Crony Capitalism Part Two

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In an interesting and informative article, fellow WB writer Ari Silverstein wrote an article on “Crony Capitalism.” The debate was informed and vigorous, not including, of course, the usual trolls who cannot accept any facts that didn’t come from some recent internet genius who has redefined all knowledge and insisted that the classically trained people who cited “The Wealth of Nations” as being archaic and behind the times. Likewise for those of us who read Keynes, Samuelson, Friedman, et. al. We’re just duped morons stuck in the past while the brilliant “new thinkers” of the internet rewrite history, economics, political science, psychology, sociology and other areas strongly influenced by their ideology and rationalizing their positions by insisting everything written before was ideologically driven and we just don’t recognize it. Any respectable professor would, after the hysterical laughter died down, tell them to stop trying to cite “facts” created by people with sketchy credentials and agendas they aren’t willing to admit to having. Feel free to quote this first paragraph and point out any flaws, but people like Smith, Friedman, Keynes, Samuelson and others weren’t reprinted because their ideological positions prevailed, they were reprinted because they made sense and their theories had validity. On to crony capitalism.

One point missed by seemingly everyone was one of the more elitist things that crony capitalists do, and because they do it, they are no longer capitalists. Aside from insider tips that yield millions (yes, those of you who wish, please come on and defend those criminals and insist that every time it happens it is an “isolated incident”) and bailing each other out, like the bailing out of Brian Hunter described in my article “A Face and Name to Free Market Corruption,” they practice “crony elitism.” To describe the elite cronies as capitalist would be a description they not only do not deserve but would be an insult to people who actually are capitalists.

What I am talking about is the cronyism that they share with each other and protect each other from things like competition and free markets. From a personal perspective, I was working (temp job, like so many of the jobs in this economy) with a firm that needed something done rather quickly locally. When the job crossed my desk, I called a friend of the family and had the issue resolved in a matter of minutes. My millennial boss was rather upset, because he was supposed to slave over the problem for hours and prove what an exceptional manager he was by resolving it. The firm the friend of the family owned gave no discounts, it was just a specialty of their company and they addressed the problem quickly and easily. All of this, of course, generated only resentment from my millennial boss, but that’s another essay.

The reason for the Sherman Antitrust Act was because in the late 19th century there were things called trusts that controlled businesses with interlocking directorates. I won’t debate the value of the Sherman Antitrust Act; it was enacted because people who were elitists who insisted that they were capitalists were defying the ideals of free markets and just making deals between themselves and leaving everyone else out of the loop, as well as the country club and all of the other elitist organizations to which they belonged.

The “crony capitalists” don’t believe in free markets when they have favorite friendly firms to which they will direct all commerce. They even take the bids of many companies, all of which have no chance because the deal has already been struck, and the schmucks who are bidding and think they have a chance are just laughed at as fools. Capitalism to the people who believe in it is great, but to the elites it does not apply. As mentioned, the elites take open bids, but the decision has already been made; the contract or the work is going to a friend of theirs, another elitist. They have wonderful things to say about the free market, none of which applies to them or their cronies. They advise of takeovers and buyouts months or even years in advance, thus having too much time for the SEC (Securities and Exchange Commission) to have any case. They hire the people they know, even though they advertise open positions that aren’t really open, they just say it is, like the work they take open bids on. The game is rigged, boys and girls, and to no one’s surprise certain people always win. They are the elites, and they deserve it. They hire their friend’s scions because they went to the same selective schools, as did their father and their father, and on and on. They love capitalism, especially when free markets and competition mean nothing because they have the power to set prices, choose who will work for them and with them, and know that capitalism is just a façade that they use to gain more wealth. These elites are the other side of crony capitalism, the elite cronies to whom free markets mean nothing, nor does competition.

They aren’t capitalists, and never were, they’re the elites who obtain wealth not through competition, or by what they know, their fate is determined by who they know and nothing more. There are names that I could name here, but I’ll leave that to the commentators.  Ari, there is another side to the crony capitalists, and they are the cronies who protect each other’s wealth at the expense of Joe Sixpack. When what you know and what you have experienced mean nothing and someone gets the inside on the job that has nowhere near the education or experience you have, think of this article and the descriptions made here. Competition is great, but it’s harsh, competitive, and, gasp! you might even lose. Better to be an elite who has the red carpet stretched out several miles in front of them, with competition just another lip service phrase to disguise and justify how you screw Joe Sixpack. They aren’t capitalists, and haven’t been for several generations.

