The Sleazy Combination of Big Business and Big Government

I gladly defend profits. I even defend profits for big companies.

But I usually include an all-important caveat that profits are only good if earned in a competitive marketplace.

At the risk of understatement, I get angry when big companies get money because of special favors from government. That’s because goodies from politicians and bureaucrats unavoidably come at the expense of consumers, taxpayers, and small businesses.

Sadly, there are many examples of big business and big government being in bed together.

Now we can add to the list. In a column for the Washington Examiner, Tim Carney shines a light on a new case study of big business using big government to thwart choice and innovation.

He starts by describing a development in the air travel industry that most people would see as a good thing.

SkyWest is a small air carrier that operates flights for some of the big airlines. They want to branch into a new field: operating regularly scheduled flights on small planes from private terminals. JSX Air is one company that already offers this product. Legally known as a “public charter” or “scheduled charter” operator, JSX flies small planes out of private terminals, but at fares far closer to commercial coach than to private air travel. …The main advantage is a more reasonable boarding process — particularly, no TSA security theater. …it also allows you to bring on your own snacks, drinks, and jars of local marmalade — all of which our Transportation Security Agency has deemed too dangerous to fly.

But not everyone approves.

The massive legacy airlines hate this, because it is a competitor who is more much pleasant to fly, operating at about the same costs. Thus the airlines and their pilot union are trying to get Uncle Sam to clamp down on public charters.

And what are their arguments?

The unions have hired revolving-door former congressman Peter DeFazio as their lobbyist, opposing this license. Their argument includes attacking the business model already used by JSX. …Their main argument is that SkyWest and JSX would be allowed to use veteran pilots who are over 65 — which is the mandatory retirement age for pilots of larger aircraft. Also, pilots who don’t yet have 1,500 flying time are allowed to captain smaller planes but not large planes, and so SkyWest could use these slightly greener pilots, too. The pilots and the airlines will make safety arguments against the expansion of public charters, but these fall short. Already rich people can fly without TSA screening out of private terminals, and already rich people can charter jets with 66-year-old pilots or captains with only 10,000 miles. So the big airlines’ argument amounts to: This is safe enough for rich people, but not for our potential customers.

Is it possible that it is marginally more dangerous to fly on a plane with an older pilot or a pilot with fewer than 1,500 hours of flying time?

I have no idea, but I think consumers, shareholders, Boards of Directors, and insurance companies should be the ones driving the decision, not bureaucrats, politicians, lobbyists, or rival companies.

Tim identifies the real issue.

The anti-SkyWest and anti-JSX campaign is really about using the government to outlaw competition.

Amen. We need genuine free enterprise, not cronyism.

P.S. The controversy over “stakeholder capitalism” is partly about the unseemly alliance between big government and big business.

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Big Business vs. Free Enterprise

I explained during a recent speech in Poland that I get very upset when big companies support policies that disproportionately harm small businesses.

By the way, I have no objection to big companies simply because they are big. Or merely because they sometimes earn a lot of profit.

But, as captured by my Eleventh Theorem of Government, I don’t like big business when it gets in bed with big government.

That’s a recipe for all sorts of bad policies, and also a major source of political corruption.

For purposes of today’s column, though, let’s consider how it is a recipe for reducing competition.

We can now quantify the damage, thanks to some new research by Professor Shikhar Singla, published by Goethe University in Frankfurt.

…the total economy-wide cost of regulations since 1970 has increased by almost 1 trillion dollars, which is roughly 5% of US GDP in 2018. …there has been a massive increase in regulation since the late 1990s. …an average small firm faces an average of $9,093 per employee in our sample period compared to $5,246 for a large firm. …We find that a 100% increase in regulatory costs leads to a 1.2%, 1.4% and 1.9% increase in the number of establishments, employees and wages, respectively, for large firms, whereas it leads to 1.4%, 1.5% and 1.6% decrease in the number of establishments, employees and wages, respectively for small firms… Results on employees and wages provide evidence that an increase in regulatory costs creates a competitive advantage for large firms. Large firms get larger and small firms get smaller. …The smaller the firm, the more competitively disadvantaged it gets… Fixed costs create a competitive disadvantage for small firms. …We find that large firms oppose regulations in general. But, they push for regulations which have an adverse impact on small firms. Hence, they are willing to incur a cost that creates a competitive advantage for them.

How much of a competitive advantage?

It’s become very significant this century, as shown by Figure 10 from the study.

Policy obviously veered in the wrong direction at the end of the Clinton Administration and then (unsurprisingly) stayed bad during the Bush, Obama, and Trump years.

And policy is staying bad during the Biden years.

The Wall Street Journal editorialized on this topic in 2021. Here are some excerpts.

…what’s really going on: Old-fashioned self-interest. …Take Amazon CEO Jeff Bezos’s endorsement of a higher corporate tax rate. …Mr. Bezos knows a higher rate would hurt Amazon much less than it would other companies. …Mr. Bezos can buy some political goodwill by providing cover to Democrats on taxes, while his company will benefit on the tax subsidy side of the ledger. Big businesses also know they can afford the higher costs of new regulation that smaller competitors cannot. That helps explain Big Oil’s embrace of methane emission rules in the Obama years that hurt independent frackers, as well as putting a price on carbon now. …Or consider the rush by Big Finance to endorse environmental, social and governance investing, or ESG. …BlackRock CEO Larry Fink is an enthusiast, and guess who will benefit if Biden Administration regulators set new requirements for ESG disclosure or investing? ESG lets BlackRock charge higher investment fees than it can charge for index funds that buy the entire market. …corporations look out first and foremost for their own interests, and that often means collaborating with government for narrow purposes that aren’t always in the public interest.

This is disgusting. And it’s not the first time Bezos and Amazon have tried to hurt small businesses.

In my fantasy world, we would have separation of business and state.

In the real world, I’ll be happy if we can simply block the left’s ESG agenda so that big companies will be forced to earn money in the market rather than steal money via politics.

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Big Government, Big Business, and the Clowns at the Chamber of Commerce

Supporting free enterprise does not mean supporting big companies.

Why? Because as John Stossel and Tim Carney discuss, big businesses are more than willing to get into bed with big government and oppose capitalism.

The goal should be genuine consumer-driven, market-based competition. And that means that politicians should not put their thumbs on the scale in favor of specific companies or industries.

Unfortunately, that certainly has happened in countless cases.

At varying times, both Republicans and Democrats have provided special favors to Wall Street, General Motors, airlines, health insurance companies, Boeing, Big Pharma, and banks.

These odious examples help to explain why companies give money and support to politicians from both parties.

But sometimes that approach backfires. Let’s consider how the Chamber of Commerce can be blamed for the looming enactment of Biden’s horribly misnamed Inflation Reduction Act.

The Wall Street Journal opined on this issue today.

The U.S. Chamber of Commerce…bet in 2020 that supporting “centrist” House Democrats would protect against anti-business policies has been a bust. …How does that calculation look now…? Every one of the 15 voted for the $1.9 trillion spending bill in March 2020, despite Chamber opposition to sweeping jobless benefits that stoked labor shortages and stimulus checks that fed inflation. They also voted for the PRO Act, a radical pro-union rewrite of labor law. …Now comes the big moment of truth as the Schumer-Manchin tax and spend bill heads to the House… The chance of Democratic defections is slim. Despite aggressive Chamber lobbying, all 15 rolled over for the $3.5 trillion Build Back Better bill last year.

Amazingly, the Chamber bent over backwards to endorse these politicians, notwithstanding their consistent track record of support for bigger government.

Nearly all had publicly expressed support for scrapping the 2017 corporate tax reform, and for new climate, banking and healthcare regulations. The only reason most qualified for endorsements is because the Chamber altered its voting scorecard to allow extra points for “leadership” and “bipartisanship.” …It’s not too much to say that the Chamber was crucial in midwifing Speaker Nancy Pelosi’s 222-211 seat majority.

The Washington Post wrote last year about the Chamber’s controversial decision to side with Democrats.

Here are some excerpts from the story by Tory Newmyer and Aaron Gregg.

 …the Chamber has been the object of sharp attacks by leading conservatives. …The decision to endorse so many freshman Democrats, rather than give them time for their voting records to take shape, was a dramatic break from past procedure. …the conservative backlash has led to alarm even among some of the organization’s closest allies. A veteran U.S. Chamber board member, speaking on the condition of anonymity to avoid reprisal, said: “It is a legitimate question how well-thought out this strategy is. People are concerned, and they’re discussing where else they can send revenues to support free enterprise.” …Seeing Chamber-endorsed Democrats support pro-union legislation “is like the national right to life organization saying they now support some abortions,” said a former U.S. Chamber executive, who spoke on the condition of anonymity because the person feared reprisal.

If you want examples of conservative hostility, here’s a tweet from Hugh Hewitt.

The ⁦@USChamber⁩ opposes President Biden’s massive tax hikes. Too bad none of the Democrats they supported over GOP candidates last year care. The whole management team should quit or be fired. They got played. Badly. https://t.co/Cty77pXgjV

— Hugh Hewitt (@hughhewitt) April 1, 2021

And here’s a tweet from Oren Cass.

One of the major recent developments in American politics is the nasty divorce underway between the Republican Party and conservatives on one side and the Chamber of Commerce and big business on the other. What's causing the breakup? 🧵

— Oren Cass (@oren_cass) November 15, 2021

Interestingly, this is not the first time the Chamber of Commerce has sided with the left.

In a column for National Review earlier this year, Nate Hochman recounts what happened during the Hillarycare fight back in 1993.

In March 1993, the Chamber of Commerce surprised many of its allies by coming out in favor of Clinton’s plan for universal coverage with an employer mandate, reversing its earlier opposition to both proposals. …The Chamber’s attempt to curry favor with the new administration provoked a furious conservative backlash. Congressional Republicans — led by John Boehner of Ohio, then the head of the 75-member House Conservative Opportunity Society — organized a mass boycott of the Chamber, urging local and state chapters to disaffiliate in protest. The campaign was devastatingly effective: By the time the dust had settled, the Chamber had lost one-fifth of its membership.

As far as I’m concerned, any business owners who favor free enterprise should not support the Chamber of Commerce. It would be heartwarming to see the organization lose members.

But this brings me back to what I wrote at the start of today’s column. Many business owners don’t support capitalism. They prefer cronyism.

That’s particularly true for large companies, which often see big government as a way of thwarting competition from small companies (such as Amazon’s support for a higher minimum wage).

P.S. The Chamber of Commerce is not the only business association governed by fools. Yes, I’m referring to the Business Roundtable.

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Shareholders Over Stakeholders, Part II

In Part I, I warned that “stakeholder capitalism” is not just empty virtue signaling. Some advocates are using the concept to promote a statist agenda.

For Part II, let’s start with this video.

The main message of the video is that ethical profits are good for shareholders, but also good for everyone else (the supposed stakeholders).

By contrast, companies that don’t prioritize profits wind up hurting workers and consumers, not just the company’s owners (i.e., shareholders).

Let’s dig deeper into this topic.

Stakeholder theory reflects the more interventionist approach of continental Europe’s “civil law” while the shareholder approach is more consistent with the “common law” approach of the Anglosphere (the United Kingdom and many of its former colonies, including the United States).

That’s a key observation in Samuel Gregg’s column for Law & Liberty, which reviews a book by Professor Nadia E. Nedzel.

…stakeholder theory reinforces continental European rule through law inclinations and vice-versa, not least because of shared hard-communitarian foundations. …Such goals undermine the ability of corporations to produce prosperity. An emphasis on stability and maintaining levels of employment, for instance, exacts a cost in terms of organizational dynamism, not least by discouraging risk-taking and entrepreneurship. …Without such adjustments, however, a business will become complacent and uncompetitive. Eventually it will disappear, along with all the jobs once provided by the business. Likewise, if boards of directors are not focused on delivering shareholder value because profit is considered only one of many company objectives, a decline in earnings is sure to follow. …To the extent that stakeholder theory draws upon hard-communitarian principles which it shares with continental European rule through law models, it risks undermining already fragile commitments to rule of law in America and elsewhere. That’s just one more reason to shore up the priority of shareholder interests throughout corporate America. These priorities help explain the weaker economic performance of many corporations in civil law jurisdictions compared to those businesses located primarily in the Anglo-American sphere.

Allison Schrager of he Manhattan Institute wrote for the City Journal that Biden is on the wrong side and that his mistake, along with others, is failing to understand that so-called stakeholders benefit when companies are profitable.

…one thing that stood out was Biden’s vow to “put an end to the era of shareholder capitalism.” …disdain for the notion that a corporation’s primary objective is to maximize value for its shareholders has united the disparate likes of Elizabeth Warren and Bernie Sanders and the Davos/Larry Fink crowd. It’s no surprise that Joe Biden is against it, too. …Maximizing shareholder value…does not create conflicts between different stakeholders, because economic success is not zero-sum. …long-term success requires happy and loyal employees, a healthy relationship with the community, and a thriving environment.

In a column for the Wall Street Journal, Lucian A. Bebchuk and Roberto Tallarita shared their research showing that CEOs who pontificate about stakeholders don’t actually change their behavior.

