Posts tagged with: corporate welfare

Photo courtesy of Wikimedia.

Photo courtesy of Wikimedia.

What is the biggest economic problem that the U.S. is currently facing? Depends who you ask.  Some social justice warriors would tell you that capitalism is ruining our economy, yet many who have studied and understand economics would argue the opposite. Capitalism is not to blame, but rather cronyism and protectionist policies are the ones wreaking havoc on the economy.

In a previous post, I discussed how occupational licensing as a form of cronyism is trapping people in poverty. However, cronyism is a much bigger problem than just occupational licensing. The U.S. struggles with other forms of cronyism too, such as protectionism through quotas, tariffs, and corporate welfare.

Quotas and tariffs make it extremely difficult for international firms to sell their product in the U.S., thus protecting U.S. firms from international competitors.  Corporate welfare is government support of a private business usually through direct money transfers (subsidies) or tax breaks, often protecting big firms from the competition of smaller firms.

This form of cronyism typically occurs for two reasons:  First, in an attempt to create new domestic jobs or prevent jobs from being sent overseas and second, because politicians promise “goodies” to corporations and individuals that help them get elected. (more…)

U.S. Rep. Justin Amash, in an article for, discussed the recent charter expiration of the Export-Import Bank (Ex-Im) and how that is a good first-step toward reducing the corporate welfare and crony capitalism that has infected American politics and economics:

If a man swipes your wallet, he’s a thief. We don’t ask whether the pickpocket ultimately spent the cash on a worthy cause. Yet, supporters of corporate welfare would have you believe that as long as the companies receiving welfare prosper, you shouldn’t care that the government snatched your money to make it happen.

The moral implications of cronyism are abundant. As public/private partnerships expand, the market system slowly transforms from free enterprise and competition driven by market forces to government control of who succeeds and fails based on loans or bailouts to favored groups and corporations. In an interview with the Acton Institute’s Religion & Liberty, Peter Schweizer discussed how cronyism is creating a moral crisis and how it is affecting the poor:

Our poverty programs get distorted by crony corporations. Just look at how the food stamp program has expanded over the years. Initially, it was a safety net to provide basic provisions, and most people agree basic safety nets are needed. The problem is that when the government started throwing around billions of dollars, the snack food and soft drink industry saw dollar signs. So they lobbied and got the regulations changed so that snack food and sodas are now covered by government assistance. It’s now a $10 billion industry for soft drink companies. Then it got expanded to include convenience stores, and now you’ve got the fast food industry lobbying lawmakers to let people use EBT cards at fast food establishments.


ForbesAlejandro Chafuen, president and chief executive officer of Atlas Economic Research Foundation and board member of the Acton Institute, recently wrote a piece for about crony capitalism.

Chafuen used to spend his summers in Argentina, so he begins his article with a story about a friend from Argentina. Enrique Piana, known to his friends as “Quique,” was heir to “Argentina’s oldest and most respected trophy and medals companies.”

During part of the ’90s, the government of President Carlos Menem, and then-Minister Domingo Cavallo, had a policy for the importation of gold and exports of gold fabrications that amounted to a major subsidy for exporters. Attracted by the incentives, Quique, who had become CEO of his company, became a key player in a scheme whereby exporting overvalued gold-plated products netted them 30 million in subsidies for fake transactions. As it seems that none of the medals were sold at artificial value to true customers, the only victims here ended up being the Argentine tax-payers.

The scheme involved a “business” in the United States. As there is still substantial respect for rule of law in the United States, Quique was indicted, captured, and—after some months in a U.S. jail—extradited to Argentina. In his book, he lists the government officials who he claims knew about the scheme and who received bribes for his fraudulent activities. I will not mention them here. None of them were sentenced to jail. (more…)

Blog author: John MacDhubhain
Tuesday, July 17, 2012

Turns out that cronyism hits more than just your pocketbook. There’s a good chance it’s hitting your waistline too.

That’s the takeaway from this editorial by Charles Lane. You see, cheese is one of the highest fat foods we eat, and our country overproduces cheese because of government created market distortions.

Charles Lane points out how price supports for milk lead to an overproduction of milk. We have more milk than we would ever drink in its liquid form. So where does all the surplus go? It gets turned into butter and cheese. Basically, because milk is overproduced, the cost of producing other dairy products declines, lowering prices for consumers and increasing the amount of cheese that is consumed.

