Tag Archives: Tea Partiers

Progressives and Libertarians Agree: Cronyism Stinks

Last week, I came across this photo. In my view, it succinctly and accurately sums up our greatest economic and social problem: government-granted privileges to the wealthy and well-connected.


Laura S., Movement To Strengthen Progressive Values

 

Brilliant though the point is, it is not novel. Market-oriented economists from Adam Smith to  Milton Friedman to Luigi Zingales have been making this point for decades (and in some cases, centuries). What is remarkable, however, is that the photo appeared on MoveOn.org’s website. They, in turn, attribute it to the Movement To Strengthen Progressive Values’ Facebook page. A similar sentiment was expressed by the left-of-center Nobel Laureate Joseph Stiglitz at an OWS rally several months ago.

It is heartening that self-described progressives and self-described libertarians can agree on matters so central to our political and economic ailments. My new paper explores these issues in greater depth. Here is the introduction (I plan to blog parts of the paper over the next few weeks):

Despite the ideological miles that separate them, activists in the Tea Party and Occupy Wall Street movements agree on one thing: both condemn the recent bailouts of wealthy and well-connected banks. To the Tea Partiers, these bailouts were an unwarranted federal intrusion into the free market; to the Occupiers, they were a taxpayer-financed gift to the wealthy executives whose malfeasance brought on the financial crisis. To both, the bailouts smacked of cronyism.

In this paper, I show that the financial bailouts of 2008 were but one example in a long list of privileges that governments occasionally bestow upon particular firms or particular industries. At various times and places, these privileges have included (among other things) monopoly status, favorable regulations, subsidies, bailouts, loan guarantees, targeted tax breaks, protection from foreign competition, and noncompetitive contracts. Whatever its guise, government-granted privilege is an extraordinarily destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector.

Should the Tea Party Hope for a Government Shutdown?

Last week, yet again, Congress passed a short-term continuing resolution, funding the federal government for another few weeks while Republicans and Democrats attempt to work out some sort of compromise to get an actual bona fide budget passed. This pushed off the prospect of a government shutdown a few more weeks.

Also last week, CNN released a poll finding that 73 percent of Americans believe a government shutdown that lasted a few weeks would be a bad thing. This general opinion seems to cross ethnicity, age, income, geographic region, and political party affiliation (though a little more than half of Republicans would be okay with a shutdown if it lasted only a few days). There was, however, one exception to the near-universal opposition to a shutdown: Tea Partiers. Fifty two percent of those who self-describe as Tea Party supporters thought a government shutdown that lasted a few weeks would actually be a good thing. I should note that 46 percent of Tea Partiers opposed such a shutdown and that the margin of error was plus/minus 5.5 percentage points. Still, this suggests that those who support the Tea Party are far more sanguine about the possibility of a shutdown than other Americans.

As advocates of limited government, are the beliefs of Tea Partiers justified?

As is often the case, we can look to the American states for some guidance. It turns out that in 23 U.S. states, the government will automatically shut down in the event that the governor and the legislature fail to agree on a budget. In his work on budget rules, David Primo examined the theoretical impact of these provisions from a game theoretic perspective. He noted that in states with an automatic shutdown provision, “the legislature will be able to achieve its ideal budget, so long as the governor prefers it to no spending.” (p. 102)

He therefore predicted that states with such a provision will spend more than states without such a rule. He then tested the hypothesis, controlling for a number of other factors known to impact state spending and found that states with an automatic shutdown provision actually spend about $64 more per capita than other states. As he notes, “This effect is remarkably large, given that shutdowns occur rarely.” (p. 103)

This suggests that the federal government’s automatic shutdown provision—by making Congress’s desired spending level a take-it-or-leave-it offer—tends to bias the government toward more spending. By extension, it also suggests that a government shutdown will shift negotiating power toward those who favor more spending. So, paradoxically, fiscally-conservative Tea Partiers stand to lose the most if the federal government shuts down.

Perhaps it is time for them to rethink their support of a shutdown.