…we dug deeper, investigating an array of corporate documents for the 136 public U.S. companies whose CEOs signed the statement. …we found evidence that the signatory CEOs didn’t intend to make any significant changes to how they do business. …We’ve identified almost 100 signatory companies that updated their corporate governance guidelines by the end of 2020. We found that the companies that made updates generally didn’t add any language that elevates the status of stakeholders, and most of them reaffirmed governance principles supporting shareholder primacy. …We also found that about 85% of the signatory companies didn’t even mention joining the “historic” statement in their proxy statements sent to shareholders the following year. Among the 19 companies that did mention it, none indicated that joining the statement would cause any changes to how they treat stakeholders.

Speaking of insincere hypocrites, that’s a good description of the Davos crowd. Matthew Lesh of the Adam Smith Institute wrote about their trendy support for stakeholders in a column for CapX.

…the man behind the World Economic Forum has declared that Covid warrants a ‘Great Reset’. With tedious predictability, Klaus Schwab’s bogeymen are the twin menaces of “neoliberal ideology” and “free market fundamentalism”. …he’s also calling for a “stakeholder model of corporate capitalism”… But it’s an idea based on a false dichotomy. A business that fails to return a profit to its shareholders cannot do anything for its other stakeholders, such as providing useful products to customers, paying its staff, procuring from suppliers… Delivering for shareholders is ultimately indivisible from benefiting your other ‘stakeholders’ because you can’t do one without the other. …Shivaram Rajgopal of Columbia Business School has found that top European companies who brandish their social and environmental credentials do no better in these criteria than American companies. But the European firms are much worse at ensuring good corporate governance. For example, worker representation on Germany’s supervisory boards has often meant worker representatives teaming up with managers to push against new technology and methods. In the longer run, this undermines returns to shareholders, but also means poorer products for customers, lower salaries for employees.

The bottom line is that there are lots of misguided attacks against capitalism, but none of the criticisms change the fact that free enterprise is the only system to ever deliver mass prosperity to ordinary people.

And that’s true even if big companies don’t support the system that enabled their very existence (perhaps because they fear they will got knocked from their perch by the the forces of “creative destruction“).

P.S. Just like yesterday, I can’t resist adding this postscript about the left-leaning executive who thought he was rejecting Milton Friedman, but actually did exactly as Friedman recommended.

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Shareholders Over Stakeholders, Part I

My warm and fuzzy feelings for “capitalism” turn sour when someone promotes a modified version such as “common-good capitalism.”

Why? Because I worry such terms imply a Trojan Horse for statism. And that’s definitely the case with so-called “stakeholder capitalism.”

As you can see, my core argument is that stakeholder capitalism is just another way of saying cronyism. And if I was being lazy, I would simply point out that Elizabeth Warren is a big proponent of the idea. That, by itself, should convince every thinking person that it’s a bad idea.

But I’m not going to be lazy. I’m going to cite some experts to show why stakeholder capitalism is bad news.

But first, I mentioned Milton Friedman’s famous quote in the above video clip.

Here’s the full quote, and notice that he explicitly says companies should follow rules – both legal and ethical – as they pursue profits.

Friedman was advocating what is sometimes referred to as “shareholder capitalism,” which is the notion that a company should strive to earn honest profits for its owners.

So what, then is stakeholder capitalism? In a column for the Wall Street Journal, Professor Alexander William Salter warns us that it is an invitation for intervention.

…beneath the lofty rhetoric, stakeholder capitalism is mostly a front for irresponsible corporatism. …Stakeholder capitalism is used as a way to obfuscate what counts as success in business. By focusing less on profits and more on vague social values, “enlightened” executives will find it easier to avoid accountability even as they squander business resources. While trying to make business about “social justice” is always concerning, the contemporary conjunction of stakeholder theory and woke capitalism makes for an especially dangerous and accountability-thwarting combination. …profits are an elegant and parsimonious way of promoting efficiency within a business as well as society at large. Stakeholder capitalism ruptures this process. When other goals compete with the mandate to maximize returns, the feedback loop created by profits gets weaker.

Writing for the Washington Post, George Will has a similarly scathing assessment.

…everyone who values economic dynamism, and the freedom that enables this, should recoil from the toxic noun “stakeholder.” …Stakeholder capitalism violates fiduciary laws that require those entrusted with investors’ money to employ it “solely in the interest of” and “for the exclusive purpose of providing benefits to” the investors. …In a dynamic society, resources are efficiently disposed by corporate managements whose primary duty, which other corporate activities do not compromise, is to maximize shareholder value… Self-proclaimed stakeholders, parasitic off others’ labor and accumulation, assert that everything is their business.

In a column for the Wall Street Journal, Phil Gramm and Mike Solon point out that today’s stakeholder capitalism is very similar to feudalism, which was a pre-industrial form of socialism.

…because of the misery Marxism has imposed, the world has a living memory and therefore some natural immunity to a system in which government takes the commanding heights of the economy. No such immunity exists to the older and therefore more dangerous socialism of the pre-Enlightenment world. In the communal world of the Dark Ages, the worker owed fealty to crown, church, guild and village. Those “stakeholders” extracted a share of the product of the sweat of the worker’s brow and the fruits of his thrift. …The 18th-century Enlightenment liberated…people to…own the fruits of their own labor and thrift. …These Enlightenment ideas spawned the Industrial Revolution and gave birth to the modern world… Remarkably, amid the recorded successes of capitalism and failures of socialism rooted in Marxism, pre-enlightenment socialism is re-emerging in the name of stakeholder capitalism. …the biggest losers in stakeholder capitalism are workers, whose wages will be cannibalized.

Amen. The only economic system to ever produce mass prosperity for workers is capitalism (or, if you prefer, free enterprise or classical liberalism).

And the pursuit of profit is what generates efficiency, which is economic jargon for higher living standards. And that’s good for rich people and poor people.

The bottom line is that I’m not surprised when politicians support so-called stakeholder capitalism. After all, the crowd in Washington likes to have more power.

Based on what I said at the end of the above video, I’m disappointed – but not surprised – when big businesses (such as the Business Roundtable or Larry Fink of Blackrock) embrace the idea. After all, “creative destruction” is not so appealing when you’re already as the top.

P.S. I was very amused by the left-leaning CEO who criticized Friedman, but then did exactly as Friedman recommended.

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A Primer on Free Enterprise vs. Big Government

I’ve made the case for capitalism (Part I, Part II, Part III, Part IV, and Part V) and the case against socialism (Part I, Part II, and Part III), while also noting that there’s a separate case to be made against redistribution and the welfare state.

This video hopefully ties together all that analysis.

If you don’t want to spend 10-plus minutes watching the video, I can sum everything up in just two sentences.

1. Genuine socialism (government ownership, central planning, and price controls) is an utter failure and is almost nonexistent today (only in a few basket-case economies like Cuba and North Korea).
2. The real threat to free enterprise and economic liberty is from redistributionism, the notion that politicians should play Santa Claus and give us a never-ending stream of cradle-to-grave goodies.

For purposes of today’s column, though, I want to focus on a small slice of the presentation (beginning about 2:00).

Here’s the slide from that portion of the video.

I make the all-important point that profits are laudable – but only if they are earned in the free market and not because of bailouts, subsidies, protectionism, or a tilted playing field.

This is hardly a recent revelation.

I first wrote about this topic back in 2009.

And many other supporters of genuine economic liberty have been making this point for much longer.

Or more recently. In a new article for City Journal, Luigi Zingales emphasizes that being pro-market does not mean being pro-business.

The first time I visited the Grand Canyon many years ago, I was struck…by a sign that said, “Please don’t feed the wild animals.” Underneath was an explanation: you shouldn’t feed them because it’s not good for them. …We should post something of this kind on Capitol Hill as well—with the difference being that the sign would read, “Please don’t feed the businesses.” That’s not because we don’t like business. Quite the opposite: we love business so much that we don’t want to create a situation where business is so dependent on…a system of subsidies, that it is unable to compete and succeed… This is the…difference between being pro-market and being pro-business. If you are pro-business, you like subsidies for businesses; you want to make sure that they make the largest profits possible. If, on the other hand, you are pro-markets, you want to behave like the ranger in the Grand Canyon: …ensuring that markets remain competitive and…preventing businesses from becoming too dependent on a crony system to survive.

Amen.

Cronyism is bad economic policy because government is tilting the playing field and luring people and businesses into making inefficient choices.

But I also despise cronyism because some people mistakenly think it is a feature of free enterprise (particularly the people who incorrectly assume that being pro-market is the same as being pro-business).

The moral of the story is that we should have separation of business and state.

P.S. There’s one other point from Prof. Zingales’ article that deserves attention.

He gives us a definition of capitalism (oops, I mean free enterprise).

We use the term “free markets” so often that we sometimes forget what it actually means. If you look up “free markets” in the dictionary, you might see “an economy operating by free competition,” or better, “an economic market or system in which prices are based on competition among private businesses and not controlled by a government.”

For what it’s worth, I did the same thing for my presentation (which was to the New Economic School in the country of Georgia).

Here’s what I came up with.

By the way, the last bullet point is what economists mean when they say things are “complementary.”

In other words, capital is more valuable when combined with labor and labor is more valuable when combined with capital – as illustrated by this old British cartoon (and it’s the role of entrepreneurs to figure out newer and better ways of combining those two factors of production).

One takeaway from this is that Marx was wrong. Capital doesn’t exploit labor. Capital enriches labor (just as labor enriches capital).

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Baptists, Bootleggers, and (Pretend-) Meat

I’ve written many times about how big businesses often climb in bed with politicians to lobby for anti-market policies such as subsidies, bailouts, and protectionism.

To get these special favors, they often deploy the “baptists and bootleggers” strategy, which means finding some nice-sounding reason for special interest policies.

For instance, the big health insurance firms lobbied for Obamacare because they liked the idea of getting undeserved profits by having the government force people to buy their products.

But they pretended that their motive was more access to health care.

Another example is the way some large companies are embracing “stakeholder capitalism” to curry favor with politicians and interest groups.

Today, let’s look at an additional version of this unsavory phenomenon.

The BBC reports that the CEO of a pretend-meat company likes the idea of big tax on his more tasty competitors.

The founder of the world’s biggest plant-based meat company has suggested that a tax on meat could help tackle some of the problems from growing meat consumption. Asked if he backed a tax on meat, Beyond Meat’s Chief Executive, Ethan Brown told the BBC “the whole notion of a Pigouvian tax, which is to tax negative, you know, things that are high in externalities, I think is an interesting one. I’m not an economist, but overall that type of thing does appeal to me”. …A tax on meat consumption would definitely be beneficial to companies such as Beyond Meat because it would make their products cheaper in comparison, says Rebecca Scheuneman, an equity analyst at US financial services firm Morningstar.How much of an advantage it would give “depends how significant the tax would be”, she told the BBC.

The woman from Morningstar is quite correct that a tax on meat would help the bottom line of companies that offer competing products.

Just as I wrote in 2012 that a tax increase on small businesses would tilt the playing field in favor of big businesses.

Matthew Lesh of the London-based Adam Smith Institute wrote about a potential meat tax in an article for CapX.

Beyond Meat’s call for a meat tax is a textbook example of ‘bootleggers and baptists’: a policy supported by a coalition of profiteering rent seekers hiding on the moral high ground. …does any of that make a new meat tax a good idea? …a cost-benefit analysis conducted by the University of Bristol concluded that a meat tax “could do more harm than good”. The researchers found it would cost £242 million a year but only save £100 million per annum in reduced carbon emissions. …Then there’s the most simple argument of all – most people enjoy meat. We get satisfaction and it provides important nutrients. …most people do not want to stop eating meat and there is substantial growing demand from the rising middle class in Asia and Africa.

While he makes a good point about the costs and benefits of meat taxation, I especially like Mr. Lesh’s point about people wanting to consume meat.

This is also why I don’t want politicians imposing sugar taxes.

Or taxes on other things that fall into disfavor, such as tobacco.  Or things that rise into favor, such as marijuana.

There are plenty of things in life that are unhealthy and/or dangerous. Maybe I’m just a knee-jerk libertarian, but I think adults should be free to make their own choices about the levels of risk they’re willing to incur.

And I certainly don’t want nanny state policies that – in reality – are the result of big companies trying to get unearned profits.

Remember, only earned profits are moral.

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Left-Leaning Business Executive Condemns Milton Friedman, but Did Exactly What Friedman Recommended

Last year, I weighed in on the debate about whether companies should be operated for the benefit of owners (shareholders) or for the broader community (stakeholders).

Unsurprisingly, I sided with Milton Friedman and argued that businesses have a responsibility to maximize profits – assuming, of course, ethical behavior.

Moreover, I cited research showing how this is the approach that actually produces the maximum benefits for the rest of us (i.e., stakeholders).

But some people are not convinced by these insights.

David Gelles of the New York Times has a glowing profile of a former CEO, Hubert Joly, largely because of his apparent hostility to free markets.

