Free Markets, Free People

crony capitalism


Government coercion, crony capitalism and freedom limiting laws — see light bulb ban

Reading a POLITICO article today, I found it pointed like a blazing neon sign to one of the persistent problems crony capitalism brings us each and every day.  And the result is less choice (i.e. freedom) and competition as industry and government team up to limit both.

This concerns the incandescent light bulb ban that was voted into existence by Congress and signed into law by President Bush.  It was all supposedly done for our own good (you know, that well worn path to hell paved with good intentions) – incandescent bulbs are considered “inefficient” and used more energy than the new, green bulb of choice that the government thinks you should use. 

Of course the government also knows that if left it up to you to choose, you most likely wouldn’t choose the bulb government prefers. 

So instead of letting you and the market decide, Congress decided to use its power of coercion to do that for you.  One less thing to worry your silly little head over prole.

And so the ban went into effect and the industry began to plan and change over.  Now, read this from the POLITICO story:

Big companies like General Electric, Philips and Osram Sylvania spent big bucks preparing for the standards, and the industry is fuming over the GOP bid to undercut them.

After spending four years and millions of dollars prepping for the new rules, businesses say pulling the plug now could cost them. The National Electrical Manufacturers Association has waged a lobbying campaign for more than a year to persuade the GOP to abandon the effort.

Manufacturers are worried that the rider will undermine companies’ investments and “allow potential bad actors to sell inefficient light bulbs in the United States without any fear of federal enforcement,” said Kyle Pitsor, the trade group’s vice president of government relations.

So, if industry wants these rules, why is the GOP grinding them to a halt? Republicans say they’re pro-choice when it comes to light bulbs.

Government intrudes and makes a decision that circumvents the market and removes your ability to choose.  Another example of picking winners and losers, something for which it has a dismal record.   And for 4 years the industry is forced to spend money it might not have spent to retool and prepare to abide by the bad law.   It certainly makes sense that they’d be quite put out at a change in that law now because while they’re not prepared to meet the demand for incandescent bulbs.  So they claim to “fear” that “bad actors” might sell “inefficient light bulbs” in the US if it is repealed.

Really?  Like the market wouldn’t weed out “bad actors” fairly quickly?  No, what manufacturers now want is government, who made the law, to protect their 4 year investment based on that law.   Funny how that works isn’t it?

This is about nothing more than industry petitioning government to protect the investment forced on industry by government.  And why does it feel it must be protected?  Because if it isn’t, the market will most likely reject the government’s preferred product, a product on which these manufacturers have the inside track for providing.  Jacob Sullum at Hit and Run lays it out:

"A host of more efficient products already line store shelves." The [NY] Times concedes that "many of the alternatives to incandescent bulbs are more expensive." In fact, all of them are, including compact fluorescent lamps (which cost about six times as much as standard incandescents), halogen bulbs (10 times), the new extra-efficient incandescents (ditto), and LEDs (80 times). Why pay so much more, especially when—as with CFLs, the cheapest alternative—performance may be inferior? Supposedly because you save enough on energy and replacement costs to justify the investment. If so, why not let bulb manufacturers make that case to consumers, who can then decide for themselves?

Why? Because you proles can’t be trusted to choose the right way, that’s why. That was the entire point about passing the law in the first place.  Lawmakers felt that the decision must be forced on the populace, because if left to the populace they’d most likely choose the “wrong” product because it fits their needs and wallet better than the government preferred one.

All of this based in the specious science that we’re causing global warming by burning fossil fuels.  And those fuels power these inefficient bulbs.  It is up to government to rectify the situation by forcefully limiting our choices by banning certain products via law with the ultimate aim of eventually banning fossil fuel altogether –  something that is cheap and which we have in abundance.   Of course, the means of banning fossil fuels will be much more subtle than just an outright ban.  Government will do its best to make it cost prohibitive to use such fuel.  It’s permatorium, the probable nixing of the Keystone XL pipeline and implementation of policies via EPA over-reach that will raise energy prices and cause energy poverty among a large portion of the population.

