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Posts Tagged ‘Big business’

In my 30-plus years in Washington, I’ve lived through some very bad pieces of legislation.

But the most depressing experience was probably the TARP bailout. In part, it was depressing because bad government policy created the conditions for the crisis, so it was frustrating to see the crowd in Washington blame capitalism (in effect, a repeat of what happened in the 1930s).

Far more depressing, however, was the policy response. Thanks largely to the influence of Treasury Secretary Hank Paulson, the Bush Administration decided to bail out the big firms on Wall Street rather than use “FDIC resolution,” which would have bailed out depositors but at least shut down big institutions that were insolvent.

In other words, TARP was pure cronyism. Wall Street firms had “invested” in Washington by giving lots of contributions to politicians and TARP was their payoff.

With this background, you’ll understand why I asserted in this interview that the dissolution of two business advisory councils is the silver lining to the black cloud of Charlottesville.

Since that was just one segment of a longer interview and I didn’t get a chance to elaborate, here are some excerpts from an article in Harvard Business Review by Robert Litan and Ian Hathaway about the connection between anemic productivity numbers (which I wrote about last week) and cronyism.

Baumol’s writing raises the possibility that U.S. productivity is low because would-be entrepreneurs are focused on the wrong kind of work. In a 1990 paper, “Entrepreneurship: Productive, Unproductive, and Destructive,” Baumol argued that the level of entrepreneurial ambition in a country is essentially fixed over time, and that what determines a nation’s entrepreneurial output is the incentive structure that governs and directs entrepreneurial efforts between “productive” and “unproductive” endeavors. Most people think of entrepreneurship as being the “productive” kind, as Baumol referred to it, where the companies that founders launch commercialize something new or better, benefiting society and themselves in the process. A sizable body of research establishes that these “Schumpeterian” entrepreneurs, those that are “creatively destroying” the old in favor of the new, are critical for breakthrough innovations and rapid advances in productivity and standards of living. Baumol was worried, however, by a very different sort of entrepreneur: the “unproductive” ones, who exploit special relationships with the government to construct regulatory moats, secure public spending for their own benefit, or bend specific rules to their will, in the process stifling competition to create advantage for their firms. Economists call this rent-seeking behavior.

That’s the theory.

What about evidence? Well, Obamacare could be considered a case study since it basically was a giveaway to big pharmaceutical firms and big health insurance companies.

But the authors look at the issue more broadly to see if there is an economy-wide problem.

Do we…see a rise in unproductive entrepreneurship, as Baumol theorized? …James Bessen of Boston University has provided suggestive evidence that rent-seeking behavior has been increasing. In a 2016 paper Bessen demonstrates that, since 2000, “political factors” account for a substantial part of the increase in corporate profits. This occurs through expanded regulation that favors incumbent firms. Similarly, economists Jeffrey Brown and Jiekun Huang of the University of Illinois have found that companies that have executives with close ties to key policy makers have abnormally high stock returns.

This is very depressing.

I don’t want companies to do well because the CEOs cozy up to politicians. If entrepreneurs and corporations are going to be rolling in money, I want that to happen because they are providing valued goods and services to consumers.

I wrote about Bessen’s research last year. It’s very unsettling to think that companies make more money because of political connections than they do from research and development.

There are two reasons this is troubling.

First, it means slower growth because government intervention is undermining the efficient allocation of labor and capital that occurs with productive entrepreneurship.

Second, cronyism is very corrosive because people equate business with capitalism, so their support for capitalism declines when they see companies getting special favors.

I wish ordinary people understood that big business and free enterprise are not the same thing.

Though I fully understand their disdain for certain big companies. Consider the way a select handful of big companies use the Export-Import Bank to obtain undeserved profits. How about the way big agri-businesses rip off consumers with the ethanol scam. Don’t forget H&R Block is trying to get the IRS to drive competitors out of the market. Big Sugar also gets a sweet deal by investing in politicians. Another example is the way major electronics firms enriched themselves by getting Washington to ban incandescent light bulbs. Needless to say, we can’t overlook Obama’s corrupt green-energy programs that fattened the wallets of well-connected donors. And General Motors became Government Motors thanks to politicians fleecing ordinary Americans.

The bottom line is that it’s time to save capitalism from the rent seekers in the business community.

