… I would argue that we don’t have truly free trade or, increasingly, a free economy in the United States. The Progressives always look at the rising income inequality and maintain that it’s the inevitable result of capitalism. That’s hogwash, of course, and Proggies believe it because they’re dolts. But the problem in this country isn’t free trade — we have precious little of it — or unrestricted capitalism, since we have precious little of that as well. The issue behind rising income inequality isn’t capitalism, it’s cronyism. Income isn’t being redirected to the 1% because capitalism has failed, it’s happening because we abandoned capitalism in favor of the regulatory crony state and its de facto collusion between big business/banking interests and a government that directs capital to favored political clients, who become “too big to fail”. It doesn’t matter, for instance, whether the president is a Democrat or Republican, because we know the Treasury Secretary will be a former — and future — Goldman Sachs executive.
Indeed, what we call “free trade” nowadays isn’t the Theory of Comparative Advantage in action. It’s corporations being allowed to ship jobs to low wage countries overseas to offset the cost of regulatory burdens in the US that restrict competition from new entrants to the market. That works great for large corporations. Not only do they get to offset the regulatory costs by overseas production, but slower job growth in the US flattens domestic wages, too, and sends millions out of the labor force altogether. For working people, the biggest financial rewards from the current “free trade” regime seem mainly reaped by large business and banking interests. Again, people know if their own lives are better or worse than they used to be, and if the promises of elites have been born out by their own experience.
Dale Franks, “Vote Properly, You Virulent Racist!”, Questions and Observations, 2016-06-28.
March 2, 2018
QotD: Cronyism
January 9, 2018
The ongoing financial catastrophe that is the National Shipbuilding Procurement Strategy
Ted Campbell rounds up recent discussions of the Canadian government’s farcical National Shipbuilding Procurement Strategy (NSPS):
There is a somewhat biased but still very useful look at the successes of the National Shipbuilding Procurement Strategy (NSPS) in the Ottawa Citizen by Howie Smith who is the Past President of the Naval Association of Canada. Mr Smith is a retired Canadian naval officer who has provided consultancy services to several firms pursuing opportunities within the projects of the National Shipbuilding Strategy, which is why his article is somewhat biased. Mr Smith is responding to a recent report by Professor Michael Byers of the University of British Columbia, who is also a biased commentator on defence issues, which said that the NSPS “was flawed from the outset” and “According to Byers, the Liberal government should open-up the non-contractually-binding umbrella agreements with Irving and Seaspan, then cancel and restart the Canadian Surface Combatant and the Joint Support Ship procurement programs with fixed-price competitions involving completely ‘off the shelf’ designs.”
It is important, I believe, to understand why Canada needed something like the NSPS in the first place. The notion came in about the middle of the Harper government’s term in office – in around 2010. I think that two problems confronted the government:
- The Canadian shipbuilding industry was, once again, “on the ropes;” Davie, Canada’s largest shipyard was in bankruptcy and the other yards were too reliant on government contracts; and
- Both of the major federal fleets (the Royal Canadian Navy and the Canadian Coast Guard) were approaching “rust out,” again.
The solution to the first problem was to modernize the yards and make them internationally competitive … but that would cost money and private investment money is scarce ~ especially for shipbuilding, plus under the international trade rules to which Canada has agreed direct government subsidies to commercial shipyards are prohibited. The solution to shipyards that are too reliant on government contracts was ~ wait for it ~ another big government contract that would allow them to modernize themselves.
That indirect government subsidy is perfectly legal if the contracts are for navy and coast guard ships because “national security” is a big loophole in international trade law.
Both Professor Byers and Mr Smith have some good points … but neither is 100% correct. The NSPS was and remains a sound idea … the costs, which is the real crux of Professor Byers’ complaint, are not relevant because the defence and coast guard budgets are being (mis)used for industrial development ~ those are not the real costs of warships: they are the real costs of warships PLUS the cost of yard modernization.
The new surface combatant project is, as Mr Smith says, the biggest and costliest peacetime military procurement ever … and the NSPS is working just about a well as any “system” would at bringing it to fruition. At some point in the future a government will have to decide if Canada gets fewer ships than it needs or spends more more money than it wants … or, most likely, both.
