Crony Capitalism Taking Over In The US
Luigi Zingales worries in an op-ed in the WSJ that we're becoming a bit too much like Italy:
In Italy today, even emergency-room doctors gain promotions on the basis of political affiliation. Instead of being told to study, young people are urged to "carry the bag" for powerful people in the hope of winning favors....Once an incompetent appointee finds himself in a powerful position, he tends to hire only subordinates of equal or lower quality, since more talented people pose a threat to him. After a few years, a firm's human capital will become so eroded that it won't be able to compete without some form of protection. The more protection it can gain from government, the greater the scope of the cronyism, which in turn makes protection even more necessary. Crony capitalism creates a vicious circle.
...Traditionally, the U.S. has enjoyed a relatively honest democracy and transparent form of capitalism, which encouraged robust economic growth and contained the hunger for entitlements. This is less and less true. The U.S. tax code is filled with loopholes and special exemptions. Political connections increasingly count more than innovative ideas; young entrepreneurs often learn to lobby before they learn how to run a business.
Seven out of the 10 richest counties in the U.S. are in the suburbs of Washington, D.C., which produces little except rules and regulations. Even worse, the slow growth and decreased social mobility of the last decade have damaged the free market's reputation as a creator of prosperity. The hundreds of millions of dollars awarded for disastrous economic performance--from Robert Rubin's salary as chairman of almost-bankrupt Citigroup to government loans for the actually bankrupt solar company Solyndra--have in turn weakened public belief in the system's fairness.
For the U.S., the moment to act is now, before the cancer of crony capitalism metastasizes. The tax code needs an overhaul that eliminates special treatment and bans any form of corporate subsidy--starting with too-big-to-fail banks. We must find ways to introduce more competition into sectors such as education and health care, while expanding economic opportunity for those at the lower end of the income spectrum. And we must curb the political power that large industry incumbents have over legislation. Not only does it distort legislation, it also forces new entrants to compete on lobbying instead of concentrating on making more innovative and cheaper products.
Another killer is the regulation and over-regulation that is going on. Essentially the EPA is over-regulating to force the shut down of coal fired power plants. Coal is cheap, readily available and plentiful. Once the coal plants are shut down you're going to see a rise in cost. You'll also see brownouts and blackouts happen as well.
Additionally, even if they roll back the regulations after a few years and they re-open or build new coal plants, you probably won't see a decrease in prices.
This is like gas -- the average price today is $3.55, down from $3.90 earlier this year. That is still higher than the $1.90 when Obama came into office. And people are semi-grateful they aren't paying $4.
Jim P. at June 8, 2012 5:54 AM
I believe that the late Bob Chapman referred to this as "corporate facism".
Concerning gas, it was $1 a gallon twelve years ago in northern VA. Why has it gone up roughly %300?
One explanation could be that for every federal reserve note ($1) in existence in the year 2000, there are at least three now.
Has anyone seen the gold trend during the past 12 years?
SM777 at June 8, 2012 6:29 AM
A saying I saw the other day, that I'd not heard put this way before: "3's hire 1's. 8's hire 10's."
Cousin Dave at June 8, 2012 10:49 AM
Shrinking the size of government is also the best way to reduce corruption with politicians.
(One of the silliest things about all the hysteria over Europe's alleged austerity is that it's no such thing. By and large, they aren't making real cuts in expenses, but slightly reducing the rate of growth and raising taxes.)
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One problem with the current energy policies of the US government is that they make energy prices MORE influenced by the futures markets and more susceptible to price manipulations. Cartels exist due to lack of competition. By shutting down coal plants, the EPA is effectively handing the gas companies a cartel. Prices will skyrocket. By shutting down oil exploration and recovery, the Obama administration has only strengthened OPEC.
Joe at June 8, 2012 11:39 AM
"Once an incompetent appointee finds himself in a powerful position, he tends to hire only subordinates of equal or lower quality..."
Remember Captain Schettino, who tripped and fell into a lifeboat, leaving the Costa Concordia passengers to fend for themselves? His second officer and third officer were in that lifeboat with him, and his first officer was also charged with abandoning ship.
Martin at June 8, 2012 11:48 AM
Cronyism is not, of course, just a problem of capitalism - it existed before money.
OTOH, perhaps we hace managed to surpass the administration of "U. S." GRant, in which friends of PotUS benefited from not-so-benign neglect and protection.
John A at June 8, 2012 11:59 AM
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