 

Comments

Dino Manalis Added May 27, 2017 - 5:30pm
We need competition and free markets to limit monopolies and reduce prices for consumers!
Jeff Jackson Added May 27, 2017 - 5:37pm
Yes Dino, and the crony elites are not part of the free market. Competition and free markets are lip service to them.
John G Added May 27, 2017 - 5:56pm
You falsely assume that capitalism is about free markets and competition.
It is not. It is about the accumulation of financial wealth in the hands of the capitalist class.
What you mislabel as 'crony capitalism' is merely capitalism.
Quite why you find macroeconomic reality offensive is a mystery.
Samuelson thought that the reality of modern monetary systems was too dangerous to teach to the public and the political class.
Thomas Sutrina Added May 27, 2017 - 6:55pm
Great Article Jeff.  Suggestion save as a draft and then edit to get an idea what the final product will look like.
 
Capitalism true enough is about the accumulation of wealth.  With this definition very one is a capitalist.  If I rob someone I am a capitalist because by your definition how you obtain wealth is not important.   
 
Generally capitalism is associated with a market place where manufactures and customers make choices.  The free state of the market varies. We may agree that Venezuela today does not have a free market or a capitalist economy.   Prior to Chavez it had a semi-free market which was skewed by capitalist. 
George N Romey Added May 27, 2017 - 6:58pm
The allegedly free market would never want free market.  Most of this started with the relaxation of anti trust. Once companies become big enough they can push out smaller competitors and buy influence.
Thomas Sutrina Added May 27, 2017 - 7:22pm
The economist you cited are also not equal.  Some of the theories when compared to the actual outcome when applied have performed much worse then others.  Keynes I my opinion is the biggest failure.
 
Many believe the FDR applied Keynes theory.  This may be just a lucky happening or rather a misfortune happening for the citizens of America.   The 1944 State of the Union Speech gives us a better view of what happened.  Unlike the Bill of Right FDR never planed to amend the Constitution but chose to use Fabian Socialism approach of changing the government to Socialism from within.
https://www.nolanchart.com/article4425-a-fabian-socialist-dream-come-true-html
 
http://www.breitbart.com/big-government/2010/05/22/whittaker-chambers-the-new-deal-as-revolution/
Marx used socialism and communism interchangeably because communism is an armed revolution approach to achieve a socialist government: USSR, Communist China, Cuba, etc.  
 
 
The Democratic party has been working on FDR's Bill of Rights ever since.  LBJ and Obama have been the most successful.  That is if Obama's achievement do not receive the response that Wilson.  Wilson however with the help of the Teddy Roosevelt wing achieve the end of Federalism and a funding means with the 16th and 17th amendments.
http://www.forbes.com/2008/11/03/obama-fabian-socialist-oped-cx_jb_1103bowyer.html
 
 
Another one for the economist you presented said this about the great depression: https://mises.org/library/friedman-government-intervention-case-great-depression
https://fee.org/articles/the-great-depression-according-to-milton-friedman/
Carpe Noctem: New Deal vs. Reaganomics vs. Obamanomics http://toseizethenight.blogspot.com/2011/06/new-deal-vs-reaganomics-v...
John G Added May 27, 2017 - 8:04pm
Keynes General Theory and Abber Lerner's functional finance brought the western world's greatest ever period of growth and social mobility until big business unleashed their charlatan Friedman and his Chicago School cronies on the world.
The result is persistently high unemployment, low growth, historical wealth and income imbalances and worsening cyclical recessions and depressions.
Keynesian demand management was incredibly successful. That's why the rich hate it and they condition their useful idiots to oppose it.
Doug Plumb Added May 27, 2017 - 10:11pm
There is Capitalism and free market capitalism. Free market is an ideology, people tend to deal with those they can already trust. But its more than just that in our modern crony capitalism with the banks who finance government privately. Until this is changed, nothing else will and those bankers like the pyramid the way it is.
John G Added May 27, 2017 - 10:35pm
Banks DO NOT finance the government.
Jeff Jackson Added May 27, 2017 - 10:43pm
The result is persistently high unemployment, low growth, historical wealth and income imbalances and worsening cyclical recessions and depressions.
Keynesian demand management was incredibly successful. That's why the rich hate it and they condition their useful idiots to oppose it.-
John G, that's that's the best explanation I've heard from you. Bravo!
Thomas Sutrina Added May 27, 2017 - 11:35pm
Let me pick the great depression and the first application of Keynes theory.  "Milton Friedman and Anna Jacobson Schwartz showed convincingly that the Federal Reserve’s monetary policies were largely to blame for the severity of the Great Depression."  The Federal Reserve is a political organization, part of government infrastructure. 
Classic reason, "Great Crash of October 1929. Investor speculations
were so excessive—so the story goes—that once the bubble popped, it triggered the most severe decline in economic activity in U.S. history. ... It is thus claimed that FDR’s policies were responsible not only for the recovery, but in fact for “saving capitalism from itself.” ... In the 1950s, Friedman and Anna Schwartz began compiling historical data on monetary variables without any particular agenda or intention of overturning the dominant explanation of the Great Depression. But it became obvious that the data were at odds with the standard Keynesian explanation.  ...  The stock-market crash of October 1929 made it more difficult for many businesses to repay their loans to the banks, and many banks found their balance sheets impaired as a result. But the most important cause of the bank runs that began in October 1930 was bad times in the farm belt, where the banks were especially weak and poorly diversified. The number of bank runs increased exponentially in December 1930—in that single month 352 banks failed. Most of the failing banks were in the Midwest ... From 1929 to 1933 it fell by 27 percent—for every $3 in circulation in 1929 (whether in currency
or deposits), only $2 was left in 1933. ... Friedman and Schwartz argued that all this was due to the Fed’s failure to carry out its assigned role as the lender of last resort. Rather than providing liquidity through loans, the Fed just watched as banks dropped
like flies, seemingly oblivious to the effect this would have on the money supply.  ... Fed officials may have been acting out of their own self-interest since many of them were affiliated with large Northeastern banks. Bank failures, at least in the early stages, “were concentrated among smaller banks ... important lesson to be learned from this episode: When we centralize great responsibility and power in one institution, its failure will have far-reaching and terrible consequences.The Fed was instituted to act decisively in the exact circumstances that occurred in 1930–33. ,,, The better explanation of the Great Depression revealed it was not caused by unfettered market forces.  There is nothing in the operation of free markets that would create depressions or even recessions. Rather, we now know that we must look for causes of these phenomena
in mismanaged and erroneous government policies." https://fee.org/articles/the-great-depression-according-to-milton-friedman/


