I am not sure that many politicians are good on this score, but Hillary Clinton and Donald Trump are likely as bad as it gets on crony capitalism. Forget their policy positions, which are steeped in government interventionism in the economy, but just look at their personal careers. Each have a long history of taking advantage of political power to enrich themselves and their business associates. I am not sure what Cruz meant when he said “New York values”, but both Trump and Clinton are steeped in the New York political economy, where one builds a fortune through political connections rather than entrepreneurial vigor. Want to build a new parking lot next to your casino or start up a new energy firm — you don’t bother with private investors or arms length transactions, you go to the government.
Warren Meyer, “2016 Presidential Election: Battle of the Crony Capitalists”, Coyote Blog, 2016-05-13.
May 24, 2016
April 14, 2016
ESR explains why the Trans-Pacific Partnership is such a huge monstrosity of regulations, crony capitalist favours to big business, anti-consumer intellectual property rules, and other mercantilist interventions in trade:
Today there’s a great deal of angst going on in the tech community about the Trans-Pacific Partnership. Its detractors charge that a “free-trade” agreement has been hijacked by big-business interests that are using it to impose draconian intellectual-property rules on the entire world, criminalize fair use, obstruct open-source software, and rent-seek at the expense of developing countries.
These charges are, of course, entirely correct. So here’s my question: What the hell else did you expect to happen? Where were you idiots when the environmentalists and the unions were corrupting the process and the entire concept of “free trade”?
The TPP is a horrible agreement. It’s toxic. It’s a dog’s breakfast. But if you stood meekly by while the precedents were being set, or – worse – actually approved of imposing rich-world regulation on poor countries, you are partly to blame.
The thing about creating political machinery to fuck with free markets is this: you never get to be the last person to control it. No matter how worthy you think your cause is, part of the cost of your behavior is what will be done with it by the next pressure group. And the one after that. And after that.
The equilibrium is that political regulatory capability is hijacked by for the use of the pressure group with the strongest incentives to exploit it. Which generally means, in Theodore Roosevelt’s timeless phrase, “malefactors of great wealth”. The abuses in the TPP were on rails, completely foreseeable, from the first time “environmental standards” got written into a trade agreement.
That’s why it will get you nowhere to object to the specifics of the TPP unless you recognize that the entire context in which it evolved is corrupt. If you want trade agreements to stop being about regulatory carve-outs, you have to stop tolerating that corruption and get back to genuinely free trade. No exemptions, no exceptions, no sweeteners for favored constituencies, no sops to putatively noble causes.
April 10, 2016
Conservatives have a nasty habit of being sympathetic to corporations, viewing them as a bulwark against government overreach. The reality is far different. If you’re a religious traditionalist in 21st-century America, big business hates your guts.
James E. Miller, “The Business End of Freedom”, Taki’s Magazine, 2016-03-31.
April 1, 2016
The big pretend that costuming and repurposing mall food court workers as “security” will be anything approaching that has fooled the lazy American public that takes its civil liberties for granted.
They miss most of the items in DHL tests of their detection abilities, and really, it is clear that this is not security but a jobs program for unskilled earners, a cash program for former government employees like Michael Chertoff and the companies they are associated with, and obedience training for the American public — to be docile in the face of their rights being yanked from them.
March 1, 2016
This is a sign of growing maturity on the part of the United States. Many of these super-tall building projects make little economic sense, but are completed to validate the prestige of emerging nations, like teenage boys comparing penis sizes. Grown men are beyond that behavior, just as are grown-up nations. I discussed this in the context of rail a while back at Forbes. In that case, it seems everyone thinks the US is behind in rail, because it does not have sexy bullet trains. But in fact we have a far more developed freight network than any other country, and shift of transport to rail makes a much larger positive economic and environmental impact for cargo than for rail. It comes down to what you care about — prestige or actual performance. Again choosing performance over prestige is a sign of maturity.**
The US had a phase just like China’s, when we were emerging as a world economic and political power, and had a first generation of successful business pioneers who were unsure how to put their stamp on the world. So they competed at building tall buildings. Many of the tallest were not even private efforts. The Empire State Building was a crony enterprise from start to finish, and ended up sitting empty for years. The World Trade Center project (WTC) was a complete government boondoggle, built by a public agency at the behest of the Rockefeller family, who wanted to protect its investments in lower Manhattan. That building also sat nearly empty for years. By the way, the Ken Burns New York documentary series added a special extra episode at the end after 9/11 on the history of the WTC and really digs in to the awful crony and bureaucratic history of that project. Though Burns likely did not think of it that way, it could as easily be a documentary of public choice theory. His coverage earlier in that series of Robert Moses (featuring a lot of Robert Caro) is also excellent.
