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Archive for the ‘Cronyism’ Category

I’ve written many times that Washington is both a corrupt city and a corrupting city. My point is that decent people go into government and all too often wind up losing their ethical values as they learn to “play the game.”

I often joke that these are people who start out thinking Washington is a cesspool but eventually decide it’s a hot tub.

During the presidential campaign, Trump said he wanted to “drain the swamp,” which is similar to my cesspool example. My concern is that El Presidente may not understand (or perhaps not even care) that shrinking the size and scope of government is the only effective way to reduce Washington corruption.

In any event, we’re soon going to get a very strong sign about whether Trump was serious. With Republicans on Capitol Hill divided on how to deal with this cronyist institution, Trump basically has the tie-breaking vote on the issue.

In other words, he has the power to shut down this geyser of corporate welfare. But will he?

According the Susan Ferrechio of the Washington Examiner, Trump may choose to wallow in the swamp rather than drain it.

President Trump now may be in favor of the Export-Import Bank, according to Republican lawmakers who met with him privately Thursday, even though Trump once condemned the bank as corporate welfare.

Veronique de Rugy of the Mercatus Center is one on the Ex-Im Bank’s most tenacious opponents, and she’s very worried.

…if the reports are true that Trump has decided to support the restoration of the crony Export-Import Bank’s full lending authority, it would be akin to the president deciding to instead happily bathe in the swamp and gargle the muck. …If true, the news is only “great” for Boeing, GE, and the other major recipients of Ex-Im’s corporate welfare. It is also at odds with his campaign promises since much of the way the program works is that it gives cheap loans — backed by Americans all over the country — to foreign companies in China, Russia, Saudi Arabia, and the UAE. Restoring Ex-Im’s full lending-authority powers is renewing the policy to give cheap loans backed by workers in the Rust Belt to companies like Ryanair ($4 billion in guarantee loans over ten years) and Emirates Airlines ($3.9 billion over ten years) so they can have a large competitive advantage over U.S. domestic airlines like Delta and United. It continued to subsidize the large and prosperous state-owned Mexican oil company PEMEX ($9.7 billion over ten years). Seriously? That’s president Trump’s vision of draining the swamp?

Ugh. It will be very disappointing if Trump chooses corporate welfare over taxpayers.

What presumably matters most, though, is whether a bad decision on the Ex-Im Bank is a deviation or a harbinger of four years of cronyism.

In other words, when the dust settles, will the net effect of Trump’s policies be a bigger swamp or smaller swamp?

The New York Times opined that Trump is basically replacing one set of insiders with another set of insiders, which implies a bigger swamp.

Mr. Trump may be out to challenge one establishment — the liberal elite — but he is installing one of his own, filled with tycoons, Wall Street heavyweights, cronies and a new rank of shadowy wealthy “advisers” unaccountable to anyone but him. …Take first the Goldman Sachs crowd. The Trump campaign lambasted global financiers, led by Goldman, as having “robbed our working class,” but here come two of the alleged miscreants: Gary Cohn, Goldman’s president, named to lead the National Economic Council, and Steven Mnuchin, named as Treasury secretary. …Standing in the rain during Mr. Trump’s inaugural speech, farmers and factory workers, truckers, nurses and housekeepers greeted his anti-establishment words by cheering “Drain the Swamp!” even as the new president was standing knee-deep in a swamp of his own.

I’m skeptical of Trump, and I’m waiting to see whether Gary Cohn and Steven Mnuchin will be friends for taxpayers, so I’m far from a cheerleader for the current administration.

But I also think the New York Times is jumping the gun.

Maybe Trump will be a swamp-wallowing cronyist, but we don’t yet have enough evidence (though a bad decision on Ex-Im certainly would be a very bad omen).

Here’s another potential indicator of what may happen to the swamp under Trump’s reign.

Bloomberg reports that two former Trump campaign officials, Corey Lewandowski and Barry Bennett have cashed in by setting up a lobbying firm to take advantage of their connections.

The arrival of a new president typically means a gold rush for Washington lobbyists as companies, foreign governments, and interest groups scramble for access and influence in the administration. Trump’s arrival promises to be different—at least according to Trump. Throughout the campaign, he lambasted the capital as a den of insider corruption and repeatedly vowed to “drain the swamp,” a phrase second only in the Trump lexicon to “make America great again.” …Trump’s well-advertised disdain for lobbying might seem to augur poorly for a firm seeking to peddle influence. …“Business,” Lewandowski says, “has been very, very good.”

This rubs me the wrong way. I don’t want lobbyists to get rich.

But, to be fair, not all lobbying is bad. Many industries hire “representation” because they want to protect themselves from taxes and regulation. And they have a constitutional right to “petition” the government and contribute money, so I definitely don’t want to criminalize lobbying.

But as I’ve said over and over again, I’d like a much smaller government so that interest groups don’t have an incentive to do either the right kind of lobbying (self-protection) or the wrong kind of lobbying (seeking to obtain unearned wealth via the coercive power of government).

Here’s one final story about the oleaginous nature of Washington.

Wells Fargo is giving a big payout to Elaine Chao, the new Secretary of Transportation.

