Cronyism’s Costs
It’s not enough to blame misguided Keynesian stimulus in all its forms — the specific 2009 legislation, annual trillion-dollar deficits, central bank quantitative easing, and others — for both the depth of the recession and the horrid three-year so-called recovery which has followed it. There’s much more to this story of epic underachievement, and most of it involves cronyism.
Though it has always been present to an extent and will never disappear as long as humans remain imperfect creatures, our Punk President (named by me) and his Gangster Government (tagged by Michael Barone) have taken cronyism — other than the financial industry component of the TARP bailouts, which Obama enthusiastically supported — to levels never before seen in the history of this great nation.
Unlike prior administrations, Team Obama has been brazen, shameless, and unapologetic about its cronyism. Its members have bragged about its results when they’ve been even remotely positive and pooh-poohed the far more numerous and financially devastating failures as mere costs of doing the government’s business. Ultimately, they and their comrades who pretend to be in the “private sector” want Americans to buy into the idea that cronyism on steroids is the only way things can get done in what is an otherwise opportunity-barren, unfair world.
Their supposed signature achievement is General Motors, whose government takeover — never envisioned by George W. Bush, who nonetheless created the hijacking opportunity — Obama believes could become a kind of model for general application (“Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry”).
Really? GM received at least $50 billion in government aid and thus far has saddled taxpayers with a $25 billion loss. Thanks to a special break approved by the Obama Treasury Department, it is escaping and will continue to escape paying tens of billions in income taxes on its post-bankruptcy income by carrying forward its pre-bankruptcy losses, something other firms emerging from insolvency cannot do. At least $70 billion in these and other subsidies, tax benefits, and assorted favors — an amount which is probably greater than the cronyism losses seen during any other single presidential term before the turn of the century – has been expended in the name of protecting roughly 70,000 jobs (that’s $1 million per job) and keeping the United Auto Workers Union alive. Despite all of Uncle Sam’s help, GM has seen its U.S. market share shrink to 18%. According to some experts, it is mismanaging its way to a still distant but distinctly possible return to bankruptcy.
Crony Chronicles.org, an enterprise of the not-for-profit Charles Koch Institute (yeah, that Charles Koch Institute; deal with it) which is doing necessary and arduous work aggregating examples of and educating Americans about cronyism, defines the term as follows:
Cronyism occurs when an individual or organization colludes with government officials to get 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.
Cronyism has nothing to do with capitalism as envisioned by Adam Smith and his successors or as practiced in free-market situations. Thus, the term “crony capitalism” is nonsensical.
Cronyism should not be confused with what I will call “favoritism,” which abounds in the private sphere and ordinarily isn’t a bad thing. Relatives (technically “nepotism, a subset of favoritism), friends, and longtime associates get jobs and opportunities to do business which frequently aren’t available or even known to outsiders. Such people often get jobs when better talent can be found, or have business directed to their firms even when more efficient and higher quality vendors or service providers are available. To the extent one can place a higher degree of trust in a such a person or firm and avoid the often high costs of looking at only marginally better outsiders, engaging in such favoritism often makes economic sense.
This Administration’s open embrace of cronyism and explicit adoption of an Industrial Policy approach to the economy is a big part of its drive to fundamentally transform America. Apart from the explicit streams of revenue available from being the computer vendor of all the personal data it would take to try to redesign and run an economy based on Sustainability (yes that is the lure being dangled to the tech companies and no I am sure that had nothing to do with Buffett buying into Big Blue), many of the big companies see the opportunity to diminish the Creative Destruction process. The 21st Century Skills movement with little knowledge and generic affective skills being pushed globally by the tech companies as ATC21S sure does make it less likely anyone will be inventing a superior product in their garage.
Knowing how important a planned redesigned Corporatist economy is to the broader social and political designs and how education, K-12 and higher ed was the primary transition tool, I borrowed the term Dirigiste from the French statists to describe the phenomenon. Hopefully in time for it to rightfully become a political issue.http://www.invisibleserfscollar.com/why-the-world-makes-far-more-sense-if-you-add-dirigisiste-to-the-things-you-understand/
Jean Francois Revel’s great book Last Exit to Utopia effectively addressed the dangers of Dirigisme to an economy. Let’s learn from the French example in time.
Robin, Thanks for the link.
I just finished your “invisible serf collar” page on dirigisme and I find your explanations completely rationale and appropriate to the US economy in many respects.
It helps to explain what the Dodd-Frank Financial Act really accomplished: It legislated legal protections for the CEOs and officers of “too big to fail banks” if and when their risky plays with derivatives, CDOs, etc. go south.
