particular. In the rescue of AIG, $62.1 billion of credit default swaps were paid out to counterparties such as Goldman Sachs, who also profited from their holdings of CDS against the credit of AIG itself. Goldman Sachs alumnus Hank Paulson was Treasury Secretary at the time, and appears to have given no significant thought to the possibility of killing the pernicious CDS market by allowing the $62.1 billion in losses to be levied on its major participants.
Second, the banking industry as a whole was energetic in encouraging Fed chairman Ben Bernanke and his colleagues to lower interest rates to zero and to buy over $2 trillion of Treasury and agency securities – decisions which ran directly against Walter Bagehot’s advice for a financial crisis, to lend freely, but at penally HIGH rates. We have not yet seen the full cost of this decision, which has reduced job creation in the recovery to a painfully slow rate (through making labor-saving capital investment artificially cheap) while very probably leading to a major inflationary collapse – and tangentially to the current Middle East turmoil, through the mechanism of excessively inflated commodity prices. Wall Street wanted low interest rates, to bail it out of the mess it had created, so that’s what it got, without regard to the needs of the rest of the economy, the losses to America’s beleaguered savers or the disruption it imposed on the world as a whole. Wall Street alumni being scattered liberally throughout the decision making process in both the Bush and Obama administrations, it was a classic case of crony capitalism. Again, no proper consideration was given to the Bagehotian alternative.
The longest-standing and most entrenched area of U.S. crony capitalism is agriculture. Farm subsidies were introduced in the 1930s and have remained important ever since, with a modest attempt to reduce them in 1996 being reversed by the Bush administration in 2002. In recent years an additional gigantic farm subsidy has been introduced, the corn-based ethanol fuel program. This subsidizes an especially inefficient method of fuel production, which offers no net benefit in terms of carbon emissions – it is a pure handout to the farm lobby, strengthened by the political salience of the Iowa presidential caucuses. Today much of U.S. agriculture is dependent on crony-capitalism controls and subsidies, at enormous cost to the food consumer and the world economy.
The global warming hysteria, as it played out, gave massive opportunities to crony capitalists (whether or not some modest measure of global warming is in fact occurring.) Global warming, once it emerged from the academy, was a project of extreme socialist environmentalists to increase government control of the economy. (The academicians themselves became “useful idiots” rewarded with tenure and massive grants in return for proclaiming the global warming religion, adjusting the facts where necessary to justify the theory.) However the movement would not have got far, at least in the United States, without the assistance of crony capitalists.
GE saw the opportunity to close high-labor-cost US light bulb manufacturing plants, relocating production to China, and to reap rewards from manufacturing higher-cost fluorescent light bulbs. Hence it worked with allies in Congress to institute in December 2007 an outright ban on incandescent light bulbs, effective 2012-2014. This measure was costly economically and damaging environmentally, since it failed to solve the disposal problem of the toxic CFL bulbs, which contain mercury.
Crony capitalism also reared its head in the abortive Waxman-Markey cap-and-trade environmental legislation of 2009. Cap-and-trade as a mechanism for controlling carbon emissions is highly subject to capture by crony capitalists, because it inserts the government into an entirely new area of economic activity, and allows it to give out emission permits to favored interest groups. The Waxman-Markey legislation was particularly unattractive in this respect; it imposed a huge new cost on the economy and then managed to lose over 80% of the revenue that should have been received by government through giving handouts to crony capitalists.
Immigration is another area in which crony capitalism is rife; in this case the crony capitalists seek to block proper enforcement of US immigration laws in order to ensure themselves a labor supply at below-market costs. As with the “cap-and-trade” scheme the crony capitalists are here seeking to distort the legal system and the market mechanism to achieve self-enrichment through government manipulation. The current dispute in Georgia is a case in point; Governor Nathan Deal, elected on a platform of enforcing the e-verify employment verification program, appears to have bowed to crony capitalists among his campaign donors and is now seeking to block the appropriate state legislation.
Crony capitalism is rife in the taxation system, as businesses seek special exemptions from taxes that apply to the remainder of their countrymen. The subsidies to GE and Whirlpool for making energy efficient washing machines, which appear to have wiped out a decade or so of the latter company’s tax liability, are a case in point. Another example is the “carried interest” taxation of private equity funds, whereby the tax code deems their bonus remuneration to be a capital gain, even though no capital has been invested.