Chao, who joined Wells Fargo as a board member in 2011, has collected deferred stock options —  a compensation perk generally designed as a long-term retention strategy — that she would not be able to cash out if she left the firm to work for a competitor. Her financial disclosure notes that she will receive a “cash payout for my deferred stock compensation” upon confirmation as Secretary of Transportation. The document discloses that the payments will continue throughout her time in government, if she is confirmed. The payouts will begin in July 2017 and continue yearly through 2021. But Wells Fargo, like several banks and defense contractors, provides a special clause in its standard executive employment contract that offers flexibility for awarding compensation if executives leave the bank to enter “government service.” Such clauses, critics say, are structured to incentivize the so-called “reverse revolving door” of private sector officials burrowing into government. …Golden parachutes for executives leaving firms to enter government dogged several Obama administration officials. Jack Lew, upon leaving Citigroup to join the Obama administration in 2009, was given a cash payout as part of his incentive and retention awards that wouldn’t have been paid if he had left the firm to join a competitor or under ordinary circumstances. But Lew’s Citigroup contract stipulated that there was an exception for leaving to work in a “full time high level position with the U.S. government or regulatory body.” Goldman Sachs, Morgan Stanley, and Northrop Grumman are among the other firms that have offered special financial rewards to executives who leave to enter government.

This rubs me the wrong way, just as it rubbed me the wrong way when one of Obama’s cabinet appointees got a similar payout.

But the more I think about it, the real question isn’t whether government officials get to keep stock options and other forms of deferred compensation when they jump to government.

What bothers me much more is why companies feel that it’s in their interest to hire people closely connected to government. What value did Jacob Lew bring to Citigroup? What value did Chao bring to Wells Fargo?

I suspect that the answer has a lot to do with financial institutions wanting people who can can pick up the phone and extract favors and information from senior officials in government.

For what it’s worth, I’m not a fan of Lew because he pushed for statism while at Treasury. By contrast, I am a fan of Chao because she was one of the few bright spots during the generally statist Bush years.

But I don’t want a system where private companies feel like they should hire either one of them simply because they have connections in Washington.

I hope that Trump will change this perverse set of incentives by “draining the swamp.” But unless he reduces the size and scope of government, the problem will get worse rather than better.

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In one of my periodic attempts to create themes for these columns, I developed a “fiscal fights with friends” category.

  • Part I was a response to Riehan Salam’s well-meaning critique of the flat tax.
  • Part II was a response to a good-but-timid fiscal plan from folks at AEI.
  • Part III was a response to Jerry Taylor’s principled case for an energy tax.
  • And I’m going to retroactively categorize my friendly attacks on the destination-based cash-flow tax as Part IVa, Party IVb, and Part IVc.

Today’s column could be considered Part IIIb since I’m going to revisit the case against energy taxes. Except it’s not going to be a friendly assessment. That’s because there’s a legitimate case (made by Jerry) for a carbon tax, based on the notion that it could address an externality, obviate the need for command-and-control regulation, and provide revenue to finance pro-growth tax cuts.

But there’s also a distasteful argument for such a tax and it revolves around crony capitalists seeking to obtain unearned wealth by imposing costs on their competitors.

Elon Musk already is infamous for trying to put taxpayers on the hook for some of his grandiose schemes. Now, as reported by Bloomberg, he wants an energy tax on American consumers.

Tesla Motors Inc. founder Elon Musk is pressing the Trump administration to adopt a tax on carbon emissions, raising the issue directly with President Donald Trump and U.S. business leaders at a White House meeting Monday regarding manufacturing.

But what the article doesn’t mention is that such a tax would make his electric cars more financially attractive. It’s rather unseemly (and I’m bending over backwards for a charitable characterization) that a rich guy is pushing a tax on the rest of us as a way of lining his pockets.

What’s ironic, though, is that he’s probably being short-sighted because a carbon tax presumably would hit coal, and that’s a common source of energy for electrical generation. So while regular drivers would pay a lot more for gas, Tesla drivers would pay more at charging stations.

Some big oil companies also are flirting with an energy tax for cronyist reasons. An article in the Federalist notes that some of those firms support carbon taxes because they want to create hardships for their competitors.

…carbon taxes do not affect all fossil fuels equally. So just as some fossil fuels are much more carbon-intensive than others, here we can begin to understand how, beyond the benefits of predictability, a carbon tax might actually help some fossil-fuel providers… As a recent National Bureau of Economic Research working paper illustrates, for example, in the United States a tax on carbon would disproportionately impact the use of coal relative to natural gas for energy production. …Don’t be surprised, then, if some domestic producers of natural gas end up promoting a carbon tax, not only out of concern for regime stability but also out of a concern to make their product more competitive in the energy marketplace.

To be fair, I suppose that Musk and the energy companies might actually think energy taxes are a good idea, so their support may have nothing to do with self interest.

But it’s always a good idea to “follow the money” when looking at how policy really gets made in Washington.

Even more depressing, the adoption of one bad policy may lead to the expansion of another bad policy. More specifically, some proponents of energy taxes admit that ordinary taxpayers and consumers will be hurt. But rather than realize that a new tax is a bad idea, they decide to match a tax increase with more spending. Here is a blurb from a report by the American Enterprise Institute.

Using emissions and other data from 2013 and 2014, we also find that the revenue from the carbon tax could be enough to expand the EITC to childless workers and hold other low income households harmless, combining a regressive tax with progressive benefits.

This is not good. The EITC already is the fastest-growing redistribution program in Washington. Making it even bigger would exacerbate the fiscal burden of the welfare state.

P.S. Now that I think about it, because much of my work on spending caps is designed to educate policymakers that a focus on balanced budget rules is well-meaning but misguided, I’m going to classify my columns on spending caps as Part Va, Part Vb, Part Vc, Part Vd, Part Ve, Part Vf, Part Vg, Part Vh, Part Vi, and Part Vj of my fiscal-fights-with-friends collection.