Can I give an example of this? Of course. The Morgan Stanley Chase (London whale” fiasco this year caused a loss of $6 billion due to bad bets in derivatives. CEO Jamie Dimon was penitent, of course, but said not to worry, his firm could cover $6 billion.
But what if Morgan Chase Stanley’s loss had been $60 billion. Dodd-Frank guarantees a taxpayer bailout to Mr. Dimon! Dirigisme at its finest! Heads, Mr. Dimon wins! Tails, Mr. Dimon still wins, & the US Treasury bails out Chase. Not only does Mr. Dimon keep his job and bonuses, the DOJ won’t prosecute!
A fairly “intelligent” woman at my senior center told me she could never vote for Romney because he would unravel the Dodd-Frank protections for US taxpayers. She said this while we were talking while walking through the senior center parking lot. I tried to explain, but she got mad and got in her car in a huff and slammed the door.
Sigh.
Good point. Dodd/Frank does little to actually stop the practices that led to the financial crisis, and in fact institutionalizes the too big to fail idea, that will surely lead to future bailouts. At the same time, they pack on a whole bunch of extraneous regs, like those for credit cards, that have absolutely nothing to do with the crisis, but will hugely increase regulatory costs, which will actual favor the big firms over the small ones.
I think a far better approach would be to require lower debt to equity ratios for the big financial firms, to limit their leverage, and thus make it more likely the stockholders will bear the consequence of risky decisions, rather than the tax payers and lenders. Make it so the bigger the firm, the less leverage they are allowed to take on, and the more they must finance through equity. And by only putting these requirements on the big guys, that are most likely to be bailed out, it may level the playing field, and encourage divestment into smaller firms, that we could let go broke in a future crisis, without breaking the system.
Free markets allowed the United States to become a world super power. Free markets are wealth creators, crony capitalism is a wealth destroyer. If crony capitalism were a viable economic system then the USSR would be the world leader in every category and Japan wouldn’t have suffered a “lost decade” of economic growth.
The original sin of the United States isn’t slavery, it’s the understanding that the power flows from the people to government and not from the government to the people. Crony capitalism is a return to the Feudal System where kings decided all aspects of daily life. The Founders abandoned the Feudal System and embraced Free Markets as the engine of economic growth. Congress has the lowest approval rating of every public institution in the country and we want to make them kings? Really? Those incompetent, lying, thieving clowns as kings? Well, they do fit the model and just as the Feudal System destroyed Europe it will destroy the United States. All hail King Barack!
I think the author’s opinion that we shouldn’t call this practice “crony capitalism” and that we should just call it “cronyism” was succinct. You apparently do not. Will you at least try to understand that attaching the word Capitalism to cronyism is a typical branding job which was done by the Communist Party of America’s media arm? ABO2012
That’s because cronyism refers to the appointment of your buds to political office. It doesn’t necessarily follow that such appointments mean monopolistic raids on the Treasury. If the author truly wanted to be succinct then he’d simply call it “Fascism” because that’s what it is. Instead, he creates a new meaning to an old word because “Fascism” has such negative connotations. Heaven forbid we use negative terminology to accurately describe State control of the means of production when less accurate terms can be created.
I’m good with “Fascism”, and I see that you are no longer good with “crony Capitalism”. We are on a roll. ABO2012
My understanding is that a more technical term for private concerns using the power of government to secure profits is “rent seeking”. This expression is used in economics textbooks, etc. Maybe we could bring it out into more general usage. The practice itself certainly comes up more and more these days.
We have to be clear that we mean “fascism” in the original sense Mussolini meant it — not Hitler’s crazy racism. In one of his books, he suggested term “the corporatist state” as a good summary. It’s also worth noting that he saw himself as true leftist: he believed he found the way to achieve the Left’s goals without crashing the economy (as the Soviets had done).
I liked your line, “a return to the Feudal System where kings decided all aspects of daily life.”
This is why I wonder if a bloated central government does not need to go on a radical slimmers course for the obese and simultaneously seek to strengthen the hand of local government – those closest to the people and well known by them.
Ending Tyranny Without Violence by Murray N. Rothbard by Murray N. Rothbard
http://www.lewrockwell.com/rothbard/rothbard78.html
You repeated yourself.
Croynism is just a necessary phase on the road to a full-blown differentiation of the proletariats from the apparachiks. It will take a while because all the middle class wealth will first need to be confiscated or destroyed, to marginalize the ones who refuse to go along, and to string along all those who erroneously think that THEY will gain apparachik status.
Democratic Party motto: We’ll take it from them, and give it to you.
Don’t be naive. Those “devastating financial failures” were complete successes. They accomplished precisely what they were intended to: they tricked the gullible into believing they were honest attempts to stimulate the economy while slopping the hogs (donors) so they could turn around and give millions of taxpayer dollars back to the administration’s campaign.