Hubert Joly took over Best Buy in 2012… Since stepping down as chief executive in 2019, Mr. Joly has taken up a post teaching at Harvard Business School… In his book, on the speaking circuit and in meetings with other executives, Mr. Joly has taken up a campaign against the capitalist st atus quo. “…on the top of my F.B.I. most wanted list…is Milton Friedman, with his shareholder primacy — the excessive, obsessive focus on profits as the key thing that matters.”

Mr. Joly’s overt disdain for Friedman’s position seems noteworthy.

But it also seems hypocritical.

Why?

Because Joly did exactly what Friedman recommended. He is viewed as a successful CEO because he made changes that had the effect of making shareholders richer.

…the electronics retailer was struggling… Sales and profits were sagging, and the stock price had cratered. …Eschewing the conventional wisdom — that Best Buy should slash wages and cut costs in a bid to jack up profitability — Mr. Joly began investing in the company. He gave workers better perks… The strategy worked, and Best Buy shares soared during his tenure.

So why, then, is Mr. Joly so hostile to Friedman when he followed his approach?

Beats me, but I’m guessing he somehow thinks Friedman’s maxim means that a CEO should “slash wages” and close stores. And that sounds mean and heartless.

But Joly showed that Friedman’s maxim could be fulfilled in a different way. He figured out how to please consumers so that it was possible to expand the business and make workers better off.

Which is actually what capitalism – oops, I mean free enterprise – is all about. People getting richer over time as competition and liberty combine to raise living standards.

Sometimes that happens because a poorly run company contracts (the seemingly heartless process of creative destruction) and sometimes that happens because a well-run company expands.

P.S. There’s one more quote from Mr. Joly that I want to address. As part of his interview with the NYT, he seemingly played the role of a guilt-ridden rich guy.

“I’m on the record saying that the more taxes I pay, the happier I am.”

To be fair, he didn’t actually say that he supported tax increases, either on himself or anyone else. It’s possible that he was really saying that he likes earning more money, which then results in a higher tax bill.

But just in case he was doing some left-wing virtue signalling in favor of tax increases, I’m glad to inform him that there is a website at the Treasury Department that allows him to voluntary turn more money over to the crowd in Washington.

Somehow, I suspect he’ll be like other hypocrites on the left and fail to take advantage of that opportunity.

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New Research on the Link between Government and Corruption

Government breeds corruption by giving sleazy people a way of obtaining unearned wealth. Politicians and special interests are the winners and workers, consumers, and taxpayers are the losers.

It’s easy to find examples. Simply look at tax policy, spending policy, regulatory policy, energy policy, industrial policy, agricultural policy, foreign policy, health policy, trade policy, drug policy, and bailout policy. Or anything else involving politicians and their cronies.

Hmmm…, I wonder if there’s a lesson to be learned from that list?

But just in case some people are slow learners, let’s consider some new scholarly research from the Federal Reserve.

The study, authored by Joonkyu Choi, Veronika Penciakova, and Felipe Saffie, explores whether companies that give cash to politicians are then rewarded with cash from taxpayers.

The American Recovery and Reinvestment Act (ARRA) was enacted in the midst of the Great Recession, and over one-fourth of the funds were channeled directly to firms with the primary goal of saving and creating jobs. These stimulus funds were sizable and valuable to firms, with the average grant awarded exceeding $500,000. …With hundreds of thousands of dollars on the line, firms may have incentive to exert political influence… Are firms successful in influencing the allocation of stimulus spending? …This paper provides empirical answers… We find that firms’ campaign contributions to state politicians before the enactment of ARRA have a positive and significant impact on the probability of winning ARRA grants… We find that firms that contribute to winning candidates are 64 percent more likely to secure an ARRA grant and receive 10 percent larger grants. …The allocative distortion caused by political connections is sizable. Although only 6 percent of grant recipients contribute during local elections, they account for21 percent of total ARRA grants.

I feel like I need to take a shower after reading those results. Maybe I’m a political prude, but it galls me that politicians and interest groups have so much ability to fleece the rest of us.

And now you know what I refer to Washington as America’s “wretched hive of scum and villainy.”

The obvious takeaway from this research is that we’ll have less corruption if we have less government.

Which was my message in this video.

While I obviously like my video on the topic, I very much recommend this video interview with Andrew Ferguson.

P.S. Speaking of videos, here’s some satire about government corruption.

P.P.S. We shouldn’t be surprised that Obama’s so-called stimulus produced lots of corruption. The same was true with regards to Obamacare and green energy, which were his other main initiatives.

P.P.P.S. In the future, I’m sure we’ll see studies finding lots of corruption in Biden’s recent “stimulus” plan.

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Amazon’s Shameful Effort to Sabotage Small Businesses

Assuming they behave ethically and earn money honestly, I applaud big companies and their wealthy owners.

That’s why I recently defended Jeff Bezos’ large fortune. The owner of Amazon mostly (but not entirely) became rich by providing value to the rest of us.

Today, though, I’m very disappointed in Bezos and Amazon. Why? Because the company wants to use the coercive power of government to screw over its competitors in the small business community.

Here’s a look at the company’s full-page advertisement in support of a higher minimum wage.

As a very rich company that already relies on a high degree of automation, it easily can afford to pay $15 per hour and above to every employee.

Indeed, it made a very showy decision back in 2018 to have a company-wide floor on compensation. Which is their choice.

But it’s utterly despicable to then climb in bed with politicians and urge a costly mandate on small-business competitors.

And it’s utterly callous for the company to take such a step when it will means unemployment for hundreds of thousands – if not millions – of workers with marginal skills.

The company is behaving just as badly as the unions that push higher minimum wages in order to push competing workers out of the market.

P.S. Don’t forget that many state governments already screwed over small businesses by mandating their closure while not imposing the same pandemic-related restrictions on Amazon and big box stores.

P.P.S. It is possible that Amazon is also motivated by a desire to appease the Biden Administration and the Democratic-controlled Congress. In other words, the company openly endorses statist policies such as the higher minimum wage in hopes that it won’t be targeted with other actions (antitrust, wealth tax, etc). Or maybe Amazon has a deal to support the higher minimum wage in exchange for the Biden Administration opposing the European Union’s tax raid on American tech companies. But those excuses don’t justify screwing over small businesses and low-skill workers.

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“Stakeholder Capitalism”: When Big Business Curries Favor from Big Government

Milton Friedman was one of the the 20th century’s greatest defenders of capitalism and individual freedom.

He had marvelous insights on issues such as fiscal policy, Sweden, tax competition, and other people’s money, but one of my favorite Friedman quotes is about the role of business.

This should be non-controversial, but we need to remember that big companies are not necessarily strong proponents of free enterprise.

Yes, they like lower tax rates and a few other market-oriented policies, but many large firms are more than happy to climb into bed with big government so they can gain special advantage from subsidies, handouts, bailouts, and protectionism.

So we shouldn’t be surprised to learn that the trade association for corporate CEOs of has disavowed Friedman.

Business Roundtable is modernizing its principles on the role of a corporation. Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance that include language on the purpose of a corporation. Each version of that document issued since 1997 has stated that corporations exist principally to serve their shareholders. …We therefore provide the following Statement on the Purpose of a Corporation, which supersedes previous Business Roundtable statements and more accurately reflects our commitment… This statement represents only one element of Business Roundtable’s work to ensure more inclusive prosperity.

You can read the new language here. There’s only one pages of text and you’ll notice that it’s a lot of vapid jargon without any measurable commitments.

Indeed, the letter is so vague that some observers think it’s irrelevant.

In a column for the Washington Post, James Copland of the Manhattan Institute points out that profit-maximizing companies already consider the interests of so-called stakeholders.

Critics and supporters of business alike have characterized the statement as a major shift away from “shareholder” capitalism toward an alternative “stakeholder” model pushed by some progressive academics and policymakers. It isn’t. The Business Roundtable’s statement unequivocally states that “the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.” To be sure, it proclaims that each of the chief executives signing on shares “a fundamental commitment to all of our stakeholders” — including customers, suppliers, employees and the broader community. But that’s a truism. No business can long survive without meeting such stakeholders’ needs. …The corporate signatories do not suggest in any way weakening the fiduciary duties of the boards and managers of ordinary for-profit shareholder corporations to manage such companies’ affairs for shareholders’ benefit. …there is a big difference between saying that a for-profit shareholder corporation should be sensitive to varying constituencies’ concerns and saying that its principal purpose is something different from the traditional view. One needn’t be an expert in public-choice economics or corporate governance to understand that politicizing corporate decision-making would be inefficient.

Lucian Bebchuk and Roberto Tallarita of Harvard Law School, in a column for the Wall Street Journal, share some real-world evidence that the CEOs are engaging in empty posturing.

Although the Roundtable described the statement as a radical departure from shareholder primacy, observers have been debating whether it signaled a significant shift in how business operates or was a mere public-relations move. …We contacted the companies whose CEOs signed the Business Roundtable statement and asked who was the highest-level decision maker to approve the decision. Of the 48 companies that responded, only one said the decision was approved by the board of directors. …The most plausible explanation for the lack of board approval is that CEOs didn’t regard the statement as a commitment to make a major change in how their companies treat stakeholders. …a review of the board-approved corporate governance guidelines of the companies whose CEOs joined the statement…mostly reflect a clear “shareholder primacy” approach. …The evidence is clear: Notwithstanding statements to the contrary, corporate leaders are generally still focused on shareholder value.

I think these two columns are accurate.

The vast majority of the CEOs who signed the Business Roundtable’s letter presumably have no intention of making unprofitable decisions solely to curry favor with the broader community.

That being said, the letter is still bad news because it basically acquiesces to the left’s misguided view that profits are somehow bad for society.

The Wall Street Journal made this point in an editorial in defense of the Friedman position.

The mucky-mucks of the Business Roundtable are tweeting in unison how “proud” they are to have abandoned the corporate purpose of serving shareholders for the more politically au courant “stakeholder” model. …media cheerleaders seem especially pleased that the CEOs have thrown the late, great economist Milton Friedman over the side. …The attempt to smear Friedman’s counsel as amoral is false. His point was that profitable businesses serve the common good better than executives who spend money on “social responsibility” but preside over business failure. The second point is Friedman’s warning that CEOs who put social responsibility above shareholders will find it redounds to their detriment. They feed the public belief that free markets and business are “wicked and immoral” and must be curbed by “external forces,” which typically means politicians.

In a column for National Review, Andrew Stuttaford also fears that the letter gives a green light to those who want more regulation by government.

The executives who retool a company’s mission to suit a particular conception of “social responsibility” are spending shareholders’ money on a moral agenda… Often repackaged as a demand that corporations be measured by the extent to which they match arbitrary and ever-tightening E (environmental), S (social), and G (governance) standards, it is now a way of corralling private enterprise without the bother of legislation. …the flourishing (and profitable) ecosystem that ESG investing has created…encompasses consultancies, advocacy organizations, “chief sustainability officers,” and many, many more rent-seekers besides. ESG is bad news for investors, but it is not a bad way of filling the wallets of those that feed off it. …In effect, therefore, many companies…will be forced to change the way they do business as they try to keep up with ever-more-stringent rules set not by democratically elected legislators but by the unaccountable, the ambitious, the greedy, and the fanatical.

Speaking of unaccountable and greedy, that’s a good description of Elizabeth Warren’s legislation to give Washington greater control of major companies.

Professor Greg Mankiw of Harvard opined about this issue last month for the New York Times.

If you open any standard economics textbook, such as one of mine, you will be told that a firm’s objective is to maximize profit. …Given the vast range of economic and political problems the world faces, this approach is often said to be too narrow. …former Vice President Joseph R. Biden Jr.,…joined in the criticism. “It’s way past time we put an end to the era of shareholder capitalism, the idea the only responsibility a corporation has is with shareholders… They have a responsibility to their workers, their community, to their country.” …In forsaking a mandate of narrow self-interest for one of broad social welfare, this approach to corporate management sounds noble, perhaps even obvious. But it is more problematic under closer scrutiny. …this approach to corporate management expects executives to be broadly competent social planners rather than narrowly focused profit maximizers. It’s unlikely that corporate executives, with their business training and limited experience, have the skills to play this role well. …One lesson of Econ 101 is that the self-interested behavior of consumers and businesses, directed by market forces and constrained by competition, can lead to desirable outcomes.

In an op-ed earlier this year for the Wall Street Journal, Vivek Ramaswamy opined that he and his fellow CEOs should not have a special role in determining economic policy.

‘Stakeholder capitalism” is…the fashionable notion that companies should serve not only their shareholders, but also other interests and society at large. …My main problem with stakeholder capitalism is that it strengthens the link between democracy and capitalism at a time when we should instead disentangle one from the other. …Managers of corporations gain their positions by maximizing profits and minimizing losses. …But these business leaders have no special standing to decide whether a minimum wage for American workers is more important than full employment, or whether minimizing society’s carbon footprint is more important than raising prices on consumer goods. …I have no special standing to legislate my morals because I am a CEO. I do, however, make the final decision about our company’s research-and-development budget. …the reason many corporate executives are speaking up in favor of stakeholder capitalism is that they think they will gain popularity at a time when it is unpopular to be perceived as a pure capitalist. …Some may argue that companies will be more successful in serving shareholders over the long run if they also serve societal interests. If that’s true, then classical capitalism should do the job, since only companies that serve society will ultimately thrive, and “stakeholder capitalism” would be superfluous.

