Posts tagged ‘crony capitalism’

Tesla Actually Strikes a Blow Against the Corporate State

Tesla Motors and Elon Musk, the folks who seem to perennially have their hands out for special government favors and taxpayer money, may have actually struck a small blow against the corporate state:

Tesla Motors Inc. says it’s won another round in its fight with established car dealers who want to stop the company from selling its electric luxury cars directly to consumers.

Tesla CEO Elon Musk says, via Twitter, that a New York judge has tossed out a suit brought by New York auto dealers who challenged Tesla’s direct sales model as a violation of the state’s franchise laws.

Mr. Musk spent Wednesday in Texas making the case for a legislative proposal to change the law to allow direct sales of electric vehicles by U.S.-based manufacturers.  Texas car dealers have opposed the measure, saying it would open the door for other car makers to sell electric cars direct to customers –  which could undermine the value of their franchises.

Government protections of middle men in the auto business (states generally do the same in the liquor business) are a classic example of crony capitalism.  Car dealers tend to have a lot of sway with politicians, not to mention with local media for who they are generally the largest advertisers, so they are able to engineer special privileges for themselves.  Congrats to Tesla for taking this on.

Go Gary Johnson

I decided today to volunteer for Gary Johnson's independent libertarian run for President.  I have always been a Johnson supporter, and was disappointed that he did not get more attention in the debates and nomination process.

Yes, I know folks will be saying that if Gary Johnson does well, it will just be guaranteeing an Obama victory.  You know what?  Given the choices, I don't care.  My other choices seem to be the guy who pilot-tested Obamacare and Rick Santorum, perhaps the only person the Republicans could have found with a deeper authoritarian streak than Obama.  You know those 2x2 matrices where one leg is "government intervention in social issues" and the other is "government intervention in economic issues?"  Where libertarians are low-low and Republicans and Democrats are each in one of the low-high boxes?  Did you ever wonder who was in the high-high box?  Well, Obama has moved pretty strongly into that space.  But Santorum staked it out years ago.   He is right out of the John McCain, I-am-nominally-for-small-governemnt-but-support-authoritarian-solutions-for-a-range-of-random-issues school.

In fact, I might argue that freedom and small government would be better served by an Obama second term that the yahoos likely to gain the Republic nomination.  First, there is nothing worse than having statism and crony capitalism sold by someone who is nominally pro-market (see either of the Bushes as an example).  Second, Republicans are much feistier about limiting spending and regulation in Congress when in opposition.  They tend to roll over for expansions of state power when they have a fellow Republican in the White House -- just compare spending of the Republican Congress under Clinton vs. Bush.  Medicare Part D, anyone?

As I heard Ayn Rand say in a public speech in 1981, there is only so far I can go choosing the lesser of two evils.  I am now all in for Gary Johnson.

Protectionism -- The Worst Form of Crony Capitalism

Food activists on the Left often point to the use of High Fructose Corn Syrup (HFCS) as one of those failures of capitalism, where rapacious capitalists make money serving an inferior product.  But HFCS resulted from a scramble by food and beverage companies to find some reasonable alternative to sugar as the government has driven up sugar prices through a crazy tariff system that benefits just a tiny handful of Americans, and costs everyone else money

For the last 10 years or so, HFCS-42 has actually traded at a price higher than the world market price for sugur, but lower than the US price for sugar.   There is a lot complexity to prices, but this seems to imply that HFCS would not be nearly as attractive a substitute for sugar if US sugar tariffs did not exist (not to mention subsidies of corn which support HFCS).  This can also be seen in the fact that HFCS has not been used nearly so often as a sugar substitute in markets outside of the US, even by the same manufacturers (like Coke) that pioneered its use in the US.

President Obama used a lot of his state of the union address again teeing up what sounded to me like a new round of protectionism.  Protectionism is the worst form of crony capitalism, generally benefiting a handful of producers and their employee to the detriment of 300 million US consumers and any number of companies that use the protected product as an input.

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...