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One of the points I repeatedly make is that big government breeds corruption for the simple reason that politicians have more power to reward friends and punish enemies.

It’s especially nauseating when big companies learn that they can get in bed with big government in order to obtain unearned wealth with bailouts, subsidies, protectionism, and other examples of cronyism.

And these odious forms of government intervention reduce our living standards by distorting the allocation of labor and capital.

But just as crime is bad for society but good for criminals, it’s also true that cronyism is bad for the economy and good for cronies.

Two professors at the University of the Illinois decided to measure the “value” of cronyism for politically connected companies.

Gaining political access can be of significant value for corporations, particularly since governments play an increasingly prominent role in influencing firms. Governments affect economic activities not only through regulations, but also by playing the role of customers, financiers, and partners of firms in the private sector. …Therefore, gaining and maintaining access to influential policymakers can be an important source of competitive advantage… In this paper, we investigate the characteristics of firms with political access as well as the valuation effects of political access for corporations. Using a novel dataset of White House visitor logs, we identify top corporate executives of S&P 1500 firms that have face-to-face meetings with high-level federal government officials. …We match the names of visitors in the White House visitor logs to the names of corporate executives of S&P1500 firms during the period from January 2009 through December 2015. We are able to identify 2,286 meetings between corporate executives and federal government officials at the White House.

And what did they find?

That cronyism is lucrative (I deliberately chose that word rather than “profitable” because money that it legitimately earned is very honorable).

Here are some of the findings.

…we find that firms that contributed more to Obama’s presidential election campaigns are more likely to have access to the White House. We also find that firms that spend more on lobbying, firms that receive more government contracts… Second, we find that corporate executives’ meetings with White House officials are followed by significant positive cumulative abnormal returns (CARs). For example, the CAR is about 0.865% during a 51-day window surrounding the meetings (i.e., 10 days before to 40 days after the meetings). We also find that the result is driven mainly by meetings with the President and his top aides.

For those interested, here are the companies that had a lot of interaction with the Obama White House.

And here are the officials that they met with.

For what it’s worth, I would be especially suspicious of the meetings with Valerie Jarrett and the three Chiefs of Staff. Those officials are political operatives rather than policy experts, so companies meeting with them were probably looking for favors.

Interestingly, it turns out that it wasn’t a good idea for companies to “invest” a lot of time and effort into cultivating relationships with Democrats.

…we exploit the election of Donald J. Trump as the 45th President of the U.S. as a shock to political access. We find that firms with access to the Obama administration experience significantly lower stock returns following the release of the election result than otherwise similar firms. The economic magnitude is nontrivial as well: after controlling for various factors that are likely correlated with firms’ political activities, such as campaign contributions, lobbying expenses, and government contracts, the stocks of firms with access to the Obama administration underperform the stocks of otherwise similar firms by about 80 basis points in the three days immediately following the election.

Though I guess you can’t blame the companies. Most observers (including me) expected Hillary to win, so the firms were simply playing the odds (albeit from an amoral perspective).

By the way, there are two very important caveats to share.

  • First, we can’t universally assume that corporate executives who met with White House officials were seeking special favors. They may simply have been urging the Obama Administration not to raise taxes or impose new regulations (i.e., honorable forms of lobbying).
  • Second, we can’t assume that the bad forms of lobbying have disappeared simply because there’s a Republican in the White House. As we saw during the Bush years, the GOP is more than capable of creating opportunities for unearned wealth by expanding the size and scope government.

For what it’s worth, I fear Trump will be tempted to play favorites as well. Which is why the real message for today is that smaller government is the only way to limit the corrupt interaction of big business and big government.

This image from the libertarian page on Reddit illustrates why my leftist buddies are naive to think that a bigger government will be a weapon against cronyism.

P.S. We should learn from Estonia on how to limit cronyism.

P.P.S. To close on a humorous note, those with left-wing children may want to get them “Kronies” for their birthdays or Christmas.

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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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Advocates of economic liberty, free market, and small government haven’t enjoyed many victories in the 21st Century.

Government got bigger and more expensive during Bush’s reign, starting in his first year with the No Bureaucrat Left Behind legislation and then ending in his final year with the odious TARP bailout.