But remember, government knows best.

But this case is incredible in the fact that because of bad law,  you have industry in the position of asking the bad law be enforced.  If the ban on the incandescent bulb is lifted, the guarantee the law promised them for a high-margin return on their investment is in jeopardy.  Sullum picks up the absurd argument that follows that absurd situation:

Aren’t Republicans supposed to be pro-business? Sometimes they are actually pro-market instead, and this is one of those cases. A spokesman for Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources Committee, claims "the only people we are aware of who have opposed the bulb standards are some politicians and some conservative commentators." If legislators, regulators, environmentalists, and even the industry all agree this mandate is a good idea, why would consumers object? Maybe because the whole premise of the policy is that their choices do not matter because they are too stupid to know their own interests.

Bingo.

Whatever happened to the premise of freedom of choice?   Whatever happened to the idea that government was the servant, not the master?  Who was it that decided the government should be deciding what we use to light our homes, fuel our cars or any of a myriad of other things it has decided over the decades it should choose instead of you?

This is where it inevitably leads.  This is a case study in government over-reach and how it incrementally bleeds your freedoms away.  In my opinion all laws such as the ban on incandescent light bulbs is the modern version of the Intolerable Acts.

~McQ

Twitter: @McQandO


Former SEIU boss: We should emulate Chinese economic model

You can wade through all the trash he throws up there as a preface to his central point, but I’ll save you the trouble.  Writing in the WSJ, Andy Stern says:

The conservative-preferred, free-market fundamentalist, shareholder-only model—so successful in the 20th century—is being thrown onto the trash heap of history in the 21st century. In an era when countries need to become economic teams, Team USA’s results—a jobless decade, 30 years of flat median wages, a trade deficit, a shrinking middle class and phenomenal gains in wealth but only for the top 1%—are pathetic.

This should motivate leaders to rethink, rather than double down on an empirically failing free-market extremism. As painful and humbling as it may be, America needs to do what a once-dominant business or sports team would do when the tide turns: study the ingredients of its competitors’ success.

No poisoning the well there, huh?  The “conservative-preferred, free-market fundamentalist, shareholder-only" model?  Really?  Where? 

And why was it “so successful in the 20th century” and why is it having problems now?  Well that’s a fairly easy question to answer.   What happened increasingly in the 20th century that is at an all time high now?

Answer?  Government.  It has increased dramatically in both size and intrusiveness.  We don’t have a “free-market” system anymore.  Haven’t for quite some time.   It’s a convenient shibboleth used by opponents of free markets such as Stern.  We have a government that has, in the century cited, turned it into crony capitalism.  Any resemblance here in the 21st century to a “free market” model is purely coincidental.  And we now have a debt drag imposed by out of control government spending that has finally topped our total yearly GDP.

As usual, with those who think China has figured out how to build the socialist dream, they never figure in the damage done to the model that was “so successful in the 20th century” because doing so kills their entire premise.   Government is their vehicle to both wealth and social justice.   They have no concept of how markets work so are gullible enough to still believe that central planning, properly done, can work.  And they take the fact that China has risen economically as proof of their premise.

What they don’t do is look behind the curtain.   Stern talks about his trip there, “a trip organized by the China-United States Exchange Foundation and the Center for American Progress—with high-ranking Chinese government officials, both past and present.”

Yes indeed, very likely to see the underside of the economy is a show tour aren’t you?

A caller to Rush Limbaugh who spends a lot of time in China lays out the reality there:

CALLER: Because once you get outside of the main cities, there are still people plowing fields behind cows and oxen, still hand harvesting corn, grains, rice. I mean, it’s still very much a Third World economy once you get outside of the main cities.

RUSH: With a First World military.

CALLER: Yeah, that’s true.

