We need a bipartisan solution to a bipartisan scourge.
Conservatives need to understand that being pro-business doesn’t mean special favors for business, such as corporate welfare and subsidies. Corporate welfare and subsidies distort markets so they can’t work properly. Many of our current systemic problems in the US are a direct result of massive subsidies which distort and infect every single major sector of our economy and financial sector. Think about the major sectors and the problems we face as a result of subsidies from the Federal government: we have low interest loans for college. This subsidizes college education, which seems to be a good idea, except that the low interest loans create artificial demand for college education, thus putting artificial upward pressure on tuition. Students get low interest loans but are saddled with massive debt they can’t ever pay back. Subsidies are self defeating because they increase demand and prices. Conservatives rationalize subsidies because they help encourage what seems to be socially beneficial behavior while leaving private enterprise ostensibly more or less alone or in charge. This is an illusion. We see the most subsidized sectors of the economy with systemic problems. This is no coincidence. It is cause and effect. Consider the “bubble” in secondary education tuition.
Consider the affordability and access crisis in healthcare. Health insurance is subsidized through tax breaks to business, which encourages excess demand for health care – especially from those who enjoy the largest tax breaks: the wealthy. The wealthy get too much care and the government is forced to pay artificially high prices in order to build social welfare safety nets for disadvantaged households. Housing is another subsidized sector which in 2008 went through a wrenching crisis – from boom to bust, which is still playing out today. We also have subsidized bank deposit insurance and subsidized liquidity injections for the financial sector via the Federal Reserve. Who pays the tab? Tax payers. And big banks just get bigger as new regulations and too big to fail status of the mega banks means the big only get bigger. When subsidies create distortions in the private sector it often appears as if the market is “failing.” In fact, the market is not failing, we are failing the market when we intervene to engineer certain outcomes via subsidies.
The subsidies encourage artificial demand patterns that typically increase demand leading to chronic inflation. Again, it is no coincidence the two most subsidized sectors in the economy are also experiencing the worst crisis in price inflation and access/affordability: higher education and health care. the real estate bubble was an affordability crisis until the bubble burst. We also have massive subsidy programs for farm products that are designed to help family farmers but are typically end up being corporate welfare to big Ag. Subsidies to big banking, education and housing are bi partisan cancers.
The Dems love subsidies for green energy. We can see what happen with the first generation of such subsidies with the ethanol disaster!! The same will happen with subsidies for solar, wind and other renewable energies. Solyndra is not just an exception, but the rule in government subsidies aimed at helping promote green energy. The market chooses winners and losers; when the government gets in the game it is a sink hole for public resources and a boon to cronyism.
Conservatives love to pretend that the military industrial complex is not about cronyism. It is. That is like saying subsidies to education and green energy and housing are not about cronyism. On paper, none of these subsidies are about cronyism, but in practice, Big Business enjoys benefits from subsidies that benefit big business, not the general public as promised by politicians when the programs are cooked up in the congressional legislative sausage factory.
Subsidies are a national scourge for America because both sides of the aisle get enormous benefits from them. the Federal government subsidizes every major sector in the economy – the result is systemic distortions throughout the economy that beg even larger subsidies more regulations and interventions. These new subsidies, regs and interventions only reinforce the factors that encourage big business or big farm or big pharma or big insurance or big oil or big wall street or big banking to get even BIGGER …. along with big government!
The problems we see with the market are often self created and well intended distortions caused by well meaning subsidies aimed at “fixing” market failures. The fixes lead to what seems like even worse market failures that then beg more intervention and so on. The answer is to peal back the subsidies, not to add more along with new layers of regulations, which force smaller companies out of business and lead to even more industry concentration and systemic too big to fail dynamics get even worse – as we’ve seen in financial markets since Dodd Frank.
The central bank promotes itself as the ultimate cure for systemic risk but in reality it is the ultimate cause as it provides a blanket subsidy to the too big to fail firms that cannot be left to fail lest we risk blowing up the entire economy. How did the too big to fail firms get that big in the first place?? the got that way based on the financial sector subsidy scheme implemented by the Federal Reserve. Since the Fed was established we have eliminated what society regarded as all to frequent financial panics, in their stead we’ve created once in a generation systemic Depressions (Great Depression) or Credit crunches as we saw in 2008-9, a chapter in world history yet to play out fully.
Friday, August 31, 2012
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Cronyism is just as threatening to free enterprise as big government
Virtually every speaker at the GOP convention this week will rail against the escalation of big government and the marginalization of free enterprise, and the damage this is doing to our nation. We agree that out-of-control government is not only unsustainable—it will also make our country a land of learned helplessness instead of earned success, and it will unfairly steal our children’s future. It is immoral.
But we hope GOP convention-goers also remember that, beyond statism, there’s a second and equally-worrying threat to economic liberty in America today: Cronyism, the process by which market competition is shut down by political actors to benefit particular individuals or firms.
Think the GM bailout, the Solyndra deal, the Farm Bill, or a thousand other examples of un-free enterprise today at the hands of politicians and their insider friends in the private sector.
Statism and cronyism are fundamentally about the same things: Letting political power allocate economic resources rather than markets. Both reduce competition and entrench stagnation. They hurt ordinary consumers, squash the process of creative destruction, suffocate honest entrepreneurs, and make America more like Greece. Cronyism is not free enterprise, it’s not fair, and it’s not the American way.
Unfortunately, both parties have a soft spot for cronyism. To call out cronies often means denouncing donors and powerful friends. But nothing is truly going to change in America until we meet both threats to liberty–not just one of them.
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