Then Obama came to office, promising “hope and change,” but then proceeded to act like Bush on steroids, giving us the faux stimulus his first year and then the Obamacare boondoggle his second year.

But there have been a few victories since 2010.

The sequester unquestionably was Obama’s biggest defeat, and that policy helped contribute (along with debt limit fights and shutdown battles) to a much-needed five-year slowdown in federal spending between 2009 and 2014.

That’s certainly not a permanent victory, particularly since our long-run fiscal crisis will still be enormous in the absence of genuine entitlement reform.

But better to have some short-run spending restraint than none at all.

And since we’re looking at victories, we have something new to celebrate. Today (July 1) is the first day in decades that America is freed from a very misguided form of corporate welfare known as the Export-Import Bank.

This bit of cronyism was created to give undeserved wealth to big companies by guaranteeing some of their sales to foreign customers, and I argued in 2012 and earlier this year that shutting down the Ex-Im Bank was a test of seriousness for the GOP..

They sort of passed the test. The Ex-Im Bank needed to be authorized by midnight on June 30 to stay in operation and that didn’t happen.

However, this victory also isn’t permanent. Cronyists in the business community plan to push for re-authorization later this year, so it’s still an open question on who will prevail. Particularly since there are some GOPers who like big business more than free markets.

But at least for today, we can enjoy this image from the Ex-Im Bank’s website.

For more information why the Ex-Im Bank should not be re-authorized and instead should be permanently shut down, here are some excerpts from a column by Veronique de Rugy of Mercatus.

Ex-Im Bank puts millions of consumers, firms and workers at a disadvantage. As such, closing it down is an important first step in the battle against the unhealthy marriage between the government and corporate America. …Over 60 percent of the bank’s financing aids 10 giant beneficiaries, like Caterpillar, Bechtel, and General Electric. On the foreign side, the cheap loans go to state-owned companies like Pemex, the Mexican government’s oil and gas giant, or Air Emirates, the airline of the wealthy United Arab Emirates. …More than 98 percent of all U.S. exports occur with no Ex-Im Bank subsidies at all. And considering who the beneficiaries of Ex-Im on the domestic and foreign sides are, there’s no chance that all Ex-Im supported exports will disappear.

And let’s not forget the costs imposed on the rest of the economy thanks to this bit of corporate welfare.

Economists have shown that while export subsidies boost the profits of the recipients, it tends to have a negative impact on economy as a whole by shifting capital, economic growth, jobs and profits from unsubsidized firms to subsidized ones. …victims are taxpayers who now bear the risk for $140 billion in liabilities. These victims are consumers who pay higher prices for the purchase of subsidized goods. These victims are unsubsidized firms competing with subsidized ones. They not only pay higher financing costs but also lose out when private capital flows to politically privileged firms regardless of the merits of their projects. Some are even victimized multiple times: first as taxpayers, then as consumers, then as competitors, and finally as borrowers.

Speaking of economic costs, you definitely should click here and watch a video by another Mercatus expert of why the Ex-Im Bank undermines economic efficiency.

Like Veronique, Tim Carney of the Washington Examiner is one of the unsung heroes in the fight against the Ex-Im Bank. Here’s some of his column from yesterday.

The Export-Import Bank is down. …Legally, Ex-Im’s officers, employees and board members must cease their typical work of subsidizing Boeing, J.P. Morgan and Chinese state-owned enterprises. Instead, under the law that authorized it, Ex-Im is allowed to exist only “for purposes of orderly liquidation, including the administration of its assets and the collection of any obligations held by the bank.” …This week’s knockdown of Ex-Im should be seen in exactly this light: It is an early and visible victory for the GOP’s free-market forces over the forces of K Street, which for so long held a monopoly on the party.

I should also point out that some of my colleagues at the Cato Institute have been working hard for years to explain why the Ex-Im Bank should be abolished. Kudos also to Heritage Action for fighting against this corrupt cronyist institution.

Last but not least, here’s a video Nick narrated last year on why the Ex-Im Bank should not be re-authorized. I like how he starts with a clip of Obama the candidate citing it as wasteful corporate welfare. Now that he’s in power, though, he’s decided the cesspool of DC corruption is really a hot tub.

P.S. Speaking of leftist phonies, Elizabeth Warren likes to portray herself as a scourge of big business, yet she’s a supporter of continued handouts for corporate fatcats. A fake populist, and a fake Indian.