That last sentence has always been the most likely outcome: the RCN will get fewer ships than it needs, and those ships will be significantly more expensive per hull than they need to be. The need for modern naval vessels isn’t the top priority … it’s probably not even in the top three priorities as far as the government is concerned (directing money to the “right” recipients, pandering to provincial sensibilities, lots of photo ops, and then maybe the actual needs of the RCN and CCG).
Update: Of course, it’s not like Canada is unique in the problems we have in military procurement … Australia is also struggling in a similar way:
The [Royal Australian] Navy’s program to replace the Collins Class submarines is known as SEA 1000. It involves modification of a French Barracuda Class submarine from nuclear to diesel-electric propulsion, plus other changes specific to Australia.
The 12 new submarines, to be known as Shortfin Barracudas, are intended to begin entering service in the early 2030s with construction extending to 2050. The program is estimated to cost $50 billion and will be the largest and most complex defence acquisition project in Australian history.
[…]
Then there’s the decision to build them in Australia. The Abbott government’s 2016 Defence White Paper only committed to building them in Australia if it could be done without compromising capability, cost or project schedule. That changed because of South Australian politics, and the new submarines could now be more appropriately described as the Xenophon class.
Even if all goes well, the cost of building warships in Australia will be 30 to 40 per cent more than if they were built overseas. However, the plan to build them in Adelaide at the Australian Submarine Corporation, the same group currently building the Air Warfare Destroyer, years late and a billion dollars over budget, adds to a sense of foreboding.
This follows the prize fiasco of the Collins Class submarine project. Their construction by the Australian Submarine Corporation ran years behind schedule, many millions over budget, and finally delivered a platform that the Navy has struggled to even keep operational.
And then there is the question of whether the new submarines will arrive before the Collins Class subs are retired, scheduled for 2026 to 2033. Even if delivery occurs on schedule, the first will not enter service until 2033. At best there will be one new submarine in service and a nine year gap between the retirement of the Collins Class and the introduction into service of the first six of the twelve new submarines.
Given this, the government has apparently committed an additional $15 billion to keep the 30 year old Collins submarines bobbing in the water. It’s like refurbishing a World War 2 German U-Boat for the mid-1990s.
The elements are all there for the submarine replacement program to become the procurement scandal of the century. Our Shortfin Barracudas will probably be the most expensive submarines ever built anywhere in the world.
For a lot less money, we could achieve a far more potent submarine capability. For example, off-the-shelf Japanese Soryu submarines cost only US$540 million. Modified to meet additional Navy requirements, they were quoted as costing A$750 million. If we simply bought twelve of those, the total cost to the taxpayer would be less than A$10 billion.
Equally, the existing nuclear Barracudas only cost $2 billion each, so we could get twelve of those for $24 billion.
For such an important defence capability, the government’s failure to guarantee Australia is protected by submarines is nothing less than gross negligence.
December 29, 2017
2017 wasn’t all doom and gloom and Trump tweet wars
Veronique de Rugy manages to find three things that 2017 produced that somehow didn’t kill millions of Americans (so far, as far as we know):
First, President Donald Trump just signed a historic reduction in the corporate income tax rate, from 35 percent — the highest of all industrialized nations — to 21 percent. And except for a one-time repatriation tax, the U.S. will no longer tax most profits made by businesses overseas.
Both changes should boost economic growth and American workers’ wages. Moreover, the reform removes many of the distortions that discourage companies from investing foreign-earned income in the United States and prompt them to use tax avoidance techniques.
Second, this was a very good year for deregulation. Cutting taxes isn’t the only way to boost growth and raise wages; innovation may matter even more. Getting rid of duplicative and outdated regulatory hurdles to innovation promises to have a real impact on our lives. That’s what the Trump administration, with the help of Congress, seems committed to doing.
When the president first got to the White House, for example, he froze many not-yet-implemented Obama-era regulations. These include the punishing overtime pay regulation, which would have increased the cost of employing workers and ultimately reduced their base compensation to offset the increase in overtime pay.