But some CEOs can’t resist the temptation.

The Wall Street Journal opined about the social-justice posturing of one of the the CEOs who signed the Business Roundtable’s letter.

BlackRock CEO Larry Fink…has assumed a role as self-styled conscience of the business world in telling CEOs how to run their companies. …BlackRock is the world’s largest asset manager, with some $7.43 trillion in client assets. He is now threatening to vote against corporate directors and management if they don’t do what he says, and he is especially exercised about climate change. …Corporations in which BlackRock invests will also have to comply with the rules from a “Sustainability Accounting Standards Board” on issues such as labor practices and workforce diversity. …Like his friends at the Business Roundtable, Mr. Fink is big on “stakeholder” capitalism. …If he means serving employees, customers, suppliers and communities, he is merely saying what any successful company already does. But our guess is that by stakeholders Mr. Fink really means regulators and politicians. …We can’t help but wonder if Mr. Fink, after a profitable life in business, is auditioning to be Treasury Secretary.

In an article for the Foundation for Economic Education, Professor T. Norman Van Cott makes the all-important point that successful companies automatically generate benefits for people other than shareholders.

The marketplace is an arena where buyers and sellers both win. Do buyers and sellers really care about each other? …I sure am grateful that I don’t have to depend on the good-heartedness of Florida orange producers to send oranges to Indiana. It’s not that the orange producers and I aren’t well-meaning, just that oranges would not find their way to Indiana if good-heartedness were the motivation for commerce. …Microsoft provides a wonderful example…the shareholder value of Microsoft, as large as it is, surely pales in comparison to what its customers around the world gain. …Microsoft has achieved its immense shareholder value not because its customers, workers, suppliers, and communities are poorer. Indeed, nothing could be further from the truth. Its stakeholders have been enriched immeasurably by its pursuit of maximum shareholder value.

Writing for USA Today, Professor Steve Hanke is very critical of the Business Roundtable.

…the Business Roundtable launched a major attack on property rights, the bedrock of capitalism. …the Roundtable, which represents nearly 200 of America’s blue-chip companies, downgraded shareholders. According to the Roundtable, the purpose of a corporation will no longer be to conduct business with the sole objective of generating profits for shareholders. Owners of corporations (read: shareholders) will now just be one of five “stakeholders”… The Roundtable’s new anti-capitalist mission statement promises to dilute and muffle shareholders’ voices and further politicize corporate governance. …The great Austrian economist Joseph Schumpeter concluded in his 1942 classic “Capitalism, Socialism and Democracy” that businessmen would “never put up a fight under the flag of their own ideals and interest.” …Schumpeter concluded that businessmen, through their ignorance and cowardice, would assist those who wished to destroy capitalism.

Megan McArdle also is skeptical. Here’s some of what she wrote for the Washington Post.

…business leaders have no right to do charity on someone else’s dime. You might admire plumbers who donate fixtures to needy families, but not if they donated the fixtures you’d purchased for your own bathroom. That is essentially what stakeholder capitalists are demanding of chief executives: Take the money and power that shareholders have entrusted to you and divert those resources to benefit someone else. …if “stakeholder capitalism” means anything, it must mean companies doing things that make shareholders at least somewhat worse off. …Corporate social responsibility…can be even less accountable than good old-fashioned shareholder capitalism. Money is relatively easy to measure: Shareholders have more of it at the end of the quarter, or they don’t, and either way you know how the boss is doing. But if the chief executive pours that cash into better-upholstered offices, more-generous fringe benefits and a slew of charitable causes, who’s to say whether the company’s goals are being met? …As Harvard health-care economist Amitabh Chandra noted on Twitter after the Business Roundtable’s announcement, “appealing to an amorphous ‘social mission’ ” has allowed nonprofit hospitals “to foil regulators, acquire their competition, and increase market power.” Beware of any proposal that might make the rest of the economy look more like the health-care sector.

Robert Samuelson’s column in the Washington Post points out that previous episodes of “corporate social responsibility” did not yield good outcomes.

…we’ve already been here. In the first decades after World War II, large U.S. corporations adopted a social and political model very much like the model recommended by the Roundtable. There was much talk of “stakeholders,” not shareholders. Companies were supposed to attend to their social responsibilities. “Capitalism” as a term went out of style… The corporate responsibility fad of the 1950s and 1960s was premised on the belief that…companies could achieve both their traditional financial goals as well as the less traditional agenda of providing higher living standards and employment security. …What we know with hindsight is that this confidence was a conceit of a moment in time. …These lessons of history have been either forgotten or ignored. But they have not gone away. Rather than heap endless new responsibilities on companies, we’d be better off having them tend to their traditional tasks — including maximizing profits.

By the way, the problem of big business rejecting capitalism isn’t limited to the CEOs of the Business Roundtable.

Writing for Project Syndicate, Klaus Schwab of the World Economic Forum (the folks who put on the Davos conference for the establishment’s high flyers) argues for a middle ground between free markets and Chinese-style cronyism.

What kind of capitalism do we want? …we have three models to choose from. The first is “shareholder capitalism,” embraced by most Western corporations, which holds that a corporation’s primary goal should be to maximize its profits. The second model is “state capitalism,” which entrusts the government with setting the direction of the economy, and has risen to prominence in many emerging markets, not least China. …the third has the most to recommend it. “Stakeholder capitalism,” a model I first proposed a half-century ago, positions private corporations as trustees of society… We should seize this moment… To that end, the World Economic Forum is releasing a new “Davos Manifesto,” which states that companies should pay their fair share of taxes, show zero tolerance for corruption, uphold human rights throughout their global supply chains, and advocate for a competitive level playing field…a new measure of “shared value creation” should include “environmental, social, and governance” (ESG) goals as a complement to standard financial metrics. …Business leaders now have an incredible opportunity. By giving stakeholder capitalism concrete meaning, they can move beyond their legal obligations and uphold their duty to society.

Given that per-capita living standards are much lower in China than they are in the United States, I’m baffled that Schwab thinks it’s a good idea to move halfway toward the decrepit Chinese model of cronyism and industrial policy.

Does he think that people in North America and Western Europe should only be twice as rich as people in China instead of four-to-six times richer?

Let’s wrap up. The president of the Business Roundtable just wrote a one-year anniversary review of his group’s campaign for so-called stakeholder capitalism.

It’s been a year since 181 CEOs of America’s largest companies overturned a 22-year-old policy statement that defined a corporation’s principal purpose as maximizing shareholder return. …Companies have held to their commitments. …many Roundtable companies were making substantial investments in worker training, better wages and benefits, and support for struggling communities. They called for increases in the federal minimum wage and paid family medical leave. …In recent weeks, CEOs have made new commitments to promote racial equality and diversity in their own companies. …Far from undermining shareholders or capitalism, the many actions major corporations are taking to support all stakeholders will pay dividends… Business Roundtable CEOs reject…quick-hit, short-term capitalism. They agree with many of the nation’s largest investors that the health of both companies and capitalism depends on investments in all stakeholders.

Sounds very noble and caring, at least for the folks who don’t understand economics.

Which is why I almost laughed out loud when I saw this tweet, which is based on this article published by the Atlantic. The Roundtable is trying to curry favor with statists, but some folks on the left are smart enough to see that it’s all empty posturing.

So what’s my contribution to this debate?

Most of what I would say is captured in the excerpts above. Simply stated, it’s not a good idea to mix big business with big government.

But I will take this opportunity to unveil another one of my theorems.

P.S. Back in 2012, I criticized the Business Roundtable for embracing tax increases on small businesses, so you can see that the Eleventh Theorem of Government is way overdue.

P.P.S. You can peruse the other ten theorems of government by clicking here.

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Coronavirus and the Risky Mix of Bailouts, Big Business, and Big Government

Since government officials have imposed severe restrictions on economic activity, I’m sympathetic to the notion that businesses should be compensated.

But, as I warn in this CNBC interview, I have major concerns about big government and big business getting in bed together.

As is so often the case with interviews on live TV, there are many issues that didn’t get appropriate attention (either because there was too little time or because I failed to address a key point).

• A major risk of bailouts is that politicians will insist on having a say in how companies operate. Indeed, that’s what Christian Weller was calling for in the final part of the interview. I should have pointed out the huge economic downside of having government in the boardroom.
• There’s a rationale for short-run emergency legislation, but we should be very concerned that self-interested politicians and power-hungry bureaucracies will use the coronavirus crisis as an excuse to permanently expand their power and control over the economy’s productive sector.

P.S. I usually try to avoid making predictions (economists are lousy forecasters), but I feel confident in asserting that my friends on the left – once the coronavirus crisis has ended – will be complaining about big businesses having too much power.

I’m not against large companies, per se. But I don’t want bigger firms to gain an advantage over small companies by getting in bed with government.

If we want fair and honest competition, we need separation of business and state. No bailouts, no cronyism, no subsidies, and no favoritism.

That’s the part folks on the left don’t understand.

P.S. If you want more information on the economic damage caused by bailouts, watch this video and this video.

P.P.S. Speaking of videos, here’s some satire about the toys that politicians get for their children.

P.P.P.S. I wish this was satire, but American taxpayers are helping to underwrite cronyism in other countries.

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The Continuing Battle against Cronyism at the Export-Import Bank

One of the worst examples of Washington cronyism is the Export-Import Bank, which has provided subsidies for big companies that sell to foreign buyers.

Corrupt firms such as Boeing and General Electric argue that they need help from the Ex-Im Bank in order make those sales.

Is that true?

Interestingly, we had a real-world test earlier this decade when the Ex-Im Bank was temporarily shut down and then, after re-opening, was largely unable to provide subsidies to big corporations.

So what happened? Veronique de Rugy of Mercatus explains that exporters did just fine when the Ex-Im Bank was curtailed.

Back in 2015, there was widespread agreement in Congress that the Export-Import Bank — the U.S. government’s export credit agency — was nothing but a crony bank, mostly serving the greedy interests of Boeing and other large companies. As a result, Congress let the bank’s charter expire. It was reauthorized a few months later but in a much-diminished form, operating at 15% capacity. …A thorny problem for those supporting Ex-Im’s revival is that we now have nearly a half-decade’s worth of data on what happened to U.S. exports, economic growth, jobs and beneficiaries while the institution was mostly dormant between 2015 and 2019. During that time, …its activities dropped from $21 billion in 2014 (the last year the bank functioned at full capacity) to $3.6 billion in 2018. …Back in 2014, 65% of the bank’s activities benefited 10 giant companies. Boeing alone got 40% of Ex-Im’s largesse. On the foreign side, the bank’s clients belong to a who’s who list of large, wealthy, successful and often state-owned companies. …Most of this profligacy ended between 2015 and 2018. During that time, the share of funding that benefited large firms dropped by 93%. …once Ex-Im stopped extending giant deals to giant companies, American taxpayers’ liability fell from $112 billion in 2014 to $72.5 billion in 2018. U.S. exports continued to grow without being impacted whatsoever by Ex-Im limitations, and many beneficiaries of the bank had their best year ever in 2018, demonstrating that none of these subsidies are necessary for their success.

Sadly, the Ex-Im Bank is now back in business (and President Trump deserves a big chunk of the blame).

But its charter has to be renewed this year.

There’s no chance of killing the program, but there may be an opportunity to at least curtail its power and authority.

Negotiations on Capitol Hill have produced a compromise package between the top Democrat and top Republican on the House Financial Services Committee.

But not everyone is a fan. The Washington Examiner opined that the deal should be rejected.

House Financial Services Chairwoman Maxine Waters, D-Calif., has drafted a bill that would expand the Ex-Im Bank, rename it, free it from oversight, and charge it with a handful of irrelevant liberal mandates. The committee’s top Republican, Rep. Patrick McHenry, R-N.C., has unfortunately agreed to Waters’ bill. …Republicans should outright reject Waters’ proposal. It’s pitched as a compromise, but the Senate GOP has no reason to compromise. Either fix Waters’ bill or let the Ex-Im Bank’s charter expire in the fall. The “reforms” in Waters’ bill are weak tea. They don’t do anything to steer the Ex-Im Bank away from being welfare for America’s largest corporations.

So did House Republicans kill the deal, which should have been an easy decision?

Not exactly. According to a Politico report, House Democrats stopped it.

But not because they’re opposed to corporate welfare. They rebelled because they want a deal that’s even worse.

House Financial Services Chairwoman Maxine Waters on Wednesday shelved a bipartisan Export-Import Bank bill that sparked a fierce backlash from her own caucus… The delay raises questions about the fate of the beleaguered bank, which, without action by Congress, will see its operating charter lapse in September. …the original compromise she drafted with McHenry ignited criticism from a wide swath of the Democrats on the committee… They objected to new restrictions that would be imposed on the bank and big manufacturers such as Boeing, that benefit from its loan guarantees… Rep. Denny Heck (D-Wash.)…had been raising concerns about sections of the bill that would impose new disclosure requirements on major manufacturers and restrict the agency from providing financial support for deals with Chinese state-owned enterprises. …The restrictions turned out to be one of the biggest sticking points for Democrats. …The bank is only now returning to full operation after years of being hobbled by conservative Republican lawmakers who criticized the agency as engaging in “crony capitalism” and posing a risk to taxpayers.

