Monday, November 17, 2014

Thorner: Wrong Kind of Government Breeds Cronyism

Crony Capitalism

By Nancy Thorner – 

Americans’ rights and prosperity are being threatened by cronyism, Ayn Rand Institute’s Steven Simpson said last week during a symposium hosted by Heartland Institute in Chicago.

“The issue is that government has too much power and has strayed far beyond its proper purpose of protecting rights,” Simpson declared.

Simpson’s definition of “cronyism” differs from the explanations typically offered by Democrats, Republicans and independents.

 Special Interests and CronyismAfter stating how appropriate it was to be in Chicago so soon after the elections, Simpson said those on the Right, the Left and Libertarians all complain about cronyism in much the same way.

  • Cronyism is to gain money and influence.
  • Cronyism involves business and government colluding to redirect favors to others.
  • The economy itself is crony capitalism.

Ralph Nader’s latest book, “Unstoppable”, sets forth the concept that corporations equal cronyism.  As such Nader wants to abandon the corporate state.

Simpson doesn’t give much credence to the conventional view that special interest are influencing our political system and skewing it at the expense of many.  True, money is spent to finance political causes — $3.9 billion in the recent November elections — but what is the problem with politicians being financed?  Is this corruption?

A bigger problem is why so many individuals want to influence the political system, at which point Simpson defined special interest groups as:  “A group of people voluntarily accountable with one another to influence the political process.”   Followed by:  “What is wrong with that?”

 Big Business and Cronyism

As to the belief that cronyism involves business and government colluding to redirect favors to other, this likewise must be evaluated.  Issues arise because of the way people perceive cronyism from different political angles or points of view.  But even individuals on the opposite side of the political spectrum seem to see big business as a bull Tim Carney of the American Enterprise Institute (AEI) in his book, “The Big Ripoff”, advances how big businesses work with statist politicians to diminish the prosperity and freedom of consumers, taxpayers, and entrepreneurs.

On the Left, Nick Cristoff of the New York Times in an Opinion piece, “Crony Capitalism Comes Home,” argues to take crony out of capitalism.

Just maybe something is wrong with our political system that requires people to band together and businesses to collude with government to influence political outcome?  Are bad people involved?  Might we have a political system that doesn’t allow people to operate freely?

What happens when people think that bad people are influencing a good system?  Just what is the take away or the result?  The natural outcome is that there is an attempt to restrain the bad people with term limits, etc.  Consider the IRS scandal which happened because it was decided that Tea Party groups had too much influence with politics. Consider also the attempt recently to restraint political speech on Facebook and the Internet. The threats from Washington to stifle freedom, entrepreneurship and creativity online have never been greater. Washington politicians want the money, and they want more and more control over our speech.

 Cronyism, a Packaged Deal

Simpson spoke of cronyism as a packaged deal, where “Big is Bad” and “Influence is Bad”.  However, the difference between big government and big business is that big government does too much, that having the experts it knows best, while business grows big by satisfying its customers.

While special interest group can’t force government to accede to their wishes, government has the power to force people to do what it wants them to do.  Government controls through the force or laws of regulations.  If government influences what we are able to do, it is only natural that individuals want to influence government.  Consider Comcast and the issue of “net neutrality”.   Comcast wants to be able to charge people special rates and doesn’t want government to control their own property.  The government, however, wants to decide what “net neutrality” looks like and what Comcast may charge.  The result:  Comcast lobbies government.  Bigger guys can naturally influence government more!

Through lobbying, businesses try to influence what shouldn’t exist in the first place, which kills innovation. Government with its power to tax also has the ability to destroy. Individuals and interest groups give money to help candidates win who reflect their interests, such as “Vote for me and I’ll raise taxes on the rich” or “Vote for me and I’ll favor labor over business.”   Individuals accordingly use the power of government for protection or to benefit themselves.

 Growth of Government

What kind of government do we have?  To most people the response would be “a democracy.”  In 2008 Obama proclaimed he had received a mandate from the people to radically change this nation.  According to President Obama, what the majority wants, the majority gets!   Does government really exist so what the majority wants the majority gets?  Doing something for the public good means that one group of people will be sacrificed for another.

Our system of democracy calls for the establishment of interest groups to influence politics.  If we believe that interest groups are corrupt, then our democracy is also corrupt.  What we now have is a sort of de facto democracy when government has more control than “We the People.”  When government becomes our enemy, people have no choice but to try to influence it and then decide what government must keep its hands off.

The concept of government by our Founding Fathers was a limited one to protect individual rights. The growth of government is not an accident. Through the years government has been created that has a monopoly on power.  The downfall of such a government is that government can’t force people to be productive.

Republicans, Democrats and Libertarians are guilty of misunderstanding government power and the use of force in our lives.  Big business is seen as operating like pirates (as bad people), yet it is government regulations that control what businesses do.  Government, because of its power, actually legalizes crime through its power to control and tax.  Businesses then try to defend themselves to receive some sort of break or concession to reduce government power.

The history of taxation was presented as a wonderful example of cronyism. Taxes can remain high with set tax rates if all sorts of exemptions (loopholes) are provided to give little bits of crumbs of freedom to string along taxpayers.