[…]
Last but not least are the sustained efforts by Sens. Pat Toomey, R-Pa., and Richard Shelby, R-Ala., to slow down the process that would restore the Export-Import Bank, a bastion of cronyism, to its full and former glory.
Appointing enough board members to give Ex-Im a full quorum would instantly restore the agency’s ability to sign off on deals above $10 million for the benefit of a handful of very large foreign and domestic corporations. By resisting, the two senators are fighting a lonely fight on behalf of the unseen victims of corporate welfare.
December 15, 2017
QotD: Crony capitalism
First, we labor under a ubiquitous threat of being shackled by crony capitalists. [Adam] Smith wondered how internally stable a free market could be in the face of a tendency for its political infrastructure to decay into crony capitalism. (The phrase “crony capitalism” is not Smith’s. I use it to refer to various of Smith’s targets: mercantilists who lobby for tariffs and other trade barriers, monopolists who pay kings for a license to be free from competition altogether, and so on.) Partnerships between big business and big government lead to big subsidies, monopolistic licensing practices, and tariffs. These ways of compromising freedom have been and always will be touted as protecting the middle class, but their true purpose is (and almost always will be) to transfer wealth and power from ordinary citizens to well-connected elites.
David Schmidtz, “Adam Smith on Freedom” (published as Chapter 13 of Ryan Patrick Hanley’s Adam Smith: His Life, Thought, and Legacy, 2016).
November 7, 2017
QotD: Crony capitalism
Fascism is actually an economic system, of which “crony capitalism”, an illegitimate partnership between government and business, is an excellent example. Known otherwise as corporate socialism or simply corporatism, other eras (Adam Smith‘s for instance, in his book Wealth of Nations) have called it Mercantilism.
L. Neil Smith, “The American Zone”, The Libertarian Enterprise, 2016-03-20.
November 4, 2017
Desperate Mayors Compete for Amazon HQ2
ReasonTV
Published on 3 Nov 2017Local politicians clash as they try to lure Amazon’s new headquarters to their towns.
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Cities across the country want Amazon HQ2 and the 50,000 jobs promised to come with it. Some municipalities are offering big incentives. When New Jersey puts $7 billion in tax credits on the table, how can small-town mayors compete? By really screwing taxpayers.Written and performed by Austin Bragg and Andrew Heaton. Produced and edited by Bragg.
October 31, 2017
How Sugar Subsidies Ruin Halloween
ReasonTV
Published on 30 Oct 2017This Halloween while you’re getting pudgy from candy, crony capitalists are getting rich off of sugar subsidies. The system is rigged through price controls, subsidies, and tariffs, all designed to protect the sugar industry from competition – and basic math. In the latest “Mostly Weekly” Andrew Heaton tears into the Willy Wonkas gaming the system, and shows why an open market can more than handle your sugar craving.
October 26, 2017
The “sacred” Supply Management system Canada is fighting to preserve
The way our politicians talk about the supply management system, you’d think it was one of the founding issues of Confederation. They’re almost literally willing to abandon the NAFTA talks to preserve this encrusted bit of crony capitalist market distortion that hurts most Canadians in the wallet, to keep domestic producers happy. Matthew Lau explains the system our government is willing to crash the entire economy to save:
The United States wants Canada to end supply management, which impedes agricultural imports – dairy, eggs, and poultry. Canada’s trade negotiators and politicians steadfastly refuse, and in their defense of the policy call up an astounding piece of logic: that the less Canadians have, the richer we are.
Canada’s Agriculture Minister insists that supply management is an “excellent system” and that “to deal with anything else is simply a non-starter.” Supporters on the left argue that the policy is necessary to protect domestic farmers from unfair competition from American farmers who receive government subsidies.
Conservatives have argued the same. Current Parliament Member and former International Trade Minister, Ed Fast argued in a recent essay that America simply wants access to the Canadian market “to deal with its own problem of overproduction, to the detriment of Canadian farmers.”
Here is what all proponents of supply management are arguing: If we allow the Americans to send us milk, then their problem of overproduction becomes our problem. Don’t you see how problematic it is, how much poorer we will become if we allow them to send to us the fruits of their overproduction, and at a low price to boot? Don’t you see how much richer we would be if we had less milk?
