Free Markets, Free People

cronyism


Observations: The QandO Podcast for 16 Mar 14

This week, Bruce, Michael and Dale talk about Tesla, Ukraine, and the missing Malaysian airliner.

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Blatant cronyism? Most likely, yes …

This on-line debacle that’s so embarrassed the Democrats and the Obama administration?  It is likely the result of blatant cronyism.  The inept hiring the incompetent:

A tech firm linked to a campaign-donor crony of President Obama not only got the job to help build the federal health-insurance Web site — but also is getting paid to fix it.

Anthony Welters, a top campaign bundler for Obama and frequent White House guest, is the executive vice president of UnitedHealth Group, which owns the software company now at the center of the ObamaCare Web-site fiasco.

UnitedHealth Group subsidiary Quality Software Services Inc. (QSSI), which built the data hub for the ObamaCare system, has been named the new general contractor in charge of repairing the glitch-plagued HealthCare.gov.

Welters and his wife, Beatrice, have shoveled piles of cash into Obama’s campaign coffers and ­apparently reaped the rewards.

Beatrice Welters bundled donations totaling between $200,000 and $500,000 for Obama’s campaign during the 2008 election ­cycle, according to campaign- ­finance data compiled by Center for Responsive Politics.

Well, how sweet is that?  Give a little, get a lot!  And while this certainly isn’t the first administration or political party to practice cronyism, it certainly is the most open about it.  One would almost think they believe that they are entitled.  A spoils system of sorts.

UnitedHealth Group is one of the largest health-insurance companies in the country and spent millions lobbying for ObamaCare.

The insurance giant’s purchase of QSSI in 2012 raised eyebrows on Capitol Hill, but the tech firm nevertheless kept the job of building the data hub for the ObamaCare Web site where consumers buy the new mandatory health- ­insurance plans.

QSSI has been paid an estimated $150 million so far, but officials couldn’t say how much more the company might collect on the ­repair contract.

Whatever happened to the belief that there should be a distance between politics and business?  Once, it was a point of integrity to ensure there was no shadow or hint of a possible conflict of interest?

Now?  Just line up at the trough, those that gave the most get the most.  As for the work?  Just like every other government program (except health care), they’ll be glad to overpay for shoddy work.

And here we are.

“I’m extraordinarily frustrated,” said Sen. Jeff Merkley (D-Ore.) ­after top Obama-administration officials gave Senate Democrats a private briefing on the state of the Web-site repairs.

He said they were losing confidence the site could be quickly fixed.

“I don’t think there’s confidence by anyone in the room. This is more of a show-me moment,” said Merkley.

I don’t think there’s confidence by anyone in the country – except, of  course, the “true believers”.

~McQ


Worst. Political. Class. Ever.

Pretty much everybody knows Obamacare is a disaster. I mean, everybody who has an ounce of sense. Obviously, that excludes a lot of rank and file Lefty Democrats who think Obamacare is actually a fix or a cure for something, but most of those people are simple dolts anyway. But, apparently there’s plenty of agreement on both sides of the Congressional aisles that Obamacare is an unworkable albatross. How do we know this? Because Democrats and Republicans are negotiating some way to exempt Congress from Obamacare.

Congressional leaders in both parties are engaged in high-level, confidential talks about exempting lawmakers and Capitol Hill aides from the insurance exchanges they are mandated to join as part of President Barack Obama’s health care overhaul, sources in both parties said.

The talks — which involve Senate Majority Leader Harry Reid (D-Nev.), House Speaker John Boehner (R-Ohio), the Obama administration and other top lawmakers — are extraordinarily sensitive, with both sides acutely aware of the potential for political fallout from giving carve-outs from the hugely controversial law to 535 lawmakers and thousands of their aides…

The problem stems from whether members and aides set to enter the exchanges would have their health insurance premiums subsidized by their employer — in this case, the federal government. If not, aides and lawmakers in both parties fear that staffers — especially low-paid junior aides — could be hit with thousands of dollars in new health care costs, prompting them to seek jobs elsewhere. Older, more senior staffers could also retire or jump to the private sector rather than face a big financial penalty.

