Categorized | Commentary/Editorial

James DeLong: Crony Capitalism: Biggest Risk to the Nation

A reporter recently asked investor Bill Nasgovitz, head of the Heartland Value Fund, “what is our biggest risk as a nation?” 

His answer: 

To me, it’s crony capitalism – this incestuous relationship between regulators and the politicians and the big Wall Street investment banks.

. . . .

Here we as Americans are subsidizing this industry through the Federal Reserve. The Fed is fixing the price of money at this absurdly low rate so big banks’ cost of goods sold is close to zero. You could go to a bank or brokerage firm today and borrow at a very low rate. 

It’s dislocating our markets and making people do things they wouldn’t normally do. Then we’re still allowing the big banks to speculate in these derivatives.

. . . .

It’s a game that goes back to this vicious triangle between Wall Street investment banks, regulators and politicians, who get all this money from it. 

He did not have to limit his concern to the financial industry, because crony capitalism is flourishing everywhere, like a green bay tree (as in the Biblical “The wicked flourish like”).  The Crony Chronicles links to an unending series of outrages: $250,000 for federal popcorn promotions; Nevada’s efforts to bar competition in the moving industry; endless manipulations of the Internal Revenue Code. The Chronicle’s video “I want to be a crony” has collected 165,000 views on YouTube. 

Cronyism is especially irritating when used for an industry such as Hollywood, the current derider of every value that conservatives hold important. CC links to studies showing that film-making subsidies return 20% of their costs in Ohio, Louisiana, and North Carolina. California has just voted the film industry an annual $100 million in tax credits, and blogger Glenn Reynolds is on a campaign to curtail other Hollywood favoritisms. 

If still more is needed, another site in the same space, Against Crony Capitalism, has its own crop of horrors, such as the close links between telecom executives and the federal program that subsidizes cell phones for the poor. 

While stories about cronyism are common on conservative websites, they receive scant attention in the MSM. 

A few obvious facts explain this. A big one is that both major parties are mired in cronyism, so they face mutual assured destruction, and neither wants to raise the issue. Another reality is that government cronyism represents pork for the recipient, and no newspaper will say “Feds waste millions on local boondoggle.” The MAD rationale holds for geographic locations, congressional representatives, and special interests, too. No one wants to blow the whistle lest they be excluded. 

A final problem is that the issue is complicated. Laws that help producers be productive, that promote property rights, enhance contracts, reduce transaction costs, and foster necessary physical and institutional infrastructure, are good. These, naturally, benefit producers. So the line between constructiveness and corruption is not clear, and special interests play on this confusion. 

Despite the lack of attention, the problem is indeed crucial, especially as cronyism is taking over a rising chunk of the economy. The classic Gresham’s Law says that bad money drives out good. A comparable rule applies in other government affairs, where bad and venal policies drive out the good ones. 

One of the serious Gresham’s Law-like consequences is that destructive business lobbying drives out constructive. With a few honorable exceptions such as the Koch Brothers – the Koch Foundation supports Crony Chronicles and Charles Koch recently wrote a strong column on the topic — businesses have abandoned efforts to promote worthwhile pro-capitalist, pro-market policies. Their lobbying dollars go toward obtaining individual favors, and they are actively hostile to those who oppose their collective cronyism. 

Nasgovitz has it about right.

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  • Lennart Bilén

    The Croniest Capitalism
    Obama’s is next to Nazism
    With George Soros to lead
    Jeff’ry Immelt will plead
    One World Internationalism.

  • c4pfan

    Hollywood is a great example!  Not only that, but look at how many law breaking they get away with!  With all the underage drinking/drug use alone!

  • Brian 
    Happened here in Mn.  A so called republican car dealer is supporting the liberal senater here because pay for play. good you video in the middle of post from Kurt Bills.

  • ZH100

    ‘Poll: Americans Reject Crony Capitalism, 3-1′

    From the article:

    "In a recent Boston Herald column, pollster Scott Rasmussen of Rasmussen Reports cited poll findings that show strong bipartisan opposition to cronyism and its effects on free markets."