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In the grand scheme of things, the Export-Import Bank isn’t the worst government program or the one that most needs to be abolished.

Entitlement programs are a far bigger threat to America’s long-run fiscal stability the Ex-Im Bank, with Medicaid serving as a particularly sobering example.

Handouts to the Paris-based Organization for Economic Cooperation and Development, on a per-dollar-spent basis, do more damage than the Export-Import Bank.

There are entire departments of the federal government, such as Education or Housing and Urban Development, that should be abolished before we worry about the Ex-Im Bank.

But here’s the deal. Achieving any of the goals listed above would require approval of the House, approval of the Senate, and signed legislation from the President.

So I’m not exactly holding my breath for immediate victories.

In the case of the Export-Import Bank, though, victory is possible. Authorization for this odious form of corporate welfare automatically sunsets later this year.

In other words, so long as either the House or the Senate say no (which simply means choosing to do nothing), taxpayers win.

This is why getting rid of the Export-Import Bank is a real test of whether Republicans are serious about shrinking the size and scope of government.

And just in case you need a reminder of why this bit of cronyism should disappear, here’s some of what Veronique de Rugy recently wrote for The Hill.

Politicians are hoarders. Instead of filling up their homes with junk and refusing to throw any of it away, they surround themselves with bloated government programs and come up with excuses to not get rid of any of them.

And if you go down the rickety stairs to the mildew-filled basements of their homes, surrounded by dead mice, you’ll find the Ex-Im Bank.

Ex-Im simply isn’t the job creator that it claims to be. The bank itself reported that only 16 percent of its beneficiaries were seeking to overcome limitations in private sector export financing. And in cases where the private sector didn’t think it was a good idea to finance a deal, why should taxpayers have backed it instead? The truth is that the bulk of Ex-Im’s activities benefit large, politically connected companies. Indeed, over 65 percent of Ex-IM Bank’s loan guarantee program benefits aerospace giant Boeing, which currently has a market cap of $106 billion. …the Congressional Budget Office projects that taxpayers will have to shoulder $2 billion in losses over the next decade. Even when there aren’t losses, it merely shows that the private sector could have handled the financing. Second, Ex-Im places the 99.96 percent of U.S. small businesses that it doesn’t subsidize at a competitive disadvantage because the subsidies artificially lower costs for privileged competitors.

Indeed. You should watch this excellent video from Mercatus to learn more about the destructive economic impact of the Export-Import Bank.

Defenders of the program say it’s necessary for American exports, but only a tiny share of exports get these subsidies.

And here’s a look at export-related jobs. As you can see, it’s preposterous to claim the Ex-Im Bank plays a big role.

And remember, by the way, that this chart looks at the “seen” jobs. If you count the “unseen” jobs destroyed by subsidies and intervention, the overall impact would be very negative.

You can peruse lots of additional evidence at this Mercatus link. The bottom line is that the only argument for the Export-Import Bank is that it helps to perpetuate a corrupt insider scam.

But if you’re not a lobbyist, cronyist, corporate fat cat, or other form of insider, the Ex-Im Bank is a lose-lose proposition.

P.S. If you support the Export-Import Bank and you want to raise your children to have the same warped view of the world, here are some toys you can get them for their birthdays.

P.P.S. Senator Elizabeth Warren pretends to be the scourge of politically connected fat cats, but compare her miserable record to that of a real taxpayer hero who actually believes in free markets rather than big business.

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Let’s compare two politicians, Senator Elizabeth Warren of Massachusetts and Congressman Jeb Hensarling of Texas, to see which one actually has the courage to fight against powerful interest groups.

We’ll start with Senator Warren. She portrays herself as the scourge of Wall Street, but it appears that the Massachusetts lawmaker isn’t merely a fake Indian, she’s also a fake opponent of corporate welfare.

Kevin Williamson of National Review has some withering criticism of Senator Warren’s faux populism.

