Tag Archives: Crony Capitalism

Why Trump’s Message Resonates With Working-Class Voters

This is the tl;dr version of my contribution to the TLP Round Table on Donald Trump’s rise to the status of presumptive Republican nominee.

Various motivations for Trump’s popularity have been posited over the course of the election cycle. Tribalism and xenophobia. Social order authoritarianism. Anger at the establishment. Anti-PC backlash. A yen for creative destruction.

I even have some sympathy for that last one. What is the point of preserving a GOP that has failed so resoundingly to deliver on the promise of limited government? Why not blow on the tiny orange flame of a Trump-match and see if it catches fire? Some wildfires make the ecosystem stronger.

But that is not my point here. There is another faction of Trump support, which has been overlooked amid all the self-righteous indictment of his surprising success. That faction consists of working class voters who spend their lives on the financial brink, who could not come up with $400 to face an emergency, but who, as a result of the statist, two-party-dominated system, cannot escape the inevitability of big government.

We advocates of free markets too often fail to explain, cogently, why free trade and voluntary exchanges deliver the best outcomes for the most people. We fail to explain why it is not just big corporations, businesses and entrepreneurs that get hurt by government interventions into the free market—but also the workers. And when those workers complain about the various ways in which they struggle to make ends meet, we too often dismiss it as a deficiency of effort, rather than a legitimate complaint against the system.

This makes no sense. We know better. We know that over-regulation, barriers to entry, excessive government spending, crony capitalism, and welfare for the rich are all bad for the economy and particularly bad for workers. We know these policies cause work to be less remunerative and hit poor people the hardest.

Why then, when they complain, do so many of us respond by dismissing them as lazy, unmotivated, unproductive and entitled? We should be capitalizing on their complaints. They are incontrovertibly legitimate.

The Mercatus Center at George Mason University recently published a study estimating that regulatory drag has stunted the size of the U.S. economy and made Americans significantly poorer than they would otherwise be. Their numbers, while shocking, seem woefully inadequate to reflect the true costs working people pay for intrusive government.

Through “subsidies,” regulations and entitlements, government intervention into the market drives up prices-relative-to-incomes on most of the things consumers need most. Housing, education, and healthcare all far outpace inflation. Meanwhile, government consumes 36% of GDP, and on everything from contact lenses to gasoline to occupational licensing, Americans must pay more while struggling to participate in a system that is rigged against their efforts.

It is simply not possible to sell people on the wealth potential of a free market while castigating them for failing to succeed in a system that requires hundreds of hours and thousands of dollars to get the mandatory license for a job washing hair.

In that regard, the Democrats have a point (incomplete and poorly made, to be sure) when they say, “you didn’t build that” or, “you’ve also been lucky.” Would-be business owners pay their extorted dues to the government-backed bureaucracy. In return, they are protected from competition by various barriers to entry, government-enforced monopolies, tax-payer funded subsidies, and other massive transfers of wealth from taxpayers to the favored recipients of government largesse. It makes a certain twisted sense to demand more compensation in proportion to their success.

One of these men understands how money and economies function. He led a grassroots movement that motivated millions of young voters. In response, the GOP changed its rules to keep him from gaining traction. The other one is the new face of the Republican Party.

One of these men understands how money and economies function. He led a grassroots movement that motivated millions of young voters. In response, the GOP changed its rules to keep him from gaining traction. The other one is the new face of the Republican Party.

Don’t like it? Great. I don’t either. Let’s repeal the barriers to entry, the legal monopolies, the government grants and below-market loans. Let’s get rid of the regulations and the occupational licensing, the mandated dues and the bureaucratic red tape and all the other bullshit.

This is, in fact, what we put Republicans in the House and Senate to do.

Yet over and over and over again, with a few principled exceptions (e.g., Rand Paul, Justin Amash, Thomas Massie, and, yes, Ted Cruz), Republicans have broken their word, expanded government, and asked us to be patient while they focus on getting reelected.

Revealing the true direction of their priorities, the GOP establishment acted to keep Ron Paul supporters from gaining traction in their ranks. The liberty movement has not died as a result, but it may have left the party. Inside the GOP, it has been replaced by an orange-faced baboon leading an army of alt-righters shouting “cuck” repetitively as they rock back and forth in fear of outside stimulation.

I will not deny a certain satisfying schadenfreude at that turn of events. And there is value in knowing such a cancer festers on the right. But there is equal value in understanding that Trump would not be succeeding on their support alone. He is also propelled by a significant faction of working-class voters desperate for better jobs, a stronger economy, and higher purchasing power.

Sanders is right about a lot of problems, wrong about the solutions. Sanders supporters who can understand the distinction may be an untapped area of future liberty votes.

Sanders supporters may be an untapped area of future liberty votes.