Of all areas in the U.S. economy, crony capitalism is most rife in the health system, which is why healthcare costs 50% more in the United States than elsewhere in the world. Hospitals are encouraged to load their non-insured customer with additional costs arising from their enforced mandate of providing free care in emergency rooms. An entire industry of medical care trial lawyers exists solely to leech off the medical system, using their political connections to ensure that their protection rackets are preserved unharmed. The pharmaceutical companies load their drug development costs onto U.S. consumers, protected by legislation prohibiting drug purchases from abroad. The examples are innumerable; the costs loaded onto the healthcare dollar are becoming unsustainable. Needless to say, President Obama’s healthcare legislation, heavily supported by many producer interests in the healthcare sector, made none of the cost reductions that had been promised, simply adding a new layer of bureaucracy, cost and controls to an already overloaded system.
The above examples should indicate that crony capitalism has become a major burden on the U.S. economy. Through it, government meddling is proliferated, spurious costs are added and politically connected producer interests are given windfall profits. The problem has steadily worsened since the abandonment of small-government free enterprise in the Great Depression, and the proliferation of new excuses for regulation in the last few decades has provided endless new opportunities for crony capitalists, greatly increasing their burden on the economy.
The solution is not merely smaller government but less intrusive government. To the extent that laws are simple, comprehensible and properly enforced, the opportunities for crony capitalism are limited. Environmental controls need to be cut back to those that truly produce a net economic benefit, after taking into account the health and other costs of pollution. Immigration laws need to be simplified, with fewer loopholes such as H1B visas and the lottery program, and enforced strongly and equitably. The financial system needs to control excessive speculative activity, through a modest “Tobin tax” on fast trading and a bank regulatory system that enforces proper risk management as well as simply capital standards. Frivolous lawsuits, cross-subsidization and excessive regulation need to be removed from the healthcare system, so that the free market can operate in medical services, while the poorest are protected through handouts. Loopholes must be removed from the tax system, not only in corporate tax but also in individual tax – the “sacred cows” of the mortgage interest deduction and the charitable contributions deduction must be abolished.
The necessary changes will provoke immense squawking from the interests concerned. But in economic legislation there is a universal aphorism: the loudest squawks come from those whose unjustified privileges are to be abolished.
Evil in the White House
In good Fascist style, the White House treated non-union employees much worse than unionized ones during GM bailout
Republican Reps. Mike Turner of Ohio and Dan Burton of Indiana are asking House Oversight Committee Chairman Darrell Issa, California Republican, to dig into the Obama administration’s decision to cut more than 20,000 private-sector workers’ pensions and eliminate their health and life insurance plans during the General Motors (GM) bailout in 2009.
A spokesman for Issa’s committee told The Daily Caller the committee “remains interested” and is “looking forward” to findings from an ongoing Government Accountability Office investigation, which is expected to come out within the next couple of months. What Turner and Burton are saying happened during the GM bailout is that Treasury Secretary Timothy Geithner decided to cut pensions for salaried non-union employees at Delphi, a GM spinoff, to expedite GM’s emergence from bankruptcy. The problem with that, according to the congressmen, is that Geithner decided to fully fund the pensions of union workers involved in the process – including workers associated with United Auto Workers, Steelworkers and the IUE-CWA.
“This is a terrible injustice. This is a political decision, not a legal or financial decision,” Turner said in a phone interview with TheDC. “There were people who were penalized and people were chosen as winners and losers. The White House, the administration and the Auto Task Force (ATF) decided who were going to receive their pensions and who were not.”
Bruce Gump, one of the workers who lost most of his pension and his health and life insurance plans, said what really disappoints him is how Geithner justified his decision. “Mr. Geithner justified that by saying in the press that there was no commercial necessity to do anything for those people,” Gump told TheDC. “So, to him, we were just ‘those people’ and he thought that commercial necessity was a justification to out certain groups.”
According to a time-line provided by the Delphi Salaried Retiree Association (DSRA), a group several of the disgruntled employees formed to try to get their benefits back, it was the U.S. government’s involvement in bailing out GM that caused them to lose their benefits. Also, the DSRA points out that UAW workers’ “pensions were topped off in unprecedented action under direction of ATF without any union contractual obligation.”