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All things considered, I like small businesses more than big businesses.

Not because I’m against large companies, per se, but rather because big businesses often use their political influence to seek unearned and undeserved wealth. If you don’t believe me, just look at the big corporations lobbying for bad policies such as the Export-Import Bank, Dodd-Frank, Obamacare, bailouts, and the green-energy scam.

It’s almost as if cronyism is a business model.

By contrast, the only bad policy associated with modest-sized firms is the Small Business Administration. And I suspect the majority of little firms wouldn’t even notice or care if that silly bit of intervention was shut down.

Rather than seeking handouts, small businesses generally are more focused on fighting back against excessive government.

That’s because taxes and red tape can be a death sentence for a mom-and-pop firm. Literally, not just figuratively.

The Daily News reports on the sad closing of popular restaurant in New York City.

For 25 years, China Fun was renowned…the restaurant’s sudden Jan. 3 closing, blamed by management on suffocating government demands. …“The state and municipal governments, with their punishing rules and regulations, seems to believe that we should be their cash machine to pay for all that ails us in society.” …Albert Wu, whose parents Dorothea and Felix owned the eatery, said the endless paperwork and constant regulation that forced the shutdown accumulated over the years. …Wu cited one regulation where the restaurant was required to provide an on-site break room for workers despite its limited space. And he blamed the amount of paperwork now required — an increasingly difficult task for a non-chain businesses. “In a one-restaurant operation like ours, you’re spending more time on paperwork than you are trying to run your business,” he griped. Increases in the minimum wage, health insurance and insurance added to a list of 10 issues provided by Wu. “And I haven’t even gone into the Health Department rules and regulations,” he added. …“For smaller businesses like China Fun, each little thing that occurs makes it harder,” said Malpass. “Each regulation, each tax — you put it all together and it’s just a hostile business environment.”

This is rather unfortunate, but perhaps it is a “teachable moment.”

There are two things that came to mind as I read this story.

  • First, at some point a camel’s back is broken by too much straw. Politicians often claim that a particular tax or regulation imposes a very small burden. Perhaps that is true, but when you have dozens of taxes and hundreds of regulations, those various and sundry small burdens become very onerous. I’ve made the point before that you don’t need perfect policy for the economy to function. You just need “breathing room.” Well, China Fun ran out of breathing room. A casualty of big government, though it remains to be seen if anyone learns from this experience.
  • Second, complicated taxes and regulations are a much bigger burden for small companies compared to big corporations. Every large firm has teams of lawyers and accountants to deal with tax and regulatory compliance. That’s expensive and inefficient, of course, but such costs nonetheless consume only a very small fraction of total revenue. For small businesses, by contrast, those costs consume an enormous percentage of time, energy, and resources for owners. For all intents and purposes, bad government policy creates a competitive advantage for big firms over small firms.

The moral of the story is that we should have smaller government. Not just lower taxes (and simpler taxes), but also less regulation and red tape.

Not just because such policies are good for overall economic performance, but also because small businesses shouldn’t be disadvantaged.

P.S. Since we’re on the topic of how government tilts the playing field in favor of big companies (at least the corrupt big companies), let’s enjoy some humor on that topic.

Starting with Uncle Sam’s universal bailout application form. And we also have the fancy new vehicle from Government Motors.

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For the next four years, I suspect I’m going to suffer a lot of whiplash as I yank myself back and forth, acting as both a critic and supporter of Donald Trump’s policy.

This happened a lot during the campaign, as Trump would say very good things one day and then say very bad things the next day.

And now that he’s President-Elect Trump, that pattern is continuing. Consider his approach to American businesses. In the space of just a few minutes, he manages to be a Reaganesque tax cutter and an Obamaesque cronyist.

I discussed this bizarre mix in a recent interview with Dana Loesch.

I guess the only way to make sense of Trump’s policy is that it’s a random collection of carrots and sticks. The carrots are policies to encourage companies to create jobs in America, and Trump is proposing both good carrots such as a much lower corporate tax rate and bad carrots such as special Solyndra-style handouts (except, instead of loot for green energy, firms get loot for maintaining production in America).

And the sticks are all bad, ranging for public shaming to explicit protectionism.

As I said during the interview, Trump is probably scoring political points, but what we should really care about is whether policy is moving in the right direction.

The Wall Street Journal is rather skeptical, opining that Republican-backed cronyism will be just as bad as Democrat-backed cronyism.

A giant flaw in President Obama’s economic policy has been the politicized allocation of capital, from green energy to housing. Donald Trump suffers from a similar industrial-policy temptation, as we’ve seen…with his arm-twisting of Carrier to change its decision to move a plant to Mexico from Indiana. …A mercantilist Trump trade policy that jeopardized those exports would throw far more Americans out of work than the relatively low-paying jobs he’s preserved for now in Indianapolis. Mr. Trump’s Carrier squeeze might even cost more U.S. jobs if it makes CEOs more reluctant to build plants in the U.S. because it would be politically difficult to close them. Mr. Trump has now muscled his way into at least two corporate decisions about where and how to do business. But who would you rather have making a decision about where to make furnaces or cars? A company whose profitability depends on making good decisions, or a branding executive turned politician who wants to claim political credit? The larger point is that America won’t become more prosperous by forcing companies to make noneconomic investments.

Here’s some of what Tyler Cowen wrote about Trump’s approach.