RUSH: That’s where much of their spending goes. Their infrastructure is built on the cheap, too. Doesn’t take much wind to bring down some of their so-called powerful infrastructure. But, you’re right, and this is what President Bush was telling me, that the big challenge is keeping those peasants behind the oxen. Don’t [let] them into the city. The cities can’t handle them. The cities are teeming with people already. But it’s always been the case that there is this romance — the left has romance — with the romantic attachments to all these tyrannical communist regimes, and now they’re looking at China and you’ve got this Andy Stern guy and other people telling us, "This is what we need to be. We need to emulate the ChiComs. The ChiComs are doing it right."

This is simply the usual nonsense wrapped up in a little different packaging.  It is the leftist dream – a strong central government planning the economy in which it ensures social justice as its highest priority (btw, China is an environmental disaster area, but you won’t hear that from the likes of Stern).  And that doesn’t mean market capitalism, even if the Andy Sterns of the world want you to believe that.  

While he avoids the obvious problem of government intrusion and its disastrous effect on the economy, he does touch on the political problem we still endure.   We have politicians who prefer being Santa Claus to the Grinch and whose whole political horizon never goes beyond the next election.

But the central problem we have isn’t needing a new economic model.  Instead we need to go back to the old one before it was corrupted and distorted by government.   Instead of more government, as Andy Stern wishes, we need precisely the opposite – much less government.

If we want to regain our economic footing and dominance, what government needs to do is get the hell out of the way, get spending under control and pay down the debt (which should become its primary focus over the coming decades) to eliminate the debt drag it has created.

Other than that, it’s job is to be the night watchman, not Santa Claus.  Our problem isn’t economic models.  Our problem is exactly what Stern wants more of.

Obviously economics wasn’t his strong subject in whatever schooling he received and history was apparently completely skipped.  How else to explain the utter nonsense he pushes in his article?

~McQ

Twitter: @McQandO


Peter Schiff engages OWS and makes some good points

Watch and listen. Schiff makes a lot of points we’ve been hitting for years. It is a fundamental misunderstanding of capitalism and what it is that drives a lot of the OWS supporters to focus on the wrong entities. Schiff has a lively discussion with them. Interestingly some agree and some simply won’t take the ideological blinders off. You’ll quickly identify who is who.

~McQ

Twitter: @McQandO


Should Liberal’s support Occupy Wall Street?

That’s the question the editorial staff asks and answers in an editorial written for the publication’s November 3rd edition.

The answer they give is a qualified “no”.  Qualified in that while they sympathize with some of the points raised (which they note ironically are similar to those raised by the Tea Party), they find the movement mostly too radical. 

Why?  Well here’s the reasoning that struck me as interesting:

One of the core differences between liberals and radicals is that liberals are capitalists. They believe in a capitalism that is democratically regulated—that seeks to level an unfair economic playing field so that all citizens have the freedom to make what they want of their lives. But these are not the principles we are hearing from the protesters. Instead, we are hearing calls for the upending of capitalism entirely.

Okay.  Liberals are capitalists.   Let that sink in.  How does one seek to “level an unfair economic playing field” and claim to be a capitalist, where an unleveled playing field is almost a prerequisite to its economic success.  That may sound odd, but it is capitalists who fund capitalism and they’re usually far and away richer than most of those who end up benefitting from the economic system.

The very people OWS is protesting.

Venture capitalists are usually found in the 1% the protesters are decrying.   While I agree that under law, the playing field should be equal, crony capitalism (which isn’t capitalism at all) should be ruthlessly discouraged and government intrusion in markets dialed back to zero.  I see neither of those latter two items on the liberal agenda.  And remember – capitalism doesn’t claim to have a “level playing field”, but what it does promise is to be like a rising tide and lift all boats to a different and higher economic level of prosperity.   Its record backs that claim.

