And neither have anything in common with real capitalism. But they do have a tendency to privatize profits while socializing losses.
Examples abound, and unsurprisingly, most come in the “green” industries associated with long-time Democratic fund raisers and Obama supporters. For instance, one with which we’re all familiar:
The most publicized instance of so-called “crony capitalism”—investing taxpayer dollars in firms tied to political donors—is the failed solar panel company Solyndra. The Fremont, Calif., firm was the first to receive a taxpayer-backed loan guarantee from the Department of Energy (DOE) in September 2009, worth more than $530 million. The funding for the loan was allocated in the controversial stimulus package passed earlier that year.
Obama bundler George Kaiser was a major stakeholder in Solyndra through his Kaiser Family Foundation, and made several trips to the White House in March 2009 to meet with senior administration officials. In July 2009, Kaiser bragged about securing face time with “all the key players in the West Wing of the White House,” as well as his “almost unique advantage” when it came to steering taxpayer funds toward his pet causes.
“There’s never been more money shoved out of the government’s door in world history, and probably never will be again, than in the last few months and in the next 18 months,” Kaiser told members of the Tulsa Rotary Club. “And our selfish parochial goal is to get as much as it for Tulsa and Oklahoma as we possibly can.”
Although things did not pan out for Solyndra—the company filed for bankruptcy in September 2011—Kaiser can expect to see a better return on his investment than American taxpayers. As part of an agreement to restructure Solyndra’s loan agreement in 2010, Obama’s DOE granted priority status to private investors like Kaiser with respect to the first $75 million recovered in the event of the firm’s bankruptcy, a move that many suspect violated federal law.
Taxpayers, meanwhile, are unlikely to recover much of the money invested on their behalf.
Sound familiar (*cough* GM *cough*). There the bankruptcy laws were tinkered with as well. And in the case of Solyndra, that isn’t the full extent of the cronyism:
Emails uncovered by Congressional investigators reveal that Solyndra helped secure its $535 million loan guarantee with the help of Steve Spinner, another prominent Obama donor. After bundling more than $500,000 for Obama in 2008, Spinner was named to the White House transition team and later served as “chief strategic operations officer” of the DOE loan program that funded Solyndra.
Here’s the other shoe:
Spinner’s wife Allison worked for a law firm that represented Solyndra and several other green energy outfits that applied for taxpayer funding. Records show that her firm, Wilson Sonsini Goodrich & Rosati, received $2.4 million in federal funds in legal fees associated with Solyndra’s loan application.
Ethical questions? Conflict of interest? Bah. And what in the world is the Federal government doing paying a law firm of an applicant for legal services in relation to their loan application?
Like I said, Solyndra is just one of many examples. It just happens to be the best known of the bunch. I would bet you never heard of this little bit of cronyism:
California investment guru John Doerr, for example, has personally contributed more than $170,000 to Democratic campaigns and committees since 2008, and more than $2 million over the past 20 years. His investment firm, Kleiner Perkins Caufield & Byers (KPCB), which lists former Vice President Al Gore as a partner, has given more than $1 million to Democrats since 2005.
An early and outspoken advocate for federal investment in “green” technology, Doerr was named to the president’s Economic Recovery Advisory Board in 2009, where he helped craft the $787 billion stimulus package. Of the 27 companies list in KPCB’s “green-tech” portfolio, 16 received some form of taxpayer support.
Another prominent Obama donor who has benefitted handsomely from the president’s policies is Steve Westly. A frequent guest at White House events and state dinners, Westley served as California co-chair and a National Finance Committee member of Obama’s 2008 campaign and currently sits on the DOE’s Energy Advisory Board.
He has bundled at least $700,000 in campaign donations for Obama since 2008 and personally given about $260,000 to Democratic campaigns and committees since 2007.
Westley’s investment firm, the Westly Group, had a financial stake in four green energy companies that received more than half a billion dollars in federal funding in 2009. The group’s website once touted the firm as being “uniquely positioned” to take advantage of the influx of taxpayer funding in green technology, and currently notes that “To win in the clean technology space, a company must navigate the halls of government.”
Westly has openly acknowledged that knowledge of federal policy is key to investing in green technology. In response to a reporter’s question about which green energy companies he likes to invest in, Westly said: “Who cares what I think. Let’s talk about ‘what does Obama like? Here’s what he likes,’ because here’s where the federal government is putting money. And let me tell you, whatever he likes, that’s what I like.”
Access and a relationship equal profit. Nice, if you’re an insider, huh?
Here’s something Obama “liked”:
One of the companies Obama “liked” was the Exelon Corporation, a Chicago-based utility and recipient of hundreds of millions of dollars in stimulus funding. One of the most politically connected firms in the country, Exelon employees have made up one of President Obama’s top sources of campaign contributions throughout his career.
Exelon was Obama’s fourth-largest campaign donor when he ran for Senate in 2004, contributing more than $73,000, according to the Center for Responsive Politics. The firm donated $326,000 to Obama’s presidential campaign in 2008. The firm has ties to several top Obama bundlers, as well as to Obama campaign adviser David Axelrod and former White House chief of staff and current Chicago mayor Rahm Emmanuel.
As the Washington Free Beacon reported in June, an Exelon subsidiary was recently awarded a lucrative 20-year contract to install solar panels manufactured by federal inmates on government facilities.
The “Chicago way”.
