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  The problems of crony statism and moral hazard

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PostSubject: The problems of crony statism and moral hazard     The problems of crony statism and moral hazard  Icon_minitimeWed Apr 01, 2020 3:06 am

After the 2008 financial meltdown, President George W. Bush signed the Troubled Asset Relief Program, which authorized the federal government to spend up to $700 billion to buy troubled assets that were at the heart of the mortgage crisis. The Obama administration followed up in 2010 with an $840 billion economic recovery act — measures that amounted to the largest “stimulus” packages in United States history since the New Deal.

Fuck D Govt

These federal bailouts have come to epitomize the disparaging term “crony capitalism.” Unlike real capitalism, where businesses reap rewards and suffer the consequences of their own decisions (as well as the normal uncertainties of the marketplace), the “crony” variety parcels out financial rewards based on political influence.

Those bailouts were defended as a necessary evil as the nation endured an unprecedented mess. As Bush famously said, “I’ve abandoned free market principles to save the free market system.” His words have been roundly derided in the ensuing years, with most conservatives arguing it would have been better to have let the market sort things mostly on its own.

Here we are again, with another “unprecedented” crisis as the coronavirus has driven the economy toward a standstill. Congress passed a $2 trillion spending package with members of both parties — including Republicans who long derided Obama-era bailouts — signing on to the expenditure. Apparently, conservatives believe in capitalism, but only until there’s a crisis that leads to economic uncertainty. The GOP president signed the bill.

Although the direct payments of up to $1,200 for each American are less than ideal, they at least are understandable. Government-mandated stay-at-home orders and business closures are leaving many Americans without a means to earn a living. We’re sympathetic to the view that some of this assistance is more akin to government compensating for a “taking” than a traditional bailout.

But the bill is filled with measures that can best be described as crony capitalism. It’s packed with corporate welfare and funds for government agencies. For instance, it provides $25 billion in grants to the airlines along with another $29 billion in loan guarantees. It provides $340 billion in loans and investments for states and municipalities, and a total of $500 billion for businesses.

The bill also will allow the Federal Reserve to issue massive, leveraged loans. It’s the proverbial Christmas tree, filled with ornaments for everyone.

Crises are never a good time for thoughtful policymaking or wise spending decisions. Indeed, when Rep. Thomas Massie, a libertarian-oriented Republican from Kentucky, caused short delays by demanding a roll-call vote, he was savaged by the president and prominent Democrats. The pressure to “do something” usually wins the day.

The main ramification of the spending package is obvious. The federal government already is sinking in deficits and debt, and $2 trillion will compound this long-term problem (and lead to inflation).

The bigger hazard — and one that speaks to the flaw in crony capitalism — was made by author Kristin Tate: “The long-lasting effects of such a rapid, throw-it-at-the-wall-and-see-what-sticks bill … will set a new paradigm every time a disaster occurs.”

In other words, companies know that taxpayers always will bail them out any time something bad happens and will behave accordingly.

https://www.dailybreeze.com/2020/03/31/the-problems-of-crony-capitalism-and-moral-hazard/
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