The moral of the story is that big government and big business shouldn’t be in bed together.

The federal government shouldn’t redistribute money, and it’s especially offensive to have programs that give handouts to rich and powerful companies.

And it’s not just the Ex-Im Bank.

• 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. If you want to understand why export subsidies are economically harmful, I strongly recommend this video from Mercatus.

P.P.S. I have no objection to companies getting profits, but I want them to earn money by serving consumers and not steal money by fleecing taxpayers.

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The Feel-Good Story of 2018

Back in 2014, I wrote a feel-good story from Ferguson, Missouri, about how armed black men protected a white-owned store during riots that wreaked havoc in the city.

Sarah Silverman surely wouldn’t approve, but I thought it was a heartwarming combination of human solidarity and individual rights.

It’s time for another feel-good story. The Washington Free-Beacon reported earlier this month that Dick’s Sporting Goods is suffering because the company adopted an anti-gun posture.

Dick’s Sporting Goods told investors during the Goldman Sachs Retailing Conference that its gun-control stance hurt sales of its hunting business, outdoors business, and that it may close its outdoor-focused Field & Stream stores. Edward Stack, chairman and CEO of Dick’s, said during the event that the sporting goods chain’s recent 3.9 percent drop in same-store sales was the result of a mix of factors beyond their control as well as some he called “self-imposed.” Specifically, he said, “the decisions we made on firearms” negatively affected their bottom line… The company insisted during the earnings call that while their embrace of gun-control policies was hurting store foot traffic as well as their hunting and outdoors business, they’ve found ways to offset the losses. …Still, Dick’s admitted both firearms customers and the firearms industry have rebutted the retailer because of their gun-control advocacy. …The company said it may soon close down their entire Field & Stream chain of 35 stores across 18 states.

By the way, I was interviewed earlier this year by a French TV program on the issue of gun control. Here’s the part where I discussed the company’s foolish decision.

Since I’m not a shareholder, part of me is unconcerned about decisions made by the management at Dick’s.

The CEO presumably lives in a wealthy area, far removed from the threat of crime or chaos, so I’m guessing he has no understanding or appreciation of the need for self defense.

And he probably thought – foolishly, we’ve learned – that the company’s decision would help the bottom line by generating positive coverage from the establishment media.

It brings to mind this insightful tweet, which I saw thanks to Amy Alkon.

https://twitter.com/clayroutledge/status/1037793507052859394

Except the people who buy sporting goods are not the vapid social justice warriors who proclaim their hostility to capitalism while patronizing some of the world’s most aggressively hyper-capitalist companies.

In any event, I don’t care that the senior management at Dick’s has adopted an anti-gun ideology.

But I get very agitated when the company gets in bed with government in a campaign to reduce the freedoms of other people.

Dick’s decided to hire their own gun-control lobbyists in order to push for stricter gun laws nationwide. That action led the National Shooting Sports Foundation—the firearms industry’s trade group—to expel the retailer.

This is why I’m happy to see Dick’s go downhill.

Schadenfreude rocks!

P.S. I love capitalism because it a moral system that generates unparalleled prosperity, but I always remind people that this doesn’t make me a fan of big companies. Too many large firms (in finance, health, tech, energy, manufacturing, autos, pharma, agriculture, etc) are far too willing to seek “profits” using the coercive power of government.

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Amazon’s Pay Hike: The Good, the Bad, and the Ugly

I want higher wages.

Indeed, that’s a big reason why I favor better tax policy. I want low rates and less double taxation so we get more entrepreneurship and investment, which then will lead to higher productivity and more compensation for workers.

With this in mind, let’s look at some good news from a story in the New York Times.

Amazon said on Tuesday that it would raise the minimum wage to $15 an hour for its United States employees, a rare acknowledgment that it was feeling squeezed by…a tight labor market. The raises apply for part-time workers and those hired through temporary agencies. …The new wages will apply to more than 250,000 Amazon employees, including those at the grocery chain Whole Foods, as well as the more than 100,000 seasonal employees it plans to hire for the holiday season.

This is an encouraging development. My support for pro-market policies is partly driven by philosophy (freedom to engage in voluntary exchange, etc), but also motivated by a desire to help people become more prosperous.

It’s too soon to say for sure, but perhaps we’re seeing evidence that last year’s tax reform is paying dividends. Of course, it’s also possible that we’re in a bubble that’s about to pop, but let’s hope that’s not the case.

In any event, there’s also some bad news in the story. Amazon’s decision may not simply be a business decision. It also might be a way of appeasing the crowd in Washington.

The company now employs about 575,000 people worldwide, up more than 50 percent in the past year…the pay of those workers has become a growing issue for activists… “I think they saw the writing on the wall…,” Senator Bernie Sanders of Vermont said in an interview after the announcement. …Mr. Sanders and labor organizers have criticized the wages and conditions of Amazon’s work force. …As recently as last month Amazon was resisting the pressure.

The most nauseating aspect of this is that Amazon’s boss issued a groveling tweet to Crazy Bernie.

Thank you @SenSanders. We’re excited about this, and also hope others will join in. https://t.co/kasWkkOhWo

— Jeff Bezos (@JeffBezos) October 2, 2018

Since I’ve shared the good news and bad news, now let’s look at the ugly news.

Having decided to boost wages for his workers, Bezos now want to impose higher costs on smaller companies that compete against Amazon.

The company said it would also lobby Washington to raise the federal minimum wage, which has been set at $7.25 for almost a decade.

This is a classic example of cronyism. A big company is using the coercive power of government to unfairly tilt the playing field.

The Wall Street Journal opined about this oleaginous development.

Jeff Bezos…the Amazon CEO showed he also has impeccable political timing. His decision to raise Amazon’s minimum wage to $15 an hour will buy the tech company some political insurance… Mr. Bezos also announced that Amazon will now lobby Congress to raise the national minimum wage from $7.25 an hour. If Amazon is already paying $15, it’s no competitive sweat for Mr. Bezos to look virtuous for the media and politicians.

The WSJ also commented on the implicit extortion.

Speaking of government, Amazon’s wage increase may also buy some insurance against a looming assault from Congress. Bernie Sanders, the Vermont socialist and likely presidential candidate in 2020, has introduced the Stop Bezos Act that would tax Amazon to finance government transfer payments like food stamps. …Mr. Bezos also wants to hold off the federal antitrust cops, but that may cost more than $15 an hour. Politics aside, Amazon’s wage increase wouldn’t be possible if the U.S. economy hadn’t risen out of its eight-year Obama doldrums. As always, the best way to raise living standards is faster growth, not political coercion.

Amen.

Sadly, this is not the first time Amazon has climbed into bed with politicians. It is currently seeking special handouts from state and local governments for a new headquarters complex.

P.S. If you want to understand why government-imposed mandates for higher minimum wages are misguided, there’s very powerful evidence from Seattle. Simply stated, workers lose jobs and income.

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I’m Happy when Amazon and other Big Companies Prosper – Assuming Profits Are from Capitalism rather than Cronyism

I explained back in 2013 that there is a big difference between being pro-market and being pro-business.

Pro-market is a belief in genuine free enterprise, which means companies succeed of fail solely on the basis of whether they produce goods and services that consumers like.

Pro-business, by contrast, is a concept that opens the door to inefficient and corrupt cronyism, such as bailouts and subsidies.

It basically means big business and big government get in bed together. And that’s going to mean bad news for taxpayers and consumers.

Washington specializes in this kind of cronyism. The Export-Import Bank, ethanol handouts, TARP, and Obamacare bailouts for big insurance firms are a few of my least-favorite examples.

But state politicians also like giving money to rich insiders.

A report in the Washington Post reveals how states are engaged in a bidding war to attract Amazon’s big new facility, dubbed HQ2.

Maryland Gov. Larry Hogan (R) will offer more than $3 billion in tax breaks and grants and about $2 billion in transportation upgrades to persuade Amazon.com to bring its second headquarters and up to 50,000 jobs to Montgomery County. …It appears to be the second-most generous set of inducements among the 20 locations on Amazon’s shortlist. Of the offerings whose details have become public, either through government or local media accounts, only New Jersey’s is larger, at $7 billion.

Richard Florida, a professor at the University of Toronto, explains to CNN why this approach is troubling.

…there’s one part of Amazon’s HQ2 competition that is deeply disturbing — pitting city against city in a wasteful and economically unproductive bidding war for tax and other incentives. As one of the world’s most valuable companies, Amazon does not need — and should not be going after — taxpayer dollars… While Amazon may have the deck stacked in picking its HQ2 location, the mayors and elected leaders of these cities owe it to their tax payers and citizens to ensure they are not on the hook for hundreds of millions and in some cases as much as $7 billion in incentives to one of the world’s most valuable companies and richest men. …The truly progressive thing to do is to forge a pact to not give Amazon a penny in tax incentives or other handouts, thereby forcing the company to make its decision based on merit.

It’s not just a problem with Amazon.

Here’s are excerpts from a column in the L.A. Times on crony capitalism for Apple and other large firms.

State and local officials in Iowa have been working hard to rationalize their handout of more than $208 million in tax benefits to Apple, one of the world’s richest companies, for a data facility that will host 50 permanent jobs. …the Apple deal shows the shortcomings of all such corporate handouts, nationwide. State and local governments seldom perform cost-benefit studies to determine their value — except in retrospect, when the money already has been paid out. They seldom explain why some industries should be favored over others — think about the film production incentives offered by Michigan, Louisiana, Georgia and, yes, Iowa, which never panned out as profit-makers for the states. …the handouts allow big companies to pit state against state and city against city in a competition that benefits corporate shareholders almost exclusively. Bizarrely, this process has been explicitly endorsed by Donald Trump. …politicians continue to shovel out the benefits, hoping to steer their economies in new directions and perhaps acquire a reputation for vision. Nevada was so eager to land a big battery factory from Tesla Motors’ Elon Musk that it offered him twice what Musk was seeking from the five states competing for the project. (In Las Vegas, this is known as “leaving money on the table.”) Wisconsin Gov. Scott Walker gave a big incentive deal to a furniture factory even though it was laying off half its workforce. He followed up last month with an astronomical $3-billion handout to electronics manufacturer Foxconn for a factory likely to employ a fraction of the workforce it forecasts.

And here’s an editorial from Wisconsin about a bit of cronyism from the land of cheese.

The Foxconn deal…should be opposed by Democrats and Republicans, liberals and conservatives. There are no partisan nor ideological “sides” in this debate. The division is between those who want to create jobs in a smart and responsible way that yields long-term benefits and those who propose to throw money at corporations that play states and nations against one another. The Foxconn deal represents the worst form of crony capitalism — an agreement to transfer billions of dollars in taxpayer funds to a foreign corporation. …Walker offered the company a massive giveaway — discussions included a commitment to hand the Taiwanese corporation nearly $3 billion in taxpayer funds (if it meets hazy investment and employment goals), at least $150 million in sales tax exemptions…the Legislative Fiscal Bureau, which analyzes bills with budget implications…pointed out that Foxconn would receive at least $1.35 billion and possibly as much as $2.9 billion in tax incentive payments even if it didn’t owe any Wisconsin tax… This is a horrible deal.

Let’s now circle back to Amazon and consider how it gets preferential treatment from the Post Office.

I don’t feel guilty ordering most of my family’s household goods on Amazon. …But when a mail truck pulls up filled to the top with Amazon boxes for my neighbors and me, I do feel some guilt. Like many close observers of the shipping business, I know a secret about the federal government’s relationship with Amazon: The U.S. Postal Service delivers the company’s boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon. …First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam. Amazon is big enough to take full advantage of “postal injection,” and that has tipped the scales in the internet giant’s favor. …around two-thirds of Amazon’s domestic deliveries are made by the Postal Service. It’s as if Amazon gets a subsidized space on every mail truck.

In this last example, the real problem is that we’ve fallen behind other nations and still have a government-run postal system.

The way to avoid perverse subsidies is privatization. That way Amazon deliveries will be based on market prices and we won’t have to worry about a tilted playing field.

And that last point is critical.

Yes, cronyism and corporate welfare is an economic issue. It is bad for long-run growth when political favors distort the allocation of capital.

But an unlevel playing field is also a moral issue. It’s simply not fair or not right for politicians to give their buddies special advantages.

And it’s both economically harmful and morally harmful to create a system where the business community views Washington as a handy source of unearned wealth.

For what it’s worth, I also think it should be a legal issue. For those of us who believe in the rule of law, a key principle is that everyone should be treated equally. Heck, that principle is enshrined in the Constitution.

So I’ve always wondered why courts haven’t rejected special deals for specific companies because of the equal-protection clause?

Then again, maybe I shouldn’t wonder. After all, the Supreme Court twisted itself into a pretzel to miraculously rationalize Obamacare.

But none of this changes the fact that it’s time to wean big business off corporate welfare.

P.S. Just in case you harbor unwarranted sympathy for big companies, remember that these are the folks who are often keen to undermine support for the entire capitalist system.

