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Let's Take the "Crony" Out of "Crony Capitalism"


When Judge Richard Posner, the prolific conservative intellectual, released his book "A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression" ( last year, you might have thought the final verdict was in: Capitalism caused the economic downturn and high unemployment.

That this verdict was pronounced by someone like Posner, who is associated with the University of Chicago and the free-market law and economics movement, gave moral support to all the politicians who were intent on exploiting the recession (as they exploit all crises) to increase government control of the economy.

But what exactly is this "capitalism" that is blamed?

The word "capitalism" is used in two contradictory ways. Sometimes it's used to mean the free market, or laissez faire. Other times it's used to mean today's government-guided economy. Logically, "capitalism" can't be both things. Either markets are free or government controls them. We can't have it both ways.

The truth is that we don't have a free market — government regulation and management are pervasive — so it's misleading to say that "capitalism" caused today's problems. The free market is innocent.

But it's fair to say that crony capitalism created the economic mess.

Crony capitalism, by the way, will be the subject of my TV show this week on the Fox Business Network (Thursday at 8 p.m. Eastern; Friday at 10).

What is crony capitalism? It's the economic system in which the marketplace is substantially shaped by a cozy relationship among government, big business and big labor. Under crony capitalism, government bestows a variety of privileges that are simply unattainable in the free market, including import restrictions, bailouts, subsidies and loan guarantees.

Crony capitalism is as old as the republic itself. Congress' first act in 1789 — on July 4, no less! — was a tariff on foreign goods to protect influential domestic business interests.

We don't have to look far to see how crony-dominated American capitalism is today. The politically connected tire and steel industries get government relief from a "surge" of imports from China. (Who cares if American consumers want to pay less for Chinese steel and tires?) Crony capitalism, better know as government bailouts, saved General Motors and Chrysler from extinction, with Barack Obama cronies the United Auto Workers getting preferential treatment over other creditors and generous stock holdings (especially outrageous considering that the union helped bankrupt the companies in the first place with fat pensions and wasteful work rules).

Banks and insurance companies (like AIG) are bailed out because they are deemed too big to fail. Favored farmers get crop subsidies.

If free-market capitalism is a private profit-and-loss system, crony capitalism is a private-profit and public-loss system. Companies keep their profits when they succeed but use government to stick the taxpayer with the losses when they fail. Nice work if you can get it.

The role that regulation plays in crony capitalism is unappreciated. Critics of business assume that regulation is how government tames corporations. But historically, regulation has been how one set of businesses (usually bigger, well-connected ones) gains advantages over others. Timothy Carney's book about this, "The Big Ripoff: How Big Business and Big Government Steal Your Money" (, explains why Phillip Morris joined the "war on tobacco," General Motors pushed for clean-air legislation and Archer Daniels Midland likes ethanol subsidies.

As economist Bruce Yandle writes, "(I)ndustry support of regulation is not rare at all; indeed, it is the norm" (

If you wonder why, ask yourself: Which are more likely to be hampered by vigorous regulatory standards: entrenched corporations with their overstaffed legal and accounting departments or small startups trying to get off the ground? Regulation can kill competition — and incumbents like it that way.

When will Michael Moore figure this out? His last movie attacked what he calls capitalism, but his own work shows that it's not the free market that causes the ills he abhors. Had he called the movie "Crony Capitalism: A Love Story," he would have been on firmer ground (

It's time we acknowledged the difference between the free market, which is based on freedom and competition, and crony capitalism, which is based on privilege. Adam Smith knew the difference — and chose the free-market.

What's taking us so long?

John Stossel is host of "Stossel" on the Fox Business Network. He's the author of "Give Me a Break" and of "Myth, Lies, and Downright Stupidity." To find out more about John Stossel, visit his site at <a href="" <>></a>. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at




4 Comments | Post Comment
I love the piece as a fellow Atlas Shrugged fan, but here's my question I always come back to:

Some regulations (like FDA protection against killer drugs) seem really vital and important - but against the rules... How do we balance that? How do we draw a line in the sand of what's appropriate 'regulation' and not?
Comment: #1
Posted by: Dan
Wed Jan 13, 2010 11:14 AM
Some of what you say makes sense. However, the rest of your lies are so over the top that I must respectfully ask that you literally put a gun to my head and pull the trigger. I literally cannot live through what has happened in America over the last 20 years. It is time for me to die. There is nothing left for me to contribute to the American civilization. I have no productive value. You are better off sending my job overseas so you can pay less money for your product.
I cannot stand to live any more with people like you exploiting my suffering and America's problems for your personal profit. I am begging you that you have your lawyers draw up whatever release form that is necessary for you to execute me. You can choose to use a gun or lethal injection. That is more merciful than the death sentence that has been currently pronounced upon me by America.