Senator Elizabeth Warren, the millionaire Massachusetts class warrior who has made the vilification of Wall Street bankers her second-favorite pastime (right behind prospering on the largesse of Wall Street lawyers, the gentlemen and scholars who funded her very generously compensated position at Harvard and fill her campaign coffers) did not exactly make the issue her hill to die on, but the fight did provide her an excellent opportunity for grandstanding. …Senator Warren did her usual dishonest shtick, engaging in her habitual demagoguery without every making an attempt to actually explain the issue, which is a slightly complicated and technical one, to the rubes who make up the Democrats’ base. …This led Maggie Haberman of Politico to admire Senator Warren’s “authenticity,” the choice of precisely that word being the cherry on this sundae of asininity. Senator Warren is as much an authentic champion of ordinary working people as she is an authentic Cherokee princess — and Mel Brooks and those Yiddish-speaking Indians from Blazing Saddles were more convincing in that role.

But the problem is much deeper than empty grandstanding. Senator Warren wants to give government more power, which will exacerbate the problem.

Many on the Tea Party right and the Occupy left intuit that there exists a dysfunctional relationship between Wall Street and Washington, though Senator Warren et al. maddeningly believe that the way to ameliorate this is to invest Washington with even greater powers, enabling even worse misbehavior and even more remorseless rent-seeking.

And let’s not forget the left’s historical revisionism.

Here’s how the New York Times relates the cromnibus skirmish to bailout politics: “The liberal base of the Democratic Party, led by Ms. Warren, also found itself in an unlikely alliance with the Tea Party wing of the Republican Party. Both opposed the Wall Street bailout of 2008 and feared that the spending measure would not only provide a bounty for big banks but would also help cause another economic crisis.” …One wonders which of these famous progressives the New York Times has in mind when it states — as uncontested fact — that “the liberal base of the Democratic party” “opposed the Wall Street bailout of 2008.” …The bailouts were enabled by the Emergency Economic Stabilization Act of 2008, which enjoyed the support and votes of Senator Barack Obama of Illinois, Senator Joe Biden of Delaware, Senator Hillary Rodham Clinton of New York, Speaker of the House Nancy Pelosi, Senator Charles Schumer of New York, Representative Barney Frank of Massachusetts, Senator Patrick Leahy of Vermont, Representative Jesse Jackson of Illinois, Representative Sheila Jackson Lee of Texas, etc. The people who actually opposed bailouts by voting against bailouts were not in the main progressives, but were disproportionately conservative Republicans: Representative Michele Bachmann of Minnesota, Representative Michael Burgess of Texas, Representative Jeff Flake of Arizona, Senator Sam Brownback of Kansas, Senator Jim DeMint of South Carolina, etc.

Elizabeth Warren was a high-paid Harvard professor in 2008, so we don’t know how she would have voted on TARP.

But based on her current support for bailouts, handouts, and subsidies for big companies (including support for the egregious Export-Import Bank), she probably would have voted yes.

The Tea Party came into being as a reaction to Republican complicity in bailouts of all sorts: of Wall Street firms, and of irresponsible mortgage borrowers. Occupy, and the potty-trained version of that movement led by Elizabeth Warren, demands more bailouts: of people who borrowed money for college or to buy a home, of fashionable corporations that do not want to pay market rates for financing, etc. Senator Warren is an energetic proponent of corporate welfare for Boeing, General Electric Bechtel, Caterpillar, and other such poor, defenseless little mom-and-pop operations. If you are looking for actual rather than theoretical opposition to bailouts and corporate welfare, then your choices include Senator Rand Paul and Senator Ted Cruz, but practically nobody who might be called a progressive.

In other words, politicians like Senator Warren pay lip service to the notion that big government shouldn’t be in bed with big business. But when it’s time to cast votes, she’s a reliable supporter of cronyism.

Now let’s review a politician who talks the talk but also walks the walk.

Here are some excerpts from Kimberley Strassel’s Wall Street Journal profile of Congressman Hensarling.

Rep. Jeb Hensarling…has spent a decade riding herd on cronyists who give capitalism a bad name by giving or taking special government favors. …Washington’s Lone Ranger was at it again this week in the fight over reauthorizing the Terrorism Risk Insurance Program, a “temporary” program created in 2002 that requires taxpayers to absorb the costs of insurance payouts after an attack. …The Texan didn’t get all the reforms he wanted in the reauthorization bill that did pass this week, but he got some.

Kudos to the Congressman for arguing that companies should pay market prices for insurance rather than shifting some of the liability to taxpayers.