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Another Chapter in the Never-Ending Story of Big Business Undermining Capitalism

With apologies to Elizabeth Barrett Browning, here’s the opening of the big-business version of Sonnet 43.

How do I hate thee, capitalism? Let me count the ways.
I hate thee to the depth and breadth and height
My soul can reach, for I am big and competition is a threat
Better to have bailouts, subsidies, mandates, protectionism, and cronyism.

I wish this was just empty satire. Sadly, however, there are many examples of big businesses fighting against free enterprise.

• Consider the way a select handful of big companies use the Export-Import Bank to obtain undeserved profits.
• Or 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 programsthat fattened the wallets of well-connected donors.
• And General Motors became Government Motors thanks to politicians fleecing ordinary Americans.

And now we have a new example.

The head of a huge investment fund has implied that businesses should become social justice warriors, a missive that (predictably) led to some fawning coverage in the New York Times.

Laurence D. Fink, founder and chief executive of the investment firm BlackRock, is going to inform business leaders that their companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock. …“Society is demanding that companies, both public and private, serve a social purpose,” he wrote in a draft of the letter that was shared with me.

Actually, as Walter Williams has eloquently explained, businesses perform a very valuable social purpose when they earn profits.

Indeed, the free enterprise system is why we enjoy unimaginable prosperity and why poor people in the United States have higher living standards than the average person in a socialist economy.

But that’s not the point Mr. Fink is making. Instead, he’s giving aid and comfort to the interventionists and redistributionists who want politicians and bureaucrats to have more power.

Which is, of course, the angle the New York Times chose to highlight.

It may be a watershed moment on Wall Street, one that raises all sorts of questions about the very nature of capitalism. …for the world’s largest investor to say it aloud — and declare that he plans to hold companies accountable — is a bracing example of the evolution of corporate America. …Mr. Fink’s declaration…pits him, to some degree, against many of the companies that he’s invested in, which hold the view that their only duty is to produce profits for their shareholders, an argument long espoused by economists like Milton Friedman.

Friedman was right, of course.

And not just about the value of profits. He also pointed out that people like Mr. Fink play a very destructive role.

Friedman wrote…in this very newspaper. “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

Amen.

So why would a fabulously rich man like Mr. Fink engage in this kind of stunt.

There are three possible explanations.

1. He’s stupid. But I think we can eliminate that possibility by virtue of what he has achieved.
2. He sincerely believes that businesses should sacrifice profits to pursue social justice. If that’s the case, I would suggest he lead by example by voluntarily giving the government 90 percent of his income over $200,000 per year (sort of a do-it-yourself version of 1950s tax policy). Needless to say, I’m not holding my breath. Rich people who decide to become left-wing always seem to want to appease their feelings of guilt by coercing other people into giving more money to politicians.
3. He realizes his letter is a bunch of nonsense, but he wants to appease the left in order to shield his industry from bad policies such as an increase in capital gains taxes on “carried interest.” If this is the right answer, I sympathize with Mr. Fink’s policy objective (especially since higher taxes on carried interest would be the precursor for higher taxes on other forms of capital gains), but I very much disagree with his tactics.

Indeed, I have a suggestion for Republicans on Capitol Hill, one that I’ve made in the past when big businesses have urged tax hikes.

They should invite Mr. Fink to testify and ask him whether he supports higher taxes to achieve warm and fuzzy goals. Assuming he then says yes, they should then ask how much of his income he is voluntarily giving to Washington.

He’ll presumably say none (like all the other rich leftists), at which point they should rake him over the coals for hypocrisy,

And then they should ask him for a yes-or-no answer on whether he will support legislation specifically increasing the tax rate on CEOs of investment funds.  And follow that with a question of whether he endorses higher capital gains taxes on carried interest (a class-warfare levy that would be very painful for firms that specialize in private equity investments.

Last but not least, they should ask him for examples of BlackRock choosing unprofitable (or even less-profitable) investments in order to “serve a social purpose.” It would be somewhat amusing to see the reaction of investors if Fink actually named examples (and amusing to expose an additional layer of hypocrisy if he didn’t).

Here’s my bottom line on this issue. If Mr. Fink wants to be an effective advocate of social justice, properly defined, then he should concentrate on making very wise (i.e., profitable) investments. Because getting a healthy return on his investments would be the best possible evidence that he was helping the poor.

P.S. The first dictator of the Soviet Union, Vladimir Lenin, is rumored to have said that “capitalists will sell us the rope we will hang them with.” There’s no proof he actually said that, but the “Order of Lenin” was the highest civilian award granted by the Soviet Union.

So maybe we should mix the two concepts and create “The Lenin Award for Rich People Who Want to Destroy Free Enterprise.” Or something like that.

It definitely would be more meaningful than the Bob Dole Award or the Charlie Brown Award, and I know a good candidate for the inaugural prize.

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To Fight Cronyism, Let’s Have Separation of Business and State

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

• George H.W. Bush’s betrayal of his “read my lips” promise with the 1990s tax increase.
• Bill Clinton’s 1993 tax hike, which OMB admitted 18 months later was a failure.
• All sorts of bad policies under George W. Bush, starting with the no-bureaucrat-left-behind education bill.
• A blizzard of bad policy in Obama’s first two years, including the fake stimulus, Dodd-Frank, and Obamacare.

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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Cronyism, Corruption, and the Obama White House

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 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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In One Story, Everything You Need to Know about Big Government and Small Business

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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The Corrupt, Cronyist Export-Import Bank Was Not Re-Authorized, so Let’s Celebrate a (Hopefully Permanent) Victory over Corporate Welfare

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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Ending the Export-Import Bank’s Corporate Welfare Should Be a Gimme for the GOP

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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Elizabeth Warren’s Faux Populism vs. Jeb Hensarling’s Genuine Fight against K Street Cronyism

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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Subsidized Terrorism Insurance: Another Example of Unjust Corporate Welfare

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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The Odious Corruption Enabled by Big Government

I’ve argued that the crowd in Washington profits by plundering America, but that’s just part of the equation.

There are also plenty of big companies that have their snouts in the public trough.

No wonder many people have become disgusted

Writing for the Wall Street Journal, James Freeman points out that a growing number of Americans think the system is rigged against them and he links this disillusionment to an ever-expanding federal government.

According to the latest Wall Street Journal/NBC News poll, a full 56% of Americans agree with this statement: “The economic and political systems in the country are stacked against people like me.” This disillusionment index has been rising for more than a decade and coincides with an explosion in the size of the federal government. …The last time Americans had this little faith in the country’s political and economic systems was for a brief period in 1992, in the aftermath of President George H.W. Bush’s breaking of his no-new-taxes pledge in a deal with Congressional Democrats that enabled more spending. …more government enables people to get rich through political favoritism. In the era of the Beltway boom, no wonder so many people feel the deck is stacked against them.

So is this just empty anti-government rhetoric?

I don’t think so.

Consider the way a select handful of big companies use the Export-Import Bank to obtain undeserved profits.

Or 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.

After looking at that list, I’m surprised that 100 percent of Americans haven’t concluded that the system is rigged for corrupt insiders.

But just in case you think that list is inadequate, let’s look at some new examples.

But first, allow me to reiterate my view on markets.

Simply stated, I believe in genuine unfettered capitalism within a system that protects life, liberty, and property (in other words, “unfettered capitalism” obviously doesn’t include the right to hire a hit man to kill your mother-in-law).

Within those boundaries, I have no objection to people taking risks, accumulating wealth, or losing all their money. Heck, it’s not just that I have “no objection.” I welcome such a system since it means the maximum freedom and prosperity for people, particularly the less fortunate.

But I don’t want people to get rich(er) because they have political allies who will adopt cronyist policies that tilt the playing field in favor of well-connected insiders.

And that’s exactly what’s happening in my two new examples.

First, we have the case of a big Democratic donor who invested a lot of money in a short sell position on Herbalife, which means he will profit if the stock falls in value.

Nothing wrong with that, at least in theory. Short selling can be a very economically beneficial way of correcting markets when something is over-valued. Heck, we would all be much better off today if there had been some short selling to pop the housing bubble before it got so big.

But as Tim Carney explains in a column for the Washington Examiner, this short-selling insider isn’t relying on market forces. Instead, he is asking his buddies in the Obama Administration to use coercive government to hurt the company and lower its value.

Here are some excerpts.

Politically connected hedge-funder Bill Ackman…shorted the nutritional supplement company Herbalife in late 2012… After Ackman’s announcement, Herbalife shares fell from $46 to $27. Ackman kept hammering away, taking his compelling slide show on the road to convince the investing public that Herbalife was a house of cards. But after the initial drop, Herbalife stock rebounded… But Ackman had another weapon in his arsenal. Namely: Big Government. Ackman lobbied congresswoman Linda Sánchez, D-Calif., to sic the Federal Trade Commission on Herbalife. Sanchez complied. Ackman also…“paid civil rights organizations at least $130,000 to join his effort by helping him collect the names of people who claimed they were victimized by Herbalife in order to send the leads to regulators…” Ackman’s firm, Pershing Square Capital Management, hired an army of K Street lobbyists — paying a combined $14,000 a month to three firms that disclose lobbying for him — to turn the government against Herbalife.

What reprehensible behavior on the part of Ackman.

I have no idea whether Herbalife is a good company or a bad company. And I have no idea whether its stock is over-valued or under-valued.

But I do know that Ackman shouldn’t be getting his political buddies to intervene. As Tim points out, this is a recipe for rampant cronyism.

This is different from ordinary lobbying. Typically, companies lobby to protect or subsidize their business. When hedge funds play Ackman’s game, helping or hurting some other company is the entirety of that business — and so lobbying can become the core of their business plan. We’ve seen it before. Investor Steve Eisman took a short position on for-profit colleges and lobbied Congress and the Department of Education to crack down on them. The Obama administration this month announced new proposed regulations on these colleges.

Now let’s look at another example.

Only this time it involves a big-donor Republican who wants favors from big government.

As the Washington Post reports, Sheldon Adelson doesn’t want his casinos to face competition from the Internet.

Given the more than $100 million that Sheldon Adelson has donated lately to Republican causes, the billionaire casino tycoon is well-positioned to get what he wants from a GOP-dominated Congress. But it turns out that the item on top of Adelson’s wish list — a ban on Internet gambling — is encountering resistance. And it’s not Democrats who stand in his way but a small group of fellow conservatives. …Online betting has been embraced by a number of Adelson’s industry rivals and several states eager for the additional tax revenue it provides….Yet the move to the Internet has also been seen as a threat that could deplete the customer base for Adelson’s brick-and-mortar casino resorts. …Half of the 22 Republican members of the House Judiciary Committee have co-sponsored the Adelson-backed legislation.

So what’s the status of the battle?

…conservative opposition began to emerge. …leaders of the other groups, including the American Conservative Union, did not mention Adelson by name. But their letter follows the publication this week of a fiery online column by former congressman Ron Paul (R-Tex.), the libertarian hero and father of potential presidential candidate Sen. Rand Paul (R-Ky.). He called the bill an example of “crony capitalism” written “for the benefit of one powerful billionaire.” …Adelson called the 2011 Justice Department legal opinion a mistake and has taken steps to rein in online gambling, fighting state-level proposals to authorize it and pushing for the federal ban. A company lawyer penned an initial draft of the Restoration of America’s Wire Act — later refined and introduced last year by Sen. Lindsey O. Graham (R-S.C.) and Rep. Jason Chaffetz (R-Utah) — which would effectively prevent states from authorizing online betting.

Ugh, how nauseating.

Though I’m glad to see that there is opposition inside the GOP to Adelson’s self-serving proposal.

I realize we can’t say for sure whether opponents are motivated solely by good principles of non-intervention and federalism. Perhaps they’ve received money from interest groups on the other side, but at least there is resistance and presumably some of that opposition is for the right reasons.

By contrast, I’m not aware of any Democrats who are opposed to Ackman’s cronyist attack on Herbalife.

The moral of the story is that big government enables insider corruption. Which is the message of this video from the Center for Freedom and Prosperity.

But if you don’t want to watch the video, just remember the simple lesson of today’s column, which is that all the examples of sleazy cronyism we discussed (both the new ones and the old ones) were only possible because government had the power to trump free markets.

Now let’s return to where we started. Yes, a growing number of Americans are getting disillusioned, and with good reason. But will the good people in Washington appeal to them with a principled campaign against corporate welfare and other policies that help insider fat cats?

Or will it be business as usual, with GOP cronyists replacing Democrat cronyists?

Even worse, will statists latch onto the issue and say the solution is to impose higher tax rates? That presumably would take some money from rich insiders, but it also would penalize folks who earn money honestly.

And it means the money that consumers lose because of cronyism winds up in the pockets of politicians.

Wouldn’t it be better to simply get rid of the bad subsidies and handouts and solve the real problem?

P.S. Since today’s column looks at capitalism vs cronyism, here’s the famous example of how you can explain various economic systems using two cows.

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How Big Government Sabotages Poor People and Enriches Well-Connected Fat Cats

I don’t like coerced redistribution. When the government uses the threat of force to take from Person A to give to Person B, it simultaneously reduces Person A’s incentives to produce while also luring Person B into dependency.