Plus, lawmakers — especially those with long careers in public service and smaller bank accounts — are also concerned about the hit to their own wallets.

In other words, unless they can exempt themselves from Obamacare’s exchange requirements, health costs for the Congressional employees will rise so much that they won’t be able to afford it.

So, both Democrats and Republicans clearly realize that Obamacare, if implemented in Congress, will kill jobs and raise health insurance costs. Is their solution to repeal Obamacare and save the rest of the country that same burden? No. Of course not. Their solution is to see how they can exempt themselves from the law. The rest of us, who have to live with it? Tough cookies, proles. Health care costs money. Deal with it.

I guess my only question is, why are we not not dragging members of Congress—of both parties—naked and screaming from their offices for a good tar and feathering?

The Republicans may make pleasant mouth noises about repealing Obamacare, but they will never do it. Even if they passed a bill, it’d die in the Senate or get vetoed by the President. So, knowing that, their fallback position is, "Well, let’s at least see if we can get ourselves exempted from it."

Both parties in Congress know Obamacare is an unworkable, unaffordable disaster, and their response is to just give a big "F you" to the American people. And, as far as I can see, the American people are just…gonna take it, tug their forelocks, and say, "As you wish, m’lud." As far as I can tell, the majority of Congress is composed of people so stupid it’s a wonder that they can think clearly enough to walk erect. And yet we keep electing them, and doing what they tell us to do. That idiot from Georgia, for example, who complained in a Congressional hearing that if we send too many marines to Guam the island will tip over and capsize…he got re-elected by his idiot constituency.

We really do deserve the total crapstorm that’s headed our way.

~
Dale Franks
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State cronyism takes a hit in Louisiana

At least temporarily.  You may remember when we pointed our the story of the monks in Louisiana who were making coffins and the state was moving to stop them.  Under Louisiana law, a place must be a “licensed funeral establishment” in which only “licensed funeral directors” may sell “funeral merchandise”.

Now everyone knows that around here we equate choice with freedom.  And, what the state of Louisiana had done, at the behest of the The Louisiana State Board of Embalmers and Funeral Directors is place a restriction that set the bar to entry into the “funeral merchandise” business at a place where it essentially barred entry to anyone who wasn’t a licensed member of that guild.  And, of course, the The Louisiana State Board of Embalmers and Funeral Directors controlled who did or didn’t get licensed.

So when the good brothers at St. Joseph Abbey began making hand crafted wooden coffins and selling them, they were in direct violation of the law the board had helped craft.  More importantly, they were in competition with the carefully crafted state granted monopoly these people enjoyed.

They were told that the only choice they had was to do the following if they wanted to sell their caskets:

[They] must either give up the casket-selling business or become a licensed funeral establishment, which would require a layout parlor for 30 people, a display area for the coffins, the employment of a licensed funeral director and an embalming room.

That’s even though they only desired to make coffins.

When they refused, the board threatened.

[T]he Louisiana Board of Embalmers and Funeral Directors sent the monks a cease-and-desist letter, threatening thousands of dollars in fines and up to 180 days in prison based on a law prohibiting the sale of coffins without a funeral director’s license.

And then sued.

In July of last year, a Federal judge ruled in the Abbey’s favor, as we reported.

The monks won round one in July, when U.S. District Judge Stanwood R. Duval Jr. ruled Louisiana’s restrictions unconstitutional, saying “the sole reason for these laws is the economic protection of the funeral industry.”

So now the 5th Circuit has ruled and guess what?  The monks have won again.  And the 5th was not at all kind to the State Board or the state of Louisiana in its ruling:

In a sometimes harshly worded ruling, a panel of federal appellate judges Tuesday evening smacked down the Louisiana funeral board’s continued attempts to prevent the St. Joseph Abbey monks from selling their hand-crafted caskets. “The great deference due state economic regulation (does not require) courts to accept nonsensical explanations for naked transfers of wealth,” wrote Judges Patrick Higginbotham, Catharina Haynes and Stephen A. Higginson of the 5th U.S. Circuit Court of Appeals in New Orleans. “We insist that Louisiana’s rules not be irrational.”