 
Not this is in direct opposition of the Keynes theory.  The government in the theory always makes good decision and never bad ones.  The government is too big to make an error.
John G Added May 28, 2017 - 12:17am
There is nothing in the operation of free markets that would create depressions or even recessions.
That's just ludicrous dogma.
The government in the theory always makes good decision and never bad ones. 
You've just made that up out of the whole cloth. Keynes never said anything like that you liar.
 
Jeff Jackson Added May 28, 2017 - 1:25am
Thomas, thank you for noting something that a lot of people ignore for reasons that I do not understand. The money supply was allowed to fall, and the Fed sat back and did nothing. Ask the people who were involved, and they will tell you that there simply wasn't any money. When you look at prices where a whole lunch was $.25 and that included dessert, you have to wonder how much money was in circulation. While there were a lot of people to blame you're right on the money with the drastic reduction in the money supply and the Fed sitting on  its hands and watching the banks fail. I never have understood either of those things or why the Fed watches the banks burn while they just played their fiddles.
John G Added May 28, 2017 - 2:06am
The Fed cannot increase or decrease the so called money supply. The Fed supplies reserves to the banking system. Reserves are not lent outside the payments system.
Private sector borrowing and saving decisions is the determinant. Paying down debt (saving) decreases the 'money supply'. Taking out loans increases the 'money supply'.
Reserves are not required for banks to make retail loans.
Mircea Negres Added May 28, 2017 - 3:15am
Economic theory is all well and good on paper, but reality is always uglier and never as advertised (I pretty much told that to a soldier who was trying to recruit members for the South African Communist Party on my base- and then threatened to kill him) because every economic system invented by mankind ultimately led to predatory behavior on the part of participants- Gordon Gekko wasn't all the way right; greed isn't necessarily good, although it does have its place.
 