So make what you will of the editorial’s claim about the liberal version of capitalism, however they are seeking to distance themselves from the OWS crowd because it seems to mostly represent those who anti-capitalist.  However flawed the liberal idea of what constitutes capitalism, they at least acknowledge its worth and the fact that it is the basis of our success.

As Daniel Foster says – “let’s hold them to this” and make sure to remind them the next time they go on an anti-capitalist rant or write approvingly of government intrusion in the markets.

Uber liberal Oliver Willis  rejects everything the New Republic says because, he claims, they’ve been wrong about everything in the past.  I assume that passes for “critical thinking” in WillisWorld.  Willis obviously finds the OWS platform, such that it is in all its anti-capitalist glory, to be pleasing enough in some form or fashion that he implies support.

In fact, I believe what the New Republic sees for the most part is a genuine but very small core of people who began this simply out of frustration and now have the usual radical, anti-capitalist, socialist A.N.S.W.E.R. professional protesters along with labor unions like the SEIU joining in and taking over the protest sensing a chance to again push their tired and failed agendas.

Dana Milbank gives an example on who or what has shown up at the Washington DC event in, well, less than impressive numbers:

But while the Occupy movement in the capital has invigorated left-wing groups — Code Pink, Veterans for Peace, Common Dreams, Peace Action, DC Vote, Community Council for the Homeless and a score of other labor and progressive organizations are represented on Freedom Plaza — it has not ignited anything resembling a populist rebellion. To swell their ranks, protesters recruited the homeless to camp with them.

Already, there are factions. While the Freedom Plaza group, calling itself “Stop the Machine,” prepared to storm the Hart building, an AFL-CIO group was planning a conflicting event on the plaza. A few blocks away, in McPherson Square, an outgrowth of Occupy Wall Street had established an encampment of a few dozen sleeping bags.

The Occupy movement is in the midst of being co-opted by the usual suspects.  And that will bring the usual results.  Rhetoric that most Americans will find offensive coupled with childish actions that will have those who tentatively support the movement drop them like a hot rock.  Right now, of the “99%” out in flyover land, only 36% support the protests.

Anyway, Daniel Indiviglio at the Atlantic pretty much agrees with the New Republic and gives a reason that is more closely aligned with the progressive view of “capitalism” as it defines and supports it and as I’ve always understood them to believe:

The sort of anarchist-socialist radicals that can be found at the OWS protests threaten the progressive view that there are times when it is sensible and morally righteous for the government to intervene and prop up the economy, an industry, or even specific companies, if that action is thought to benefit the economy on a whole. The difference here is that the radicals think the occasional need for a bailout proves that capitalism is doomed and should be shuttered, while progressives believe that bailouts can help capitalism to work.

When you realize what is at the root cause of the problems we now are fighting to overcome, you realize the progressive version of “capitalism” is a failure.   As usual, their instrument of change is the blunt force of government where one doesn’t have to convince, persuade or sell.  Just dictate and do.  That’s the antithesis of capitalism and markets.

I don’t think the word means what they think it means.

But don’t tell them … they really, honestly think they’re capitalists. 

~McQ

Twitter: @McQandO


Solyndra v 2.0 — It’s called SunPower

Another example of the poor job government does in picking winners and losers is emerging.   Solyndra, a solar panel company, was the first to go under, taking with it half a billion in taxpayer money.

Now we have the specter of another “green jobs company” that received guaranteed government loans doing the same.   But this one seems to have consumed over twice the amount of money that Solyndra did.

SunPower is its name and right now, bankruptcy seems to be its game.

How well did the government, via the Department of Energy, do this time?

The Energy Department says on its website that the $1.2 billion loan to help build the California Valley Solar Ranch in San Luis Obispo County, a project that will help create 15 permanent jobs, which adds up to the equivalent of $80 million in taxpayer money for each job.

Brilliant.

