Free Markets, Free People

rent seeking


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


Rent seeking and the Florida Marlins

First, let me say – I love baseball. Since I was a kid and played in Little League, it has been the game for me. And consequently I’m a huge professional baseball fan. I live for the season and the playoffs.

However, I’m not a fan of professional baseball’s ethics at times. And I’m certainly not a fan of those who own teams and attempt to swindle taxpayers into paying for their new stadiums. Obviously that’s not just something that professional baseball teams do. You can find examples of it among all professional sports teams. But the latest example does come from professional baseball, specifically, the Florida Marlins.

If you follow the game at all, you know that the Miami-Dade county government has agreed to pick up the lion’s share of the cost of a new stadium for the team down there. Owner Jeffrey Loria and president David Samson have, for years, maintained that the Florida Marlin franchise was, at best, a break even venture. They claimed, they needed a new stadium to attract fans and become profitable and if the county couldn’t help provide it, they’d probably have to move the team.

The Miami-Dade County government acquiesced to this blatant attempt at rent-seeking, apparently believing the financial claims of the Marlin’s front office.

Miami-Dade County agreed – without the consent of taxpayers – to take $409 million in loans loaded with balloon payments and long grace periods. By 2049, when the debt is due, the county will have paid billions.

In fact, it is estimated the $645 million dollar stadium complex will end up costing $2.4 billion with all of the loans the county unilaterally took out without taxpayer permission to keep the team in Miami. The Marlin’s franchise will only pay $155 million of the stadium cost.

In case you’re not familiar with the term “rent seeking” or need a refresher, it’s defined as:

The expenditure of resources in order to bring about an uncompensated transfer of goods or services from another person or persons to one’s self as the result of a “favorable” decision on some public policy. … Examples of rent-seeking behavior would include all of the various ways by which individuals or groups lobby government for taxing, spending and regulatory policies that confer financial benefits or other special advantages upon them at the expense of the taxpayers or of consumers or of other groups or individuals with which the beneficiaries may be in economic competition.

That is precisely what the Florida Marlin team has done. As mentioned, they’re not alone. This happens all too often. Tax payers end up being burdened with increased taxation that benefits a private company or business but puts a huge dent in the government’s budget. That’s not how it should work. It is both an abuse of power by government and abuse of the taxpayer by the private entity via its rent seeking.

What’s even worse is it appears the county government may have been conned by the team, according to this report:

Most harrowing is the takeaway that baseball’s biggest welfare case could have funded a much greater portion of the ballpark. In 2009, when the Marlins started spending some of their profits on their portion of the stadium, they still had an operating income of $11.1 million. The team fought to conceal the $48.9 million in profits over the last two years because the revelation would have prompted county commissioners to insist the team provide more funding. Loria, an art dealer with a net worth of hundreds of millions, wouldn’t stand for that. He wanted as much public funding as possible – money that could’ve gone toward education or to save some of the 1,200 jobs the county is cutting this year.

The lesson, of course, is one that governments never seem to learn. The pot of money they have to work with is finite. There’s only so much the taxpayer will stand for. When government involves itself in a project of high cost and dubious worth – no matter what the “experts” tell them about the importance of something like a professional baseball franchise to the city – they usually end up hurting themselves and those they serve. The tradeoff here is actually obvious. Those interest payments on the huge loans taken by the county could have been used to save jobs that actually served the community.

Instead they are going to pay for a stadium from which a private enterprise will profit, even while that private entity pays less than a quarter of its cost.

That’s not the free enterprise system at work. That’s not capitalism. Instead it is an example of corporate rent-seeking – subsidizing business on the back of the taxpayers – that governments do more and more.

No baseball team is worth $2.4 billion dollars, but that’s what the citizens of Miami and Dade county, via their government, have now committed to spend to keep the Marlins there. I’m a fan of baseball, but I’m not a fan of rent seeking. And I’d guess most the taxpayers in Miami, no matter how much they enjoy the game, probably feel exactly as I do.

~McQ


Rent seeking Republicans

That would include almost all of the establishment beltway Republicans:

Ethanol subsidies, oil drilling incentives, government insurance and loan guarantees for nuclear energy, natural gas subsidies: These proposals tend to have as many or more Republican advocates as Democratic advocates. Even worse, self-described free-market conservatives often rally for energy subsidies and claim it’s not a deviation from their principles.

Timothy Carney is exactly right. And in fact, defenders of these sorts of subsidies are easy to find – Newt Gingrich for instance:

Q. Your energy proposals consist largely of incentives — essentially, subsidies. You’ve also fought efforts to remove subsidies from fossil fuels. If you support free, open, and competitive markets, shouldn’t you support removing subsidies that distort the market?

A. [Gingrich] Not if you believe that a low-cost energy regime is essential to our country — both in terms of its internal transportation cost and its competitiveness in the world market.

Of course that argument can be made for absolutely any politically desired program.  In fact, Democrats make it for solar and wind power.

So, when you hear establishment Republicans talk about “free markets” it’s really not what they’re talking about – instead they’re talking about favored businesses.  Or, as Carney points out, they’re more pro-business than pro-market.  Crony capitalism – not free markets.

As Dan Riehl argues that’s why grassroots conservatives and establishment “conservatives” really don’t see eye to eye:

Herein lies the dirty little secret of why the GOP is slow to actually empower the grassroots and conservative movement. It’s also why, in some measure, we can no longer rely on the so called Beltway conservative establishment. Just like Republicans, they’ve come to rely on corporate money, allowing them to drive a large part of their agenda.

Or, unsurprisingly, they’ve been co-opted – more in a long line politicians reduced to rent-seeking for favored corporations to fund their re-election campaigns.

When the GOP talks about being “pro-market”, you’re advised to take that with a grain of salt.

~McQ

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