Mobsters, knowing they are corrupt, are slightly more honest than government which is clothed in moral authority.  People who seek power over our lives don’t want clear laws.  Accordingly, unclear laws lead to cronyism when the meaning of the law is interpreted by different people in different ways.  Some of the confusion that exists today lies in the unclear ways some of the provisions of the Constitution were originally written, specifically:  commerce and taxing power.  According to Steve Simpson, these two powers are responsible for the tremendous growth that has taken place in government.

Non-delegation Doctrine Abused

Attributing to government control is the disregard for the doctrine of non-delegation — that one branch of government must not authorize another entity to exercise the power or function which it is constitutionally authorized to exercise itself.  It is explicit or implicit in all written constitutions that impose a strict structural separation of powers.  Only rarely has the Supreme Court invalidated laws as violations of the non-delegation doctrine. Exemplifying the Court’s legal reasoning on this matter, it ruled in the 1998 case Clinton v. City of New York that the Line Item Veto Act of 1996, which authorized the President to selectively void portions of appropriation bills, was a violation of the Presentment Clause, which sets forth the formalities governing the passage of legislation.  With Dodd-Frank, Congress abdicated its responsibility to set clear rules of the road. The legislation is complicated and contains substantial ambiguities, many of which will not be resolved until regulations are adopted, and even then, many questions are likely to persist that will require consultation with the staffs of the various agencies involved.

Simpson believes the entire regulatory system is unconstitutional. Even so, business groups are bracing for an onslaught of regulations.  With many unfinished policy goals and the midterm elections now in the past, the Obama administration is determined to complete a host of President Obama’s unfinished Businesses and interest group therefore act in self-defense against government and behave morally when fundamental power comes from government. The sugar industry was cited as the beneficiary of cronyism for many years.

 A Solution?  

Steve Simpson was at a loss to come up with a clear solution to counter the system of government that is in place, for It is the type of government we have. Businesses must defend their right to influence government for the right reasons.  Simpson spoke about the Koch brothers being vilified by Democrats as rich businessmen who fund Republicans.

It stands to reason that more government brings more cronyism, but how to untangle the mess that we have created?  Young people must be educated about the consequences of cronyism and how regulations stifle innovation.

About the ARI (Ryn Rand Institute), it is a nonprofit organization headquartered in Irvine, CA.  It works to introduce young people to Ayn Rand’s novels, to support scholarship and research based on her ideas, and to promote the principles of reason, rational self-interest, individual rights and laissez-faire capitalism to the widest possible audience. The Institute is named for novelist-philosopher Ayn Rand (1905 – 1982), who is best known for her novels The Fountainhead and Atlas Shrugged.  

The ARI on Tour event spotlighting Steve Simpson on Nov. 11 was the third of ten scheduled ARI on Tour events that will take place in Chicago during 2014 -2015.  The first event was held in September, with the final tour event scheduled for June, 2015.  December’s event will feature Onkar Ghate. His topic: Religion vs. Freedom.

In promoting its mantra of a free society, the monthly ARI on tour events are likewise presented at venues in Irvine, CA; New York, New York; and Palo Alto and San Francisco, CA.  Steve Simpson is just one of many experts at ARI who advocate ideas and principles that will place this nation on the road to a free society through engaging Americans across the country to help change the direction of this nation and its culture.  Tour information can be found here.

John Tillman, CEO of The Illinois Policy Institute, welcomed economist Don Boudreaux to Chicago on Thursday, January 23, as the first speaker of its Liberty Speakers Series scheduled for the first half of 2014. Visit to see the full lineup of speakers and how to RSVP.

Tillman heard Boudreaux speak 10 years ago at an event in Canada, at which time Boudreaux made a powerful impression on Tillman when speaking about liberty. It was this encounter after 10 years had elapsed that prompted Tillman to invite Don Boudreaux to speak on this topic: “What’s in a wage? Why income doesn’t tell the whole story.”

Introduced by John Tillman, Boudreaux is a senior fellow at the Mercatus Center and a professor of economics and former economics department chairman at George Mason University. He holds the Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus. His specialization is globalization and trade, law and economics and antitrust economics.

Mr. Boudreaux writes the blog Cafe Hayek ( with Russell Roberts and pens a regular column on economics for the Pittsburgh Tribune-Review. Out of Boudreaux’s blog posts at Cafe Havek evolved his 2012 book: Hypocrits & Half-Wits: A Daily Dose of Sanity from Café Hayek. Boudreaux has appeared numerous times on John Stossel’s Fox show to discuss a range of economic issues.

Don Boudreaux in public has criticized Noble Laureate Economist Paul Krugman, stating that Krugman frequently ‘commits elementary errors’ when discussing economics. Boudreaux is recognized as a libertarian.

Following the impressive introductory remarks by John Tillman, Mr. Boudreaux discussed how the quantities and qualities of what ordinary Americans consume are closer to rich Americans than they were in past decades, further explaining what that phenomena means for real inequality in America today. Boudreaux’s premise: America’s middle class has not stagnated economically since the 1970’s.