One of Donald Trump’s most consistent campaign promises has been to prevent U.S. businesses from moving good jobs to Mexico… Economists might regard this as a misguided form of protectionism, but in fact, it’s worse than that: If instituted, it could prove a major step toward imposing capital controls on the American economy and politicizing many business decisions. …Using the law to forbid factory closures would have serious negative consequences. For one thing, those factories may be losing money and end up going bankrupt. For another, stopping the closure of old plants would lock the U.S. into earlier technologies and modes of production, limiting progress and economic advancement. An alternative policy would prohibit companies from cutting American production and expanding in Mexico… The end result would be that Asian, European and Mexican investors would gain at the expense of U.S. companies. …Furthermore, if we limit the export of American capital to Mexico, the biggest winner would be China, as one of its most significant low-wage competitors — Mexico — suddenly would be hobbled.

Those are all very practical and sensible arguments against protectionism.

But Tyler points out that Trump’s agenda could lead to something even worse.

…a policy limiting the ability of American companies to move funds outside of the U.S. would create a dangerous new set of government powers. Imagine giving an administration the potential to rule whether a given transfer of funds would endanger job creation or job maintenance in the United States. That’s not exactly an objective standard, and so every capital transfer decision would be subject to the arbitrary diktats of politicians and bureaucrats. It’s not hard to imagine a Trump administration using such regulations to reward supportive businesses and to punish opponents. Even in the absence of explicit favoritism, companies wouldn’t know the rules of the game in advance, and they would be reluctant to speak out in ways that anger the powers that be. …It also could bring the kind of crony capitalist nightmare scenarios described by Ayn Rand in her novel “Atlas Shrugged,” a book many Republican legislators would be well advised to now read or reread.

Tyler’s best-case scenario is that Trump doesn’t try to change policy and instead just uses the bully pulpit to…well, be a bully.

…public jawboning  also would be an unfortunate form of politicizing the economy, but at least there wouldn’t be new laws or regulations to back it up in a systematic way.

Though I’ll close by noting that this best-case scenario is still a very bad case.

The mere fact that politicians think they have the right to interfere with the internal decisions of companies is a dangerous development.

It’s cronyism on steroids.

And even if Trump somehow restrains himself (how likely is that?!?), sooner or later that bad mentality will lead to bad policy.

Yes, I’m making a slippery-slope argument. But not just because I’m a libertarian who is paranoid about government power.

My fear is based on lots of real-world evidence. It turns out that slippery slopes are very slippery.

The bottom line is that politicians don’t even do a good job of running the government. Let’s not allow them to run private companies as well. And that’s true whether they have an R after their names or a D after their names.

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I have a very consistent view of victimless crimes.

  • I don’t approve of drugs and I’ve never used drugs, but I think the social harm of prohibition is greater than the social harm of legalization.
  • I don’t particularly like alcohol and I am almost a teetotaler, but I’m glad there’s now a consensus that the social harm of prohibition was greater than the social harm of legalization.
  • I don’t approve of prostitution and I’ve never consorted with a prostitute (other than the political ones in DC), but I think the social harm of prohibition is greater than the social harm of legalization.

Given these views, you won’t be surprised to also learn that I don’t care for gambling, but I think the social harm of prohibition is greater than the social harm of legalization.

The good news is that the nation is slowly but surely moving in the direction of legalization.

The bad news is that politicians doing the right thing in the worst possible way. Let’s look at three examples.

Our first wretched example is government-run lotteries, which are rip-off operations. In a genuine market, competition forces casinos to have reasonably decent odds. Yes, it’s set up so “the house” wins more often than it loses, but a casino probably pays out $90 for every $100 of bets. With lotteries, by contrast, governments rig the rules so that they pay out closer to $50 for every $100 of bets. Mafioso loansharks must be envious.

A second example is that politicians seem to view legalization merely as an opportunity for taxes, graft, featherbedding, and cronyism. Consider the case of Atlantic City, as explained by the Wall Street Journal.

In 1976 New Jersey voters approved a referendum that legalized gambling in Atlantic City. The constitutional amendment required casino revenues to fund programs for senior citizens and disabled residents, but politicians have instead funneled the cash to favored projects and businesses under the guise of promoting development. Guess how that’s turned out? A 1984 law required casinos to pay 2.5% of gaming revenues to the state or “reinvest” 1.25% in tax-exempt bonds issued by the state Casino Reinvestment Development Authority for state and community “projects that would not attract capital in normal market conditions.” Investment recipients have included Best of Bass Pro shop, Margaritaville and Healthplex. A decade later, state lawmakers imposed a $1.50 fee (which has since doubled) on casino parking spots to fund Atlantic City transportation, casino construction and a convention center. In 2004 lawmakers added a $3 surcharge for casino hotel stays to finance new hotel rooms and retail establishments, which had the effect of promoting unsustainable commercial and casino development. …Employment in Atlantic City has declined by about 10% over the last decade. Since 2010 the city’s property tax base has shrunk by two thirds. Local politicians raised property taxes by 50% between 2013 and 2014 to compensate for the dwindling tax base, but this has merely deterred new business investment and propelled flight. Meantime, local politicians have continued to spend… Between 2010 and 2014, expenditures increased by 10% while government debt doubled. The city government spends about $6,600 a year per resident—more than any other city in the state including Newark ($2,344). …Labor costs constitute about 70% of the budget. Earlier this year, the city emergency manager projected a $393 million cumulative deficit over the next five years absent reforms. …Democratic legislators and Governor Chris Christie passed a bailout that allows the city to squeeze an additional $120 million out of casinos in revenues annually to compensate for lower property-tax revenue. To sum up: New Jersey…plundered Atlantic City casinos, redistributed the spoils and loaded up the city with unaffordable levels of debt. The gambling mecca is a five-star example of failed liberal policies.

