More on the Irony of Liberalism — 24 October 2011

Last week, I discussed the irony of liberal, activist government: that at the same time as it claims to defend ordinary citizens against the predations of large private corporations, it develops a symbiotic closeness with the very same corporations by virtue of its spending and regulating ambitions.

When the government wallet is open, companies by the hundred flock to Washington to get their hands on some.  And despite the progressive complaint against lobbyists, the very fire hose of federal cash flow guarantees that they will be there trying to get it aimed at their clients.  And in fairness, how otherwise would bureaucrats decide where it goes?

In the same vein, there is mutual benefit in regulators becoming close to the companies they regulate.  Regulators get help with the expertise to set rules appropriately (for example, the rule-makers attempting to put the “Volcker rule” element of Dodd-Frank financial regulation into words have recently published a 298-page document asking 1347 questions of industry about how they should do it).  For their part, the companies who have access to rule-makers get to help craft the rules in a way that suits them and prejudices their competitors.

These symbioses are not healthy, but they are inevitable when the government is such a large factor in every business’s economic environment.  But the implications of these relationships is not just unhealthy, they are downright pathological.

Take waste.  When a government – particularly one as ideologically committed as this one – decides to foster a “clean energy” industry or something similar, hundreds of millions of taxpayer dollars are shoveled out the door on dubious projects such as the loan to Solyndra.  Remember that these loans are only necessary because private financing is not available; in other words, the taxpayer is taking risks in funding these projects that a private banker or venture capitalist would not.  And instead of earning a return high enough to compensate for that risk, the government lends at below-market rates to favored companies.  In business, this is known as giving money away.

Then there is the corruption.  It remains to be seen whether the Solyndra loan in particular was the result of insider dealing between fundraisers and the Executive Branch, but it is inevitable that with so many big-dollar decisions being made for political rather than profit-making reasons, a little quid pro quo is going on.

It may not all be brazen payoffs, as in suitcases full of cash; more subtle offers and paybacks occur.  For example, seven states and 1,372 businesses, unions and other organizations have received waivers excusing them from certain parts of Obamacare.  Of the waivers granted so far, over 50% of the beneficiaries have been union members, even though unions represent only 12% of the country’s workforce.  Is this favoritism?  Quiet payback for the hard work of union foot soldiers in recent elections?  So far there has been no formalized accounting of how and why waivers are granted to some and denied to others.  (But can anyone doubt for a minute that if similar percentages applied to white versus black beneficiaries of some corporate program it would be taken as prima facie evidence of racism?)

The existence of favoritism and corruption in government spending and rule-making erodes the rule of law, and fosters the belief that the path to success is access to this or that official.  This only increases the pressure for lobbying and favor-trading, and contributes to the alienation of the vast numbers of citizens who are not part of the deal-making.  In China, which has a highly centralized economy and no democratic means of replacing top leaders, corruption is a huge problem – and the same reasons apply, albeit less dramatically, here.

In addition to the social pathologies of waste, corruption and favoritism, add the fact that the regulatory state crushes innovation.  There is no better example of this than the Congressional hearings into possibly monopolistic practices by Google.  Remember that anti-trust laws were written in the now-distant past to protect consumers from price gouging by monopolists.  Remember, too, that Google’s product is given away for free.  And yet, for some reason, Google’s success is something worth investigating.  Meanwhile, Google’s dominance is threatened by alternative sources of connection like Facebook.  Congress is looking in the wrong direction.

Andy Grove said it best:  “High tech runs three times faster than normal businesses. And the government runs three times slower than normal businesses. So we have a nine-times gap.”  Take it as a given that any time the government seeks to control or regulate some aspect of the economy, they are not only slowing down growth and opportunity, they are preserving a status quo that a freer market would disrupt and reform.

As I said last week, liberals seem to think that government is the answer to an unfettered capitalism that left alone would collude and corrupt to exploit defenseless ordinary folks.  Barack Obama says as much on the stump these days: Republicans who don’t like his regulatory, high-spending style of governance are in favor of “dirty air, dirty water, fewer people with health care.”  As if the slightest roll-back of his regulatory onslaught would set the Cuyahoga River aflame once again.

But in truth, Obama’s style of activist government is clumsy, wasteful, prone to favoritism and corruption, and it cozies up to large corporations to defend the status quo when it sets rules for the economy.  All of that slows economic growth, stifles innovation, and keeps people out of work.  Not exactly what you want from a government that claims to care for the struggling middle class.


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