Crony Capitalism

Here’s an example of how politicians screw up the economy.

The steel producing industry is part of the primary metal manufacturing which includes nonferrous metals, such as copper, aluminum, magnesium, lead, tin, silver, and gold. Value added for that entire industry totaled $59.7 billion and employed 400,000 people in 2014. The steel industry employs somewhere in the range of 100,000 – 150,000 people.

By contrast, downstream industries that use steel as an input generate value added of $990 billion and employed 6.5 million people in 2014. Think cars, home appliances, things you as a consumer buy.

By “protecting” the steel-producing industry the government is harming the much larger steel-consuming industries and its customers. A bad deal.




“It is a common misconception that socialism is about helping poor people. Actually, what socialism does is create poor people, and keep them poor. And that’s not by accident. Under capitalism, rich people become powerful. But under socialism, powerful people become rich.

Plus, Bernie’s new $600k home.


BusinessWeek writer Peter Coy writes about Marx’s relevance and notes:

His followers included some of the 20th century’s worst mass murderers: Lenin, Stalin, Mao, Pol Pot. Yet the gloomy, combative philosopher seems to find adherents in each new generation of tyrants and dreamers.

But elsewhere Coy wears blinders. There is no “unbridled capitalism”. Everywhere you look you see constraints and economic interventions. Whether you like the policies or not they are government intervention, not unbridled capitalism. Coy says, for example, banks “are putting the screws on borrowers” to fix their balance sheets. Uh, banks are quasi-government entities because they are extensions of country’s central banks. They are conduits for the money supply.  Banks are pressured to make loans to borrowers they otherwise would not make loans to.

Fannie Mae and Freddie Mac are government institutions in the US housing market.

Central banks such as the US Federal Reserve controls monetary policy by manipulating the money supply and interest rates. That’s government intervention, not unbridled capitalism.

Agricultural subsidies, trader barriers, tax preferences, and other regulations direct farmers to grow corn for ethanol instead of what farmers and firms think it should be used for, such as food. That’s government intervention, not unbridled capitalism.

Being able to deduct interest for home mortgages and other debt distort financial calculations to make taking on debt more attractive. That’s government intervention, not unbridled capitalism.

Tax codes that are not single rate with no exemptions are government intervention, not unbridled capitalism.

Minimum wage laws distort labor markets and prevent employers and employees decide how much wages should be.

“Buy America” or whatever your country are distortions that try to use nationalism to get people to buy stuff made in the native country.

Subsidies to energy firms such as Solyndra are government interventions in the energy market.  Again, not unbridled capitalism.

In short, laissez-faire and “unbridled capitalism” are straw men because they do not exist.


Who are these people kidding? They and their predecessors are responsible for the mess, with their vote-buying schemes, welfare, regulations, taxes, entitlement mentality. These interventions have accumulated over many years and it will take a different set of ideas to fix it.

No amount of interventionist tinkering is going to fix it. With their Marxist knowledge base, they are stuck in a reactionary time warp.

“We should be targeting unemployment, targeting tax incentives, targeting the structure of the labor market,” Moorad Choudhry, Head of Business Treasury, Global Banking & Markets, Royal Bank of Scotland told CNBC.
. . .
President Obama’s $447 billion jobs package, announced last week, dominated headlines for most of the week.

It combines tax cuts and tax credits to encourage businesses to hire with increased taxes on big corporations and the super-rich.

Tax increases? Do these people really think this mish-mash of central planning is going to help? I interpret his “targeting” to mean special-interest tax credits, subsidies, and regulatory loopholes. Wrong, wrong, wrong. Targeted this, targeted that, come on! Special tax credits and such should be eliminated and tax rates lowered. Top-down rules should be eliminated. All this has to be followed-up with a commitment to stop the tinkering for several years. We (the productive part of the economy) are all sitting around waiting for the next act from these clowns. We are being entertained. These clowns need to get off the stage and let the private sector work.


That is the title given to Robert Tracinski’s piece. I would change the title of this piece to read “Obsolete Post Office Politics” because both parties are stuck in the past. President Obama’s “investment” in solar company Solyndra is no different than Governor Rick Perry’s (R-TX) state-level venture capital fund.

That is the lesson of the government’s failed experiment with solar panel maker Solyndra, which President Obama touted last year as the wave of the future, and whose technology was rendered obsolete before they even finished building their gleaming new factory backed by $600 million in federal loan guarantees. And it’s not just Solyndra.
. . .
Yet here is Barack Obama, our Post Office President, bitterly clinging to the theories of the past and doubling down his investments in failure, while new ideas and innovations pass him by. Such is the fate of anyone who presumes to place the static judgments of an entrenched bureaucracy over the rational thinking and creative efforts of free minds.

Free minds and free markets.


Russ Roberts points to this article by David Leonhardt in the NY Times about government infrastructure spending. There’s a chart that shows the steady increase in spending. The problem is:

And yet when it comes to the nation’s infrastructure, money isn’t the main problem.

A lack of adequate financing is part of the problem, without doubt. But the bigger problem has been an utter lack of seriousness in deciding how that money gets spent.

The Export-Import bank (Ex-Im) is a government entity for distributing corporate subsidies. A test for Tea Partiers and Fiscal Conservatives is whether to try to eliminate it. It susceptible to cronyism and corruption like any other program.  Or will this be yet another exception to downsizing government?


Here’s an analysis on why it should be eliminated.

The Export-Import Bank of the United States picks winners in the U.S. economy, redistributing resources from the productive sector to its chosen clients. While it has been self-financing for a number of years, taxpayers remain exposed to tens of billions of dollars of loans and guarantees.

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