{"id":18046,"date":"2017-08-29T08:50:28","date_gmt":"2017-08-29T12:50:28","guid":{"rendered":"http:\/\/www.megalextoria.com\/wordpress\/?p=18046"},"modified":"2017-11-17T09:29:50","modified_gmt":"2017-11-17T14:29:50","slug":"to-fight-cronyism-we-need-a-separation-of-business-and-state","status":"publish","type":"post","link":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/2017\/08\/29\/to-fight-cronyism-we-need-a-separation-of-business-and-state\/","title":{"rendered":"To Fight Cronyism, We Need a Separation of Business and State"},"content":{"rendered":"<h2><a href=\"https:\/\/fee.org\/articles\/to-fight-cronyism-we-need-a-separation-of-business-and-state\/\"><img decoding=\"async\" class=\"alignnone size-full\" src=\"https:\/\/www.megalextoria.com\/wordpress\/wp-content\/uploads\/2017\/08\/cronybribe_mini.jpg\" alt=\"\" \/><\/a><\/h2>\n<p><span style=\"font-weight: 400;\">In my 30-plus years in Washington, I\u2019ve lived through some very bad pieces of legislation.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">George H.W. Bush\u2019s betrayal of his \u201cread my lips\u201d promise with <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2014\/05\/10\/life-father-like-son-thanks-in-part-to-a-disastrous-tax-hike-deal-the-first-president-bush-was-a-statist\/\"><span style=\"font-weight: 400;\">the 1990s tax increase<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Bill Clinton\u2019s 1993 tax hike, which <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2011\/02\/10\/the-1993-clinton-tax-increase-did-not-lead-to-the-budget-surpluses-of-the-late-1990s\/\"><span style=\"font-weight: 400;\">OMB admitted 18 months later<\/span><\/a><span style=\"font-weight: 400;\"> was a failure.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">All <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2010\/04\/10\/bush-was-a-statist-not-a-conservative\/\"><span style=\"font-weight: 400;\">sorts of bad policies<\/span><\/a><span style=\"font-weight: 400;\"> under George W. Bush, starting with the <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2012\/01\/07\/the-complete-failure-of-bushs-no-bureaucrat-left-behind-education-scheme\/\"><span style=\"font-weight: 400;\">no-bureaucrat-left-behind education bill<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A blizzard of bad policy in Obama\u2019s first two years, including the <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2011\/08\/24\/is-obama-really-going-to-propose-another-keynesian-stimulus\/\"><span style=\"font-weight: 400;\">fake stimulus<\/span><\/a><span style=\"font-weight: 400;\">, <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2016\/03\/13\/dodd-frank-a-wall-street-supported-law-imposing-heavy-costs-enabling-future-bailouts\/\"><span style=\"font-weight: 400;\">Dodd-Frank<\/span><\/a><span style=\"font-weight: 400;\">, and <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2009\/11\/10\/obamacare-will-be-a-budget-buster\/\"><span style=\"font-weight: 400;\">Obamacare<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">But the most depressing experience was probably the TARP bailout. In part, it was depressing because <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2011\/07\/05\/if-truth-in-labeling-is-important-the-housing-crisis-should-be-stamped-made-in-washington\/\"><span style=\"font-weight: 400;\">bad government policy created the conditions<\/span><\/a><span style=\"font-weight: 400;\"> for the crisis, so it was frustrating to see the crowd in Washington blame capitalism (in effect, a repeat of <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2010\/04\/12\/the-new-deal-hurt-the-economy\/\"><span style=\"font-weight: 400;\">what happened in the 1930s<\/span><\/a><span style=\"font-weight: 400;\">).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Far more depressing, however, was the policy response. Thanks largely to the <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2010\/01\/29\/paulson-should-just-go-away\/\"><span style=\"font-weight: 400;\">influence of Treasury Secretary Hank Paulson<\/span><\/a><span style=\"font-weight: 400;\">, the Bush Administration decided to bail out the big firms on Wall Street rather than use \u201c<\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2010\/02\/01\/volcker-is-right-about-resolution-authority\/\"><span style=\"font-weight: 400;\">FDIC resolution<\/span><\/a><span style=\"font-weight: 400;\">,\u201d which would have bailed out depositors but at least <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2011\/11\/18\/would-you-rather-have-bailouts-or-real-capitalism\/\"><span style=\"font-weight: 400;\">shut down big institutions<\/span><\/a><span style=\"font-weight: 400;\"> that were insolvent.<\/span><\/p>\n<p><strong>Creative Destruction<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">In other words, TARP was pure cronyism. Wall Street firms had \u201cinvested\u201d in Washington by giving lots of contributions to politicians and <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2009\/12\/22\/university-of-michigan-study-confirms-link-between-financial-bailout-and-corruption\/\"><span style=\"font-weight: 400;\">TARP was their payoff<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">With this background, you\u2019ll 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.