The DoE also claims:

“This project underwent many months of rigorous technical, financial and legal due diligence by career employees in the DOE loan program,” Energy spokesman Damien LaVera said in a statement to FoxNews.com. “It was approved for one reason only: because it meets all the requirements of the program – helping America win the clean energy race and create entire new industries for American workers.”

Did it indeed undergo such “rigorous” analysis?  Well if so, then they should have known all about this:

But SunPower posted $150 million in losses during the first half of this year and its debt is nearly 80 percent higher than the market value of all its outstanding shares. The company is also facing class action lawsuits for misstating its earnings.

It truly makes you wonder how bad a company would have to be not to get a DoE loan (obviously it would have to be a “clean energy” company, because those are the “winners” this administration has chosen to fund).

Oh, and then there’s this:

The company is also politically connected. Rep. George Miller’s son is SunPower’s top lobbyist. The elder Miller, a powerful California Democrat, toured the plant last October with Interior Secretary Ken Salazar, and reportedly said, "We’ve worked hard to make renewable energy a priority because it represents America’s future economic growth. Today, businesses like SunPower are moving forward, hiring 200 people for good clean energy jobs in the Easy Bay."

It’s not clear what role, if any, either of them played in securing the loan. Miller’s office did not respond to a request for comment.

An Energy Department official denied crony capitalism was a factor in the loan guarantee.

“The notion that political connections played any role in this application is simply false,” the official said. “This application was approved based on the exhaustive due diligence of the career professionals in the loan program, and nothing else.”

Of course.  Because there was such a sound financial basis to approve such a loan, wasn’t there?

And politicians wonder why people are more and more cynical and less trusting of our government all the time?

~McQ

Twitter: @McQandO


More ObamaCare waivers an indication that it is bad law

There’s  a lot being written and said about the latest batch of ObamaCare waivers and the fact that many have gone to companies in Nancy Pelosi’s area.  And, of course, the agency granting them has claimed that Pelosi had absolutely no effect on them being granted.

Okay, that’s not the important point anyway.  Tim Pawlenty actually manages to stumble across it as he claims cronyism in their grant:

"I don’t blame people for trying to get out from underneath it — that it is an awful law," Pawlenty said. "But when you have that many needs for exemptions, it tells you that the law — it is a warning sign that the law is broken and doesn’t work."

Ya think?  You have about 26 or 27 states challenging the Constitutionality of the bill and its individual mandate.   You have hundreds, if not thousands of companies, agencies and businesses seeking waivers.  And obviously, there’s an organization in place to grant those waivers.  Imagine a job where you review and grant waivers to a law.  I don’t know about you, but that would tell me there must be something fundamentally wrong with it.

Pawlenty is also correct about his broader point – those without the ability to appeal for a waiver are stuck with paying the piper:

"Another example of really crony politics or crony capitalism, if you’ve got the right connections, the right lobbyists, the right interest group, you get your special deal, and the rest of us get our wallet out, and that’s in the tax code, it’s in earmarking, and now you see it in ObamaCare.”

Yes, exactly.  His larger point is absolutely correct.  Those without the connections do indeed end up having our wallets looted.  Cronyism is certainly alive and well and very prevalent not only in the treatment of ObamaCare, but in other areas as well.  Which brings up an ironic point – for the party of “fairness” this seems singularly unfair.  Yet Democrats aid and abet it – in fact, just like Republicans, they use this sort of process to gain favor with certain constituencies … at the expense of others.  And by expense, I’m including paying the bill too.

ObamaCare is an obviously wretched law.  What was supposed to be insurance reform ended up being a polyglot of government bureaucracy at a huge and unaffordable price.

Now we hear the House GOP members saying that repealing it is “hard”.  We hear candidates like Romney and Gingrich saying they agree with parts of it, like the individual mandate.  Cronyism is directly linked to power – it’s a give and take process that benefits politicians.  It comes as no surprise to me that both sides are engaged in it up to their necks.  The problem is it is unlikely to ever get fixed since it is the fox guarding the hen house and enjoying the job.