** I have always wondered if you could take this model further, and predict that once-great nations in decline (at least in decline relative to their earlier position) might not re-engage with such prestige projects, much like an aging male seeking out the young second wife and buying a Porche.
Warren Meyer, “This is a GOOD Sign for the United States”, Coyote Blog, 2015-01-15.
December 15, 2015
Another older post from Megan McArdle on the nice-soundbites-but-terrible-economic-notions from the Hillary Clinton campaign to fix the prescription medicine marketplace:
Hillary Clinton thinks drug development should be riskier, and less profitable. Also, your health insurance premiums should be higher. And there should be fewer drugs available.
This is not, of course, how the Clinton campaign would put it. The official line is that Americans are just paying too darn much for drugs, and she has a plan to stop that:
- Regulate direct-to-consumer advertising more heavily, and strip its tax deductibility
- Require drug companies to spend a certain percentage of revenue on research and development, or face penalty payments and the loss of their R&D tax credit (I am inferring that this is what she is talking about, since the actual language of the proposal is long on paeans to the importance of federal research funding and short on details)
- Cap out-of-pocket costs for drugs
- Reduce the exclusivity period for biologic drugs
- Prohibit companies from making side payments to generic manufacturers to keep generic competition off the market
- Allow drug reimportation
- Require that new treatments be proved to be a substantial improvement over existing treatments — i.e., eliminate the dreaded “me too” drugs
- Allow Medicare to “negotiate” drug prices
Eliminating the side payments seems eminently sensible. (Yes, yes, you can strip my libertarian card, but market-rigging contracts shouldn’t be enforced.) It also seems reasonable to require some sort of comparative effectiveness research. Other provisions will certainly drive down drug prices, at the risk of also driving down innovation.
Still other provisions, however, are simply bad economics. In what other market do we worry about having a second product available that’s merely just as good as the first? Should we really only have one antidepressant, one statin, one blood pressure medication, and so forth? Might there be variation among patients so that drugs that are statistically about equally effective in large groups are nonetheless individually more or less effective for different people? Might one drug’s side effects be better tolerated by some patients than another’s? Might having two drugs in the category help keep prices down?
Then there is notion that we should force pharmaceutical companies to spend a set percentage of their revenues on R&D. This seems to me to be … what’s the word I am looking for? Ah, I’ve got it: “insane.”
Economically, large parts of this plan make little sense. Politically, many of these items would be very difficult to pass, not least because the Congressional Budget Office would assess the likely effects and would make it sound much less appealing than it does in a gauzy stump speech. But away from those harsh realities, purely as campaign rhetoric, it probably works very well.
September 15, 2015
… every time the Ex-Im Bank gets involved in a deal, there are only two possibilities: The government is needlessly subsidizing something that would have happened anyway, giving away cheap money to a huge corporation. Or else it’s subsidizing a deal that wouldn’t have happened anyway, in which case we are defending the use of taxpayer dollars to sell cheap manufactured goods to foreigners. It’s not even as if we’re picking out especially needy foreigners, who may require a charitable contribution from the prosperous citizens of the United States; the subsidy is distributed on the basis of who is willing to, say, buy cut-rate U.S. airframes. And guess who benefits? U.S. corporations that export a lot.
This is not a good use of taxpayer dollars, and conservative ideologues, bless their hearts, are quite right to want to get rid of it. Their passion is a little out of proportion to the harm that this agency does, but even a small step in the right direction is better than none. The bank’s opponents concede that. For them, the appeal of taking on Ex-Im is that they might be able to take it down.
Against this impeccable economic and political logic, the bank’s supporters marshal a few arguments. First, they often claim (as Nocera implies) that the Ex-Im Bank generates a lot of money for the Treasury. Which is sort of true … except. First of all, it doesn’t account for the opportunity costs of the distortion; resources are diverted into production of certain goods, and away from others. And second of all, government accounting for loans is rather weird. According to the Congressional Budget Office, if we used a fair value accounting method, which would account for the risk of changing market conditions, the Ex-Im Bank’s six largest programs would be generating a deficit, not a surplus.
