Category: Crony Capitalism

military-spendingWhen it comes to spending on national defense the political debate is often presented as a simplistic, binary contest between those who want to spend more and more (often conservatives, who want a strong military) and those who want to spend less and less (often liberals, who want to use the money for social welfare purposes). While those discussions are important, they are also incomplete. Conservatives, in particular, should be more cognizant of the way cronyism can undercut military readiness.

In an article today at The Stream, I argue that we need a broad-based agreement about the most effective ways to spend defense funds based on the true needs of the military:
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Fail-Debtors-Prison-Poor-TaxWhile payday loans can help some people out of a financial jam, they tend to prey on the poor and create a usury situation. Now that same predatory financial monster is moving into a new territory: bonds, courts fees and fines.

Take the case of Kevin Thompson, a 19-year-old who was fined for speeding and failure to renew his license. Although he had a job, he could not afford to pay the $810 fine the court handed down. What happens next sounds Kafka-esque: (more…)

detroitDetroit home owners are being put out of their homes, but it’s not because of bankers. Then by who?

It’s the Detroit city government seeking to collect back real estate taxes. There are always tax foreclosures, but foreclosures are growing from 20,000 in 2012 to an expected 62,000 in 2015. Who is putting poor people on the streets in Detroit? The government.

There is a twist here based on the fact that Detroit homes have an old (and therefore way too high) assessed valuation that the taxes are based on. So for the homeowners, it’s easier to let the property go into a tax foreclosure and then buy it back at a tax sale than it is to pay the overdue taxes based on assessed property values that have fallen 70% in recent years. People follow incentives.

We have a narrative in America stating that all financial evils come from the banks. Even Scott Burns used his space to hammer the banks for the 2008 collapse. His proof: The fines that large banks have paid to the government. (more…)

Blog author: jcouretas
Monday, January 26, 2015
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It gets really interesting now in the wake of Syriza’s stunning victory in yesterday’s Greek elections, widely interpreted as a populist rejection of austerity programs that could spread to other indebted European Union basket cases. All eyes on are Alexis Tsipras, the newly-sworn in prime minister (in a highly unusual secular ceremony), with a lot of unanswered questions about how his party will govern. (Syriza is the transliterated Greek acronym for Coalition of the Radical Left). I’ve been following this story – indeed the long gut-wrenching meltdown of the Greek economy – in recent years with more than casual interest. I grew up in a Greek immigrant household and have retraced my grandparents’ steps back to the family villages (I’m what real Greeks refer to as a “two week Greek”).

On the Forbes site, Charles Calomiris paints a picture of what is in store for Greeks if Tsipras follows through on his promises to magically wish away debt (176 percent of GDP), go after “the rich” (Greek shipowners) and give away more free stuff (electrical power, health care, higher minimum wage, etc.) paid for with other people’s money:

… the likely consequences for Greece of Sunday’s election are a chaotic future of bank runs, devaluation, capital flight, and even more worrying, new radical leftist policies to respond to the economic collapse produced by the crisis (e.g., huge expansions of government spending, and nationalizations). Nothing can be ruled out when someone like Mr. Tsipras is in charge – a European version of Hugo Chavez.

Calomiris concludes by observing that “although it is likely that Mr. Tsipras’s victory will soon be regarded as a major electoral error by Greeks, it could be a helpful wake up call for the rest of Europe.” (more…)

Blog author: ehilton
Tuesday, December 23, 2014
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highpricesGrocery shopping is not a chore I enjoy. It’s a mundane task, and everything you buy you will have to soon replace. Then, when you finally get to the end of the chore, you look at the register and think, “HOW much??”

It gets worse.

You and I (American taxpayers) managed to “misspend” $2.4 billion this year on food stamps, now known as the Supplemental Nutrition Assistance Program (SNAP.)

How did we manage this? (more…)

Blog author: jcarter
Wednesday, December 17, 2014
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Political-Corruption-Bigger-Threat-than-TerrorismPolitical corruption is the use of legislated powers by government officials for illegitimate private gain. While it isn’t as endemic in the U.S. as it is in some countries (Somalia, North Korea, and Afghanistan being the most corrupt), the problem still exists. According to the Justice Department, in the last two decades more than 20,000 public officials and private individuals were convicted for crimes related to corruption and more than 5,000 are awaiting trial, the overwhelming majority of cases having originated in state and local governments.

But measuring corruption based on convictions can be tricky for a variety of reasons, ranging from inadequate data to partisan bias. One alternative measure is to use perceptions, especially of state and local governments. Oguzhan Dincer and Michael Johnston surveyed the news reporters covering state politics in addition to the investigative reporters covering issues related to corruption during the first half of 2014 to gauge their perception of state corruption:

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If corruption were a global industry, it would be the third largest, accounting for 5 percent of the global economy.

In many parts of the world, bribery and corruption are simply considered the price of doing business. However, corruption (both in business and in politics) undermines people’s trust in these institutions. Corruption also forces many people and businesses out of the marketplace and out of the political arena: those with more money are always at an advantage. Transparency International is a German-based organization that works to end corruption. Their video explains what corruption is and how it can be stopped.

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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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