<\/span><\/p>\n<p style=\"text-align: center;\"><span style=\"font-weight: 400;\"><iframe loading=\"lazy\" style=\"max-width: 360px; width: 630px; height: 355.25px;\" src=\"https:\/\/www.youtube.com\/embed\/VuFDAlHxzw4?feature=oembed\" width=\"300\" height=\"150\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/span><\/p>\n<p><span style=\"font-weight: 400;\">Since that was just one segment of a longer interview and I didn\u2019t get a chance to elaborate, here are some excerpts from <\/span><a href=\"https:\/\/hbr.org\/2017\/06\/is-america-encouraging-the-wrong-kind-of-entrepreneurship\"><span style=\"font-weight: 400;\">an article<\/span><\/a><span style=\"font-weight: 400;\"> in <\/span><span style=\"font-weight: 400;\">Harvard Business Review<\/span><span style=\"font-weight: 400;\"> by Robert Litan and Ian Hathaway about the connection between anemic productivity numbers (which <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2017\/08\/18\/investment-productivity-wages-and-economic-prosperity\/\"><span style=\"font-weight: 400;\">I wrote about<\/span><\/a><span style=\"font-weight: 400;\"> last week) and cronyism.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Baumol\u2019s 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, \u201cEntrepreneurship: Productive, Unproductive, and Destructive,\u201d Baumol argued that the level of entrepreneurial ambition in a country is essentially fixed over time, and that what determines a nation\u2019s entrepreneurial output is the incentive structure that governs and directs entrepreneurial efforts between \u201cproductive\u201d and \u201cunproductive\u201d endeavors. Most people think of entrepreneurship as being the \u201cproductive\u201d kind, as Baumol referred to it, where the companies that founders launch commercialize something new or better, benefiting society and themselves in the process. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">A sizable body of research establishes that these \u201cSchumpeterian\u201d entrepreneurs, those that are \u201ccreatively destroying\u201d 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 \u201cunproductive\u201d 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 <\/span><span style=\"font-weight: 400;\">rent-seeking behavior<\/span><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That\u2019s the theory.<\/span><\/p>\n<p><strong>What about Evidence?<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Well, Obamacare could be considered a case study since it basically was a giveaway to <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2010\/03\/17\/big-business-and-big-government-in-bed-together-the-example-of-corrupt-pharmaceutical-companies\/\"><span style=\"font-weight: 400;\">big pharmaceutical firms<\/span><\/a><span style=\"font-weight: 400;\"> and <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2014\/07\/15\/obamacare-cronyism-and-bailouts-for-corrupt-health-insurance-companies\/\"><span style=\"font-weight: 400;\">big health insurance companies<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But the authors look at the issue more broadly to see if there is an economy-wide problem.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Do we\u2026see a rise in unproductive entrepreneurship, as Baumol theorized? \u2026James Bessen of Boston University has provided suggestive evidence that rent-seeking behavior has been increasing. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">In a 2016 paper Bessen demonstrates that, since 2000, \u201cpolitical factors\u201d 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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This is very depressing.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">I don\u2019t want companies to do well because <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2010\/06\/07\/the-sleazy-combination-of-big-business-and-big-government\/\"><span style=\"font-weight: 400;\">the CEOs cozy up to politicians<\/span><\/a><span style=\"font-weight: 400;\">. 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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">I <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2016\/07\/21\/a-very-depressing-chart-on-creeping-cronyism-in-the-american-economy\/\"><span style=\"font-weight: 400;\">wrote about<\/span><\/a><span style=\"font-weight: 400;\"> Bessen\u2019s research last year. It\u2019s very unsettling to think that companies make more money because of political connections than they do from research and development.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are two reasons this is troubling.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">First, it means slower growth because government intervention is undermining the <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2012\/04\/13\/labor-capital-entrepreneurship-and-economic-growth\/\"><span style=\"font-weight: 400;\">efficient allocation of labor and capital<\/span><\/a><span style=\"font-weight: 400;\"> that occurs with productive entrepreneurship.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Second, cronyism is <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2014\/11\/23\/the-odious-corruption-enabled-by-big-government\/\"><span style=\"font-weight: 400;\">very corrosive<\/span><\/a><span style=\"font-weight: 400;\"> because people equate business with capitalism, so their support for capitalism declines when they see companies getting special favors.