In other words, gambling did lead to addiction. Politicians got hooked on wasteful spending and haven’t been able to kick the habit.

Our final example is how politicians and established casinos are getting in bed together to prohibit competition from online gaming.

Andy Quinlan of the Center for Freedom and Prosperity is not impressed by this bit of cronyism.

Casino magnate Sheldon Adelson has long sought federal legislation that would override the ability of state governments to set their own online gambling rules. Given his business activities, Adelson clearly has no moral objections to gambling itself. His goal is simply to undermine market competition and put alternatives to his Vegas casinos out of business, and he has spent millions on lobbyists to help make that happen. Adelson’s allies in Congress have tried repeatedly to pass the Restoration of America’s Wire Act (RAWA), which would prevent states from authorizing online gambling within their own borders… Outside groups strongly warned against the consequences of undermining the 10th Amendment in the pursuit of crony capitalism. RAWA represents both a direct attack on personal liberty and a potential slippery slope in its erosion of federalist principles.

Veronique de Rugy of the Mercatus Center also is disappointed with this odious bit of special-interest favoritism.

Adelson hates online gambling, as it competes with his bricks-and-mortar Las Vegas casinos for customers. More than five years ago, on what has become known to the poker world as Black Friday, the federal government unleashed a legal jihad against online poker companies and their top executives. Online poker is not itself illegal—a fact clarified by the DOJ’s reinterpretation of the Wire Act—but the 2006 Unlawful Internet Gambling Enforcement Act made it illegal for payment processors to transfer funds to and from gambling sites. The problem for Adelson and his allies is that the UIGEA and other federal statutes apply only when state borders are crossed. The 10th Amendment and the principles of federalism mean that federal lawmakers should have no say regarding activities that take place entirely within one state’s borders. So if state governments wish to authorize online gambling for their citizens, they are and should remain free to do so.

Time for my two cents on the issue. Ideally, no government should have the power to tell gamblers whether they can engage in consensual transactions across state lines or even national borders.

But not only has that already happened, but we now have politicians and a cronyist conspiring to have the federal government interfere with states that want to allow online gambling inside state borders.

It will be interesting to see whether Republicans, now that they’re about to control Washington, will choose cronyism or competition, centralization or federalism (the Export-Import Bank is another test of GOP principles…or lack thereof).

Let’s put all this in context. Today’s topic is gambling and the cancerous effect of government intervention and favoritism in that sector. But the lesson we should learn is that cronyism is a bad idea, period. Cronyism is also bad in agriculture. It’s bad in finance. It’s bad in the tax code. It’s bad in energy. It’s bad everywhere.

To conclude, here’s an excellent video from Lean Liberty about the dangers of letting big business and big government rig the rules for the benefit of powerful insiders.

The moral of the story is that consumers should be in charge of which companies succeed and which ones fail.

The free enterprise system – when it’s allowed to operate – produces great wealth and prosperity. Cronyism, by contrast, undermines growth by politicizing the allocation of resources. Even worse, it reduces public support for limited government since many people mistakenly assume that big business and capitalism are synonymous.

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It’s easy to define and/or understand most statist policies.

  • We know that a tax increase is when politicians take (or, given the Laffer Curve, try to take) more of your money based on your decisions to work, save, shop, or invest.
  • We know that protectionism is when politicians use taxes and other policies to restrict your freedom to buy goods and services produced in other nations.
  • We know that a minimum wage mandate is when politicians criminalize employment contracts between consenting adults, thus harming low-skilled workers.
  • We know that Keynesian “stimulus” is when politicians borrow from one part of the economy and spend in another part of the economy and pretend there’s more money.

The list is potentially endless, but there’s one statist policy – cronyism – that I haven’t added to the list because I haven’t thought of a simple definition.

Are bailouts cronyism? Yes, but it’s more than that. Are subsidies cronyism? Yes, but it’s more than that. Are favors in the tax code cronyism? Yes, but it’s more than that. Are trade barriers cronyism? Yes, but it’s more than that.

You’re probably noticing a pattern, which is why this new visual from the Mercatus Center is helpful. It illustrates that there are many policies that should be considered cronyism.

And Mercatus comes up with a definition that we can add to our list.

  • We know that cronyism is when politicians create “privileges that governments give to particular businesses and industries.”

Speaking of which, one of the most damaging features of cronyism is the way that it gives capitalism a bad name.

Many people equate free markets with “business.” So when people in the business sector get special favors, regular folks conclude that capitalism is a “rigged” system.

In theory, this false impression could be offset by an aggressive educational campaign by those who support free enterprise. Unfortunately, that task is rather difficult since many people assume Republicans are the pro-capitalism party. So when they see the GOP favoring corrupt handouts to business such as the Export-Import Bank and the sleazy ethanol program, they conclude – once again – that capitalism is rigged for the politically powerful.

And the battle to separate capitalism from cronyism is further hindered when major figures in the business world (such as Warren Buffett) get in bed with government.

Another example is Elon Musk, the head of Tesla, Solar City, and SpaceX. He is known as a visionary entrepreneur, which is good. But Andy Quinlan of the Center for Freedom and Prosperity explains that he also has put taxpayers on the hook to underwrite and prop up much of his business activities.

