Ending Government Cronyism

by | Dec 7, 2016

Cronyism is what happens when government interferes in the economy.

We hear a lot about “cronyism” or “crony capitalism.” Many say Donald Trump was sent to Washington to end cronyism as we know it. But what IS cronyism? Without a definition, you’ll never know what you have (or have not) defeated, or how to know it.

Cronyism is what happens when government interferes in the economy. The moment that the government regulates one industry, or imposes one “special” tax increase (or targeted tax cut/tax credit), is the moment you have government intervention in the economy. As we’ve seen over the decades, government intervention leads to still more and more government intervention. Eventually, you have a state of political civil war, a war of “all against all” where pull is king and where rights and the law matter less.

Ayn Rand summed it up well: “When government controls are introduced into a free economy, they create economic dislocations, hardships, and problems which, if the controls are not repealed, necessitate still further controls, which necessitate still further controls, etc. Thus a chain reaction is set up: the victimized groups seek redress by imposing controls on the profiteering groups, who retaliate in the same manner, on an ever widening scale.”

A lot of people who oppose cronyism do not understand what it is. Instead, they oppose cronyism when it clashes with what they see as their interests. Consider Trump’s proposal to more heavily tax companies who hire employees in foreign countries. This isn’t “pro-America.” It’s pro-some Americans. You’re not “helping the U.S.” by doing what Trump proposes when he threatens to penalize companies who hire employees overseas. You’re violating the rights of one group — consumers who want to buy that company’s cheaper products — for the sake of companies who would rather not compete with these lower prices, or employees who feel entitled to keep their jobs even if the market no longer requires them. This is just cronyism with different cronies pulling the strings.

There’s only one way to get rid of cronyism: Get rid of government intervention in the marketplace. I don’t mean anarchy; I simply mean a government that stays completely out of private enterprise, aside from upholding property rights and contracts. This will only come from reducing and ultimately eliminating all subsidies, regulations and even taxes, at least taxes other than those minimally required for the maintenance of a minimal federal government to protect citizens from the initiation of force and fraud.

When you hear the word “cronyism,” don’t just think of some Establishment politician. Think of government rules, regulations and policies which lead to the often perfectly reasonable and necessary need to acquire and utilize pull at the state or federal seat of government. Basically, two types of people want to use pull: Those seeking the unearned, and those seeking to get back what was wrongly taken from them. Not all pull is bad and wrong, because some of it actually involves an attempt at justice.

None of us living today have ever seen a fully free economy. There never has been an economy completely free of government control, other than when the United States came close to one throughout the nineteenth and early twentieth centuries. These periods were, not surprisingly, the eras of greatest invention and economic expansion human history has ever seen, by far. The world would do well to go back to that time. Our wars and immigration battles would evaporate.

Because most of us cannot easily visualize a world without so much government regulation and wealth-redistributing taxation, it’s likewise difficult to visualize a world without pull. But it’s actually quite possible. We won’t get there by replacing one form of pull with another. We’ll only get there by doing what the other half of Donald Trump’s platform proposes: cutting taxes, cutting government spending, and cutting government regulations. Here’s hoping he does it.

Dr. Michael Hurd is a psychotherapist, columnist and author of "Bad Therapy, Good Therapy (And How to Tell the Difference)" and "Grow Up America!" Visit his website at: www.DrHurd.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

2 Comments

  1. If the U.S. starts turning toward laissez-faire and keeps going until it gets there, 100%, would manufacturing still keep locating abroad for cheaper labor? Would labor abroad actually be cheaper?

    In any event, the U.S. should become 100% laissez-faire on principle. Everything, in turn, would work out much better. I’m just wondering if labor abroad would still be cheaper, attracting manufacturing from the U.S. Mike Kevitt

  2. “The first economic harmony that Bastiat illustrated was the idea that, as the capital employed in a nation increases, the share of the resulting production going to the workers tends to increase both in percentage and in total amount. The share going to the owners of the capital tends to increase in total amount but to decrease percentagewise. Bastiat used hypothetical figures merely to indicate the direction of this relationship that occurs when capital accumulation increases, with its resulting increase in production.
    Distribution of Shares of Increased Production
    To Owners To Employees
    Total Units Per Cent Units Per Cent Units
    When total national product is 50 20 10 80 40
    When total national product is 75 15 12 85 63
    When total national product is 100 14 14 86 86
    I.6
    That theory was offered to refute the gloomy “iron law of wages” advanced by Ricardo, as well as Malthus’ equally horrible prediction that an increasing population must necessarily face starvation. Bastiat recognized the fact that, in this division of national income, the amounts and percentages going to capital and labor would, for a variety of reasons, vary widely from industry to industry, from country to country, and from time to time. But he was quite positive that the tendency would be in the direction indicated by his figures for the nation that encourages the private accumulation of capital.
    I.7
    This trend that Bastiat predicted in the division of the total production of the nation is just what did happen under increased capital formation in the United States and other countries that more or less follow the concepts of a market economy.”
    Mike, this is from the preface to Bastiat’s economic harmonies at bastiat . org. I think the answer to your question is that countries with lower current wages are those with less capital invested per unit worker, but that over time *in a free market* the above process would take place and things would even out, as it were. Eventually, general quality of labor, shipping costs, tax rates, etc. would become more influential factors in where a particular company chose to employ people.
    A somewhat unrelated bit: The concept shown here by bastiat supports the idea of increasing wealth for the employed workers over time (real increase in purchasing power.) Now, for political reasons many on the left (and right for that matter) have suggested this doesn’t happen and have even coined the phrase “trickle down,” to deride the idea. I contend that some of those who used the phrase ‘trickle down’ were stealing far more than the trickle. The natural process in a free market would have greatly increased the wealth of workers in the US, but multiple methods were used to steal that wealth gain. One obvious one is via the inflation by the fed, another is via corporate taxes /fees that, in reality, consumers pay in the form of higher prices. A great economics doctoral dissertation would be on where the trickle went…. I think you would find that there was a diversion, not of a trickle, but a veritable cataract.

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