But not all coerced redistribution and government intervention is created equal.

I don’t like welfare programs, for instance, in part because taxpayers are writing huge checks to support a plethora of programs, but also because there is very strong evidence that the modern welfare state has caused more poverty.

Nonetheless, I understand that there are well-meaning people who support these programs. Their motives are pure in that they simply want to alleviate perceived suffering. And since they’ve never learned about the adverse indirect effects of government intervention and presumably haven’t given any thought to the ethics of government coercion, I don’t think of these people as being bad or immoral. Just uninformed.

But there are some forms of redistribution and intervention that are so self-evidently odious and corrupt that you can’t give supporters the benefit of the doubt. Simply stated, there’s no justifiable argument for using government coercion to hurt poor people in order to benefit rich people.

Let’s look at two examples.

First, the Export-Import Bank is a quintessential example of corporate welfare. The program forces taxpayers to guarantee the contracts of big corporations and foreign buyers, and there’s now a fight over whether it should be extended.

Needless to say, ordinary voters don’t want their money being used enrich big companies.

So if you were one of the beltway insiders who benefited from this corrupt institution, how would you try to get the program extended? Would you be upfront and argue that big companies like Boeing deserve tax dollars? Would you argue that politicians are really smart and wise and that they should interfere with the free market?

That would be the honest way of supporting the Ex-Im Bank. But you won’t be surprised to learn that advocates instead have resorted to lies. Here are some excerpts from a Reuters story.

The U.S. Export-Import Bank has mischaracterized potentially hundreds of large companies and units of multinational conglomerates as small businesses, a flaw in its record keeping that could undermine the export lender’s survival strategy. …A comparison of some 6,000 businesses characterized by Ex-Im as “small” with information supplied by corporate data collector Dun & Bradstreet, which Ex-Im also uses to vet applicants, and other sources turns up some 200 companies that appear to be mislabeled and many more whose classification is uncertain.

Um… I would say they lied rather than characterize it as a “flaw in its record keeping.” But let’s set that aside and look at some of the “small businesses” that had their snouts in the Ex-Im trough.

…analysis showed companies owned by billionaires such as Warren Buffet and Mexico’s Carlos Slim, as well by Japanese and European conglomerates, were listed as small businesses and Ex-Im acknowledged errors in its data in response to those findings.  …A division of Austria’s Swarovski jewelers shows up, as does North Carolina’s Global Nuclear Fuels, which is owned by General Electric and Japan’s Toshiba and Hitachi. …The list of small businesses in Texas, for example, includes engineering and construction company Bechtel, which has 53,000 employees.

Gee, Warren Buffet and foreign conglomerates don’t exactly sound like my idea of small businesses.

Hopefully this will provide more ammunition of those fighting to wean big companies from the public teat.

Bank officials and supporters have used the Ex-Im’s support for American small business as a first line of defense against a campaign by conservatives to shut it down as an exponent of “crony capitalism.” …“Rarely does Ex-Im miss a (public relations) opportunity to claim that it primarily helps small business, but Ex-Im is again playing fast and loose with the facts,” said Representative Jeb Hensarling, a Texas Republican who chairs the House Financial Services Committee. “The bulk of Ex-Im’s help indisputably goes to large corporations that can finance their own operations without putting it on the taxpayer balance sheet.”

For our second example, we have the absolutely horrifying spectacle of the Obama Administration trying to shut down Wisconsin’s school choice system.

Why? Well, because currying favor with union bosses is more important than improving educational opportunities for students from disadvantaged communities.

George Will explains what’s happening in his Washington Post column.

It is as remarkable as it is repulsive… Eager to sacrifice low-income children to please teachers unions, the Justice Department wants to destroy Wisconsin’s school choice program. Feigning concern about access for disabled children, the department aims to handicap all disadvantaged children by denying their parents access to school choices of the sort affluent government lawyers enjoy. …Wisconsin’s school choice program was pioneered by an American hero, Mississippi-born Annette Polly Williams, who died Nov. 9 at age 77. During her three decades in Wisconsin’s legislature, she overcame the opposition of fellow Democrats to offering education choices to low-income parents. At the end of her life, however, she saw an African American attorney general, serving an African American president, employing tortured legal reasoning in an attempt to bankrupt private schools that enlarge the education options of disadvantaged children. …Closing the voucher program is the obvious objective of the teachers unions and hence of the Obama administration. Herding children from the choice schools back into government schools would swell the ranks of unionized teachers, whose union dues fund the Democratic Party as it professes devotion to “diversity” and the downtrodden.

By the way, you probably won’t be surprised (given the White House’s cavalier approach to the rule of law) to learn that the Obama Administration is using is utterly nonsensical legal theory.

…federal lawyers argue that because public funds, in the form of tuition vouchers empowering parents to make choices, flow to private schools, the schools become “public entities.” …this is like arguing that when food stamps are used for purchases at Wal-Mart, America’s largest private employer ceases to be private — it becomes an extension of the government. Inconveniently for the Justice Department, the U.S. Supreme Court has said the fact that a “private entity performs a function which serves the public does not make its acts state action.”

The preposterous legal reasoning is a farce, but that doesn’t get me overly upset.

What does bother me is the way the White House is acting like the modern-day equivalent of George Wallace, standing in the schoolhouse door to prevent low-income (and largely minority) students from getting an opportunity for better education.

I guess that a black President (who sends his own kids to private school) consigning black children to the back of the proverbial bus shouldn’t surprise me too much. After all, some divisions of the NAACP also have decided that being politically allied with union bosses is more important that educational opportunity for minority kids.

But that doesn’t make it morally acceptable. Put yourself in the shoes of a low-income parent. Wisconsin’s school choice programs gives you some hope that your kids can break free of poverty. Imagine what it feels like, then, when some of the politicians who claim to be on your side then decide that your children are expendable pawns. How disgusting.

Since we’re talking about things that are disgusting, let’s shift back to the Ex-Im Bank. I’ve actually had some Republican types tell me that corporate welfare is okay because it “helps to offset” some of the redistribution from rich to poor.

I confess that I’m dumbstruck by such arguments. It’s sort of like hearing someone say it’s okay to murder, rape, and steal because other people are doing it.

This is why it’s not easy being a libertarian. Yes, we believe in small government for utilitarian reasons such as faster growth, higher living standards, and more jobs. But we’re also motivated by morality, by the belief that there’s right and wrong and that good people should strive to uphold the former and fight the latter.

That’s not a popular view in Washington, which is best characterized as an incestuous racket for the benefit of interest groups, politicians, cronyists, lobbyists, bureaucrats, contractors, and other insiders.

P.S. On a completely separate (and non-political) issue, I can’t resist seeking some sympathy after what happened to me this morning. I took two of my cats to the vet for their spay and neuter appointments. Some of you pet owners already know that most cats don’t like car rides, so you might have some inkling of what I’m about to report.

In happier times

About five minutes into the drive, one of the cats vomits in the little cat carrier. That obviously wasn’t a happy development, particularly since it left me with an unpleasant choice of enduring a very unpleasant smell or having the window open and enduring a very bitter chill. But then, a few minutes later, the other cat…um, how should I phrase this…loses control of her bowels.

Which means that the next 20 minutes was almost as unbearable as watching a state-of-the-union address. I was running late for the appointment, so I couldn’t stop someplace and try to deal with the mess. And the two cats kept moving around in their carrier, making things worse. Trying to breathe through my mouth, even with the window down, was at best a pitiful attempt to mitigate my suffering.

An utterly miserable situation. Almost 1/10th as bad as an IRS audit.

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Corporate Welfare: Can Republicans Kick the Habit?

I periodically try to explain that there’s a big difference between being pro-market and pro-business.

Simply stated, policy makers shouldn’t try to penalize businesses with taxes, mandates, and regulations.

But neither should politicians seek to subsidize businesses. That’s why I’m against bailouts, subsidies, and other distortions that provide special favors for politically connected companies.

I have nothing against companies earning money, to be sure, but I want them to earn their profits in the marketplace rather than lining their pockets by using the coercive power of government to rig the rules of the game.

But I don’t just have disdain for companies that stick their snouts in the public trough. I also have little regard for the politicians that enable this sordid type of business by trading campaign cash for corporate welfare.

I realize that’s a strong assertion, but I can’t think of any legitimate reason to support handouts for big companies. And I get especially angry when giveaways are facilitated by politicians who claim to support free markets.

Let’s look at two examples, the Export-Import Bank and the Obamacare bailout for big insurance corporations.

I’ve previously argued that the Export-Import Bank is a squalid example of corruption and I’ve shared a video that explains why it’s economically foolish to subsidize a handful of big exporters.

To augment those arguments, here’s some of what Professor Jeffrey Dorfman of the University Georgia recently wrote in a column for Real Clear Markets. He correctly warns that certain GOP politicians are to blame if the Export-Import Bank stays alive.

The Export-Import Bank is everything that Republicans should stand against. It is crony capitalism at its worst. It is corporate welfare, taxing American families to boost corporate profits. It ever forces firms to potentially subsidize a competitor. There is simply no need for this government agency. Republicans in Congress should make a stand and show voters that Republicans believe in free markets and small government, even if some big businesses complain. The Ex-Im Bank should not be reauthorized. …Over the last decade or so, the Democrats have increasingly become the party of big business, stealing that crown away from Republicans because of the Democrats’ willingness to engage in crony capitalism and actively pick winners and losers in our economy. While Republicans are still thought of as the pro-business party, and other actions by the Democrats are clearly anti-business (Obamacare, environmental over-regulation), large multinational corporations like Boeing and GE have donated money to Democrats and generally profited from their political alliances with them. If Republicans want to make gains among (lower) middle-class voters, one of the things that could help is to convince voters that they are on the side of the people and not big corporations. The Ex-Im Bank reauthorization is a perfect opportunity to do just that. …Income redistribution is wrong especially when the money is going to big and profitable companies.

Ryan Ellis of Americans for Tax Reform agrees. Writing for Forbes, he looks at both the policy and politics of Export-Import Bank handouts.

The ExIm bank is an export subsidy program, giving money to certain companies…in the hopes that gives them a leg up in international trade.  It’s been criticized for decades by free traders and those who simply oppose corporate welfare spending out of Washington. …the ExIm bank will sunset on its own on September 30th.  All Congress has to do is let nature take its course, and this corporate welfare program simply goes away forever.

Sounds like we should have a guaranteed victory from free markets over intervention, right?

Don’t count your chickens before they hatch.  Ryan explains that Republicans may shoot themselves in the foot by trying to rescue this reprehensible example of cronyism.

Charging in at the last minute to save ExIm only makes the House GOP look beholden to K Street.  It also looks like they are flip-flopping from where they were back in the summer.  …ExIm reauthorization…is likely to take a GOP grassroots focused on President Obama’s failures and full of midterm election intensity, and turn them inward toward criticism of the House GOP leadership instead. If things go badly with this CR gambit, the House GOP will have given themselves a self inflicted wound just as they are trying to get out of town and not screw up what should be a good year for their candidates.

How nauseating.

I realize that the Export-Import Bank is a relatively minor issue and that I should mostly care about whether politicians do the right think on big topics such as entitlement reform. After all, that’s what really counts if we want to avoid fiscal catastrophe.

But I can’t stop myself from foaming at the mouth when self-proclaimed supporters of free markets undermine the argument for economic liberty with cronyist deals.

Obamacare is another example of big business being against free markets. We already know that the big pharmaceutical firms cut a special deal with the Obama White House.

The big insurance companies also had their snouts in the trough. Not only did they get legislation that mandated the purchase of their products, but they also got language that provides bailouts if they aren’t able to profit from Obamacare.

What’s really amazing, though, is that some Republicans are willing to go along with Obamacare bailouts for those major companies.

The good news is that Florida Senator Marco Rubio is in the right side. Here’s some of what he wrote about bailouts for health insurance companies for Fox News.

 …section 1342 of the ObamaCare law…established so-called “risk corridors”. According to this provision, taxpayers will make up the difference for health insurance companies whose plans lose money under ObamaCare. Last November, as it became clearer what this section of the law actually meant, I introduced legislation repealing it and protecting taxpayers from being forced to cover insurers’ ObamaCare losses. …In recent weeks, the public has learned that senior White House officials have been working closely with insurers behind the scenes to make sure that their earlier bailout deal, which helped assure ObamaCare’s passage in 2010, would stand and that a taxpayer-funded bailout was still, in fact, on the table. …On this ObamaCare bailout, as with so many issues, Washington politicians are misleading average Americans and planning to stick them with the bill. This is government favoritism and corporate cronyism at its worst. …It’s time to repeal and replace it, but at the very least, we should make it the law of the land that health insurers won’t be bailed out by taxpayers.

I’ll also add a moral argument.

As far as I’m concerned, I want the health insurance companies to suffer major losses. I want the business community to see that it’s a mistake to get in bed with big government.

Though I guess I’m actually making a practical argument. I may be motivated by morality, but the companies hopefully will do a cost-benefit analysis and decide that it’s too risky to strike deals with the political class.

By the way, Republicans often do the wrong thing because they’re afraid that voters favor the statist agenda of dependency.