It was announced this week that one of Elon Musk’s companies, Tesla Motors, will buy one of his other companies, SolarCity, for an all-stock deal worth $2.6 billion. …With the amount of taxpayer support both companies have received, perhaps the rest of us should get a vote… The deal comes as SolarCity has floundered despite significant taxpayer support through a bevy of state and federal tax credits and subsidies. Nevertheless, the solar energy company’s stock has been in long term decline as the company struggles to develop a profitable market not reliant on generous helpings of taxpayer support. Tesla, too, has fed repeatedly at the government trough. The government provided federal loan guarantees and tax credits to help manufacture its electric vehicles. It also subsidized the purchase of those same vehicles to increase sales. Even still, the company makes more money selling “carbon credits” to other manufacturers than it does electric vehicles. …Musk’s other endeavor, SpaceX, also relies heavily on government. Obviously much of its business comes from government contracts, but more interesting is how those contracts are apparently obtained. …this year’s National Defense Authorization Act contains an amendment from Senator John McCain designed to eliminate from competition the Defense Department’s current supplier of rockets and pave the way for SpaceX to take over, despite the fact that its rockets aren’t yet powerful enough for the job.

Writing for Reason, Veronique de Rugy adds her insight

Elon Musk delivered a much-anticipated speech…where he laid out his vision for colonizing Mars…a testament to human innovation and determination. …it might be more impressive if Musk could provide a vision for how his companies can succeed here on Earth first, especially without heavy reliance on taxpayer support. …Musk is no stranger to cozy relations with federal and state governments. All three of his companies have benefited heavily from taxpayers. Yet despite generous green energy handouts, his SolarCity is heavily indebted. He now wants to merge it with his electric car company, Tesla Motors, which also benefited from almost $1.3 billion in subsidies. Solidifying his crony credentials, the epitome of crony capitalism itself, the Export-Import Bank of the United States, has subsidized the payloads for numerous SpaceX launches. The Ex-Im Bank’s chairman misrepresented this as support for “small business.” …There’s no doubt that Musk is an impressive salesman and innovator. …Now that he has set his sights on Mars, let’s hope—for the future of science and exploration—that he…has the courtesy to leave taxpayers out of it.

Amen.

It’s great when entrepreneurs are successful. And I don’t resent their wealth in the slightest.

But only if they earn their money honestly, in a genuinely free and competitive market.

Cronyism, by contrast, is a cancer that compromises and erodes genuine capitalism.

P.S. Let’s close on a more upbeat and entertaining topic, which is the bipartisan mockery of politicians.

I shared a very funny post about American leftists escaping to Canada after the Tea Party election of 2010.

Here’s some related humor about Canada closing the border for the next eight years.

One unfortunate aspect of being a libertarian is that you’re almost always unhappy about whoever becomes President. Indeed, I’ve only been pleased with one President who has served in my lifetime.

So I’m not overflowing with sympathy for Republicans who were unhappy after the 2012 election. And I’m similarly immune to feelings of empathy for Democrats who are unhappy about this election.

Especially the leftists who are engaging is hysterical hyperbolic histrionics (how’s that for alliteration!) about Trump. Here’s some great satire about the millennials protesting against Trump’s victory.

As anti-Trump rallies nationwide turned hostile overnight with widespread reports of violence, looting, vandalism, and death threats against the president-elect and his supporters, police in numerous major cities were able to instill calm and regain control by handing out participation trophies to all millennial protesters who were enraged about losing the election, sources confirmed. …“It’s a foreign notion to them. Even in sports—win or lose, everyone won, and everyone got a trophy no matter what. This is the millennial way,” he said. “So I had the idea—hey, why not start handing out participation trophies to the protesters, and telling them ‘Hey, you know what? You may have lost the election, but look—everyone gets a trophy. Everyone’s a winner.’” Seeing how the trophies had an instantaneous calming effect on the millennials and filled them with a sense of fulfillment and achievement, word spread quickly among police departments nationwide, and emergency trophies were procured by the thousands for use at the rallies.

Speaking of which, here’s an amusing image that has a serious message. I agree with leftists who fear that Trump may abuse the vast powers of the federal government. But they supported Obama’s dubious expansion of executive power, so they don’t have much credibility on the issue.

Reminds me of this clever poster that the Libertarian Party created to mock the Occupy crazies.

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I’ve written before about Hillary Clinton’s unethical and (presumably) illegal actions, both in terms of her email server and the Clinton Foundation.

We’ve probably only seen the tip of the iceberg, but one thing that can be said with confidence is that there is strong scent of corruption, cronyism, and insider dealing that surrounds Mrs. Clinton.

Every day seems to bring new evidence. Writing for the Wall Street Journal, Kimberly Strassel puts it in blunt terms.

A Hillary Clinton presidency will be built, from the ground up, on self-dealing, crony favors, and an utter disregard for the law. This isn’t a guess. …It comes in the form of a memo written in 2011 by longtime Clinton errand boy Doug Band, who for years worked simultaneously at the Clinton Foundation and at the head of his lucrative consulting business, Teneo. It is astonishingly detailed proof that the Clintons do not draw any lines between their “charitable” work, their political activity, their government jobs or (and most important) their personal enrichment. Every other American is expected to keep these pursuits separate, as required by tax law, anticorruption law and campaign-finance law. For the Clintons, it is all one and the same—the rules be damned. …Any nonprofit lawyer in America knows the ironclad rule of keeping private enrichment away from tax-exempt activity, for the simple reason that mixing the two involves ripping off taxpayers. Every election lawyer in the country lives in fear of stepping over the lines governing fundraising and election vehicles. The Clintons recognize no lines. Here’s the lasting takeaway: The Clintons…know the risks. And yet they geared up the foundation and these seedy practices even as Mrs. Clinton was making her first bid for the presidency. They continued them as she sat as secretary of state. They continue them still, as she nears the White House. This is how the Clintons operate. They don’t change. Any one who pulls the lever for Mrs. Clinton takes responsibility for setting up the nation for all the blatant corruption that will follow.