Anti-competitive behavior occurs because it's rational to eliminate competitive threats to one's business and pile of money. That doesn't make it right- after all, Microsoft and Apple started small- but it is a rational, though ultimately macro-economically harmful act. These people are called "crony capitalists" because they operate under the capitalist system, and it's just a descriptive term. Whether their actions are truly capitalist or not is another matter, and in my book they're not. Very good article, Jeff. Thumbs up big time on this one.
John G Added May 28, 2017 - 3:24am
I pretty much told that to a soldier who was trying to recruit members for the South African Communist Party on my base- and then threatened to kill him
So you're a violent fascist bully boy. No surprise.
Mircea Negres Added May 28, 2017 - 3:38am
John, I lived in Romania for 14 years before that moment. I was a lot more qualified to know what socialism and/or communism were about than the guy who had never visited, let alone lived in such a country, and whose system he was praising to high heaven from a position of ignorance. Having endured hell once, I wasn't about to see it again. At the same time, that guy was breaking military law by trying to advance the interests of a political party not just while in uniform, but on military property to boot. Yes, that is a criminal offence and it is a serious one. Just look up what the SANDF did when Economic freedom Fighters party leader Julius Malema (notorious promoter of genocide against white South Africans in order to take the property, businesses and means of production some of them own) proclaimed he was going to visit army bases... I would've done the same if a member of the AWB, Democratic Alliance, African Christian Democratic Party or any other party for that matter had tried the same thing. Once again, you are passing judgement while ignorant of the facts. No surprise- again.
John G Added May 28, 2017 - 3:43am
I don't care about your dull anecdotes. Threatening to kill people for their politics is terrorism.
You are a fascist bully boy who I'm sure fits right in in white South Africa. You're just a thug.
Mircea Negres Added May 28, 2017 - 3:45am
John, get an erection, stick a live chicken on it and go play in rush hour traffic in front of a police car.
John Minehan Added May 28, 2017 - 8:04am
Everyone loves the free market, until they make their nut and "Schumpeterian Creative Destruction" begins to seem like a threat not an opportunity.
Thomas Sutrina Added May 28, 2017 - 8:12am
John G., Milton Friedman is a Nobel recipient in economics.  The cited information above I believe is part of the reason.  And your telling me he does not know what he is talking about.  Really that is interesting.  So just give us a hint on how you know this.  We are holding our breaths.  You have to do a lot better then the above comments.  Please provide FACTS. 
John Minehan Added May 28, 2017 - 8:36am
"Keynes General Theory and Abber Lerner's functional finance brought the western world's greatest ever period of growth and social mobility until big business unleashed their charlatan Friedman and his Chicago School cronies on the world."
Although this ignores the fact that the end of WWII left a world where a handful of nations had virtually intact industrial capability and the world had considerable pent up demand from 6 years of global war, preceded by 10 years of global Depression.
 
The context also included a circumstance, the Cold War confrontation with the USSR, that made the US perceive the rebuilding of Europe as being in its strategic interest.  By 1950, this context also included the Korean War, which caused the US to do a lot of business with Japanese companies to repair damaged equipment, build bases, etc.
 
These conditions probably had a far greater effect on that "greatest ever period of growth and social mobility" than any economist's theory.
 
"The result is persistently high unemployment, low growth, historical wealth and income imbalances and worsening cyclical recessions and depressions.
Keynesian demand management was incredibly successful. That's why the rich hate it and they condition their useful idiots to oppose it."
 
Actually, by the mid-1970s, most economies were trapped in exactly the situation you describe, perhaps due to use (or, charitably, the misuse) of Keynesian Theory.
 
Increasing growth and employment in the 1980s through the 2008 was largely a function of liberalizing moribund economies.
 
However, you can't ignore the context there, either. 
 
New technology, in computer science and telecommunications created new opportunities.  Reduction of trade barriers created new markets. New business techniques and the new Global supply chains lowered costs, improved quality and offered many more options. 
 
Less laudably, somewhat neo-colonial dealings with oil producing nations lowered oil prices in the 1980s and 1990s.
 
In my opinion, what seems to be missing right now is some kind of breakthrough technology, as micro-computers and, slightly later, the Internet were from the 1980s until about 2000. 
 
Without that, there is a lot of money sitting outside the economy waiting for the opportunity or, worse, being invested in very speculative instruments like (historically) High Yield/"Junk" Bonds or complex derivative instruments  which are being sold as being investment grade by ignorant sales forces to credulous investors (including, all to often) the Boards and managements of financial institutions and charities.          
John Minehan Added May 28, 2017 - 8:45am
Mr. Jackson, in my opinion the College Board, in creating a non-memorization-based standardized test, made it possible to have a true meritocracy.
 
Some critics (notably Taleb) say the SAT-type test does not effectively measure second-order reasoning and that is demonstrated by a lot of the short-term thinking and discounting of the fairly apparent negative consequences of policy decisions in the public and private sectors.
 
I would say the bigger problem is that identifying the most capable students, who then mostly attend the same 10 to 20 schools, has tended to create a sort of "group-think" that might not have existed before the advent of The College Board.    
John Minehan Added May 28, 2017 - 8:50am
"Milton Friedman is a Nobel recipient in economics."
 
As were Merton and Scoles in 1997, right before the idea they were honored for caused Long Term Capital Management to almost cause a global financial catastrophe.
Leroy Added May 28, 2017 - 10:09am
"As were Merton and Scoles in 1997, right before the idea they were honored for caused Long Term Capital Management to almost cause a global financial catastrophe. "
 
Nevertheless, they were correct and their formula is still widely used today.  I don't see the point.
John Minehan Added May 28, 2017 - 10:17am
Being a Noble Lauriat means you are influential NOT infallible. 
Leroy Added May 28, 2017 - 10:18am
Another great article, Jeff.
 