The less milk we have, the higher the price of milk, the more we can “ensure that producers receive a reasonable return,” as Ed Fast put it – and having ensured that producers receive a reasonable return, certainly we shall all be richer. What could be more reasonable than ensuring Canadian producers receive a reasonable return?
In case the lunacy isn’t quite clear, he also offers a suggestion for a new supply management system for Canadians to “enjoy”:
If we’re made richer by having less dairy, poultry, and eggs, then why stop there? Why not create scarcity in all the other sectors in order to boost the domestic economy? For instance, consider that Ontario’s manufacturing sector has lost several hundred thousand jobs in the past twelve years or so. So according to the supply management logic employed by politicians, how can we revive this industry?
By destroying automobiles of course. And then throw up a tariff to make the purchase of automobiles abroad prohibitively expensive, in order to make sure the Americans, as well as other foreign producers, can’t take “unfair advantage” by inflicting us with cheap automobiles to deal with their problems of overproduction.
The result of such a policy would be that the price of automobiles would rise, thus enabling domestic manufacturers to earn reasonable returns. Destroying automobiles and instituting a tariff would revive the automobile manufacturing industry in Ontario and create thousands of jobs. If the Liberal government thinks supply management is an “excellent policy” they’d probably think this automobile policy is a panacea.
Indeed, the logic, or rather illogic, of the automobile policy is only an amplification and expansion of supply management. Both rest on the idea that we are richer when we have less.
October 19, 2017
America’s third-world air traffic control system
In City Journal, John Tierney says there’s hope for improvement, but the crony capitalists might yet manage to keep the crappy system in its current state anyway:
Members of Congress are about to face a tough choice: should they vote to replace America’s scandalously antiquated air-traffic control system with one that would be safer and cheaper, reduce the federal deficit, conserve fuel, ease congestion in the skies, and speed travel for tens of millions of airline passengers? Or should they maintain the status quo to please the lobbyists representing owners of corporate jets?
If that choice doesn’t sound difficult, then you don’t know the power that corporate jet-setters wield in Congress. They’re the consummate Washington crony capitalists: shameless enough to demand that their private flights be subsidized by the masses who fly coach, savvy enough to stymie reforms backed by Democratic and Republican administrations.
While the rest of the industrialized world has been modernizing air-traffic control, the United States remains mired in technology from the mid-twentieth century. Controllers and pilots rely on ground-based radar and radio beacons instead of GPS satellites. They communicate by voice over crowded radio channels because the federal government still hasn’t figured out how to use text messaging. The computers in control towers are so primitive that controllers track planes by passing around slips of paper.
The result: an enormous amount of time wasted by passengers, especially those traveling in the busy airspace of the Northeast. Because the system is so imprecise, planes have to be kept far apart, which limits the number of planes in the air — leaving passengers stranded at terminals listening to the dread announcements about “air traffic delays.” When they do finally take off, they’re often delayed further because the pilot must fly a zig-zag course following radio beacons instead of saving time and fuel by taking a direct route.
Surprisingly, the Canadian air traffic control system is the model to emulate:
The Trump administration is pushing Congress this month to turn over the air-traffic control system to a not-for-profit corporation supported by user fees instead of tax dollars. It would resemble Nav Canada, which has won high praise from the aviation community for modernizing Canada’s system while reducing costs. Nav Canada’s controllers use GPS technology and text messaging, as do the controllers at the corporation that has taken over the United Kingdom’s system.
September 20, 2017
QotD: Government meddling stifles innovation in energy
It is unfortunately the case that government meddling on a global scale has massively distorted energy markets through pervasive subsidies, mandates, and price controls. The result is retarded innovation in the technologies of energy generation. A big first step toward renovating our energy supply systems would be to eliminate those impediments to understanding the real comparative benefits and costs of the production and use of energy. Ultimately, the better and far more effective way to ameliorate and avert future climate change is to mobilize human ingenuity through market processes to drive down the costs of no-carbon energy sources. Despite the constraints on innovation caused by government interference, notable advances in no-carbon energy generation technologies have already been made, ranging from innovative nuclear reactor designs to more efficient and cheaper solar panels. New technologies and wealth produced by human creativity will spark a vast environmental renewal in this century.
