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Cronyism: A Problem Beyond Ideology

By: Fergus Hodgson - @FergHodgson - Jun 30, 2013, 3:54 pm

When I worked as a reporter in New Orleans during the aftermath of the 2010 Deep Horizon oil spill, I came across more than a few outspoken communists. They were down in the city protesting the actions of BP (pictured), and some of them befriended me.

Rally-in-NOLADespite disagreements on ideology and economics, these individuals were happy to speak with me and give quotes for my reporting work. They even helped me with an inside scoop on the platform of the Revolutionary Communist Party USA.

One sentiment that remains clear in my mind was the way they laughed at the notion that President Barack Obama was a socialist. (They appeared to use the terms “socialist” and “communist” interchangeably, including in their manifesto.) Although every man and his dog seems to give Obama the label, these true believers thought such a notion was preposterous.

One explained that Obama had overseen bailouts of the financial sector, along with myriad other sweetheart deals for various industries. They saw this cronyism as a redistribution of wealth away from the working class to the “capitalist class” and directly contrary to their goals.

They made me realize that cronyism — a system of privileges that undermines free enterprise and equality under the law — does not find justification in any ideology. Certainly, both classical liberalism and libertarianism also have no place for monopolies, subsidies, loan guarantees, tax privileges, or any other such favor. Rather, these policies find passage because many people profit from them, plain and simple. And those people will lobby for and defend them with deceit — that’s all they have — because they want to keep the gravy train rolling.

Consider the supposed safety net of subsidies for poor farmers. Just 10 percent of U.S. farms collect 74 percent of subsidies, while 62 percent of farms receive nothing. To rub salt into the wound, the average household income of farms receiving $30,000 or more of subsidies in 2008 was $210,000 (p.10).

The best research overview of cronyism that I know of is from Matthew Mitchell, a senior research fellow at the Mercatus Center at George Mason University. In “The Pathology of Privilege,” he explains the economic consequences and, with painful anecdotes, the enormous scope of favoritism in the United States.

My pet peeve would have to be the United States Postal Service monopoly. Although it is supposedly a “semi-independent agency,” federal laws do not permit other carriers to deliver non-urgent letters or use your mailbox. USPS is also exempt from all taxation and local zoning laws, yet they have managed to lose more than $5 billion in just three months and are on track to lose more than $15 billion this fiscal year.

Mitchell explains:

Government-granted privileges are pathological… They raise prices, lower quality, and discourage innovation. They pad the pockets of the wealthy and well-connected at the expense of the poor and unknown… Privileges depress long-run economic growth and threaten short-run macroeconomic stability. They even undermine cultural mores… blurring the distinction between productive and unproductive entrepreneurship, and eroding people’s trust in both business and government.

While I don’t see the lobbied interests going away anytime soon, I hope their self-serving hyperbole, echoed by politicians, falls on more deaf ears — that people will know better.

This article first appeared in Ferg’s Fiscal Insight.

Fergus Hodgson Fergus Hodgson

Fergus Hodgson was the founding editor in chief of the PanAm Post, up until January 2016, and he now studies finance at Tulane University in Louisiana and Francisco Marroquín University in Guatemala. Originally from New Zealand, he has also lived in Argentina, Canada, Colombia, Ecuador, Ireland, and the United States. Follow @FergHodgson and his Facebook page.