The appellate judges sent the case to the Louisiana Supreme Court, refusing to consider the funeral board’s appeal of a previous court’s ruling that found it unconstitutional for the state to give funeral directors exclusive rights to sell caskets.

“Simply put, there is nothing in the licensing procedures that bestows any benefit to the public in the context of the retail sale of caskets,” U.S. District Court Judge Stanwood R. Duval Jr. ruled in July 2011. “The license has no bearing on the manufacturing and sale of coffins. It appears that the sole reason for these laws is the economic protection of the funeral industry,” which he wrote is not “a valid government interest.”

Of course, there’s no telling what the LA Supreme Court will do.  However until then, the monks are free to sell their significantly less costly caskets in Louisiana without having to clear the high bar of entry set by the crony state.

Oh, and here’s the irony and another reason the court found for the monks:

“To be sure, Louisiana does not regulate the use of a casket, container, or other enclosure for the burial remains; has no requirements for the construction or design of caskets; and does not require that caskets be sealed,” according to the court. “Individuals may construct their own caskets for funerals in Louisiana or purchase caskets from out-of-state suppliers via the internet. Indeed, no Louisiana law even requires a person to be buried in a casket.”

As plain and transparent state enforced cronyism as one can find. There are certainly more, as we all know, and they’re practiced by all levels of government. But all of them, each and every one of them, should be identified, challenged and dismantled – root and branch.  Government has no business using its force and power to protect businesses from competition because doing so limits choice and thereby limits its citizen’s freedom.

Cronyism has no place in a free society.

~McQ


Obama Administration shuts down half of Alaskan National PETROLEUM Reserve

Note the capitalized word in the title?

The WSJ fills in any blanks:

President Obama is campaigning as a champion of the oil and gas boom he’s had nothing to do with, and even as his regulators try to stifle it. The latest example is the Interior Department’s little-noticed August decision to close off from drilling nearly half of the 23.5 million acre National Petroleum Reserve in Alaska.

The area is called the National Petroleum Reserve because in 1976 Congress designated it as a strategic oil and natural gas stockpile to meet the “energy needs of the nation.” Alaska favors exploration in nearly the entire reserve. The feds had been reviewing four potential development plans, and the state of Alaska had strongly objected to the most restrictive of the four. Sure enough, that was the plan Interior chose.

Why?  Because Ken Salazar in his infinite wisdom, knows more about all of this that you proles, especially the proles in Alaska. The excuse?

Interior Secretary Ken Salazar says his plan “will help the industry bring energy safely to market from this remote location, while also protecting wildlife and subsistence rights of Alaska Natives.” He added that the proposal will expand “safe and responsible oil and gas development, and builds on our efforts to help companies develop the infrastructure that’s needed to bring supplies online.”

Got that?  Restricting use of a area designated by Congress for a specific purpose, a purpose backed by the state in which the area is located, will “help industry” and expand “safe and responsible oil development”.

Really?

George Orwell, call your publisher.  Time to update Newspeak.  Up is now down, and restrictions now “help industry” and “expand” development.

Meanwhile in coal country:

Two coal companies in Pennsylvania blamed President Obama and his Environmental Protection Agency (EPA) for the layoffs announced last week.

“[T]he escalating costs and uncertainty generated by recently advanced EPA regulations and interpretations have created a challenging business climate for the entire coal industry,” said PBS Coals Inc. President and CEO D. Lynn Shanks in a statement on Friday, as noted by the Pittsburgh Post-Gazette. The company also cited weaker-than-normal demand for coal.

Shanks’ comment on the EPA came as he announced a 28 percent work force reduction. “PBS Coals Inc. and its affiliate company, RoxCoal Inc., laid off about 225 workers as part of an immediate idling of some deep and surface mines in Somerset County,” Post-Gazette added. “The company now employs 795 workers.”

Yes, the Obama promise to essentially put coal out of business is indeed making progress.

So wait, we have the administration restricting the oil industry in Alaska and the EPA causing layoffs in coal country, and my guess is Obama will attempt to brag about how many jobs he’s created tomorrow night.  Any takers?

That said, guess who is getting “fast tracked”?