Mr. Boudreaux disagrees with President Obama’s intent to make income inequality into a political issue, believing as the president does that income inequality has declined in America with the rich benefiting the most. But given that an item’s performance is far superior to the 70’s product and at a lesser cost, quality of life has improved for the poor and middle class since the ’70’s.

Four years ago Robert Reich, Clinton’s Labor Secretary, made this not uncommon statement that dovetails with President Obama’s embrace of income inequality that calls for wealth redistribution.

After three decades of flat wages during which almost all the gains of growth have gone to the very top, the middle class no longer has the buying power to keep the economy going.

Using a Chicago connection, Don Boudreaux through a slide presentation displayed pages randomly chosen from a 1975 Sears catalog showing an item relative to cost and the number of hours needed to purchase that item in terms of 1975 work hours, followed by a comparable item and its cost to purchase relative to work hours needed in 2014. (Note: Mr. Boudreaux purchased the 1975 Sears catalog off Amazon for $.05 cents, but bemoaned how overnight shipping of the catalog set him back $40 plus dollars.)

Items chosen randomly by Boudreaux for comparing work hours needed to purchase an item in 1975 in contrast to a similar item purchased in 2013:

Exercise Machine: 15.8 work hours to buy in 1975 at $74.95. 5.4 work hours to purchase a finer and more streamlined exercise machine in 2013.

Four drawer metal filing cabinet: 44 work hours to buy in 1975 at $207.95. Only one fourth of the time (11 hours) needed in 2013.

Microwave Oven: 93 work hours to buy in 1975 at $440. A similar size would require 4 hours of work time in 2013.

Color TV: 158.6 hours or nearly a month of work hours in 1975 at $749.95 for the best TV available, but with no remote and only 4 channels. 17.1 hours of work time in 2013, remotes are now standard and there are an array of channels and other perks built into the set.

Notable is that no item was more expensive today to purchase than it was in 1975, even adjusted for inflation.

Not only do the middle class live better today, but the poor — using the criteria of whether a household has a dishwasher, central air conditioner, colored TV, a stove, and a refrigeration to assess judgment — likewise do. Mr. Boudreaux found that in comparing All households in 1971, Poor Households in 1984, and Poor households in 2005, that poor households in 2005 had more of the 6 criteria items than all households did in 1971.

Mr. Boudreaux did admit that the Consumer Price Index average wage when adjusted for inflation has remained about the same for non-supervisory wages since at least 1964, the first year the BLS started its record keeping.

Boudreaux then proceeded to present three reasons why measurement of wages doesn’t necessarily support a narrative of middle-class stagnation or a lone basis on which to judge the living standards of the American people.

1. Consider the improvement in product quality and variety available today at less cost.

2. Consider the rise over the past few decades in the portion of worker pay taken as (nontaxable) fringe benefits.

3. Consider how over the past three decades the average wage has been held down but the great increase of women and immigrants into the workforce. While lesser-skilled workers entering the workforce in any given year were paid wages lower than the average, the measured statistic of “average hourly wage” has remained unchanged or stagnant over the years, even though real wages of actual flesh-and-blood workers employed in any given year rose. In the same article, The Myth of a Stagnant Middle Class, published in the Wall Street Journal on January 23, 2013, Don Boudreaux wrote:

According to the Bureau of Economic Analysis, spending by households on many of life’s “basics” — food at home, automobiles, clothing and footwear, household furnishing and equipment, and housing and utilities — fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.

Why do people perceive themselves to be worse off, when what ordinary Americans consume is closer to that of rich Americans (consider the same electronic products used by both), and that it’s unlikely that an average American would trade his wages and benefits in 2013 for the same real wages with lower fringe benefits, higher prices, a limited selection, and inferior products to those available in the 19450s or 1970’s?

According to Don Boudreaux: Many of the improvement made in products are so small that they are masked in the largeness of numbers. Consider the bag of celery which in 70’s didn’t have a top that could be resealed for freshness. Then too, what we hear influences thinking. Being told that stagnation is present by our politicians and through the media, people just accept and believe. It matters not that facts to counter such thinking are staring them in the face.

In closing Mr. Boudreaux noted his second Chicago connection, the just announced decision to shutter the Sears store in the Loop, after which John Tillman presented Don Boudreaux with a pen to honor his participation in the Illinois Policy Institute Liberty Speaker Series for 2014. Tillman joked how Boudreaux would have to present three lectures to earn the pen.

John Tillman, as CEO of the Illinois Policy Institute, expressed excitement about 2014, ( calling it a pivotal year. Believing as Tillman does that free enterprise is the greatest force for good, this force can work to help lift up the poor and the disadvantaged.

Tillman described his positive outlook for Illinois in terms of the fall of the Berlin Wall in September, 1988. It was the general consensus that the wall would never come down; however, things were already in motion to make it happen prior to the fall of the wall.

To paraphrase Tillman, there are similar undercurrents present in Illinois. Even Speaker Mike Madigan is sensing that change. Republicans must seize the moral high ground in making the argument about the far reaching tentacles of liberty. Tillman asked for our help to possibly make Illinois the biggest story in this November’s election.