Ronald Bailey, The End of Doom: Environmental Renewal in the Twenty-first Century, 2015.
August 27, 2017
Stop Subsidizing Sports!
Published on 25 Aug 2017
Let’s talk about “sports”—that thing where we gather around to watch a muscular stranger put a regulation-size ball in a specific location.
Why are taxpayers forced to pony up cash for athletic ventures that don’t benefit them? Franchise owners routinely extort massive stadium subsidies through threats of relocation and fake promises of economic revitalization. Universities jack up student rates to subsidize athletic programs that should be self-sustaining. And the Olympics is economically devastating to every municipality foolish enough to get suckered by one of the oldest scams around.
Mostly Weekly host Andrew Heaton explores the sports phenomenon and why we should quit throwing other people’s money at it.
Links, past episodes, and more at https://reason.com/reasontv/2017/08/25/stop-subsidizing-sports
Script by Sarah Siskind with writing assistant from Andrew Heaton and David Fried.
Edited by Austin Bragg and Siskind.
Produced by Meredith and Austin Bragg.
Theme Song: Frozen by Surfer Blood.
Why The Rich Like High Taxes
Published on 16 Aug 2017
When politicians raise taxes on the rich, what do the rich do to protect their $$$? This Prof. shows how high taxes actually made America less equal.
The Myth of Equality in the 1950s (video): Another myth of the 1950s is that there was economic equality. Prof. Brian Domitrovic explains why this is a myth. https://www.youtube.com/watch?v=wLl9wOivHdc
How Cronyism is Hurting the Economy (video): Prof. Jason Brennan explains why cronyism, like the tax cuts for certain businesses in the 1950s, is bad for the economy and argues why limiting the government’s power would help solve the problem. https://www.youtube.com/watch?v=gSgUENZ9O94
The Good Ol’ Days: When Tax Rates Were 90 Percent (article): Andrew Syrios compares the tax rates in the 1950s to those of the 1980s and today https://mises.org/library/good-ol-days-when-tax-rates-were-90-percentTRANSCRIPT:
For a full transcript please visit: http://www.learnliberty.org/videos/why-the-rich-like-high-taxes/
July 30, 2017
It’s time to eliminate the ethanol fuel mandate (and all those corporate welfare subsidies)
Paul Driessen explains why now might be the best time to get rid of the Renewable Fuel Standard (RFS) which requires a proportion of ethanol be incorporated/blended into almost all petroleum fuels in the US (Canada has similar requirements):
The laws require that refiners blend steadily increasing amounts of ethanol into gasoline, and expect the private sector to produce growing amounts of “cellulosic” biofuel, “biomass-based diesel” and “advanced” biofuels. Except for corn ethanol, the production expectations have mostly turned out to be fantasies. The justifications for renewable fuels were scary exaggerations then, and are absurd now.
Let’s begin with claims made to justify this RFS extravaganza in the first place. It would reduce pollution, we were told. But cars are already 95% cleaner than their 1970 predecessors, so there are no real benefits.
The USA was depleting its petroleum reserves, and the RFS would reduce oil imports from unstable, unfriendly nations. But the horizontal drilling and hydraulic fracturing (fracking) revolution has given the United States at least a century of new reserves. America now exports more oil and refined products than it imports, and US foreign oil consumption is now the lowest since 1970.
Renewable fuels would help prevent dangerous manmade climate change, we were also told. This assumes climate is driven by manmade carbon dioxide – and not by changes in solar heat output, cosmic rays, ocean currents and other powerful natural forces that brought ice ages, little ice ages, warm periods, droughts and floods. It assumes biofuels don’t emit CO2, or at least not as much as gasoline; in reality, over their full life cycle, they emit at least as much, if not more, of this plant-fertilizing molecule.