There is one here in particular who claims the most well-known economists are on the fringes of economics.   Most would agree that his economics is on the fringes.  It takes more than pontification to convince me. 
Jeff Jackson Added May 28, 2017 - 1:14pm
Well thank you Leroy, you're doing a pretty good job yourself.
John Minehan Added May 28, 2017 - 1:19pm
"There is one here in particular who claims the most well-known economists are on the fringes of economics.   Most would agree that his economics is on the fringes.  It takes more than pontification to convince me."
 
The interesting thing about Black Scholes is that it allows the user to assume a "risk free interest rate" (and also assumes there is one and it can be known). 
 
In a stable market, that is a fairly safe assumption, but in volatile markets, say during the Asian financial crisis, this (and other assumptions in the model) can really create bad results.
 
Black-Scholes is a useful tool, but it appears more rigorous that it is, because like any other approximation, it has only the accuracy of its least accurate assumption.
 
Black, Scholes and Merton were brilliant.  However, as Warren Buffet stated in 2008, not everyone using the model has necessarily understood its limitations. 
 
The collapse of Long Term Capital Management after their Nobel is another reminder that "Nobody  knows nothing," or, in David Steinberg's famous catch-phrase, was "G-d's way of going 'Booga-booga.'"     
Bill Kamps Added May 28, 2017 - 1:36pm
Jeff there really is no way to avoid crony capitalism.  Every tax, regulation and law restricts some business activity, and helps another. For every loser, in regulations and taxes, there is a winner.
 
If you are being helped, it is crony capitalism.  If you lobby for taxes, and regulations that favor your business it is crony capitalism, if you do business with your friends, it is crony capitalism.
 
The best situation, suggested by John M in the previous thread, is fewer laws and regulations, and have them properly enforced.  This wont eliminate crony capitalism, but it will limit its impact.
 
By the way Jeff, you use of bold large font, makes your article difficult to read.
 
 
John G Added May 28, 2017 - 2:43pm
Minehan, it ignores nothing of the sort.
Your 'argument' is yet another strawman.
You can't blame Keynes for the US support of Israel and the subsequent OPEC price rises.
You're just parroting monetarist lies.
John G Added May 28, 2017 - 3:02pm
Increasing growth and employment in the 1980s through the 2008 was largely a function of liberalizing moribund economies.
Except that it didn't happen.
Dave Volek Added May 28, 2017 - 4:56pm
John Mineham. I like your commentary on economics. Although I can't follow everything fully, I appreciate your approach. There's another fellow here who claims to understand economics, but his posts are mostly about Republicans are good economists and Democrats are bad economists.
 
I would just say that I'm not sure these people called professional economists really know what they are doing. Otherwise 2008 would not have happened.
 
Jeff: As I was reading your article, I felt you were on a bit of a slippery slope. I have worked in a lot of places, and generally most employers were happy with my services. However, I do not do very well at job interviews. I am very uncomfortable bragging about myself, and either my humbleness or my purported arrogance can come across the wrong way. But I have good references, and this is what usually gets me the job.
 
We could call this crony-capitalism. I really don't deserve this job because my interviews are poor, yet my "buddies" giving me a good reference really shouldn't count.
 
Another example is Microsoft. They have developed some great products over the decades. In the mid 1990s, I was using both  WORD and WORDPERFECT, and the MS product was a much better tool. True it is that MS has standardized a lot of practical software, but there is an overall efficiency to this standardization. Can you imagine the world have ten different writing platforms that require conversion as a document moves from office to office? MS got their "monopoly" because they were good at developing software (and marketing it). I'm not sure I would call this firm crony-capitalist, but many others would.   
 
 
John G Added May 28, 2017 - 6:15pm
John G., Milton Friedman is a Nobel recipient in economics. 
 
So is Krugman, and he's as wrong as you are.
Jeff Jackson Added May 28, 2017 - 6:29pm
As far as the Bold capitalization I tried several times to get rid of it, but I didn't have a great deal of time to play with it, so after about a dozen tries I gave up.
Dave, don't be so self-critical. A good reference is an objective evaluation, and those are not crony capitalism. I started out on WordPerfect, and yes, MS Word is better, by far, but that was just a better product.
The Sherman Antitrust Act was specifically against crony capitalism. The interlocking directorates would deliberately raise railroad shipping costs in certain areas and literally bankrupt the competition of one of the companies involved with the interlocking directorate. In other words, a grain company that was a crony of the railroads and part of the interlocking directorate would, with the active participation of the railroad, raise the prices on shipping to the point that the competing grain company would go bankrupt, and then the railroad-associated grain company would prevail, and rates for that area would go back down because the competition was gone. It was a fixed market, via the interlocking directorates, who could, in opposition to free markets, drive competition out of business.
In the same way, companies take bids but they have already determined who will get the contract, even if they are underbid, make no difference, the deal has already been made, the bids are just for show. Internet pioneers like Tony Hsieh hire all of their friends when they start a new company, and do not bother looking at any resumes, no matter the qualifications, of people that aren't their friends. Of course the pay is really good, because, after all what are friends for? And the people that aren't friends, that might be more qualified, well they're just out of luck and need to start their own firm.
 