We are also told that Ex-Im is a vital matter of national security. I’m going out on a limb here, but I’m pretty sure that if the U.S. government needs to find some money to give foreigners as a vital matter of national security, they will manage to find it even if the Ex-Im Bank is shuttered and its silent halls hold only the lingering ghosts of departed exporters.
Megan McArdle, “Ex-Im Bank Is a Tiny But Tempting Target”, Bloomberg View, 2015-08-03.
September 1, 2015
August 25, 2015
Oh, sorry, he actually said Musk is “crazy like a visionary“:
I am an unlikely fan of Elon Musk, the flamboyant, Steve Jobs-like (some would say Tony Stark-like) entrepreneur behind SpaceX, SolarCity, Tesla Motors, and other enterprises that seemed like starry-eyed impossibilities a scant decade ago. Musk’s two governing passions, he has said repeatedly, are “sustainable transport” to battle “global warming” and finding a way to make mankind an interplanetary species, beginning with a space colony on Mars.
For my part, the word “sustainable” has me reaching, if not for my revolver, then at least for an air-sickness bag. I regard the whole Green Lobby as a cocktail composed of three parts moralistic hysteria mixed with a jigger of high-proof cynical opportunism (take a look at Al Gore’s winnings from the industry) fortified with a dash of beady-eyed left-wing redistributionist passion. You can never be Green enough, Comrade, and if the data show a 20-year “hiatus” in global warming (so much for Michael Mann’s infamous hockey stick), that’s no reason not to insist that capitalist powerhouses like the United States drastically curtail their CO2 emissions right now, today, while giving egregious polluters like China a decade or more to meet its quotas.
No, when it comes to energy, I often quote, sometimes with attribution, the Manhattan Institute’s Robert Bryce: what the world needs now is cheap, abundant energy, period, full stop, end of discussion. My motto is: frack early, frack often. Do you want to help the poor/clean up the environment/save the spotted wildebeest? Then you need economic growth, and to achieve that you need energy, which at the moment means you need fracking. Q.E.D.
When it comes to interplanetary travel, I suspect that Musk’s passion for transforming us into “space-faring” creatures was heavily influenced by his youthful reading of Isaac Asimov, Robert Heinlein, and (one of his favorites) The Hitchhiker’s Guide to the Galaxy. Not that those adolescent chestnuts necessarily argue against the plausibility of his ambitions. Behind Musk’s enthusiasm for space colonization is a worry that a future “extinction event” might delete human consciousness from the emporium of the universe.
For what it’s worth, I’m very much split on Musk and his works: I generally agree with his desire to help get humanity expanding beyond our single, frail planet … I just wish he wasn’t guzzling down government subsidies to get there. I’ve read the book Kimball is reviewing (Ashlee Vance’s Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future), and I certainly feel I got my money’s worth from the purchase … Musk is potentially a very great man. Right now, he’s a pretty good man who still takes everything he can get from the government.
August 24, 2015
In the Washington Post, Ana Swanson examines the good and bad (for economic growth) of the billionaire class:
Over the past few decades, wealth has become more concentrated in the hands of a few global elite. Billionaires like Microsoft founder Bill Gates, Mexican business magnate Carlos Slim Helú and investing phenomenon Warren Buffett play an outsized role in the global economy.
But what does that mean for everyone else? Is the concentration of wealth in the hands of a select group a good thing or a bad thing for the rest of us?
You might be used to hearing criticisms of inequality, but economists actually debate this point. Some argue that inequality can propel growth: They say that since the rich are able to save the most, they can actually afford to finance more business activity, or that the kinds of taxes and redistributive programs that are typically used to spread out wealth are inefficient.
Other economists argue that inequality is a drag on growth. They say it prevents the poor from acquiring the collateral necessary to take out loans to start businesses, or get the education and training necessary for a dynamic economy. Others say inequality leads to political instability that can be economically damaging.