Finally, cronyism comes in many forms:
DreamWorks Animation CEO Jeffrey Katzenberg has bundled at least $500,000 for Obama’s reelection campaign, and is the largest contributor to Priorities USA, the Obama-allied Super PAC.
The Securities and Exchange Commission is currently investigating whether DreamWorks made illegal payments to Chinese officials in order to secure exclusive film rights in the communist nation. The New York Times reported that Katzenberg, as well as Vice President Joe Biden, were intimately involved in negotiating an agreement under which China would up its annual quota of foreign-produced films from 20 to 34 and allow studios to keep a greater percentage of box-office revenue.
DreamWorks announced a $2 billion deal with the Chinese government in February to build a production studio in Shanghai just days after Chinese Vice President Xi Jinping held an extensive meeting with Barack Obama in Washington, D.C.
Nice to have the leverage to engage the president and VP in your business pitch, no? Guess 500K bundles help make that happen.
So, wondering what happened to all the money? Still perplexed as to what the stimulus was spent on? Bruce Bartlett knows:
“As of March 31, $452.6 billion of net stimulus funds had been disbursed in ways that show up in the national income accounts. Of this, the vast bulk, $399.7 billion, went for transfer payments. Another $9.6 billion went for subsidies and $68.1 billion for capital transfers to state and local governments. Only $37.8 billion went for consumption and $11.8 billion for investment — the only two categories of outlays that we know add to growth.”
And in the “investment” category, most of that apparently went to cronies.
That’s no way to run a government – an honest government, that is.
Bruce Bartlett takes a look at Britain’s experience and a study that documents it and concludes the same is probably true for here:
The study concluded that the behavioral effect of raising the top rate was much more powerful than anticipated. Two factors in particular had a large effect on revenues.
There was a timing effect. People moved income that they anticipated receiving forward so it would be taxed before the new higher rate took effect. They also postponed the receipt of income into the future in anticipation of a change in the tax rate after the election of a new government.
Also, because the British top rate had increased above that in all other major countries except Japan, many Britons relocated in reaction. For example, 1,379 people in high-income occupations moved to Switzerland in 2010, a 29 percent increase over the previous year.
The point, of course, is those who fall in the bracket in which the tax is increased are going to do what is necessary to minimize the impact of that tax.
Human nature 101. Consequently, the revenue projections are almost always high – and wrong.
Additionally, the Democrats like to imply that taxing the rich is a panacea for the spending problems we have. In the name of “fairness” they imply that if the rich would only pay their “fair share” well everything would be hunky dory. Of course we know the real problem is spending not revenue. But regardless, the real effect of the “Buffet Rule” for instance, is negligible:
But a March 20 analysis from Congress’s Joint Committee on Taxation estimates that implementation of the so-called Buffett rule, which would require those making $1 million or more a year to pay an effective federal income tax rate of at least 30 percent, would raise only $46.7 billion over the next 10 years. That’s a drop in the bucket compared with the $41.2 trillion in federal revenues expected to be collected under current law.
Note that last number and remember, this is a government which is claiming that it can’t get by on $41.2 TRILLION over 10 years.
Where again is the problem?
Bruce Bartlett gives you a different way of looking at the mess your political leaders, over a number of generations, have gotten us into and what it will cost, at a minimum, to fulfill the promises they’ve made over the decades.
To summarize, we see that taxpayers are on the hook for Social Security and Medicare by these amounts: Social Security, 1.3% of GDP; Medicare part A, 2.8% of GDP; Medicare part B, 2.8% of GDP; and Medicare part D, 1.2% of GDP. This adds up to 8.1% of GDP. Thus federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax.
Since many taxpayers have just paid their income taxes for 2008 they may have their federal returns close at hand. They all should look up the total amount they paid and multiply that figure by 1.81 to find out what they should be paying right now to finance Social Security and Medicare.
To put it another way, the total unfunded indebtedness of Social Security and Medicare comes to $106.4 trillion. That is how much larger the nation’s capital stock would have to be today, all of it owned by the Social Security and Medicare trust funds, to generate enough income to pay all the benefits that have been promised over and above future payroll taxes. But the nation’s total private net worth is only $51.5 trillion, according to the Federal Reserve. In effect, we have promised the elderly benefits equal to more than twice the nation’s total wealth on top of the payroll tax.
We again have a new crop of political leaders making similar promises about a range of things, from energy to the environment to health care. Look at what they’ve done with the portion of health care they were given previously?
Someone – anyone – tell me how, given the performance of government to this point with Medicare and Medicaid, it is going to provide lower cost health care when it is obvious that it has been instrumental in doing just the opposite?
For some reason, I just can’t get past that negative and inconvenient truth enough to suspend disbelief and decide that once government is running the whole show, everything will fall in line and we’ll have world-class health care at a much lower price – all managed by government.
And one other point Bartlett makes – this mess was made by politicians and, as our laws are written, can only be fixed by politicians. But politicians rarely, if ever like to make decisions which will be unpopular and cause them to have to find new employment. No one likes to be the bad guy. So don’t expect much in the way of “fixing” this mess. You’re more likely to see the whole house of cards collapse because it is unsustainable and the administration in charge at the time blame the previous one (kind of like what you’re seeing now on just about everything else) than to see any political leader actually make the hard decisions necessary (and then win over the Congress) to actually take care of these looming problems.
Enjoy your Sunday.