Let’s look at some examples.

And we’ll start with the example of a Swiss bank that was being wrongfully persecuted by the American government for the supposed crime of protecting the privacy of clients (i.e., for following Swiss law inside Switzerland).

In other words, I’m very sympathetic to the bank. But I’m not a big fan of the Clintons using the bank’s legal woes as an opportunity to raise a bunch of money in exchange for a favorable disposition. Yet that’s exactly what happened, as reported by the U.K.-based Guardian.

In February 2009, the IRS sued UBS and demanded that it disclose the names of 52,000 possible American tax evaders with secret Swiss bank accounts. …On 19 August 2009, it was announced that UBS would pay no fine and would provide the IRS with information about 4,450 accounts within a year. Since the deal was struck, disclosures by the foundation and the bank show the donations by UBS to the Clinton Foundation growing “from less than $60,000 through 2008 to a cumulative total of about $600,000 by the end of 2014”… The bank also teamed up with the foundation on the Clinton Economic Opportunity Initiative, creating a pilot entrepreneur program through which UBS offered $32m in loans to businesses, the newspaper reported. Other UBS donations to the Clinton Foundation include a $350,000 donation from June 2011 and a $100,000 donation for a charity golf tournament. Additionally, UBS paid more than $1.5m in speaking fees to Bill Clinton between 2001 and 2014, the newspaper reported.

James Freeman, in a column for the Wall Street Journal, cites two other examples of Clinton-style pay-to-play. The first example deals with Morocco.

We now know from emails published by WikiLeaks that before Mrs. Clinton formally launched her campaign, she arranged for the king of Morocco to donate $12 million to Clinton Foundation programs. What’s significant about the Morocco case is that for years the Clintons peddled the fiction that donors write checks simply to support wondrous acts of Clintonian charity. But that cover story isn’t available here. Mrs. Clinton’s trusted aide Huma Abedin put it in writing: The Moroccans agreed to the deal on the condition that Mrs. Clinton would participate at a conference in their country. Panicked Clinton-campaign aides persuaded Mrs. Clinton to avoid such a trip before launching her candidacy—and the foundation got the king to settle for Bill and Chelsea Clinton. But the record is clear. The king wanted the access, influence and prestige that all strongmen crave from legitimate democracies.

The second example comes from Kazakhstan.

This wasn’t the first time the Clintons satisfied such a desire while collecting megadonations. When it comes to human rights, Kazakhstan’s dictator, Nursultan Nazarbayev, makes Morocco’s king look enlightened. In power since 1991 and never freely elected, Mr. Nazarbayev must have enjoyed the sensation of Mr. Clinton endorsing him to lead an international election-monitoring group in 2005. The Kazakh strongman knows how to return a favor, and he granted valuable mining concessions to Clinton Foundation donors. The donors then built a global uranium powerhouse that was eventually sold to the Russians in a deal that required the 2010 approval of a U.S. government committee that included Mrs. Clinton’s State Department.

There’s a lot more material I could share, but the purpose of today’s column isn’t to demonstrate Hillary’s recent unethical behavior.

Instead, I want to show how she has a decades-long pattern of using government for self-advancement and self-enrichment. And I’ll follow by drawing (what should be) a very obvious lesson about public policy.

To keep today’s column manageable, let’s review just two examples.

First, let’s go back more than 20 years to the early days of Bill Clinton’s presidency. Peggy Noonan explains Hillary’s attempt to replace the career professionals at the White House travel with cronies from Arkansas.

Why don’t people like Hillary Clinton? …Why, when some supposed scandal breaks and someone says she’s hiding something, do people, including many of her supporters, assume it’s true? …the scandals stretch back…all the way to her beginnings as a national figure. …It was early 1993. …It was the first big case in which she showed poor judgment, a cool willingness to mislead, and a level of political aggression that gave even those around her pause. It was after this mess that her critics said she’d revealed the soul of an East German border guard.

Let’s look at what happened.

On May 19, 1993, less than four months into the administration, the seven men who had long worked in the White House travel office were suddenly and brutally fired. The seven nonpartisan government workers, who helped arrange presidential trips, served at the pleasure of the president. But each new president had kept them on because they were good at their jobs. A veteran civil servant named Billy Dale had worked in the office 30 years and headed it the last 10. He and his colleagues were ordered to clear out their desks and were escorted from the White House, which quickly announced they were the subject of a criminal investigation by the FBI. They were in shock. So were members of the press, who knew Mr. Dale and his colleagues as honest and professional. A firestorm ensued. Under criticism the White House changed its story. They said that they were just trying to cut unneeded staff and save money. Then they said they were trying to impose a competitive bidding process. They tried a new explanation—the travel office shake-up was connected to Vice President Al Gore’s National Performance Review. (Almost immediately Mr. Gore said that was not true.) The White House then said it was connected to a campaign pledge to cut the White House staff by 25%. Finally they claimed the workers hadn’t been fired at all but placed on indefinite “administrative leave.”

Noonan continues.