NPR executives caught on tape bashing conservatives and Tea Party, touting liberals
A man who appears to be a National Public Radio senior executive, Ron Schiller, has been captured on camera savaging conservatives and the Tea Party movement.
“The current Republican Party, particularly the Tea Party, is fanatically involved in people’s personal lives and very fundamental Christian – I wouldn’t even call it Christian. It’s this weird evangelical kind of move,” declared Schiller, the head of NPR’s nonprofit foundation, who last week announced his departure for the Aspen Institute.
In a new video released Tuesday morning by conservative filmmaker James O’Keefe, Schiller and Betsy Liley, NPR’s director of institutional giving, are seen meeting with two men who, unbeknownst to the NPR executives, are posing as members of a Muslim Brotherhood front group. The men, who identified themselves as Ibrahim Kasaam and Amir Malik from the fictitious Muslim Education Action Center (MEAC) Trust, met with Schiller and Liley at Café Milano, a well-known Georgetown restaurant, and explained their desire to give up to $5 million to NPR because, “the Zionist coverage is quite substantial elsewhere.”
On the tapes, Schiller wastes little time before attacking conservatives. The Republican Party, Schiller says, has been “hijacked by this group.” The man posing as Malik finishes the sentence by adding, “the radical, racist, Islamaphobic, Tea Party people.” Schiller agrees and intensifies the criticism, saying that the Tea Party people aren’t “just Islamaphobic, but really xenophobic, I mean basically they are, they believe in sort of white, middle-America gun-toting. I mean, it’s scary. They’re seriously racist, racist people.”
Schiller goes on to describe liberals as more intelligent and informed than conservatives. “In my personal opinion, liberals today might be more educated, fair and balanced than conservatives,” he said.
O’Keefe’s organization set up a fake website for MEAC to lend credibility to the fictitious group. On the site, MEAC states that its mission is combating “intolerance to spread acceptance of Sharia across the world.” At their lunch, the man posing as Kasaam told Schiller that MEAC contributes to a number of Muslim schools across the U.S. “Our organization was originally founded by a few members of the Muslim Brotherhood in America actually,” he says.
Schiller doesn’t blink. Instead, he assumes the role of fan. “I think what we all believe is if we don’t have Muslim voices in our schools, on the air,” Schiller says, “it’s the same thing we faced as a nation when we didn’t have female voices.”
When O’Keefe’s two associates pressed him into the topic, Schiller decried U.S. media coverage of Egypt’s uprising against former dictator Hosni Mubarak, especially talk of the Muslim Brotherhood’s influence on the protests and future of Egypt. Schiller said that is what he is “most disappointed by in this country, which is that the educated, so-called elite in this country is too small a percentage of the population, so that you have this very large un-educated part of the population that carries these ideas.”
When the man pretending to be Kasaam suggests to Schiller that “Jews do kind of control the media or, I mean, certainly the Zionists and the people who have the interests in swaying media coverage toward a favorable direction of Israel,” Schiller does not rebut him or stop eating. He just nods his head slightly.
More HERE (See the original for video)
MA: Unions offer concessions on healthcare: "Public employee unions in Massachusetts, startled by the raging national debate over benefits for government workers, yesterday offered concessions that they said would deliver significant savings to cash-strapped cities and towns while preserving collective bargaining rights. The union officials, gathered at a State House press conference, said their members are under assault as governors from Wisconsin to New Jersey have directed public attention and anger on public employee benefits. They said their plan shows they are willing to work with Governor Deval Patrick and the Legislature to address rising costs."
The real lesson from Wisconsin: "There is an abiding delusion that frustrates efforts to limit the size and scope of government: The government, unlike the private sector, shields people from economic risk. Government jobs are regarded as safer and government bonds securer. But the battle that public unions are fighting in Wisconsin shows that the government can no more offer guarantees in life than the tooth fairy. On the contrary, it shows that a government powerful enough to give you everything you want is also powerful enough to take away everything you’ve got."
My Twitter.com identity: jonjayray. My Facebook page is also accessible as jonjayray (In full: http://www.facebook.com/jonjayray). For more blog postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, GUN WATCH, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena
List of backup or "mirror" sites here or here -- for readers in China or for everyone when blogspot is "down" or failing to update. Email me here (Hotmail address). My Home Pages are here (Academic) or here (Pictorial) or here (Personal)
The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)