    Long before "crony capitalism" became a topic of national debate Gov. Palin has fought against corruption and crony capitalism.

    Taking on corruption and crony capitalism has always been a cornerstone of Gov. Palin’s agenda.

    Here are some links with information about Gov.Palin’s consistent fight against corruption and crony capitalism.

    ‘Institutionalizing Crony Capitalism’   (by Governor Palin)  

    From the article:
    "We need to be on our guard against such crony capitalism. We fought against distortion of the market in Alaska when we confronted “Big Oil,” or more specifically some of the players in the industry and in political office, who were taking the 49th state for a ride.
    My administration challenged lax rules that seemed to allow corruption, and we even challenged the largest corporation in the world at the time for not abiding by provisions in contracts it held with the state. When it came time to craft a plan for a natural gas pipeline, we insisted on transparency and a level playing field to ensure fair competition.

    Our reforms helped reduce politicians’ ability to play favorites and helped clean up corruption. We set up stricter oversight offices and ushered through a bi-partisan ethics reform bill. Far from being against necessary reform, I embrace it. "

    ‘Crony Capitalism on Steroids from GE to Solyndra’  (by Governor Palin)

    From the article:

    "This crony capitalism and government waste is at the heart of our economic problems. It will destroy us if we don’t root it out. It’s not just a Democrat problem or a Republican problem. It’s a problem of our permanent political class."

    ‘American Crony Capitalism Brings Jobs to Finland’  (by Governor Palin)

    ‘How Congress Occupied Wall Street’   (by Governor Palin)

    ‘Palin: Congress, it’s time to stop lining your pockets’  (by Governor Palin)

    ‘Governor Palin’s Consistent Fight against Corruption and Crony Capitalism’   (by Whitney Pitcher)

    From the article:

    "Governor Palin’s strong stance against crony capitalism, bureaucrats picking winners and losers, and a lack of transparency is not just words; it’s action.

    Citizen candidates do indeed bring a fresh perspective to a campaign and even to public office. However, there is something to be said for someone who took on corruption while in elected office. Such an individual has governed or legislated in an atmosphere of corruption, back room deals, and cronyism and has not only weathered such an atmosphere, but has effected change for the better. It is one thing to act as a citizen watchdog; it is another to make sure that legislation and projects are transparent and are void of back room deals and crony capitalism. Governor Palin is such a person."

    ‘Some of Sarah Palin’s Ideas Cross the Political Divide’  (by Anand Giridharadas)

    From the article:

    "But something curious happened when Ms. Palin strode onto the stage last weekend at a Tea Party event in Indianola, Iowa. Along with her familiar and predictable swipes at President Barack Obama and the “far left,” she delivered a devastating indictment of the entire U.S. political establishment — left, right and center — and pointed toward a way of transcending the presently unbridgeable political divide. "

    ‘How Governor Palin Reformed Alaska’s Ethics Laws and Made Crony Capitalism a Crime’ (by Gary P)

    From the article:

    "With all of the talk of corruption and crony capitalism these days, this is a great time to talk about some of the things Sarah Palin did to reform Alaska politics. She worked with the Alaska Legislature to pass tough, sweeping ethics reform "

    ‘Dan Mitchell of the Cato Institute praises Sarah Palin for highlighting Washington’s rampant crony capitalism ‘

    ‘How Palin Beat Alaska’s Establishment’ (WSJ)

    From the article:

    "If you’ve read the press coverage of Sarah Palin, chances are you’ve heard plenty about her religious views and private family matters. If you want to know what drives Gov. Palin’s politics, and has intrigued America, read this."

    ‘Sarah takes on Big Oil: The compelling story of Governor Sarah Palin’s battle with Alaska’s
    ‘Big 3′ oil companies’ (by Kay Cashman and Kristen Nelson)

    Gov. Palin’s successful efforts to stop the cronyism and reform the energy business in Alaska were so impressive Kay Cashman, the publisher and executive editor of Petroleum News, wrote the book entitled: “Sarah Takes On Big Oil” .

    This is a must read for anyone who wants to understand the leadership Sarah Palin has exhibited in the area of reforming government and industry.

  • BrianusBerkleianus


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