Cronyism is as old as politics, but on this scale it is truly staggering. The repercussions will be felt for decades by everyone. This is Chicago graft on a national scale and, in my opinion, this was the plan from the beginning. This is the big payout to all the Dems supporters, the unions, the inner cities, foreign banks, the tree huggers, the list is long. They set-up the housing crisis under Clinton, it implodes under Bush, whose blamed. They use the financial meltdown to raid the Treasury, kill the economy and explode the debt. This will now be dumped at Romney’s feet as They ride off into the sunset with untold billions unaccounted for and set for life, while the rest of the country struggles to cope. Folks, I tell you, it was all about the money and nothing more. When the Republicans take over in January, and they will, the Left, the Media and the Dems, as in Reid and Pelosi and their incestuous ilk, will be relentless in their daily assault of what Romney and Ryan are doing and how terrible it is, setting up the rerun of the Hillary and Bill show in 2016 because that will be her last run , she’ll be 70. R&R have one chance to get this right or the Republican party will gone and the Tea Party will take-over and it will be bloody, to the delight of the Dems. I hope and pray the the Mormon has the mojo to go mano a mano with the Marxist and prevail and then indict the crooks and put them all in jail.
You are right that cronyism is as old as politics. That’s part of what made feudalism so stable. Mussolini-style fascism is deliberately designed to include cronyism. After all (from a leftist perspective), if politicians are going to collude with their cronies, why not harness that behavior to Leftist ends? Exploit human nature for the Left’s goals, rather than try to achieve those goals by creating a New Soviet Man !
That’s part of why Mussolini-style fascism keeps recurring, e.g. in China.
The stated definition of Cronyism is suspiciously similar to that nasty word – Fascism.
If General Motors is the general template that the Usurper in Chief intends to use during a second term then every investor needs to be afraid, very afraid. The legitimate owners of General Motors, the bondholders and stockholders, had the company literally ~stolen~ from them by Obama and his government goon squads.
If you have a 401k plan ~you~ are one of those bondholders and stockholders, placing your retirement plans directly at risk of confiscation by the same sort of scheme that was used with General Motors.
Fantastic essay. You are doing the heavy work here.
In my sphere I have loved ones and friends who have that soft loathing of capitalism that is so characteristic of liberals. My arguement always begins and ends with this: The basic drive in business is to maximize profits, pure and simple and open. Given this, the purpose of an upright government, then, in so far as government intersects with the private sector, is to harness that drive with honest regulations and fair taxing policy for the good of both the business and the community.
However, these well-meaning and good people loath capitalism because the government and the media have been successful at painting capitalism itself with all the evils of cronyism. And truly, these are good people. It makes no sense for them to hate capitalism. In their minds it is as if the earnest, innocent and well-meaning government falls victim to the appetites of rapacious capitalists. As if the men and women in business are simply more evil than those men and women who go into the government.
Good luck with your project and thank you.
.
It occurs to me with it’s mandate to cease use of incandescent bulbs by date certain, that an oligopoly was formed by our government. Who benefits from this regulatory coup? The manufacture of CFL bulbs is all offshore because of the hazards implicit in their volume manufacture.
Only a few companies are geared up to provide them.
What! The US doesn’t make lightbulbs? The incandescents were regulated out-of-business? All based on “global warming-climate change” data now proven to be a gov’t-sponsored hoax of major proportions and all those save-the-planet regulations issed by the EPA?????? It’s against how many laws to make lightbulbs?
And in case of emergency, we must go how far to restock and that will take how long? Go long on candlemakers and batterymakers. Of course, they’re mostly located offshore too.
Besides, at some point, our ill-informed but-not-in-my-backyard (NIMBY) position/policy/regulatory stance on risk-aversion provides other countries with the evidence to show “corporate exploitation” and spoiling of their backyards, and sue US the taxpayers. One could wager the UN would relish the task. All of it on our dime!
Besides the color of CFLs is awful. It’s not that they don’t have a niche – outdoors, warehouses, street lights, etc. if they can prove their economy.
The Lightbulb Ban was written, putforth and passed by Democrats aided by ill-informed, cowardly Republicans. And, we got $16 TRILLION in debt on a bi-partisan, cooperative effort.
Obamacare is the Ban the Incandecent Act imposed on an entire industry that is critical to US and our family’s survival. And they want to unionize the medical workforce? Like TSA? And Homeland Security workers?
Just sayin that Romney should incorporate this comparison into his campaign rhetoric. Central planning stupidity and corruption easily understood by the voters. And somebodies got some vig on the healthcare deal, starting with AARP.
Cronyism: We can become a third-world nation yet, just keep voting Democrat!