The Interior Department set aside about 285,000 acres for commercial-scale solar in Arizona, California, Colorado, Nevada, New Mexico and Utah. The federal government will offer incentives for development, help facilitate access to existing or planned electric infrastructure and ease the permitting process in the 17 zones.

“Energy from sources like wind and solar have doubled since the president took office, and with today’s milestone, we are laying a sustainable foundation to keep expanding our nation’s domestic energy resources,” Interior Secretary Ken Salazar said. …

The development program approved Friday cuts some up-front costs for developers, as the federal government already has performed National Environmental Policy Act assessments for the sites.

I’ve been writing about the plan to carpet the desert with solar panels for a while.  But there’s a bit of irony here as Erica Johnsen of Hot Air points out.  First the news:

The administration fired the most recent volley Wednesday by affirming tariffs on Chinese imports. The Commerce Department determined Chinese solar panels were sold below fair value and that its solar businesses unfairly received direct government support.

Now for the irony:

Yes, you read that correctly — even with all of the many types of subsidies and special government treatment the solar industry receives, they still can’t compete, so the government affords the domestic industry protectionist tariffs… purportedly because China gives its own industry unfair government help.

Amazing.

Anyone who still thinks this isn’t the most political, inept, corrupt, ideologically driven and opaque administration in the history of this country has to have been living under a rock for a few hundred years.

This bunch makes one pine for Jimmy Carter.

~McQ


Quote of the Day: Pro-market edition

From Professor Luigi Zingales:

“There is not a well-understood distinction between being pro-business and being pro-market. Businessmen like free markets until they get into a market; once they are in it they want to block entry to others. Pro-marketeers want free markets at all times. The more conservative pro-marketeers are fearful of criticising business, because they assume they will be seen as criticising the free market. But we need to stand up and criticise business when business is not helping the cause of free markets.”

We talk a lot about crony capitalism.  Well what the good professor is talking about when he says that businessmen like free markets until they get in one and then they try to “block entry to others” is part of what we’re talking about.

One aspect of cronyism is where businesses attempt to use the power of government, if they can so influence it, to give their company sweetheart regulations, raise artificial barriers to entry and to otherwise impede competitors to the point that they have an advantage.  I’d like to say advantage in the “market”, but the market, at that point, no longer exists as a free one.  It is now a distorted market due to government cronyism.

That’s something that badly needs to stop.  Whether at this point that’s even possible and if it is, how we’d actually go about it are some interesting questions to discuss.

However, the primary point is being pro-business does not necessarily being pro-market and it certainly doesn’t mean you are necessarily for free markets.

We need to change the way we discuss this.  We nee to talk about free markets and roundly condemn any business that attempts to use the coercive power of government to it’s advantage in markets as well as condemning those in government who use its power for such things.

~McQ

Twitter: @McQandO

Facebook: QandO


Nevada’s epic “green energy” failure

Unfortunately these stories are all too common now:

As U.S. Senate Majority Leader Harry Reid prepares to host his fifth annual  National Clean Energy Summit on Aug. 7, a Nevada Journal examination of Nevada’s renewable energy sector shows that over $1.3 billion in federal funds funneled into geothermal, solar and wind projects since 2009 has yielded and is projected to yield just 288 permanent, full-time jobs.

That’s an initial cost of over $4.6 million per job.

So as the Senator from Nevada tries today to justify his profligacy in his home state at your expense via this sham “National Clean Energy Summit”, you can be assured of one thing – No one in government will be held accountable for this, at least not legally. 

The performance of many of these “sons of cronyism” is as dismal as the cost per job is outrageous.

Auditors for Nevada Geothermal Power, a federally subsidized green-energy firm in Nevada, are raising questions about whether that firm is going to fail.

As of last October, Nevada Geothermal Power had 22 employees in Nevada, and, according to the New York Times, had received $145 million in federal subsidies — composed of a loan guarantee of nearly $79 million for its Blue Mountain geothermal project and at least $66 million in grants to the company itself.

The Times called the company a “politically connected clean energy start-up that has relied heavily on an Obama administration loan guarantee,” and said it “… is now facing financial turmoil.”

