Crony Capitalism? Blame the Progressives

That is the purposely inflammatory title of my article this week at Forbes.com, finding the roots of crony capitalism not in capitalism itself, but in progressive legislation.  An excerpt:

The core of capitalism has nothing to do with, and is in fact inherently corrupted by, the exercise of state power.  At its heart, capitalism is one simple proposition -- free exchange between individuals based on mutual self-interest.  There is no room in this definition for subsidies or special government preferences or bailouts.  The meat and potatoes activities of crony capitalism are corruptions rather than features of free markets.  Where state power to intervene in economic activity does not exist, neither does cronyism.

Believe it or not, the Occupy movement reminds me of nothing so much as 1832.  Flash back to that year, and you will find Federal officials with almost no power to help or hinder commerce... with one exception: the Second Bank of the United States, a powerful quasi-public institution that used its monopoly on government deposits as a source of funds for private lending.  The bank was accused of using its immense reserves of government cash to influence elections, enrich the favored, and lend based on political rather than economic formulae (any of this sound familiar?).  Andrew Jackson and his supporters, the raucous occupiers of their day, came into office campaigning against the fraud and cronyism at the Bank.

Jackson, much like the current OWS folks, was a strange blend of sometimes frontier anarchist and sometimes tyrannical authoritarian.  But in the case of the Second Bank, the OWS movement could well learn from Jackson.  He didn't propose new and greater powers for government officials to help check abuses of the existing powers -- he proposed to kill the Bank entirely.  Eliminate the source of power, and men can no longer tap it for their own enrichment.

Unfortunately, the progressive Left which makes up most of the OWS movement has taken exactly the opposite approach over the last century or so, expanding government powers and economic institutions (such that today the scope of the second bank seems quaintly limited) and thus the opportunity for cronyism.   In fact, most of the interventions that make crony capitalism possible are facilitated and enabled by the very progressive legislation that the progressive Left and the OWS protesters tend to favor.  Consider some examples...

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    BBB Member Car Title Loan Agency says:

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  • Mesa Econoguy

    Nailed it.

    You can also thank the ignorant progressive left (redundant) for a highly unusual and unbelievably brazen power grab and further constitutional erosion with the imperial appointment of Richard Cordray.

  • I Got Bupkis, Don't Tread On Me

    >>>> But in the case of the Second Bank, the OWS movement could well learn from Jackson. He didn’t propose new and greater powers for government officials to help check abuses of the existing powers — he proposed to kill the Bank entirely. Eliminate the source of power, and men can no longer tap it for their own enrichment.

    This was in the days before Socialism existed, much less sold by Democrats as a panacea to the sheeple for all that is less than utterly perfect in the universe.

  • http://scottgrannis.blogspot.com Scott Grannis

    Warren, congratulations on a brilliant article. Right up there with the excellent, concise, and powerfully logical stuff that Don Boudreaux of Cafe Hayek puts out.

  • Johnathan

    Yeah, this one hits the ball out of the park. Well said.

  • Bill

    Warren, terrific Forbes article - maybe your best yet. Definitely will be stored on my HD. Thanks.

  • epobirs

    If you haven't read 'Throw Them All Out' yet, do so. It provides a lot more fuel for this fire.

  • http://mdredux.blogspot.com james gaulte

    Great essay.The opportunities for rent seeking(privilege seeking)in Obamacare are vast and frightening.What could possibly go wrong with IPAB?The rent seeking opportunities in the bill are a feature not a bug.

  • Graeme

    Well said,

    When Government has been captured by special interests, then it follows that strengthening Government will only entrench the special interests. The OWS are unwitting shills for the status quo.

  • JKB

    Arnold Kling highlighted this sentence from Tyler Cowan:

    If you do wish to break or limit the power of the major banks, running a balanced budget is probably the most important step we could take.

    If banks be the problem, then the solution is to remove the government's dependence upon the financial markets to keep their operations afloat. The OWS want more government rules to hide the government's dependence.