In his 1776 booklet “Common Sense,” Thomas Paine distinguished the origins of society and government with these comparisons: “Society is produced by our wants, and government by our wickedness; the former promotes our happiness positively by uniting our affections, the latter negatively by restraining our vices.” With all due respect to Mr. Paine, government has not restrained vices; it can be shown that it facilitates corruption. In American politics it’s been called “Government by Crony.” Hunter Lewis has written a newly published book titled “Crony Capitalism in America” that covers the time period 2008-2012.
Although I’ve suspected it for a long time, until I read this book I didn’t realize the magnitude of collusion between business and government people. “Indeed,” writes Mr. Lewis, “it may be argued that cronyism is as old as recorded history and has always been the dominant system.” He thinks it may be the reason why we’ve made so little progress in eliminating poverty—historically, when economic capital was accumulated it “was generally stolen by rulers or their friends or allies.” This sounds rather Marxist, but it applies also to capitalists’ who join forces with government. Hunter documents recent examples with 480 Endnotes to his 340-page text. The book has 11 parts and 30 short chapters.
The author begins with a brief account of cronyism in Russia, China, South America and Africa—well known places where corruption flourishes. Most of the book chronicles how this double-dealing works in America. Partnerships between the “public” and “private” sectors have blurred the moral line that should separate them.
When companies and other organizations directly or indirectly run by government are added to federal, state and local governments, and parasitic “nonprofits” that benefit from taxpayer’s money, most of the American economy is in the grip of the public sector.
Lewis itemizes Government Sponsored Enterprises (GSE) that receive public funding of various kinds. They include the defense industry (products sold mostly to government); healthcare, drugs, housing, banking, finance, agriculture, food, autos, broadcasting, railroads, trucking, airlines and education (regulated, subsidized, protected, price supported, or cartelized by government); law and accounting (expanded by government regulation); unions (exempted from anti-trust law); and other “niche” organizations such as the American Association for Retired Persons (AARP) a large business conglomerate, aided and assisted by government, that “exists to influence government.”
In Chapter 3, “Pay to Play: A Capitol Hill Primer,” the author lists some basic rules of the game of political cronyism. For example large, complicated and vague laws, with rules added by regulatory agencies directly benefit lawyers, accountants and tax preparation firms. Politicians and their statist supporters make sure laws and regulation proliferate like rabbits. The only federal crimes named in our original Constitution were treason, counterfeiting and piracy. Back in 2007 it was estimated that there were nearly 4,500 federal crimes on the books—but who knows how many more exist today. Many of these facilitate cronyism.
The late Bill Safire has a “Government by Crony” entry in his “Political Dictionary.” He defined it as “an administration in which advisors qualify not by experience or talent but by their longtime friendship with the Chief Executive.” Lewis exposes the broader scope of current cronyism in American politics. In Chapter 4 he chronicles how government operatives and agencies facilitated the 2008 housing bubble. By 2010, 100 percent of the mortgaged loans given in the U. S. were government-sponsored—manipulated by cronyism.
The Federal Reserve (“by far the most powerful government agency”) provided cheap money by holding down interest rates. The housing industry has long been favored with special IRS tax treatment. Agencies such as the Federal Housing Administration and the Freddie Mac and Fannie Mae cabal offered easy money for home loans. Housing and Urban Development mandated loans to people who, by normal banking practice, were unqualified. The Fed threatened its regulated banks that “discrimination may be observed” if they used criteria to disqualify many urban minority applicants.
Lewis reports that 160 federal housing programs contributed to blowing up the housing market, but many powerful Washington politicians and their friends profited. After all this corruption guess who paid billions of dollars for company bailouts and agency insolvencies? But there always seems to be more goodies for the well-connected in Washington.
Mr. Lewis describes “Honey Pots” of government programs that enrich some insiders at the expense of unconnected people. One egregious example is the 2009 federal Recovery Act or “Stimulus” discussed in Chapter 5.
President Obama promised it would be a “clean” bill. In one sense he was correct: Democrat politicians and operatives cleaned up financially. Nearly 90 percent of grants went for payoffs to state or local public sector unions—“funding inflated employee benefits in particular.” Billions of dollars went to stimulate big contributors such as DuPont and Duke Energy. By the end of fiscal year 2010 six federal departments had spent about $140 billion of borrowed and “printed” money on various payoff schemes.
In Chapter 6 Lewis discusses federal honey pots to extract cash-for-cronies through natural disaster funding. More than half the $60 billion for “emergency” relief after Hurricane Sandy for New Jersey and New York in late 2012 “had little or nothing to do with the hurricane.” In fact, the U. S. Senate extended the spending bill to cover other states, thus getting votes from several Republican senators. Natural “disasters” provide pots of money for state and local politicians to distribute—obviously a reason 353 calamities were declared in States during 2011-2012. Politically concocted scares also offer opportunities for cronyism.
Fed Chairman Ben Bernanke crafted the fearsome phrase “fiscal cliff” to help spread panic about the scheduled expiration of tax cuts passed during the previous Bush administration. This alarm prompted the notion that the loss of federal revenue would result in damage to the economy. A bill “passed late at night by both houses of Congress” resulted in a “whole raft of special tax favors to industry.” Goldman Sachs, General Electric and Citigroup were able to avoid U. S. taxes by moving “overseas profits into offshore subsidiaries.”
And on, and on political cronyism goes. In later chapters Mr. Lewis describes how politicians get rich “serving” in public office and “The Revolving Door” between government officials and lobbying firms. (I’m reminded that in 2011 Jack Abramoff wrote his book “Capitol Punishment,” a compelling personal saga of “the hard truth about Washington corruption from America’s most notorious lobbyist”—a great read and relevant to Lewis’ supporting evidence.)
Part 3 of Lewis’ book describes “Crony Finance”: how Goldman Sachs and other Wall Street firms function as government-sponsored enterprises—why General Electric was “rescued” during the Crash of 2008; and how CEO Jeffrey Immelt, in cahoots with the Obama administration, became “The nation’s number one crony capitalist.”
In parts 4 and 5 Lewis explains how Monsanto corporation employees and lobbyists became embedded with the federal FDA, EPA and Commerce; how “Big Food” influences agricultural policies; why the healthcare industry “is a mess”; the “Crony Medicine” story behind Obamacare; and Big Pharma and the FDA.
Part 6 exposes “Big Labor” and the auto bail-out; public employee unions and government; scandals associated with public sector unions; and (least we forget) state and local government cronyism.
Part 7 in Crony Capitalism discusses “Crony Lawyers”; and “The Trial Lawyer Money Machine.” Part 8 reveals that “the very heart of US crony capitalism lies in a financial arrangement with China.” Part 9 titled, “The Losers” describes charities, the poor and “War on the Young.”
In Part 10 Lewis probes the question, “Is Democracy to Blame?” He suggests that the new populist forces may be able to roll back today’s crony capitalist system. Change will not come from “elites urging less democracy, and more delegation of power to ‘experts,’” he writes. They will repeat past mistakes and protect the current corrupt regime.
Author Lewis has some “Solutions” in Part 11. In a “Diagnoses” chapter he summarizes the most important features of our current crony system taken from his companion book “Free Prices Now!” Finally, he prescribes some proposals to control crony capitalism.
Crony Capitalism in America is an important book. Hunter Lewis’ contribution gives us massive documented evidence— he has boldly brought to our attention the many corrupt conditions and threats to economic freedom those of us outside the Washington D. C. Beltway currently face.