Today, three quarters later, the latest company audit again questions the “company’s ability to continue as a going concern.”

The firm’s survival, wrote auditors on March 31, will depend “on its available cash and its ability to continue to raise funds….”

And that’s not the only example:

The most recent “clean energy” company failure in Nevada occurred three weeks ago when Amonix, a North Las Vegas solar manufacturing plant that had received more than $20 million in federal tax credits and grants, closed after only 14 months of operation.

Hailed upon its opening by Sen. Reid, U.S. Rep. Shelley Berkley and Gov. Brian Sandoval, the 214,000-square-foot Amonix facility had, at its height, employed some 700 individuals. In 2010, even President Barack Obama praised the Amonix plant, saying the “stimulus” tax credits it received had made an “extraordinary impact.”

Today, the company is bankrupt.

The result is something out of an Orwellian nightmare and the ultimate victim?  The people of Nevada:

In Nevada, consumer energy rates climb higher and higher. According to the Energy Information Administration (EIA), Nevada now has the highest residential electricity rates in the Intermountain West region.

Moreover, so long as present government policies — such as the state’s Renewable Portfolio Standard — remain in place, rates will continue upward.

While Sen. Reid helped Salazar fast-track government-approved renewable projects in 2009, he also used his influence as Senate majority leader to delay and ultimately kill a coal power plant planned for White Pine County.

Coal-powered plants produce electricity at a much lower price than do renewable-powered plants, according to the EIA and NV Energy.

Currently, NV Energy pays 3 to 5 cents per kilowatt-hour for natural gas and coal-fueled power, 8 to 10 cents per kWh for geothermal energy and for wind energy and 11 to 13 cents per kWh for solar photovoltaic energy. Wind and solar photovoltaic energy also require backup power for “intermittency issues.”

The higher costs from renewable-energy production are passed on to Nevada ratepayers in the form of residential electricity rates that are 26 percent higher than those of other Intermountain West states and 7 percent higher than the national average, says the EIA.

Obviously cronyism isn’t just limited to Democrats.  It’s just their turn in the barrel because their cronyism has been such a spectacular disaster here lately.

What none of our elected officials who regularly indulge in cronyism seem to understand is that they call certain things economic principles or economic laws for a reason – they aren’t something you can ignore and expect, for some reason, to be successful in ignoring them.

In this case Richard Epstein of the Hoover Institute again states why what is again being attempted, and failing, is a lesson that the government seems never to learn:

These subsidies programs have failed for mundane but compelling reasons. No government has ever succeeded in trying to shape industrial policy with state subsidies, for the simple reason that it has neither the knowledge nor the incentives to pick which fields make sense to invest in or which firms in these fields have latched onto a viable technology.

No government should, of course, ban investments in solar and wind energy, but the prudent strategy is to let these investments be made by venture capitalists and other entrepreneurs who might actually know what they are doing. And currently, the smart money seems to be steering clear of renewable energy technologies.

And yet we continue to see these sorts of attempts by government to do something it is entirely unequipped (and unneeded) to do.

You know, act like it has better information than … markets.  It never has, it never will.  The results are just about as predictable as sunrise.

Failure.  In some cases epic failure.

In the case of Nevada, government intrusion, at the cost of $1.3 billion of your dollars, has created a whopping 288 jobs and managed to quadruple energy costs for the state’s residents.

And yes, I put that in the epic failure column – but then we’re talking Harry Reid here, so one should be used to epic failure when his name is mentioned.

~McQ

Twitter: @McQandO


Capitalism, cronyism and corruption

Gallup has a new indicator poll out that shows the nation’s national priorities according to its citizens.  It’s interesting in many ways, but primarily because one of the highest calls for action is to address “corruption”. 

 

corruption poll

 

(As an aside, notice the bottom two “priorities).

Notice carefully how the corruption question is phrased – “Reducing corruption in the federal government”.  What sort of corruption?  Well, one type, that most fair minded people would identify, is that which we call cronyism.  As we listen to the uniformed continue to say we’ve been ravaged by the “free market” system, one can only shake their head in wonder that anyone would identify what we have as a “free market system”.  Rarely, if ever, are markets allowed to function as they should in this country (or any others for that matter). 

