The Age of Crony Capitalism, Lecture 1 - Robert Batemarco


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The Age of Crony Capitalism, Lecture 1 - Robert Batemarco

  1. 1. The Age of Crony Capitalism David Stockman and Crony Capitalism: An Overview Dr. Robert Batemarco, Fordham University Mises Academy, November 12, 2013
  2. 2. This Week’s Readings 1. The Age of Crony Capitalism (Sundown in America: The Keynesian State-Wreck Ahead on or , October 7, 2013 2. My review of the Stockman book at detail/the-great-deformation-the-corruption-of-capitalism-inamerica#axzz2k4mPcPEf, October 3, 2013
  3. 3. Crony Capitalism in a Nutshell "The proposal is frequently made that the government ought to assume the risks that are 'too great for private industry.' This means that bureaucrats should be permitted to take risks with the tax payers' money that no one is willing to take with his own. Such a policy would lead to evils of many different kinds. It would lead to favoritism: to the making of loans to friends, or in return for bribes. It would inevitably lead to scandals. It would lead to recriminations whenever the taxpayers' money was thrown away on enterprises that failed. It would increase the demand for socialism: for, it would properly be asked, if the government is going to bear the risks, why should it not also get the profits? What justification could there possibly be, in fact, for asking the taxpayers to take the risks while permitting private capitalists to keep the profits?“ Henry Hazlitt, Economics in One Lesson
  4. 4. A Case of Mistaken Identity  Free Market Capitalism – a profit and loss system ̶ Losses are painful but necessary  Crony Capitalism – a private profit and public loss system ̶ Only the well connected, i.e., the cronies of those in power are shielded from their losses.
  5. 5. Crony Capitalism’s Long and Dishonorable History  Rothbard in Anatomy of the State, shows how crony capitalism (“creation of vested interests”) is one way the state maintains power.  Mercantilism was a crony capitalist system. Cronies of those with power in government would try to block innovations that threatened their interests. ̶ Controlling them helped spark the Industrial Revolution in UK – as opposed to government-backed guilds on the continent  US – economic nationalism – Henry Clay’s American System  Progressives brought it back with a vengeance ̶ Control of monetary system ̶ Proliferation of laws that could be selectively enforced ̶ Regulatory capture ̶ Military industrial complex ̶ Dealing with crises
  6. 6. Stockman’s Morality Tale  Crony capitalism in Stockman’s telling revolves around money, specifically easy money. ̶ Easy money is a fertile field in which crony capitalism can thrive. ̶ To understand crony capitalism, we need to understand the monetary environment that facilitates its most recent manifestations.  Stockman explicitly rejects Keynesian and monetarist views of money. ̶ Both see money as a policy tool.  He implicitly seems to accept the Austrian view of money. ̶ A creation of the market ̶ Capable of generating cycles and bubbles
  7. 7. What’s a Morality Tale Without Heroes and Villains?  There are a lot more villains than heroes and the heroes had a lot of flaws.  Heroes ̶ Carter Glass ̶ Henry Morgenthau ̶ Harry Truman ̶ Dwight Eisenhower ̶ William McChesney Martin ̶ Paul Volcker ̶ Sheila Bair
  8. 8. What’s a Morality Tale Without Heroes and Villains?  There are so many villains we might as well list them by class:  Academics  Politicians/Central Bankers ̶ ̶ John Maynard Keynes ̶ Irving Fisher ̶ Milton Friedman ̶ George Warren ̶ The “New “ Economists ̶ Walter Heller ̶ ̶ James Tobin ̶ ̶ Gardner Ackley ̶ ̶ ̶ ̶ ̶ ̶ ̶ ̶ Franklin Roosevelt Arthur Burns Lyndon Johnson Richard Nixon John Connally George Schultz Caspar Weinberger Alan Greenspan George W. Bush Ben Bernanke Henry Paulson  Businessmen ̶ ̶ ̶ Leo Melamed John Mack Jeff Immelt