Which sounds great, until you remember we have an obesity problem in the United States. And the fact that farmers are already better off than most families. Price supports, subsidies, and quotas all represent market distortions that benefit the politically connected, rather than representing what the people that make up the market really want. I guess we can be thankful the milk is at least used for something, unlike other cases of government managed food policy.

The point is, if we find ourselves concerned that the American diet is contributing to obesity, maybe we should first stop subsidizing it? As Lane concludes in his opinion piece:

When you think about it, the whole trillion-dollar farm bill amounts to a vast federal subsidy to this country’s sugary, starchy, cheesy diet, filled out with grain-fed beef, pork and chicken.

I love candy, pizza and hamburgers as much as the next guy. I just don’t see why businesses that profit by supplying that diet deserve an advantage over potential innovators and competitors. Still less do I see why they should get that advantage at taxpayer expense.

Last week, PowerBlogger Andrew Knot and I wrote posts about American sugar policy and farm subsidies, respectively. Now, the United States Conference of Catholic Bishops, as well as the Catholic Relief Services and National Catholic Rural Life Conference, have come out with a joint letter on the 2012 farm bill that just passed the Senate. Among other things, they urge Congress to reduce agricultural subsidies, and limiting crop insurance to small and medium sized farms.

In 2010, the government gave out $96 billion in farm subsidies. As I pointed out last week, the median farmer’s income is already 25 percent higher than the median American’s. Furthermore, most of the farm money is going to a small number of the farmers. Big farms tend to get a much larger share of the handout than small and medium sized farms do. American agricultural policies represent welfare and protectionism for the already well off.

The USCCB’s letter can be read here.

This morning I found that a commenter on my post about government failure in feeding the poor in India had complained that we should not trust “corporations who own the government.” I think this is a point worth further consideration. After all, I would argue that in the United States we have lousy agricultural policy. We essentially still have policies from the Great-Depression era aimed at manipulating prices, and business interests predictably engaging in a form of regulatory capture.

Jordan Ballor and Ray Nothstine wrote a good piece in Acton Commentary on the issue of agricultural policy here. I particularly like their discussion on Abraham Kuyper:

What the Dutch theologian and statesman Abraham Kuyper said of the manual laborers of the nineteenth century is equally true of agricultural workers in the twenty-first. “Unless you wish to undermine the position of the laboring class and destroy its natural resilience,” he warned, “the material assistance of the state should be confined to an absolute minimum. The continuing welfare of people and nation, including labor, lies only in powerful individual initiative.”

When you look at the numbers, the simple fact is that most of the farm subsidies are given to large farms, not the small farmer whose image is used by those lobbying for welfare.  I highly recommend Veronique de Rugy’s Washington Examiner op-ed on this issue. She points out that the median farming household earns a wage 25 percent higher than the median American household. Are these the people who need welfare? (more…)

Channeling his inner Ralph Nader, John Stossel calls shenanigans on the GOP talking points touting the viability of nuclear power.

As I noted in the context of a recent commentary on Obama’s promise of a new generation of nuclear reactors, Ralph Nader has asked a prescient question: “If these nuclear power plants are so efficient, so safe, why can’t they be built with unguaranteed private risk capital?”

Stossel similarly says, “I like the idea of nuclear energy too, but if ‘America is on the cusp’ of a revival, then taxpayers shouldn’t have to offer billions in guarantees! In a free country, when something is a good idea, it happens. Private capital makes it happen, without government force.”

Stossel raises and dismisses the disposal issue, which I examine at some length here.

In the end, I agree with Nader and Stossel on this point. But as I’ve said I’m a bit more sanguine about the chances of nuclear to compete on a level playing field. The problem is determining how well it can do without guarantees or subsidies when so many other forms of energy are on the receiving end of government largesse. It’s not right to ask nuclear power to go unsubsidized when its competitors don’t have such limitations.

For a look at the playing field from 1999-2007, see this summary paper, “Federal Financial Interventions and Subsidies in Energy Markets 2007” (PDF). Historically nuclear power has been handicapped relative to the incentives given to other forms, including fossil fuels. Add to that the extra regulatory burden, and you can see why there’s been so little movement in building new power plants in the last thirty years.