~McQ

Twitter: @McQandO


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


Quote of the day – Crony Capitalism edition

I think this captures my feelings about the situation:

“[C]rony capitalism” has as much to do with real capitalism as praying mantises have to do with real prayer.” – Donald J. Boudreaux, Cafe Hayek

Boudreaux is responding to an article by Gerald O’Driscoll a few days ago in which O’Driscoll took on the notion that “crony capitalism” is simply an natural evolution of capitalism.  Boudreaux had a slight nit to pick with the author but his characterization of crony capitalism was dead on.

O’Driscoll covers many of the myths that those who want to characterize crony capitalism as a problem only to be found under a capitalist system.  In fact it has little to do with capitalism at all.  It’s simply cronyism and, once you understand what is being described, it can exist under any system that has a government.

You see, that’s the one ingredient that is necessary for it to exist.

Under a free enterprise system – capitalism – the government’s job is to play referee, that is, enforce legal contracts and prevent/punish fraud.   And, there’s a certain amount of regulation necessary to exercise those functions.

But when it gets beyond those parameters, it has a number of effects which have little to do with capitalism or a free market.  When government gives up its role as referee in favor of a reciprocal relationship with those it regulates that also benefits those who run government, you have cronyism.  Obviously, a capitalist system, then, isn’t the only place it can happen.

And how does this cronyism develop?

Public choice theory has identified the root causes of regulatory failure as the capture of regulators by the industry being regulated. Regulatory agencies begin to identify with the interests of the regulated rather than the public they are charged to protect. In a paper for the Federal Reserve’s Jackson Hole Conference in 2008, economist Willem Buiter described “cognitive capture,” by which regulators become incapable of thinking in terms other than that of the industry. On April 5 of this year, The Wall Street Journal chronicled the revolving door between industry and regulator in “Staffer One Day, Opponent the Next.”

Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. The interests of industry and government become intertwined and it is regulation that binds those interests together. Business succeeds by getting along with politicians and regulators. And vice-versa through the revolving door.

We call that system not the free-market, but crony capitalism. It owes more to Benito Mussolini than to Adam Smith.

Government also tends to favor those who favor it.  And this is one of the many things which came to light in this recent financial bailout:

Crony capitalism ensures the special access of protected firms and industries to capital.

Businesses that stumble in the process of doing what is politically favored are bailed out. That leads to moral hazard and more bailouts in the future. And those losing money may be enabled to hide it by accounting chicanery.

Consider the revolving door at Goldman Sacs.  Consider the preponderance of union workers at GM and Chrysler.  Go ahead and try to argue there’s no money connection between those who control the government’s purse strings and regulations and those who have benefited.

Donald Beoudreaux gives a great summary that dispels the myth that “crony capitalism” is a version of capitalism or, in fact, has anything whatsoever to do with it:

To the modern American ear, “anarchy” no longer means simply “no ruler”; instead it now means “no law” – true, free-for-all chaos.  In vivid contrast, capitalism – real capitalism – is infused with law, most of which is self-enforcing.  The manufacturer who pays his suppliers late gets poorer credit terms in the future; the retailer who cheats her customers loses business; the customer who doesn’t pay his bills can no longer buy on credit.

The chief problem with crony capitalism is precisely that it injects significant amounts of lawlessness into the economy, transforming capitalism into something entirely different and dysfunctional.  Under crony capitalism, government excuses the politically influential from capitalism’s laws.  Thus unleashed from the impartial discipline of the invisible hand, the politically influential become criminals who lie, rape, pillage, and plunder.  And that’s true lawlessness and chaos.

So don’t let the enemies of capitalism get away with calling it crony capitalism.  It’s cronyism, pure and simple, and it can and does exist with any form of government.  And increased regulation isn’t going to change that dynamic or curtail the developed system of cronyism that we now suffer under.

~McQ

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