John G Added May 29, 2017 - 3:30am
Dave Volek. I would just say that I'm not sure these people called professional economists really know what they are doing. Otherwise 2008 would not have happened.
They most certainly don't. I have a degree in economics and I can tell you that pretty much everything I was taught at university was bullshit.
The mainstream economics profession is populated by sociopaths, scoundrels, cheats and morons.
The Ivy League economists are the worst of all.
You work out why.
Thomas Napers Added May 29, 2017 - 5:15am
“The Sherman Antitrust Act was specifically against crony capitalism. The interlocking directorates would deliberately raise railroad shipping costs in certain areas and literally bankrupt the competition of one of the companies involved with the interlocking directorate.”
 
No it wasn’t.  It was designed to protect society from unfair competition. Unfair competition is not crony capitalism unless you can prove government and some other entity were in cahoots. 
 
Furthermore, the Sherman Antitrust Act did far more harm than good. Anti-trust regulations are powerful weapons used by elements in the government that don’t believe in capitalism.  If it weren’t for this legislation, companies would have far more freedoms and this freedom would translate into increased competition.  If I were POTUS I would abolish all antitrust regulations and let the free market be free.
Jeff Jackson Added May 29, 2017 - 7:40am
Well Thomas, the law seems pretty clear here.
"The purpose of the Sherman Act is not to protect competitors from harm from legitimately successful businesses, nor to prevent businesses from gaining honest profits from consumers, but rather to preserve a competitive marketplace to protect consumers from abuses." and "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal" and "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony"
Thomas Napers Added May 29, 2017 - 8:30am
What’s clear from that quote is that the Sherman Anti Trust Act was intended to stop “unfair” competition, not crony capitalism.  But let’s not forget, most laws create a far worse set of unintended consequences than the “problem” they were intended to address.  I put unfair and problem in quotes because Anti-Trust Legislation often puts a halt to fair competition and addresses things that shouldn’t even be considered a problem. What's with you people and your desire for unnecessary rules, regulations and taxes?
Jeff Jackson Added May 29, 2017 - 12:24pm
As so often happens in my profession, a few people come along and spoil everything, and then new strict rules must be enforced, and that was the basis of the Sherman Antitrust Act. The interlocking directorates created unfair advantages and bankrupted businesses because the interlocking directorate attacked the firm from various angles, and just as soon as the company went bankrupt, they raised their prices and started screwing the American public.
Most laws create a far worse set of unintended consequences? I think it is  bit too far to make that generalization, certainly murder, and many of the regulations of the financial nature protect people-that is the job of the government. As I discussed with one of my law professors who claimed the government had no responsibility for my safety, I said that would be fine with me, I can defend myself, but if the government wanted no responsibility for my safety they could not then claim that what I did to ensure my safety was illegal. In so many instances, you cannot have it both ways.
Laws like murder come about because of murder. Financial restrictions come about because certain companies cheat the American public. I know of laws where if you buy a $1400.00 vacuum cleaner, you have a short period of time to change your mind and get your money back. Not that I'm a fan of regulation, but the regulations came about because someone (taxpaying Americans) was getting cheated.
As for Thomas, who is cheering on the banks that only pay 360 days of interest a year (they get to keep all the other days for themselves) and corporations who can take out insurance policies on investments that other companies make (like me insuring my neighbor's house and collecting if it burns down) you have the right to insist that we leave these crony capitalists alone, but then, there can be no bailing them out if they fail, like the billions of pieces of paper that the Fed bought from the failing companies and the Fed either actually believes it or just says the paper has value so we do not take up arms and imprison them, you have the right to cheer them on, but the regulations came from something they did, no matter how angelic and saintly you think they are, and were.
They cheated the American taxpayer that is why the law was enacted. They got together and fixed prices and ganged up and bankrupted companies. I won't cite the history, but the Sherman Antitrust Act came from the unfair behavior of corporations, and it was passed to protect the American citizens from getting cheated. That's how it is. As unnecessary as you might think it is.
George N Romey Added May 29, 2017 - 3:34pm
Crony capitalism is a result of big business.  We didn't have this conversation in 1967 because we had far fewer large corporations.  Once a handful of companies command most of the market share of a particular industry they can buy influence.  Big business and big government are partners in arms.  Do you think the Federal Reserve back in 1967 would have bought worthless bonds for book value from small state chartered banks.  No. 
Jeff Jackson Added May 29, 2017 - 6:35pm
Yes, George, as well as the rise of the conglomerates, that is, firms that are extremely diversified, although many of the conglomerates have have sold off parts in which they had no expertise. Another major cheater is the vertically integrated company. Some of the oil companies own the land, the wells, the refineries, and the gas stations, and they lose money are are inefficient in certain areas but they just pass that on because of vertical integration. Please do not misunderstand me, I have no criticism to offer either conglomerates or vertically integrated companies, as long as they keep things honest.
It's too bad that we have to regulate, but then, its too bad we have to have laws against harming your fellow citizens and stealing from them. It may seem that I come of as in favor of regulations, and that is not my position, but if they can't be honest, we have no recourse. I think the government should be restrained as well, and a lot of legislation should have "sundown" clauses, making the legislation void after a certain period of time. There are solutions, it is just that too many people who are in positions of wealth and power would lose those positions, you know, those "political class" folks.
John G Added May 30, 2017 - 3:04am
Crony capitalism is a result of big business. 
If you Google 'the Powell memo', you may get an idea of what happened.
The problem you'll have is that you're a victim of the scheme and you're too stubborn to ever admit that you're wrong.
Ari Silverstein Added May 30, 2017 - 5:44am
For the record, I disagree most of what you’ve written here.  But thanks for the compliment on my article about crony capitalism.  
Mike Haluska Added May 30, 2017 - 10:03am
To believe in Keynesian Economics is to believe that you can borrow your way to prosperity and there will never be "Balance Due" notice.
Doug Plumb Added May 31, 2017 - 7:09am
re "Banks DO NOT finance the government.  "
 