What we have is a system of cronyism (I’m removing “capitalist” from the description since there’s nothing “capitalist” about such a system) that is part of what is killing us economically.  David Henderson gives us a good description of the system under which we must operate.

What is the difference between free markets and cronyism? In free markets, buyers and sellers are free to agree on price; no government agency restricts who can buy or sell, and no one is told how or what to produce.[1] In contrast, under cronyism the government rigs the market for the benefit of government officials’ cronies. This takes various forms. Governments sometimes grant monopolies to one firm or limit the number of firms that can compete. For example, most U.S. municipalities allow only one cable company to operate in their area even though there is no technological reason more could not exist. The same is true for most other utilities.

Governments sometimes use quotas or tariffs to limit imports with the goal of protecting the wealth and jobs of domestic producers who compete with those imports. President George W. Bush did this in 2002, for example, when he imposed tariffs ranging from 8 to 30 percent on some types of imported steel.[2] Governments sometimes subsidize favored producers, as the Obama administration did with the politically connected solar-energy firm Solyndra. Governments may use antitrust laws to prevent companies from cutting prices so that other, less-efficient companies can prosper: For example, beginning in 1958, the U.S. government prevented Safeway from cutting prices for a quarter of a century.[3]

The entities governments help with special regulations or subsidies are not always businesses; sometimes they are unions. The federal government’s National Labor Relations Board’s (NLRB) complained against Boeing in April 2011, for example. In response to a complaint from the International Association of Machinists and Aerospace Workers (IAM), the NLRB sought to require Boeing to produce its 787 Dreamliner in Washington State rather than in Boeing’s chosen location of South Carolina. According to the NLRB, by saying that “it would remove or had removed work from the [Puget Sound and Portland] Unit because employees had struck” and by threatening that “the Unit would lose additional work in the event of future strikes,”[4] Boeing was making “coercive” statements to its employees. As a matter of fact, it was not. Boeing was simply telling the employees some likely consequences of the union’s actions.

The Boeing-IAM case is not as simple as most of the press implied. It turns out there was a prior case of cronyism. The government of South Carolina promised Boeing “$900 million in tax relief and other incentives” in exchange for moving production to South Carolina.[5] Such is the tangled world of cronyism.

As we discussed on the podcast last night, we have given, or at least allowed government to amass, power to do what it is doing.   We have, over the years, allowed them to use tax exemptions and other favors, etc. to lure businesses to our states (and we’re then thankful for the jobs created) not understanding that by doing so, we empower politicians to be the decision makers in areas that should be the function of markets.  And what does that foster?  A culture that is incentivized to seek out politicians to grant such favors.   To ask for, and receive, subsidies.  To allow politicians to leverage that power into favoring businesses that fit their political agendas.   They become the focus because we have given them the power necessary to grant those favors.

We see the same sort of game played at a national level as described by Henderson.  That has nothing to do with capitalism folks.  It has nothing at all to do with “free markets”.  In fact, it is the antithesis of both.

Probably the most blatant and disturbing example of cronyism came in the auto bailout:

Of course, a much larger instance of cronyism under the Obama administration, one that makes the Solyndra case tiny by comparison, is the bailout of General Motors (GM) and Chrysler. Bush and Obama together diverted $77 billion in TARP funds to GM and Chrysler. In organizing their bailouts and bankruptcies, Obama  violated the rights of Chrysler’s creditors and gave a sweetheart deal to the United Auto Workers union.

Law professor Todd Zywicki provides the details:

In the years leading up to the economic crisis, Chrysler had been unable to acquire routine financing and so had been forced to turn to so-called secured debt in order to fund its operations. Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the “absolute priority” rule— since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company’s secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers—unsecured creditors, but possessed of better political connections—received more than 40 cents on the dollar.