A new study that has been accepted by the Journal of Comparative Economics helps resolve this debate. Using an inventive new way to measure billionaire wealth, Sutirtha Bagchi of Villanova University and Jan Svejnar of Columbia University find that it’s not the level of inequality that matters for growth so much as the reason that inequality happened in the first place.
Specifically, when billionaires get their wealth because of political connections, that wealth inequality tends to drag on the broader economy, the study finds. But when billionaires get their wealth through the market — through business activities that are not related to the government — it does not.
May 24, 2015
Dan Mitchell clearly understands what modern western government is really all about:
May 23, 2015
There are many railfans who still believe, strongly and passionately, that General Motors was involved in a devious plot to kill off the streetcars across North America in order to sell more buses. At Vox.com, Joseph Stromberg explains that this wasn’t the case — in fact, the killer of the streetcar/interurban/radial railway systems was their willingness to lock in to long-term uneconomic agreements with local governments in exchange for monopoly privileges:
Back in the 1920s, most American city-dwellers took public transportation to work every day.
There were 17,000 miles of streetcar lines across the country, running through virtually every major American city. That included cities we don’t think of as hubs for mass transit today: Atlanta, Raleigh, and Los Angeles.
Nowadays, by contrast, just 5 percent or so of workers commute via public transit, and they’re disproportionately clustered in a handful of dense cities like New York, Boston, and Chicago. Just a handful of cities still have extensive streetcar systems — and several others are now spending millions trying to build new, smaller ones.
So whatever happened to all those streetcars?
“There’s this widespread conspiracy theory that the streetcars were bought up by a company National City Lines, which was effectively controlled by GM, so that they could be torn up and converted into bus lines,” says Peter Norton, a historian at the University of Virginia and author of Fighting Traffic: The Dawn of the Motor Age in the American City.
But that’s not actually the full story, he says. “By the time National City Lines was buying up these streetcar companies, they were already in bankruptcy.”
Surprisingly, though, streetcars didn’t solely go bankrupt because people chose cars over rail. The real reasons for the streetcar’s demise are much less nefarious than a GM-driven conspiracy — they include gridlock and city rules that kept fares artificially low — but they’re fascinating in their own right, and if you’re a transit fan, they’re even more frustrating.
This is one of the reasons I’m generally against new plans to re-introduce streetcars (or their modern incarnations generally grouped under the term “light rail”), because they fail to address one of the key reasons that the old street railway/interurban/radial systems died: they were sharing road space with private vehicles. Light rail can provide a useful urban transportation option if they have their own right-of-way, but not if they are merely adding to the gridlock of already overcrowded city streets.
And once again, I’m not anti-rail … I founded a railway historical society and I commute most work days on a heavy rail commuter network. I don’t hold this position due to some anti-rail animus. If anything, I regret the passing of railway systems more than most people do, but I recognize that they have to be self-supporting (or close to self-supporting) to have a chance to survive. Being both more expensive and less convenient than alternative transportation options is a sure-fire path to extinction.
May 15, 2015
David Henderson explains:
Of the 80 million acre feet a year of water use in California, only 2.8 million acre feet are used for toilets, showers, faucets, etc. That’s only 3.5 percent of all water used.
One crop, alfalfa, by contrast, uses 5.3 million acre feet. Assuming a linear relationship between the amount of water used to grow alfalfa and the amount of alfalfa grown, if we cut the amount of alfalfa by only 10 percent, that would free up 0.53 million acre feet of water, which means we wouldn’t need to cut our use by the approximately 20 percent that Jerry Brown wants us to.
What is the market value of the alfalfa crop? Alexander quotes a study putting it at $860 million per year. So, assuming, for simplicity, a horizontal demand curve for alfalfa, a cut of 10% would reduce alfalfa revenue by $86 million. (With a more-realistic downward-sloping demand for alfalfa, alfalfa farmers would lose less revenue but consumers would pay more.) With a California population of about 38 million, each person could pay $2.26 to alfalfa growers not to grow that 10%. Given that the alfalfa growers use other resources besides water, they would be much better off taking the payment.
April 11, 2015
It’s not nice to call someone a welfare queen, but this is a case where it’s hard to find a more accurate way of putting it:
America’s biggest welfare queen is someone you’ve probably never heard of. She’s Hispanic. She’s been living off other people’s hard-earned tax money for years. And she’s gotten rich doing it.