[…]
A little over 15 billion gallons of corn-based ethanol were produced in 2016 – but only 143 billion gallons of gasoline were sold. That means using all the ethanol would require blends above 10% (E10 gasoline) – which is why Big Ethanol is lobbying hard for government mandates (or at least permission) for more E15 (15% ethanol) gasoline blends and pumps. Refiners refer to the current situation as the “blend wall.”
But E15 damages engines and fuel systems in older cars and motorcycles, as well as small engines for boats and garden equipment, and using E15 voids their warranties. You can already find E15 pumps, but finding zero-ethanol, pure-gasoline pumps is a tall order. Moreover, to produce ethanol, the United States is already devoting 40% of its corn crop, grown on nearly 40 million acres – along with billions of gallons of water to irrigate corn fields, plus huge amounts of fertilizer, pesticides and fossil fuels.
Much of the leftover “mash” from ethanol distillation is sold as animal feed. However, the RFS program still enriches a relatively few corn farmers, while raising costs for beef, pork, poultry and fish farmers, and for poor, minority, working class and African families. Ethanol also gets a third less mileage per gallon than gasoline, so cars cannot go as far on a tank of E10 and go even shorter distances with E15.
The problem with getting rid of targeted subsidy programs is that the benefits are highly concentrated while the costs are widely dispersed. As a whole, the North American economies would benefit greatly from eliminating the RFS mandates, lowering overall fuel costs, improving international food availability, and reducing or eliminating crony capitalist benefits to “Big Ethanol”, but most individuals’ gains would be small — too small to gain much active support — and the current beneficiaries would have vast incentives to fight to the death to keep those subsidies flowing.
July 10, 2017
QotD: The illusion of freedom in America
Being a citizen in the American corporate state is much like playing against a stacked deck: you’re always going to lose.
The game is rigged, and “we the people” keep getting dealt the same losing hand. Even so, most stay in the game, against all odds, trusting that their luck will change.
The problem, of course, is that luck will not save us. As I make clear in my book, Battlefield America: The War on the American People, the people dealing the cards — the politicians, the corporations, the judges, the prosecutors, the police, the bureaucrats, the military, the media, etc. — have only one prevailing concern, and that is to maintain their power and control over the citizenry, while milking us of our money and possessions.
It really doesn’t matter what you call them — Republicans, Democrats, the 1%, the elite, the controllers, the masterminds, the shadow government, the police state, the surveillance state, the military industrial complex — so long as you understand that while they are dealing the cards, the deck will always be stacked in their favor.
Incredibly, no matter how many times we see this played out, Americans continue to naively buy into the idea that politics matter, as if there really were a difference between the Republicans and Democrats (there’s not).
As if Barack Obama proved to be any different from George W. Bush (he has not). As if Hillary Clinton’s values are any different from Donald Trump’s (with both of them, money talks). As if when we elect a president, we’re getting someone who truly represents “we the people” rather than the corporate state (in fact, in the oligarchy that is the American police state, an elite group of wealthy donors is calling the shots).
Politics is a game, a joke, a hustle, a con, a distraction, a spectacle, a sport, and for many devout Americans, a religion.
In other words, it’s a sophisticated ruse aimed at keeping us divided and fighting over two parties whose priorities are exactly the same. It’s no secret that both parties support endless war, engage in out-of-control spending, ignore the citizenry’s basic rights, have no respect for the rule of law, are bought and paid for by Big Business, care most about their own power, and have a long record of expanding government and shrinking liberty.
Most of all, both parties enjoy an intimate, incestuous history with each other and with the moneyed elite that rule this country. Don’t be fooled by the smear campaigns and name-calling. They’re just useful tactics of the psychology of hate that has been proven to engage voters and increase voter turnout while keeping us at each other’s throats.
John W. Whitehead, “Don’t Be Fooled by the Political Game: The Illusion of Freedom in America”, Huffington Post, 2015-08-12.
June 8, 2017
Words & Numbers: Earning Profits is Your Social Responsibility
Published on 7 Jun 2017
“We tend to demonize people who make money – how dare they have more than us? But that negative reaction forgets the voluntary role we play in profit-making every day. This week in Words and Numbers, Antony Davies and James R. Harrigan discuss just how good it is to earn a profit, and the vital difference between that and forcing money from people.”