But that’s just one example of his fight against cronyism. He’s also fighting to protect taxpayers against the predations of Fannie Mae and Freddie Mac.

The congressman stepped down from the House leadership after the 2012 election to become chairman of the House Financial Services Committee, where he could be at the center of restoring what he calls the “bedrock” GOP principle of “free enterprise.” From that perch, Mr. Hensarling has doggedly worked to dismantle crony government programs that reward the well-connected business elite. …Take his longtime fight to eliminate Fannie Mae and Freddie Mac, the government-backed housing giants that were central to the 2008 crash. Mr. Hensarling has yet to get a House vote on his proposal, though this focus has helped put uncomfortable attention on those pushing only watered-down reform. Earlier this year, he led a battle against plans to roll back reforms to the federal flood-insurance program. The House passed that atrocity, but only after former Majority Leader Eric Cantor (to great outrage) did the insurance lobby’s bidding and bypassed Mr. Hensarling on the way to a vote. …This fall he provoked a debate over reauthorization of the Export-Import Bank, which exists to provide cheap financing for select industry players. …The House instead caved and threw Ex-Im reauthorization into a September funding bill, though Mr. Hensarling was able to limit its extension to June—when he intends to have that fight all over again.

Let’s hope Hensarling prevails over Warren next year and the Export-Import Bank no longer is allowed to feed at the public trough.

A key question is whether other Republicans will be willing to join Congressman Hensarling’s fight.

Such fights in the next Congress will be even more worth watching. …The K-Street lobbyists are about to put enormous pressure on Republicans. …All eyes are now on the GOP. Republicans are happy to criticize obvious (and Obama -backed) recipients of government largess: the Solyndras of the world. Yet few have been willing to shut down larger programs that pay off entire industries and send dollars back to their state businesses. This is why many voters see the GOP as the party of the “rich and powerful” and Democrats get traction with their populist catchphrases. …Democrats are the ones who are champions of big government, which exists to reward the politically connected, and to hide those rewards within legislation and backroom bureaucratic payoffs. …The GOP has a yawning opening to make this case, and position itself as the party that truly represents Main Street.

If past behavior is any indication of future behavior, there are some very discouraging reasons (here, here, here, and here) to think Republicans will side with K Street over taxpayers.

But maybe GOPers will surprise us and do what’s best for America rather than what’s best for corporate moochers.

P.S. If you want some serious analysis of Elizabeth Warren’s class-warfare agenda, click here. And if you want some amusing satire about her attack on entrepreneurs, click here.

P.P.S. Let’s praise another lawmaker. In the annual year-end look at the best and worst of Congress from Washingtonian, Congressman Justin Amash was rated as “Lobbyists’ Worst Enemy.”

P.P.P.S. Based on this cartoon, Michael Ramirez isn’t very optimistic on whether the GOP will have the backbone necessary to fight cronyism and special-interest corruption.

And this Ramirez cartoon about GOP timidity is an instant classic, sort of like the one he did on the Republican elephant in the Garden of Eden.

If I do an update of my post on best political cartoons, this will definitely get added.

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When I discuss corporate welfare, my first example is usually the Export-Import Bank. It galls me that taxpayers are coerced into subsidizing some of the world’s biggest corporations.

And since I’m an economist, I also don’t like how these subsidies undermine the overall economy.

But the Export-Import Bank is just the tip of the iceberg. Politically connected corporations now treat Washington like a profit center, making “investments” in politicians in exchange for policies that unfairly tilt the economic playing field.

Let’s look at another example of big companies suckling at the federal teat.

Mark Calabria, one of my Cato colleagues (and we also both studied economics at George Mason University!), explains why the federal government shouldn’t be in the business of helping rich shareholders by having the government subsidize corporate insurance policies.

House Republicans and Senate Democrats are in the midst of negotiating a deal to extend the Terrorism Risk Insurance Act (TRIA), which expires at the end of this year. They should save themselves the trouble and protect the taxpayer by allowing TRIA to expire. TRIA is no more than corporate welfare wrapped up in the flag. …TRIA is simply a mechanism for allocating the losses from a terrorist attack. It does nothing to deter terrorists. Do we truly believe that terrorists say to each other, “Let’s not attack that building, it’s insured”? Under the best of circumstances, TRIA has zero impact on the cost of a terror attack. …Why are taxpayers thought to be better able to bear…risk than shareholders in publicly traded corporations, given the concentrated holdings of corporate equity? Why should middle-class taxpayers subsidize the 1 percent?