Her name is Iberdrola. She’s a Spanish energy company that has invested in U.S. power facilities. And according to the advocacy group Good Jobs First, she’s raked in more than $2 billion from Uncle Sam in just the past few years.
Good Jobs First maintains a subsidy tracker where you can look up which companies are getting rich from public funds. It recently issued a report on “Uncle Sam’s Favorite Corporations — the companies that have gained the most from federal grants, special tax preferences, loans, and loan guarantees.
The biggest beneficiaries (“by an order of magnitude”) are Bank of America, Citigroup, and other major financial institutions that were bailed out during the 2008 financial crisis. The Federal Reserve, the Troubled Asset Relief Program, and so on threw trillions of dollars at U.S. and foreign banks in a desperate effort to stabilize the financial system. It worked. In many cases (though not all), the institutions repaid the money. In some cases the federal government actually earned a profit.
But hundreds of other companies have raked in billions of dollars in direct grants. Along with Iberdrola, NextEra Energy, NRG Energy, Southern Company, Summit Power, and SCS Energy all have reaped more than $1 billion in federal largess, often receiving payments through programs meant to boost renewable energy. At the same time, many coal companies have taken huge sums from Washington through grants and coal production tax credits. So, as with farm programs—some of which subsidize farmers to farm more and some of which pay farmers to not farm at all—Washington thwarts its own objectives by subsidizing both renewable fuel sources and the fossil fuels they’re supposed to replace.
April 7, 2015
At Slate Star Codex, Scott Alexander recently reviewed David Friedman’s latest revision to his 1973 book, The Machinery of Freedom (sometimes called The Machinery of Friedman by libertarian wags). Scott wasn’t totally sold on Friedman’s proposals, but he posted several highlights from the book, including this discussion of how the US government was persuaded to regulate the railroad industry and then the airlines:
One of the most effective arguments against unregulated laissez faire has been that it invariably leads to monopoly. As George Orwell put it, “The trouble with competitions is that somebody wins them.” It is thus argued that government must intervene to prevent the formation of monopolies or, once formed, to control them. This is the usual justification for antitrust laws and such regulatory agencies as the Interstate Commerce Commission and the Civil Aeronautics Board.
The best historical refutation of this thesis is in two books by socialist historian Gabriel Kolko: The Triumph of Conservatism and Railroads and Regulation. He argues that at the end of the last century businessmen believed the future was with bigness, with conglomerates and cartels, but were wrong. The organizations they formed to control markets and reduce costs were almost invariably failures, returning lower profits than their smaller competitors, unable to fix prices, and controlling a steadily shrinking share of the market.
The regulatory commissions supposedly were formed to restrain monopolistic businessmen. Actually, Kolko argues, they were formed at the request of unsuccessful monopolists to prevent the competition which had frustrated their efforts.
It was in 1884 that railroad men in large numbers realized the advantages to them of federal control; it took 34 years to get the government to set their rates for them. The airline industry was born in a period more friendly to regulation. In 1938 the Civil Aeronautics Board (CAB), initially called the Civil Aeronautics Administration, was formed. It was given the power to regulate airline fares, to allocate routes among airlines, and to control the entry of new firms into the airline business. From that day until the deregulation of the industry in the late 1970s, no new trunk line — no major, scheduled, interstate passenger carrier — was started.
The CAB had one limitation: it could only regulate interstate airlines. There was one major intrastate route in the country — between San Francisco and Los Angeles. Pacific Southwest Airlines, which operated on that route, had no interstate operations and was therefore not subject to CAB rate fixing. Prior to deregulation, the fare between San Francisco and Los Angeles on PSA was about half that of any comparable interstate trip anywhere in the country. That gives us a good measure of the effect of the CAB on prices; it maintained them at about twice their competitive level.
In this complicated world it is rare that a political argument can be proved with evidence readily accessible to everyone, but until deregulation the airline industry provided one such case. If you did not believe that the effect of government regulation of transportation was to drive prices up, you could call any reliable travel agent and ask whether all interstate airline fares were the same, how PSA’s fare between San Francisco and Los Angeles compared with the fare charged by the major airlines, and how that fare compared with the fare on other major intercity routes of comparable length. If you do not believe that the ICC and the CAB are on the side of the industries they regulate, figure out why they set minimum as well as maximum fares.