 Yes, they do, but not in the same way they finance capitalists. Your birth certificate makes you a bondsman to the debt they borrow. The fact that you are owing this debt puts you into the jurisdiction of living laws, our Legal system. Legal was an ancient Chinese philosopher. Legal is in no way synonymous with law.
 The banks accept promises of repayment by our governments backed up by these bonds in return for unlimited loans. The banks have absolutely no responsibility to government for this priviledge - Alan Greenspan in a YouTube video explains this.
 
Now they borrow from other countries who in turn borrow on this bond that bonds their own people to repay.
 
re "To believe in Keynesian Economics is to believe that you can borrow your way to prosperity and there will never be "Balance Due" notice."
True.


 
When I started asking my economics prof about this, he said that he wasn't allowed to talk about some aspects of the money system and that he was required to teach Keynes, even though he wasn't a Keynesian.


 
 
 
 
 
Doug Plumb Added May 31, 2017 - 7:16am
This growing debt is not going to bring mass starvation and economic collapse like the scare mongers are always saying. Its going to restructure law itself because money is law and law is money. See part 3 of my movie "Law, The Light Of Reason and Conscience" (Youtube, it has a playlist as well as full 2:40:00 long presentation) where I explain the basics of finance and how it relates to law.
 
 
Doug Plumb Added May 31, 2017 - 7:18am
re "John, I lived in Romania for 14 years before that moment. I was a lot more qualified to know what socialism and/or communism were about than the guy who had never visited, let alone lived in such a country, and whose system he was praising to high heaven from a position of ignorance. Having endured hell once, I wasn't about to see it again."
  You hear this all the time from people under communism. Communism is a system to destroy, not to build.
Jeff Jackson Added May 31, 2017 - 8:27am
Well said, Doug. Econ is ugly, and I am not a devotee to any particular economist, I think most of them have some insight into certain things, but I'm not letting any single one of them run everything.
Doug Plumb Added May 31, 2017 - 5:59pm
@ John G re "You can't blame Keynes for the US support of Israel and the subsequent OPEC price rises."
 