Amen.

I don’t want the federal government doing any redistribution, but it’s particularly upsetting when politicians and bureaucrats hurt ordinary people to line the pockets of the rich.

Mark also explains that this isn’t simply a case of robbing Peter to subsidize Paul. As with many government programs, the indirect effects result in added collateral damage.

It would be bad enough if TRIA simply redistributed losses from corporate America to taxpayers, but TRIA runs the risk of increasing the losses from terrorism. If developers faced the full cost of their design choices — say, that between a glass building façade or reinforced concrete – they would build safer structures. We’ve sadly seen this play out in the national flood-insurance program, where subsidies have encouraged poor construction while also encouraging families to live in harm’s way. Even the Congressional Budget Office has acknowledged that TRIA lessens the incentives to reduce losses from a terror attack. …the most important lesson of the financial crisis was that when you underprice risk, people make poor choices. That has been repeatedly demonstrated when Congress has attempted to hide the costs of certain activities, like subprime-mortgage lending. Similarly distorting the pricing of terrorism risk will also lead to poor choices.

The final sentences are critically insightful. We need unfettered prices to ensure that costs and benefits are properly calculated and resources are productively allocated.

The Wall Street Journal editorial page is similarly opposed to this example of corporate welfare.

For proof of Ronald Reagan ’s maxim that the closest thing to eternal life on Earth is a government program, consider the Terrorism Risk Insurance Act of 2002. What was sold to the public as a temporary backstop is becoming another permanent entitlement. …Insurers and potential targets of terror, such as the National Football League, property developers and hoteliers, have lobbied hard to keep the program going, and going and going. Congress waved through extensions in 2005 and 2007. Earlier this year, facing a Dec. 31 expiration date, Harry Reid ’s Senate passed another seven-year extension 93-4. Like the Export-Import Bank, terrorism insurance is one of those business subsidies that both parties are only too happy to support. …The best solution would be for the House to let the program expire. Insurers have had 13 years to adjust their models. The Government Accountability Office reported in May that terrorism risk premiums have stabilized. …Private reinsurers can cover many of the risks that taxpayers now bear.

By the way, I think private insurers and reinsurers were the best option, even immediately after the 9-11 terror attacks. Yes, the market was very unsettled and would have stayed that way for a while, but both insurers and customers would have had big incentives to quickly figure out the best pricing strategies.

I would have much rather faced a year or two of instability rather than a decade-plus of distortionary subsidies.

But that’s water under the bridge. What matters now is that there’s zero excuse for subsidizing the insurance policies of big corporations.

By the way, just in case you think I’m exaggerating and that corporate welfare is limited to the Ex-Im Bank and terrorism insurance, check out these other examples of big business and big government conspiring against taxpayers and consumers.

Look at the way the major pharmaceutical companies and big insurance companies got into bed with the White House to line their pockets via Obamacare.

And examine how big financial firms pillaged taxpayers as part of the sleazy TARP bailout.

How about the way big agri-businesses rip off consumers with the ethanol scam.

Don’t forget H&R Block is trying to get the IRS to drive competitors out of the market.

Big Sugar also gets a sweet deal by investing in politicians.

Another example is the way major electronics firms enriched themselves by getting Washington to ban incandescent light bulbs.

Needless to say, we can’t overlook Obama’s corrupt green-energy programs that fattened the wallets of well-connected donors.

And General Motors became Government Motors thanks to politicians fleecing ordinary Americans.

P.S. Since our topic today dealt with terrorism, check out the terrorism-related humor and links in the “P.P.P.S.” of this post.

P.P.S. New topic. Every so often I find some left-wing political satire that is genuinely clever and thoughtful.

There’s my collection of anti-libertarian humor (including an article about libertarian law enforcement), some good leftist tax cartoons, a Fox News dystopia, and some well-done first-world vs third-world imagery.

Now we can add this cartoon about a Joe GOP Sixpack who thinks government is grossly incompetent and untrustworthy, with one exception.

A very effective zinger, I’ll be the first to admit. Indeed, the cartoonist hits me in a somewhat sensitive spot.

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