But that’s not the case for Obamacare bailouts for health insurances companies. Here’s some polling data on the issue that showed up on my Twitter feed.

Let’s close by sharing some of what the editors at National Review wrote about both the Obamacare bailout and Export-Import Bank subsidies.

Congressional Republicans keep saying they oppose Obamacare. Yet they’re refusing to take the simplest and easiest action against it. …Some Republicans say that the insurance companies should not be penalized for the defects of the law. Why not? They have freely chosen to participate in the exchanges, and they should bear the risks of that decision — which include the risk that Congress might decide not to shovel tax dollars at them. The alternative, after all, is to punish taxpayers. …The debate over the Export-Import Bank is one test of Republican sincerity about ending corporate welfare. These taxpayer subsidies are another: If Republicans can’t take on corporate welfare when doing so advances one of their party’s most popular and basic commitments, when will they?

Amen. Both of these issues are tests for the GOP.

Actually, they should get added to a long list of issues that tell us whether Republicans have any sincerity (or brains) in the fight against statism.

o No tax increases, since more money for Washington will encourage a bigger burden of government and undermine prosperity.

o To stop bailouts for Europe’s decrepit welfare states, no more money for the International Monetary Fund.

o Reform the biased number-crunching methodology at the Congressional Budget Office and Joint Committee on Taxation.

o No more money from American taxpayers to subsidize the left-wing bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

P.S. If you’re in the mood for some dark humor, here’s the federal government’s satirical bailout application form.

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Debunking the Sloppy and Inaccurate Economic Argument for Export Subsidies

The Export-Import Bank is noxiously corrupt example of crony capitalism.

It never should have been created. But that’s something we could say about most government programs.

So the real question is how to reverse the damage.

If we reform a big program such as Medicare, you can’t end it overnight. You have to deal with the reality that millions of people have made plans based on government policies. And even if those policies are wrong, you can’t pull the rug out from folks who did nothing wrong.

So it’s important to put in place appropriate and fair transitions when reforming a major program.

But that’s not an issue with the Export-Import Bank. It provides undeserved subsidies to big companies. Those big companies will be just fine without having their snouts in the public trough. The right thing to do, from both a moral and economic perspective, is to shut it down immediately.

Indeed, this should be a test as to whether supposedly pro-taxpayer politicians in Washington understand the critical difference between being pro-business and being pro-market.

But what about the argument that the Export-Import Bank is somehow a win-win for the American economy? I tend to automatically dismiss such claims for the simple reason that all sorts of companies in the private sector would do what the Ex-Im Bank is doing if it really was a money maker.

But with the issue heating up, it would be a good idea to examine this claim more closely. Fortunately, Matt Mitchell (no relation) of the Mercatus Center does an excellent job of explaining the dodgy economics of the Ex-Im Bank is this short video.

In some sense, Matt is channeling Frederic Bastiat, the great French thinker who said that a good economist looks at both direct and indirect consequences of policies (the “seen” and the “unseen”).

Matt shows that the negative indirect impact of the Ex-Im Bank is far larger than any putative benefits generated by handouts to politically well-connected firms.

Just like bailouts, s0-called stimulus, and green-energy programs all look bad when you examine all the costs and benefits.

For more information, I also recommend this superb video on why cronyism is so corrosive.

And if you want a humorous analysis, scroll to the bottom of this post and see what the Kronies have to say about the Ex-Im Bank.

Or just enjoy this Glenn Foden cartoon.

P.S. I shared six jaw-dropping examples of left-wing hypocrisy last month.

But maybe it’s time to create a special Hypocrisy Hall of Fame, because the Wall Street Journal reveals that we another member who would be a shoo-in for the award.

It seems that Warren Buffett was not being terribly sincere or honest when he said people like him should be paying higher taxes.

Now this is awkward for President Obama and Senate Democrats. …Warren Buffett’s Berkshire Hathaway is expected to help finance Burger King’s  pending acquisition of Canadian doughnut-chain Tim Hortons. The deal will allow Miami-based Burger King to claim Canada as its new legal home for tax purposes. Beltway Democrats had been hoping to use a recent wave of such corporate inversions as a campaign tool. The idea was to propose new taxes on the companies that move. Step two was to beat up Republicans who don’t agree to make the free world’s most punitive corporate tax system even more punitive. But now that Democratic tax hero Mr. Buffett has been spotted surfing on top of this wave, the political challenge has become more difficult.

Sort of makes you wonder whether Buffett endorses higher taxes for the self-interested reason that the political class will then give him a free pass on issues such as the Burger King inversion?

Shocking, just shocking, to think that rich leftists are hypocrites.

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Happy Crony New Year

Let’s start 2014 with a depressing story about the reprehensible way in which big companies get in bed with big government.

If asked to list the example of cronyism that I find most nauseating, the Export-Import Bank would be at the top of my list.

The Obamacare handouts for Big Insurance and Big Pharma obviously belong on the list as well.

But don’t forget the corrupt TARP giveaways to Wall Street, the handouts for GM (though at least we got some good parody from that farce), the corrupt H&R Block collusion with the IRS, and the sleazy ethanol handouts to agribusinesses.

We could list more examples, but let’s look at something from today’s newspapers. We normally think of the light-bulb ban as silly environmentalism, but the invaluable Tim Carney writes in the Washington Examiner that the real impetus was from corrupt companies.

Say goodbye to the regular light bulb this New Year. …Starting Jan. 1, the famous bulb is illegal to manufacture in the U.S., and it has become a fitting symbol for the collusion of big business and big government.

Tim explains how companies worked the political system.

People often assume green regulations like this represent the triumph of environmental activists trying to save the plant. That’s rarely the case, and it wasn’t here. Light bulb manufacturers whole-heartedly supported the efficiency standards. General Electric, Sylvania and Philips — the three companies that dominated the bulb industry — all backed the 2007 rule… The lighting industry was the main reason the legislation was moving. …“Philips formed a coalition with environmental groups including the Natural Resources Defense Council to push for higher standards.”

Equally important, Tim explains why the companies thought cronyism was an effective way to line their pockets with undeserved wealth.

Competitive markets with low costs of entry have a characteristic that consumers love and businesses lament: very low profit margins. GE, Philips and Sylvania dominated the U.S. market in incandescents, but they couldn’t convert that dominance into price hikes. Because of light bulb’s low material and manufacturing costs, any big climb in prices would have invited new competitors to undercut the giants — and that new competitor would probably have won a distribution deal with Wal-Mart. So, simply the threat of competition kept profit margins low on the traditional light bulb. …the bulb-makers turned to government. Philips teamed up with NRDC. GE leaned on its huge lobbying army — the largest in the nation — and soon they were able to ban the low-profit-margin bulbs.

The better alternative, needless to say, is freedom.

There is a middle ground between everyone using traditional bulbs and traditional bulbs being illegal. It’s called free choice: Let people choose if they want more efficient and expensive bulbs. Maybe they’ll chose LEDs for some purposes and cheap bulbs for others. But consumer choice is no good either for nanny-staters or companies seeking high profit margins.

Reading Tim’s piece, it makes me wonder what sleaze was involved in the rules forcing us to use inferior washing machines.

P.S. Here are my 10 most-viewed posts of 2013.

*Last January, I shared some gun control humor and readers must like mocking the gun grabbers because that post easily got the most views.

*And in October, Libertarian Jesus racked up the second-highest number of views.

*Interestingly, the third most-viewed post was one from 2012. I guess you won’t be surprised to learn it was another example of gun control humor.

*We also go into the archives – back to 2011 – for the post with the fourth-highest number of views. It’s the classic set of cartoons about the rise and fall of the welfare state.

*Another oldie came in fifth place with this 2012 post featuring – you guessed it – gun control humor.

*In sixth place, we get some 2012 lessons on how a story about beer can be used to explain the failures of class warfare tax policy.

*We finally see another 2013 post with our revelation about the most free-market “state” in North America.

*But then we return to 2011 because lots of people waited until 2013 before reading the classroom experiment with socialism.

*In ninth place, you can read a libertarian fantasy from last April.

*Rounding out the top 10 is a celebration of Obama’s biggest fiscal defeat.

My favorite post of the year, for what it’s worth, reveals my fiscal wonkiness.

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Lesson from the Birth Control Mandate: When You Mix Big Government and Big Business, You Get Big Corruption

Remember Sandra Fluke, the 30-year old student who got her 15 minutes of fame last year by becoming the poster child for subsidized birth control?

She’s fortunately faded away, but the issue is still with us because the courts are being asked to decide whether government has the right to coerce people into decisions that violate their religious values.

But you won’t be surprised that this feature of Obamacare also has important economic and policy lessons.

Statists have tried to scare young people that there’s a fight over whether people have the right to access birth control. They’ll privately admit that this is just empty rhetoric (after all, there were no barriers to birth control in the pre-Obamacare era), but they nonetheless still argue that the mandate is needed for affordability reasons.

But this is utter bunk, as Megan McArdle explains in her Bloomberg column.

Regular, predictable expenses such as birth-control pills cannot be defrayed by insurance; they can only be prepaid, with a markup for the insurer’s administrative costs. The extra cost is passed on by the insurers to your employer, and from your employer to you and your fellow workers, either by raising your contribution or lowering the wage they are willing to offer.

I would take this one step farther. Costs will rise not only because of administrative costs, but also because we’ll have more third-party payer and that will make it much easier for the providers of birth control pills to raise prices.

And that is a perfect segue into the meat of today’s post, which is about the sleazy and corrupt interaction of big business and big government. And the Obamacare birth control mandate is a perfect example.

Tim Carney exposes this issue in his Washington Examiner column. He starts with a hypothesis that corporate cronyism is the real story.

Look at the contraception mandate from almost any angle, and you see the corporatism. Sometimes it’s on the surface, and sometimes it’s implicit in the arguments. The contraception mandate is nakedly a huge subsidy to the industry that most firmly supported Obamacare: the drugmakers. The drug industry has spent more on lobbying under Obama than any other industry.

Tim provides some of the sordid details.

Top Obama bundler Sally Susman oversees the lobbying shop at drug giant Pfizer, which sells $7.6 million a year in name-brand birth control pills, while also selling contraceptive injections and generic drugs. Pfizer’s CEO during the Obamacare debate was Obama donor Jeffrey Kindler. In a corporate filing, the company justified his salary increase by pointing to his Obamacare lobbying. …Merck, which also makes birth control pills, deployed top lobbyist, former Democratic congressional staffer and major Democratic donor Mark Raabe to Capitol Hill and the White House to lobby on “efforts to gain coverage of preventive services,” according to company lobbying filings. The administration uses the “preventive services” provision of Obamacare to justify the contraception mandate. Merck sells implants and other contraceptives — if “sells” is the right word for products that many customers now get for “free,” sticking colleagues and taxpayers with the bill. Conceptus, a company that sells a sterilization procedure, lobbied Congress and the Department of Health and Human Services on “implementation of the preventive services provisions of the Affordable Care Act,” according to lobbying filings. The mandate covers this patented procedure.

Needless to say, drug companies have spent all this money on lobbying and campaign contributions in the expectation that they can artificially increase their revenue as a result of government favoritism.

Obama’s contraception mandate requires all employer-sponsored health care plans to cover 100 percent of the cost of all FDA-approved contraception. That gives customers incentives to choose…name-brand pills, because the entire cost is passed onto employers and thus onto customers and colleagues.

It’s a different topic, but Tim also has some wise words about the Obama Administration’s arguments against the First Amendment.

…liberals argue that the owners of the privately held store Hobby Lobby are not protected by the First Amendment from intrusions of the “free exercise” of religion — and so it must cover the morning-after pill, which can cause a very early-term miscarriage. …It’s not a novel claim, but it’s still a scary one: A person gives up his First Amendment rights when he is acting as a businessman.

And his summary paragraph hits the nail on the head.

Sometimes people think politics is about the collective versus the individual. Most of the time, though, it’s about the state versus civil society. It’s coercion versus voluntary association.

By the way, the drug companies are just the tip of the iceberg. Companies like General Motors and General Electric also are experts at using government to tilt the playing field.

And don’t forget that companies like Boeing and Exxon Mobil use the Export-Import Bank to line their pockets at our expense.

Or what about H&R Block, which lobbies to protect its ability to profit from a corruption-riddled tax system.

The entire ethanol industry, meanwhile, is dependent on favors from Washington, and Fannie Mae and Freddie Mac were created by the government!

And Pizza Hut, joined by other fast food joints, lobbies for food stamps.

The TARP bailout was the epitome of Washington sleaze, which may help explain the revolving door between Wall Street in Washington.

We should also be upset that big corporations sometimes support higher tax rates on their competitors from the small business sector.

Gee, it’s almost enough to make one think Washington is a rat’s nest of corruption. Speaking of which, here’s my video on the link between big government and big corruption. I think you’ll agree that I understated the case.

P.S. Since we started this post by mentioning Sandra Fluke, we may as well close with some jokes at her expense. You can enjoy some laughs with this great Reason video, this funny cartoon, and four more jokes here.

P.P.S. But Sandra Fluke may have the last laugh since the clowns at the United Nations have declared that birth control (almost surely financed by taxpayers) is a human right.

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