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Cronyism's Costs

In a free-market economy, there's a control on firms which too frequently cross the line into hiring poor workers and inferior suppliers on grounds of favoritism alone: Leaner, higher-quality, and more innovative competitors will take business away from them, and will ultimately put them out of business if they don't get their act together.

Favoritism becomes cronyism once governments become involved. The fear of going out of business facing firms in the private sector largely disappears, at least in the short and intermediate term. State and local governments which allow their costs to spiral out of control by hiring too many ineffective cronies, getting too chummy and generous with cronies in organized labor, or handing out too many excessively priced contracts to crony firms simply raise taxes and threaten dire consequences if they don't get their way. Their ability to pursue relentless tax-and-spend policies and the cronyism which almost inevitably accompanies them is somewhat but nowhere near sufficiently limited by balanced-budget laws, the ability of people and firms to "vote with their feet" by moving to other locales, and ultimately in the long-term, as residents of many California cities are learning, by bankruptcy.

Unfortunately, the federal government as currently structured can fund their cronyism by running deficits, printing money without limit, and engaging in accounting maneuvers which would put private-sector players behind bars. The only controls are executive and legislative branches determined not to play the game, which hasn't been the case in either branch for decades, and an electorate which promptly and consistently throws out the rascals.

Crony Chronicles identifies three distinct forms of cronyism, all of which could be applied to numerous Obama administration programs and initiatives:

  • Manipulation of the tax code -- See GM above.
  • Corporate welfare -- Earlier this month, we learned that the Obama administration allowed (I'm not kidding) a private equity group to acquire a majority interest in a Philadelphia, Pennsylvania, refinery which had been targeted for shutdown for no initial investment (well, "at least" it wasn't the hated Bain Capital). This conveniently saved over 800 union jobs and avoided a potentially steep spike in northeastern gas prices. The Keystone State "just so happens" to be a November presidential election swing state.
  • Regulation and its selective enforcement -- While continuing its environmental war on Texas, the Environmental Protection Agency granted the buyers of the aforementioned refinery an exemption from "a 2005 consent decree with the Environmental Protection Agency under which Sunoco (the previous owner) agreed to limit emissions ..."

Two other items Crony Chronicles identifies as unfortunate effects of cronyism are exponential increases in lobbying for special favors and the employment revolving door between the government and its "private" beneficiaries.

Ultimately, we will pay a difficult to measure but undeniably steep price if the culture of cronyism and its concomitant corruption come to be seen, as Obama clearly wants them to be seen despite his 2008 campaign promises and current pious pronouncements, as the only way to get things done and the easiest path to career advancement. The bigger the federal government has gotten, the worse the cronyism has become. The best idea for reining it in is to sharply reduce the size of government.

Crony Chronicles has produced a brief video on cronyism's potential impact on society should it become deeply ingrained. Showing a number of children with traditional positive dreams of achievement and contrasting them with ones who want to grow up to be power-hungry cronies, it is at once funny and sobering.

What the current culture of cronyism might do to the dreams of our children if it continues for four more years is just one of many reasons why the Oval Office needs a different occupant on January 21, 2013.