Pure cronyism.  The bankruptcy rules were thrown out by government in order to pay a favored constituency – labor.  Henderson explains:

Moreover, in a typical bankruptcy case in which a secured creditor is not paid in full, he is entitled to a “deficiency claim”—the terms of which keep the bankrupt company liable for a portion of the unpaid debt. In both the Chrysler and GM bankruptcies, however, no deficiency claims were awarded to the creditors. Were bankruptcy experts to comb  through American history, they would be hard-pressed to identify any bankruptcy case with similar terms.20

Why did the Chrysler bondholders not object? Many did. But, Zywicki notes, the federal government (in this case, the U.S. treasury secretary) had enormous power over financial institutions through TARP, and these institutions owned much of  Chrysler’s secured debt.

While this has been going on for quite some time, never has it been as blatant as with this administration.  And that blatancy is what has pushed the corruption priority up the list to where it stands second to job creation in this horrific economy.

What can be done to remedy this cronyism “corruption”.  Only one thing, and unfortunately, those enjoying the power are where the remedy must come:

There is only one way to end, or at least to reduce, the amount of cronyism, and that is to reduce government power. To reduce cronyism, we must abolish regulations and cut or abolish special government subsidies. That way, there is nothing to fight about. For example, the government should not bail out companies or give special subsidies and low-interest loans to companies like Solyndra that use technologies or produce products that the government favors. It should have unilateral free trade rather than tariffs, import quotas, and other restrictions on imports.

Will it happen?  No.  Those who tout the power of markets and demand they be given priority are now considered “radicals”.  Just listen to President Obama talk about the former administration and try to convince you “we tried their way before and look where it led”.    Spinning a regime prior to his that was as wrapped up in cronyism as is his and claiming it represented free markets is standard, disingenuous, leftist boilerplate with nary a leg to be found standing in reality.  It is pure, fatuous BS.

The “corruption in the federal government” isn’t lobbyists.  They’re a  symptom of that corruption.  The problem resides under the Capital dome and within the offices of the executive branch.  They have the power that is sought by the lobbyists.  No power and there would be no petitioners.   Instead, we see the number of petitioners for favorable treatment by government (usually at the detriment to their competitors) continuing to expand.

So while the public has finally identified a major problem (thanks to the blatancy of this administration) it has a long way to go before it realizes the means by which it must be fixed.  Stripping the federal government of its power to grant favors to its cronies is almost an impossible task, given we have the fox in charge of the hen house.

I see nothing in the future that says those who must fix this are willing to divest themselves of the power to grant favors (see recent farm bill, an orgy of subsidies and pay offs (earmarks), for a perfect example).   Show me when they’ve ever divested themselves of any meaningful power they’ve accrued.

And so cronyism will continue and we will continue to circle the drain of economic collapse.    Meanwhile, Coke and Pepsi will fight about the marginal nonsense that won’t make a significant difference and make all the usual promises about being the panacea for all our ills that voters have been pining for so long.

Or it is “kick the can down the road” politics as usual.

Happy Monday.

~McQ

Twitter: @McQandO


Crop cronyism’s destructive results

We talk about it.  Politicians condemn it.  Nothing ever happens to change it though.

This year’s agriculture bill again redistributes your money to rent seekers:

Combine a Midwestern drought with pointless ethanol mandates, and the supplies of corn inevitably dwindle, driving prices sky high. Politicians like Sen. Claire McCaskill, Missouri Democrat, are citing the crop crisis as an excuse to ram through a near-$1 trillion farm bill. While a bit of that cash might find its way to a small farmer, the bulk of the loot will be transferred to individuals who are anything but poor. Like the bank bailouts and TARP, the farm bill illustrates the capture of the legislative process by special interests.

The last farm bill in 2008 was the focus of $173.5 million in lobbying expenditure, according to a report released Tuesday by Food & Water Watch. This is all money spent on what the Mercatus Center’s Matthew Mitchell calls “unproductive entrepreneurship” where people are organizing and expending their talent to become rent seekers, and the end result is wealth redistribution, not wealth creation. Real entrepreneurship innovates in ways that are socially useful. Cronyism diverts resources — both money and talent — into a system that rewards privileges to favored groups. In the case of the 2008 farm bill, recipients of subsidies of $30,000 or more had an average household income of $210,000.