I cannot bear to live in this world any more with people like you telling such outrageous lies. Please choose a more merciful form of execution other than death by starvation.

Best Regards,

Comment: #2
Posted by: warbman
Sat Jan 16, 2010 9:27 PM
Dear John Stossel, Good Article. Taxpayers know America is in a depression. With the 'POLITICS AS USUAL' with this administration, it will only grow deeper, as you can't 'spend your way'' out (especially with borrowed money we can't pay the interest on), now can you? Five (5) decades of bribery, social and welfare programs, it's not only this administration, it's all of them! IT'S CALLED THE 'GOOD-OLD BOYS CLUB' and all the 'newcomer politicians HAVE TO PLAY THEIR GAME! This is sad for America, as it tells the terrorists 'EVERYTHING THEY NEED TO KNOW TO TEAR AMERICA APART!' THINK IT AIN'T HAPPENING, THINK AGAIN! 9/11 STARTED LONG BEFORE IT HIT AMERICA SOIL! PUBLIC SCHOOLS, SOCIAL AND WELFARE PROGRAMS, CREATED BY THESE SAME 'BLOOD-SUCKING POLITICIANS' , MANY YEARS AGO, STARTED THIS DOWNFALL IN AMERICA! IT WON'T STOP, UNTIL TAXPAYERS "TAKE BACK AMERICA" AND PUT AN END TO THE 'MIDDLE MAN - 'THE POLITICIAN'!
The following was sent to me by some Taxpayers. Your readers might be interested in reading.
If George W. Bush had been the first President to need a teleprompter installed to be able to get through a press conference,?would you have laughed and said this is more proof of how inept he is on his own and is really controlled by smarter men behind the scenes?

If George W. Bush had spent hundreds of thousands of dollars to take Laura Bush to a play in NYC, would you have approved?

If George W. Bush had reduced your retirement plan's holdings of GM stock by 90% and given the unions a majority stake in GM, would you have approved?

If George W. Bush had made a joke at the expense of the Special Olympics, would you have approved?

If George W. Bush had given Gordon Brown a set of inexpensive and incorrectly formatted DVDs, when Gordon Brown had given him a thoughtful and historically significant gift, would you have approved?

If George W. Bush had given the Queen of England an iPod containing videos of his speeches, would you have thought this embarrassingly narcissistic and tacky?

If George W. Bush had bowed to the King of Saudi Arabia , would you have approved?

If George W. Bush had visited Austria and made reference to the non-existent "Austrian language," would you have brushed it off as a ?minor slip?

If George W. Bush had filled his cabinet and circle of advisers with people who cannot seem to keep current in their income taxes, would you ?have approved?

If George W. Bush had been so Spanish illiterate as to refer to "Cinco de Cuatro" in front of the Mexican ambassador when it was the e 5th of May (Cinco de Mayo), and continued to flub it when he tried again, would you have winced in embarrassment?

If George W. Bush had miss-spelled the word "advice" would you have hammered him for it for years like Dan Quayle and potatoe as proof of what a dunce he is?

If George W. Bush had burned 9,000 gallons of jet fuel to go plant a single tree on Earth Day, would you have concluded he's a hypocrite?

If George W. Bush's administration had okayed Air Force One flying low over millions of people followed by a jet fighter in downtownManhattan causing widespread panic, would you have wondered whether they actually get what happened on 9-11?

If George W. Bush had failed to send relief aid to flood victims throughout the Midwest with more people killed or made homeless than in New Orleans, would you want it made into a major ongoing political issue with claims of racism and incompetence?

If George W. Bush had created the position of 32 Czars who report directly to him, bypassing the House and Senate on much of what is happening in America , would you have approved.

If George W. Bush had ordered the firing of the CEO of a major corporation, even though he had no constitutional authority to do so, would you have approved?

If George W Bush had proposed to double the national debt, which had taken more than two centuries to accumulate, in one year, would you have approved?

If George W. Bush had then proposed to double the debt again within 10 years, would you have approved?

So, tell me again, what is it about Obama that makes him so brilliant and impressive? Can't think of anything?
Don't worry..

He's done all this in a few months, so you'll have three years, plus years, to come up with an answer.?
Comment: #3
Posted by: Shirley deLong
Sun Jan 17, 2010 9:21 AM
I agree with you on all of your points except the f22. The f22 was going to replace the 30 year old f15s. 30 years doing 7-9g turns stresses the aluminum airframe of the plane which can lead to catastrophic failures of the wings of the aircraft and possible death of the pilots. Just to save 20 billion dollars when the liberals blew 787 billion on "stimulus" that created almost NO jobs. Seems like a bad deal to me.
Comment: #4
Posted by: Shin0bi272
Tue Jan 19, 2010 3:31 PM
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