David R. Henderson  

Bribe Bully Beg Borrow Steal

What's so bad about sugar?... Rejoinder on UBI...

That's the title Reason gave to my cover story in the March issue.

An excerpt:

"Donald Trump's Carrier Deal is Pure Crony Capitalism," read the headline of a Newsweek op-ed by American Enterprise Institute fellow Claude Barfield. Trump supporter Sarah Palin denounced the deal as "crony capitalism," too, insisting in a op-ed of her own that "intrusion using a stick or carrot to bribe or force one individual business to do what politicians insist...isn't the answer." Certainly they had a basis for that reaction, especially after Vice President-elect Mike Pence's statement that "the free market has been sorting it out and America's been losing."

But a closer look reveals Trump's up to something a little different, and potentially more damaging. His actions will almost certainly lead to more cronyism than we have now. But his behavior in the Carrier case looks more like President John F. Kennedy's treatment of U.S. Steel in the early 1960s and President Barack Obama's treatment of General Motors and Chrysler bondholders in 2009. And it has disturbing implications both for our economic well-being and for our freedom.

Another excerpt:
Someone who doesn't worry about the implications of Trump's actions but instead actually likes them is Steve Pearlstein, a columnist for The Washington Post and a professor of political and international affairs at George Mason University. In a Post column titled "Donald Trump's Carrier deal could make American capitalism better," Pearlstein writes: "[Trump] knows that he and his new commerce secretary will have to engage in a few more bouts of well-publicized arm twisting before the message finally sinks in in the C-Suite. He may even have to make an example of a runaway company by sending in the tax auditors or the OSHA inspectors or cancelling a big government contract. It won't matter that, two years later, these highly publicized retaliations are thrown out by a federal judge somewhere. Most companies won't want to risk such threats to their 'brands.' They will find a way to conform to the new norm."

In his 1944 classic, The Road to Serfdom, economist Friedrich Hayek wrote eloquently about the danger to people of accumulations of government power: "As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power." Larry Summers, drawing on his inner Hayek, actually said it well also. "Reliance on rules and law has enormous advantages," he writes. "It greatly increases predictability and reduces uncertainty. It reduces expenditures on both guarding property and seeking to appropriate property. It promotes freedom because most of the people most of the time do not take political positions with a view to gaining commercial advantage. The advantages of the rule of law are so great that I would claim that there is no country more than 2/3 as rich as the United States that does not have a strong tradition of the rule of law based capitalism. And I know of no country where the people are free where the rule of law does not largely govern market interactions."

Comments and Sharing

COMMENTS (5 to date)
Tom G. Palmer writes:

Quite on target. This essay and my response (and others to come) also deal with these issues: http://www.libertylawsite.org/liberty-forum/he-tried-to-warn-us/

Thaomas writes:

If lots of corporate boards decided that investing more in the US and/or paying their low wage employees more, that would be dandy. I do not think that will be the result of President Trump's case-by case intervention.

Philo writes:


Why think "that would be dandy" on the whole? Any decision by a corporate board or any other controller of wealth about how to deploy his/its wealth will be good for somebody and bad for somebody else (compared with the alternative decision[s] that might have been made). But how would the particular decisions you mention (more investment in the U.S., higher pay for unskilled workers) actually add up compared with the alternatives? (For that matter, how do they add up compared with each other?)

TMC writes:

Trump should not get involved company by company, but I do remember Carrier said a big part of the decision was Trumps promise to limit regulation. Their complaint was 50 new regulations can cost millions of dollars a piece, but contributed nothing to safety. Repealing just those would offset the savings of moving to Mexico. I doubt he removes them just for Carrier, all companies will benefit, so I would not call this crony capitalism.

David R. Henderson writes:

What Philo said.
Trump should not get involved company by company,
I agree.
but I do remember Carrier said a big part of the decision was Trumps promise to limit regulation.
I recall that too. More telling, though, was this from my article:
What is not hypothetical is United Technologies CEO Greg Hayes' comment to Mad Money host Jim Cramer: "I was born at night, but it wasn't last night. I also know that about 10 percent of our revenue comes from the U.S. government.”
I would not call this crony capitalism.
Nor would I. Nor did I. Indeed, that’s one of the major points of my article.

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