Mr. Mitchell argues that “government-granted privilege is an extraordinarily destructive force” because it not only results in a misallocation of resources and slower growth, it undermines civil society and the legitimacy of government by providing a rich soil for corruption.”

She’s absolutely right.  And, of course, when you mess with markets, like has been done with the corn market and mandated ethanol, the expected results occur when something unanticipated, like a drought, happens:

Corn and soybeans soared to record highs on Thursday as the worsening drought in the U.S. farm belt stirred fears of a food crisis, with prices coming off peaks after investors cashed out of the biggest grains rally since 2008.

Corn prices crossed into uncharted territory above $8 per bushel — about three-and-a-half times the average price 10 years ago of $2.28. Soybeans punched past $17 for the first time — also three-and-a-half times the 2002 average.

Analysts said that while forecasts for continued dry weather are expected to sustain the rally, corn prices could be vulnerable to any move by the government to lower the amount of corn-based ethanol blenders are required to mix with gasoline.

Notice what entity is mentioned in the last paragraph?  Yes, government. A key player in the increase in corn prices (yes, understood, they’d be higher with the drought alone, but government’s ethanol mandate has driven them even higher yet).

Meanwhile, as mentioned above, we’re subsidizing agriculture to the tune of $1 trillion dollars of your money (in cash or in debt to be paid back in the future).  Meanwhile, you’ll be paying more for corn based products at the grocery store as well.

Nita Ghei lays out the bottom line problem with this sort of cronyism and rent seeking:

Government privileges come in many forms, direct and indirect. It might be a monopoly, such as the one granted to utilities like Pepco. Regulations such as licensing can be used to limit entry to a particular field to the benefit of existing businesses. Lobbying and the revolving door in Washington create what economists call “regulatory capture,” which is what happens when existing firms use regulatory agencies to benefit themselves. Tax breaks, loan guarantees and subsidies are the most direct signs of a government’s favor. Bailouts of big banks under TARP, and Fannie Mae and Freddie Mac when the housing bubble burst, are the most recent examples of direct action.

Extending each of these privileges reduces America’s economic competitiveness. A monopoly protected by the government has little incentive to provide good service. The greater the availability of privileges, the greater is the incentive to indulge in rent seeking, which diverts resources from truly productive activities. In the long run, the result of anti-competitive policies is less innovation, lower growth and a smaller pie to share.

The greatest scourge to the honest Midwest farmer is not unfavorable weather, pestilence or disease. Far worse for them is the plague of politicians who create an artificial market in which only those with influence can truly compete. Defeating the budget-busting 2012 farm bill is the best chance at a good harvest.

The chances of that happening, however, are slim to none.  Regulatory capture is as common now as government debt and unemployment.  It is a systemic problem that rewards rent seekers and the well connected to the detriment of innovators and competition.  It is the antithesis of capitalism.

Unless we have the will to stop this sort of cronyism, we’re on a short road to failure.  This is another, in a long line of government programs, that are unsustainable, destructive and just flat something government shouldn’t be involved in.

But my guess is, this time next year, we’ll still be talking about it, politicians will still be condemning it and nothing will change except the higher national debt number.

~McQ

Twitter: @McQandO


Why Is The President Pushing Pond Scum?

Well the Washington Free Beacon has an idea:

President Obama’s most recent green energy fixation—algae—may suffer from the accusations of cronyism that have plagued his broader effort to promote non-fossil fuel energy sources through massive federal subsidies.

May suffer?  Read on:

Solazyme, a San Francisco-based firm that specializes in the plant matter, has received more than $25 million in federal grants and contracts as part of Obama administration’s controversial stimulus package, and is poised to receive millions more as part of the president’s recent efforts to promote green biofuels such as algae.

The firm employs a former member of the Obama-Biden transition team who, according to one online bio, “played a key role in developing the energy provisions in the economic stimulus bill.”

That’s right, the usual – crony capitalism.  And in this case, you get a twofer.  San Fran Nan’s district benefits.

Be nice if the guy who claimed he was going to change “politics as we know it” wouldn’t revert to “politics as usual” at every opportunity to pad his re-election campaign and help out his cronies, huh?

~McQ

Twitter: @McQandO

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