Category: Crony Capitalism

crony-capitalismSometimes the current decisions we make today can affect the options that become available to us in the future time. For example, I may spend less money today in order to be able to spend more at a future point in time, such as during retirement. The name for this economic concept is “intertemporal choice.”

What we expect or desire to happen in the future can affect the choices we make now. While this concept may appear obvious, it can have significant implications when we apply it to certain groups, such as politicians.

Take, for instance, the problem of cronyism. Cronyism is a form of corruption that occurs when an individual or organization colludes with government officials to create legislation or regulations that give them forced benefits they could not have otherwise obtained voluntarily. But such cronyism doesn’t have to occur directly. Intertemporal choices, as economist Bryan Caplan explains, can lead to intertemporal corruption:
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unequal_soup_business_deskThe topic of economic inequality continues to be at the forefront of our current political discussions, thanks in no small part by a president who calls it “the defining challenge of our time.”

But although such concerns are more typically lobbed about rather carelessly and thoughtlessly — cause folks to fret over the “power” of small business owners and entrepreneurs in a mythological zero-sum market ecosystem — there are indeed scenarios in which the rise of such inequality ought to give us pause.

In his book Integrated Justice and Equality: Biblical Wisdom for Those Who Do Good Works, John Teevan challenges those former assumptions, noting the dangers of observing inequality at the surface (“the rich get richer!”) and the destruction of knee-jerk redistributionist policies. Yet he also duly recognizes that what lies beneath that surface can sometimes be rather nasty indeed.

We may not live in the landed aristocratic context of the French Revolution, but distortions to market forces are increasingly promoted, leading to lots of tiny barriers over the long run. When passed and implemented, these are bound to trap the downtrodden and further insulate the rich and powerful. Where the “rich get richer” in this type of setting, problems surely abound. (more…)

farm-subsidy-column-imageHave you ever listened to a classical symphony and thought the music needed more distortion? Or have you ever read a newspaper and believed it would have been improved if it had more disinformation? Most of us don’t appreciate distortion in our music or disinformation in our news. Yet far too many do favor distortion and disinformation when it comes to pricing.

Prices signal information in markets. A “market” is a summary term for a variety of voluntary exchange for tangible commodities or nontangible services. In fact, one of the most important functions of a market is to use pricing to serve as an information system (creating, collecting, filtering, processing, and distributing information). When we describe a market as a “free market” one of things meant is the prices are largely free of distortions and disinformation.

This is one of the main reasons free market advocates oppose government subsidies: they inject distortions and disinformation into the pricing system. Almost always, the distortions result in an advantage of the strong over the weak, the big over the small, and the rich over the poor.

A prime example is government subsidies to farmers. During the Depression, the government began subsidizing crops to save family farms. But now the program costs billions, benefits big agricultural companies, and can even harm family farms.
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commisaryImagine you have a family member who has been in prison for a month. You decide to send them some money to buy a tube of toothpaste from the prison store. How much would you need to send them?

At some prisons you’d need to send $130.

Jails often deduct intake fees, medical co-pays, and the cost of basic toiletries first, leaving the prisoner’s account with a negative balance. To provide enough money for them to buy that initial tube of toothpaste would often require, at a minimum:

  • $25 for booking fee
  • $90 for subsistence and medical co-pays ($3 a day for 30 days)
  • $8.95 for payment transfer fees
  • $5.64 for Senodyne toothpaste

This is one of the findings from an investigation by the Center for Public Integrity that reveals how prison bankers, private vendors in prisons, and corrections profit off the innocent by shifting costs onto inmates’ families.
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Radio Free ActonThis week on Radio Free Acton, Michael Matheson Miller takes the interviewer’s chair for a conversation with David Bromwich, Sterling Professor of English at Yale University, to discuss the thought of Edmund Burke in the wake of the release of Bromwich’s first volume of what will be a two-volume intellectual biography of Burke. This week’s conversation touches on Burke’s view of the human person, his thoughts on progress in the arts and sciences, and his role in the modern conservative movement. And like Bromwich’s biography, this podcast will come in two parts: the remainder of the conversation will be yours to enjoy next week.

To listen to Part 1 of Miller’s interview with Bromwich, use the audio player below.

eximbank1

With its authorization charter expiring at the end of September, the U.S. Export-Import Bank has come under increased scrutiny from rabble-rousers and the hum-drum alike. An otherwise obscure fixture in the grand scheme of federal-government corporatism, Ex-Im finances and insures (i.e. subsidizes) foreign purchases of U.S. goods for those who wouldn’t otherwise accept the risk.

So far, we’ve seen a variety of good arguments made against the bank. It privileges certain companies over others. It doesn’t meaningfully improve national exports, despite many claims to the contrary. It will surely yield losses for taxpayers. And so on.