Why so many stories? Because the real one wasn’t pretty. It emerged in contemporaneous notes of a high White House staffer that the travel-office workers were removed because Mrs. Clinton wanted to give their jobs—their “slots,” as she put it, according to the notes of director of administration David Watkins—to political operatives who’d worked for Mr. Clinton’s campaign. And she wanted to give the travel office business itself to loyalists. There was a travel company based in Arkansas with long ties to the Clintons. There was a charter travel company founded by Harry Thomason, a longtime friend and fundraiser, which had provided services in the 1992 campaign.

Unsurprisingly, Mrs. Clinton lied about her efforts to turn the travel office into a goodie for a crony.

All along Mrs. Clinton publicly insisted she had no knowledge of the firings. Then it became barely any knowledge, then barely any involvement. When the story blew up she said under oath that she had “no role in the decision to terminate the employees.” She did not “direct that any action be taken by anyone.” In a deposition she denied having had a role in the firings, and said she was unable to remember conversations with various staffers with any specificity. A General Accounting Office report found she did play a role. But three years later a memo written by David Watkins to the White House chief of staff, recounting the history of the firings, suddenly surfaced. (“Suddenly surfaced” is a phrase one reads a lot in Clinton scandal stories.) It showed Mrs. Clinton herself directed them.

By the way, the most disgusting part of this scandal is the way Hillary sicced the government on Mr. Dale.

The White House pressed the FBI to investigate, FBI agents balked—on what evidence?—but ultimately there was an investigation, and an audit. …Billy Dale was indicted on charges including embezzlement. The trial lasted almost two weeks. …The jury acquitted him in less than two hours.

In other words, expect to see more Lois Lerner-type scandals if Hillary reaches the White House. There should be little doubt that she will use the power of government to attack her political opponents.

Now let’s go back even further in time, to the late 1970s when Hillary Clinton somehow managed to turn a $1,000 “investment” into $100,000 is less than one year. The New York Times reported on this rather implausible story back in 1994.

…in 1978 Hillary Rodham Clinton invested $1,000 in commodities futures and that the investment grew in 10 months of trading in the notoriously volatile market into a gain of nearly $100,000. Seeking to dispel suggestions that the trades were risk-free and improperly arranged by an Arkansas lawyer who represents one of the state’s most powerful companies, the White House issued a statement this afternoon that said the First Lady had put up her own money and that she bore all of the financial risks in a marketplace where three out of four investors lose money. The officials also released a year’s worth of brokerage statements from one of Mrs. Clinton’s two accounts. …Mrs. Clinton based her trades on information in The Wall Street Journal.

In other words, we’re supposed to believe that Mrs. Clinton, a complete novice, with no experience in the private sector or the investment business, suddenly decided to sink money into a very complex type of speculation.

And we’re supposed to believe that she made a series of very clever market-timing decisions and turned small amount of money into a big pile of money.

Needless to say, even the reporter for the New York Times couldn’t help but express skepticism and doubt. Particularly since nobody was willing to back up Mrs. Clinton’s story.

The White House insisted today that Mrs. Clinton received no improper financial assistance on the trades from the lawyer, James B. Blair, a close friend who at the time was the top lawyer for Tyson Foods of Springdale, Ark., the nation’s biggest poultry company. Mr. Blair has said that he had suggested that she get into the commodities market, and that he used his knowledge of trading to guide her along the way. During Mr. Clinton’s tenure as Governor, Tyson benefited from several state decisions, including favorable environmental rulings, $9 million in state loans, and the placement of company executives on important state boards. …brokers in the Springdale office of Refco where Mrs. Clinton executed the trades, including the one she describes as her personal broker, said in interviews in recent weeks that they have no recollection of ever talking with her about the trades. Mrs. Clinton and Mr. Blair have said that they used Robert L. (Red) Bone, the broker who founded the Springdale office of Refco, a Chicago commodities firm, to execute the trades. But Mr. Bone, who worked at Tyson for 13 years until 1973, insisted in several interviews this month that he has no recollection of ever trading for Mrs. Clinton or talking to her about commodities trades.

Here’s the bottom line. Back when this scandal surfaced in the 1990s, I talked to several people in the financial markets, every one of whom was 99.99 percent certain that Hillary was the beneficiary of a gift (if they were favorable to her) or a bribe (if they were unfavorable to her). And they all agreed that somebody on the inside arranged to give her, after the fact, the winning side of trades in order to make it look like she was simply a good investor.

Moreover, every single Democrat that I talked to admitted (but only off the record) that she was the recipient of a gift or a bribe.

And she hasn’t changed in the past 38 years. Government is a vehicle for personal advancement and personal enrichment.

Now let’s conclude by bring public policy into the discussion. Corrupt politicians are able to amass lots of power and money because government is big and powerful.

And I’m not making a partisan argument. Indeed, here are the same bullet points I used when pointing out the empty futility of Trump’s plan to “drain the swamp” and end DC corruption.

All I’m saying is that Hillary Clinton both supports big government and profits from big government. And as the public sector gets larger, don’t be surprised when you find out that Hillary and her cronies have figured out additional ways of feathering their own nests.

P.S. By the way, I do recognize that there’s an infinitesimally small possibility that Hillary’s story about cattle futures is accurate.

I also recognize, for what it’s worth, that there’s a greater-than-zero possibility that aliens will invade the earth tomorrow.

But neither of these hypotheses is remotely plausible (though if I had to pick, I’d go with the alien invasion for the simple reason that it would bring great joy to Paul Krugman).

P.P.S. Plenty of Republicans will get rich as well as Hillary expands government. If you don’t believe me, just consider how many of them collect campaign cash in exchange for votes in favor of ethanol and the Export-Import Bank.

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