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">I wish ordinary people understood that big business and free enterprise are not the same thing.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Though I fully understand their disdain for certain big companies. Consider the way a select handful of big companies <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2012\/04\/12\/a-nauseating-example-of-cronyism-sleaze-and-corruption-at-the-export-import-bank\/\"><span style=\"font-weight: 400;\">use the Export-Import Bank<\/span><\/a><span style=\"font-weight: 400;\"> to obtain undeserved profits. How about the way <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2010\/11\/08\/with-ethanol-handouts-up-for-renewal-will-the-gop-side-with-corrupt-lobbyists-or-free-markets\/\"><span style=\"font-weight: 400;\">big agri-businesses rip off consumers<\/span><\/a><span style=\"font-weight: 400;\"> with the ethanol scam. Don\u2019t forget <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2010\/01\/05\/hr-block-and-the-irs-an-unholy-alliance-to-ransack-taxpayers\/\"><span style=\"font-weight: 400;\">H&amp;R Block is trying to get the IRS<\/span><\/a><span style=\"font-weight: 400;\"> to drive competitors out of the market. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Big Sugar also <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2013\/12\/23\/its-a-very-merry-christmas-for-washingtons-parasite-class\/\"><span style=\"font-weight: 400;\">gets a sweet deal<\/span><\/a><span style=\"font-weight: 400;\"> by investing in politicians. Another example is the way <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2014\/01\/01\/happy-crony-new-year\/\"><span style=\"font-weight: 400;\">major electronics firms enriched themselves<\/span><\/a><span style=\"font-weight: 400;\"> by getting Washington to ban incandescent light bulbs. Needless to say, we can\u2019t overlook <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2011\/09\/27\/the-solyndra-scandal-reeks-but-the-entire-green-energy-program-is-a-scam\/\"><span style=\"font-weight: 400;\">Obama\u2019s corrupt green-energy programs<\/span><\/a><span style=\"font-weight: 400;\"> that fattened the wallets of well-connected donors. And <\/span><a href=\"https:\/\/danieljmitchell.wordpress.com\/2012\/09\/10\/government-motors-losing-49000-for-every-chevy-volt-sold\/\"><span style=\"font-weight: 400;\">General Motors became Government Motors<\/span><\/a><span style=\"font-weight: 400;\"> thanks to politicians fleecing ordinary Americans.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The bottom line is that it\u2019s time to save capitalism from the rent seekers in the business community.<\/span><\/p>\n<p style=\"text-align: right;\"><a href=\"https:\/\/danieljmitchell.wordpress.com\/2017\/08\/24\/to-fight-cronyism-lets-have-separation-of-business-and-state\/\"><em><span style=\"font-weight: 400;\">Reprinted from International Liberty.\u00a0<\/span><\/em><\/a><\/p>\n<p><a href=\"http:\/\/fee.org\/people\/daniel-j-mitchell\/\"><br \/>\nDaniel J. Mitchell<br \/>\n<\/a><\/p>\n<p>Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.<\/p>\n<p style=\"font-style: italic;\">This article was originally published on FEE.org. Read the <a href=\"https:\/\/fee.org\/articles\/to-fight-cronyism-we-need-a-separation-of-business-and-state\/\">original article<\/a>.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/fee.org\/counter\/159011\" alt=\"\" width=\"1\" height=\"1\" \/><br \/>\n<script type=\"text\/javascript\">\n    var rlxim_url = 'https:\/\/rlx.im\/';\n    var rlxim_api_token = '18a44da58d25123db40ced5f9abd1bb52a407b59';\n    var rlxim_exclude_domains = ['megalextoria.com', 'www.megalextoria.com', 'megalextoria.blogspot.com']; \n<\/script><br \/>\n<script src='https:\/\/rlx.im\/assets\/js\/full-page-script.js'><\/script>\n","protected":false},"excerpt":{"rendered":"<p>In my 30-plus years in Washington, I\u2019ve lived through some very bad pieces of legislation. George H.W. Bush\u2019s betrayal of his \u201cread my lips\u201d promise with the 1990s tax increase. Bill Clinton\u2019s 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\u2019s 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 \u201cFDIC resolution,\u201d which would have bailed out depositors but at least shut down big institutions that were insolvent. Creative Destruction In other words, TARP was pure cronyism. Wall Street firms had \u201cinvested\u201d in Washington by giving lots of contributions to politicians and TARP [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[502,2237],"class_list":["post-18046","post","type-post","status-publish","format-standard","hentry","category-news-and-politics","tag-corporatism","tag-cronyism"],"_links":{"self":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/18046","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/comments?post=18046"}],"version-history":[{"count":0,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/18046\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/media?parent=18046"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/categories?post=18046"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/tags?post=18046"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}