But there’s a bigger and broader reason to reject such schemes that has less to do with line-item analyses of exports vs. imports or how much Boeing will benefit vs. General Electric, and more to do with how they distort, inhibit, or prevent the efforts of those aren’t on the radar in the first place, but perhaps should or could be — the “unseen,” as Bastiat would call them.

Over at Economic Intelligence, Veronique de Rugy does us a service in highlighting this aspect, noting that Ex-Im and other corporatist schemes tend to cramp the economy at large by distorting signals and inhibiting innovation and possibility outside of the privileged few:

However, the real problem with Ex-Im pertains to the many groups who are affected by Ex-Im activities but have been ignored so far. These people don’t have connections in Washington, and they don’t have access to press offices and lobbyists. But they matter, too.

It is difficult, but extremely important, that we consider the unseen costs of political privilege, whether they take the form of market distortions, resource misallocation, job losses, destroyed potential or higher prices… (more…)

[Part 1 is here.]

Jonah Goldberg’s Liberal Fascism: The Secret History of the American Left, From Mussolini to the Politics of Meaning, details how the growth of government-corporate cronyism during the past 120 or so years has been largely a phenomenon of the socialist left. Wendell Berry misses this crucial historical insight in his running critique of capitalism, and his missing it draws him into flatly inaccurate claims, as when he asserts that “the United States government’s agricultural policy, or non-policy, since 1952 has merely consented to the farmer’s predicament of high costs and low prices; it has never envisioned or advocated in particular the prosperity of farmers or of farmland …”

This makes it sounds as if the government is largely uninvolved in agricultural markets, letting the winds of the free market blow wherever they wish. It’s true that the U.S. government has moved away from buying and destroying food as it did under FDR in the Great Depression, a statist attempt to prop up commodity prices while countless Americans went hungry. But even since 1952, and in a dizzying number of ways, the American government has been busy erecting all manner of protections for American agriculture, from fat subsidies on rice and other grains to import quotas on sugar, price supports on milk, and a long-running policy of paying farmers and ranchers to idle parts of their land. (more…)

[Part 1 is here.]

In his case against capitalism, Wendell Berry argues that the average person not only is anxious because he depends upon so many other people for his wellbeing (truckers, utility companies, etc.) but that he ought to be anxious. There’s a grain of truth here. We shouldn’t become helpless sheep without a clue what to do were the power to go down for a couple of days in January. But inter-dependency, far from a sign of cultural sickness, is the mark of a healthy society, one where enough trust exists to allow for broadening circles of productivity and exchange, for markets that extend beyond clan and tribe. (more…)

[Part 1 is here].

In Monty Python’s Life of Brian, the ring leader of a little band of first-century Jewish rebels asks, “What have the Romans ever done for us?” He’s sure the answer is absolutely nothing, but one of the rebels meekly pipes up with “The Aqueduct.” A moment later another rebel squeaks, “And the sanitation.” Then another, “The Roads.”

"What have the Romans ever done for us!"

“What have the Romans ever done for us!”

The ringleader grudgingly grants all of this and then tries to wrench the meeting back on track. “But apart from the sanitation, the aqueduct and the roads—” Before he can even finish the sentence, others–warming to the brainstorming challenge–begin chiming in: “Irrigation?” “Medicine?” “Education?”

The list could work just as well, and in some instances, more easily, for the British Empire. The scene also works as a metaphor for neo-agrarian essayist Wendell Berry and his relationship to capitalism and the U.S. Tobacco Trust that dominated the cigarette industry at the turn of the previous century.

Picture Berry gathering together a little knot of agrarian Distributist rebels on the back stoop of his Kentucky farm and rousing them with the purely rhetorical question, “What have the capitalists and big tobacco ever done for us?!”

The answer, I would suggest, is quite a bit. (more…)

starbucksWhen most people think of Starbucks they think of overpriced coffee, free wifi, and omnipresence. Starbucks are everywhere. The company was founded in 1971 and since 1987 they’ve opened an average of two new stores every day. In the U.S. alone there are 12,973 locations.

When most people think of “big business”, though, they don’t often think of the Seattle-based coffee company. But they should. Starbucks has 151,000 fulltime employees, $15 billion in annual revenues, and three times as many locations as Walmart. Starbucks is one of the biggest of big businesses. And, not surprisingly, a big proponent of cronyist policies.

Cronyism occurs when an individual or organization colludes with government officials to create legislation or regulations that give them forced benefits they could not have otherwise obtained voluntarily. Those benefits come at the expense of consumers, taxpayers, and everyone working hard to compete in the marketplace. A prime example is minimum wage laws. Almost without fail, big businesses tend to support higher minimum wages.

Since they could just choose to pay higher wages, why would they support federal mandated wage floors? One reason is because it helps to eliminate the competition from small business who don’t have the size and scale to absorb higher-than-market wage increases.

In a recent interview with CNN, Starbucks CEO Howard Schultz said he supports an increase to federal minimum wage even though he admits the $15 wage in Seattle could have “traumatic effects” on small business owners and employees.
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