Not directly but Keynesian economics fed these people and continues to do so. Argue all you want about the Sherman Anti Trust Act, Bretton Woods and the whole ball of shit because the monsters poop is being mistaken for the monster itself.
  If private interests lend money to a country and determine its policy with no responsibility other than that to themselves then this is the monster itself.
  The banks have zero responsibility to government. They set the rates, they control everything because they control money.
Doug Plumb Added May 31, 2017 - 6:00pm
Banks and their think tanks create macro government policy and leave it to government to implement it all - ie grease the right wheels.
Cliff M. Added May 31, 2017 - 6:27pm
As long as the big money controls the politics a true free market is impossible. The lobbyist's and their bagmen are the ones who control the so called "Free Market" for the elites.
Jeff Jackson Added Jun 1, 2017 - 8:01am
I'm with Cliff on this. Some of the theorists claim that the Revolutionary War was the beginning, as the wealthy founders like Hancock loaned the states the money and when the war was over they didn't have any money to pay them back. Some of the theorists even maintain that it was the money owed and the states' unwillingness to pay it back that was the reason for the creation of the federal government and the Constitution. The case can be made for it, and certainly.
Mike Haluska Added Jun 1, 2017 - 11:03am
I find it fascinating that all of the Free Market Capitalism trashers live in America and want nothing to do with living in places like Argentina, Cuba, Russia, North Korea, etc.
Eileen de Bruin Added Jun 2, 2017 - 2:35am
Crony capitalism therefore, having now read through the original posting thoroughly, is not about capitalism in itself or as such. It is about the circles or clubs or social connections who stack the cards in their own favour. Like insider trading, it yields rewards to the chosen cronies and the understandings are that they all operate in such a fashion and then their fortunes and families are secure. This is a facet of life which endures throughout the centuries with nepotism being a related term. It exists at the top of society and downwards, through clubs or through people inside industry, ordinary employees, looking after each other or their own interests. Often, the best person for the job who applied externally, or perhaps even internally but is not one of the group, is rejected for someone who is an insider and one of the particular group of cronies.
A true meritocracy is nigh impossible to achieve but its pursuit is nonetheless desirable and admirable as it drives us towards higher ideals.
Communism, such as it was or is, is just another cronyism whereby the social hierarchy is re engineered in favour of the new order which is worse than the old order, as in Animal Farm.
I am not sure that throwing out capitalism is either a good idea or the solving of the problem. And you are not advocating that of course. It is enough to be aware of the truth about human behaviour and to do our best within it to pursue higher ideals. We have managed much to create a fairer and more balanced society overall.
Jeff Jackson Added Jun 3, 2017 - 10:31pm
Nice post Eileen. Allow me add something. In order to be considered a  "professional" (and I have one professional license and am a certified professional in another area) one must comply with a code of ethics. When one doesn't comply with the code of ethics of the profession, they can have their professional license revoked.
Human Resource professionals are bound ethically to choose the best person for the position, and not consider whose relative or friend is applying for the job. We all know that this is what the regulations say, but not how it really works. I would suggest that HR people who do not follow the ethical standards be denied their professional credentials, just as if I, a teacher, would pass a student who was the child of a friend of mine. Please let me assure you that if I did as suggested, I would be in a world of trouble.
In the past, being a carpenter or blacksmith was an occupation that you learned from a mentor, usually as an apprentice. The professional credentials that I have obtained were expensive and I had to pass rigorous tests in order to prove that I understood the content as well as the legal obligations of holding those credentials. Perhaps the crony capitalists who are "professionals" should be investigated as to whether their actions complied with the ethics of the profession. I'm suggesting that the crony capitalists, (capitalists in name only, and really just elitists)  be questioned as to whether their behavior was really in compliance with the ethical standards that the profession required. If not, their professional credentials should be revoked. We have come a long way since the de Medicis ruled the organizations, or have we?
Eileen de Bruin Added Jun 4, 2017 - 8:03am
Jeff, thanks. If those rules (ideals) were followed right now then Trump would have to be removed from office. What about all of the senators taking money from lobbyists? We live in an imperfect world. We should be aware of it and live not of it but in it and being aware of our own and other people's potential to fall, to give in to the easy way, the way that is known and the way to elevate oneself in society. I am absolutely sure that I have given in to pressure, or desire and "played the game" along the way. Ultimately, I was and am no politicking person, so I ended up working as a one woman band, going into SMEs and also teaching. It made me a living for which I am grateful. So, your crony capitalists are all around you, make up most of your government (sadly) and the nice, ordinary people who want but to live a nice, social and pleasant life with others, well they get ignored, discarded, disregarded. What is the point, anyway, I wonder of gaining the whole earth and then dropping dead? How many houses and how much money do we need for a life time? Of course, this is not about that, this is about building ivory towers and powerful families and lands and governments and having control over the world. Yes, I am laughing! 
 
John G: you wrote: Dave Volek. I would just say that I'm not sure these people called professional economists really know what they are doing. Otherwise 2008 would not have happened.
 
2008 happened because of financial deregulation by government. This meant that the financial people had no need of adhering to government legislation hitherto in place to protect most of the people and the land as a whole. It was a clear trigger from government to go ahead and use and abuse the free market - whatever the cost - and that is what they did. It had nothing to do with professional economists.
"Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the undoing or repeal of governmental regulation of the economy." (wiki)
 
Reaganomics: "In 1982, Congress passed the Garn-St. Germain Depository Institutions Act. This removed restrictions on loan-to-value ratios for Savings and Loan banks. Reagan's budget cut also reduced regulatory staff at the Federal Home Loan Bank Board. As a result, banks invested in risky real estate ventures. (Sound familiar?) Reagan's deregulation and budget cuts contributed to the Savings and Loan Crisis of 1989."( source www.thebalance.com/president-ronald-reagan-s-economic-policies-3305568)