In that regard, Trump’s message resonates with voters on the right for some of the same reasons Bernie Sanders’ message resonates on the left. If big government, high taxes, and crony capitalism are inevitable – because neither of the viable parties intends to do much about them – why not use one’s vote to fight for a bigger piece of the stunted pie? Trump at least pays lip service to the struggle. He promises jobs and protectionism, a reprieve from debt and stagnation.

Of course I know he will not deliver. Trump’s “solutions” will further hurt working class people, by driving up prices and contracting the size of the economy.

Trump is Sanders in orange-face.

The point is, if a liberty-movement aims to rise from the ashes of the Trump-fire, it must speak to the struggles motivating voter support for these two surprise candidates. It must explain why no amount of further tinkering will alleviate the real pain that government intrusions into the economy cause to real people, why the only solution is to unwind those intrusions in the first instance.

Then it needs to actually deliver.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.

Take A Stand! Don’t Vote At All!

Today, my illustrious co-contributors have been making the case to you to vote. Sarah wants you to vote Libertarian, Matthew wants you to vote Republican, and Kevin doesn’t want you to vote Democrat, but drew the short straw and we made him argue it anyway.

Now I’m going to tell you why none of their arguments should make you vote for their parties.
Don't Vote!
First and foremost, the Democrats. Some might argue that if you vote Republican, you get big government AND social conservatism, but if you vote Democrat, you get big government and social liberalism. Frankly, it’s a lie. Democrats talk a good game about civil liberties, about ending the drug war, about being pro-choice, reining in the military-industrial complex, and ending foreign adventurism. Yet they change their tune as soon as they’re in power. Remember all those Bush-era domestic spying programs that Obama put a stop to? No, me neither. Remember when Obama closed Gitmo? No, me neither. Remember when Obama forced Congress to give him a declaration of War before bombing people? No, me neither. And it’s been his fellow Democrats defending his [in-]actions. Voting Democrat will never be beneficial to liberty.

As for the Republicans, one can make a very similar argument. Because if you vote Republican, you really do get big government and social conservatism. They talk a good game about small government and fiscal responsibility, but remember who was in office when TARP happened? Hint — it wasn’t Obama. Medicare Part D? No Child Left Behind? Yeah, not small government. Some might say the Republicans are the lesser of two evils, and that libertarians are more naturally allied with Republicans with Democrats, so you might as well pick them as your poison. There’s just one problem with allies when it comes to government: the alliance is forgotten the day after the election. Fusionism between libertarians and Republicans just isn’t going to work.

No, the reason not to vote Democrat or Republican is it truly has gotten very difficult to determine which of them is the lesser evil. And in our system of direct representation, does it really make sense to vote for someone who doesn’t represent you?

That leaves the argument that we should vote our conscience, and vote Libertarian. I’ll admit, of all three arguments, this is the one I’m most sympathetic to. After all, I would actually want to see Libertarians elected. I would trust a Libertarian candidate to represent my beliefs in Washington. And there’s one more argument for voting Libertarian, which Sarah overlooked: Since Libertarians never win, we don’t have to worry about being hypocrites when they then go to Washington and violate their campaign promises!

So why should you stay home? Why not “vote your conscience” and pull the lever for the Libertarian?

Because any vote, even one for the Libertarian, is an affirmation of the system.

But let’s face it. The system doesn’t work. And the reason it doesn’t work is that the system is rigged. The direct representation system with first-past-the-post voting is only stable with two parties. The two parties then exist to move as close to the center as possible and ensure that they don’t alienate voters. Parties don’t exist to cater to minority views.

But we’re libertarians. We’re not centrists. We are a minority view. Some suggest that we’re 15% of the electorate. But the other side of that 15% is 85%. We can NEVER expect the mainstream parties to represent our interests, no matter who we vote for, because the money is in the center, not at the edges.

The alternative is a parliamentary-style proportional representation system. If we truly are 15% of the electorate, we would be able to gain a sizable chunk of the legislative body and we would force the Republicans and Democrats to work with us to govern. In today’s system, they only work with us until the campaign ends.

No, you shouldn’t vote. Validating the system of direct representation with your vote is a losing strategy. That doesn’t mean you shouldn’t be active. I’m not saying you can’t make an impact. If I believed that, I wouldn’t be blogging. What I’m saying is that if you want to make a difference, focus everywhere except the ballot box. You actually have some likelihood of doing good that way.

Tesla Whines About Protectionist Legislation for Auto Dealers While Using Government Largesse to Compete

Last week, I wrote about rent seeking auto dealers lobbying for protection from competition with manufacturers utilizing direct-to-consumer sales models. I mentioned direct-to-consumer manufacturer Tesla by name, and suggested such legislation would prevent consumers from enjoying the savings that might otherwise be realized from Tesla’s efforts to “eliminate the middle-man.”

I should have taken the opportunity to address Tesla’s own abundant receipt of government largesse.

And to be clear, “government” largesse is always paid for by the taxpayers.

In a piece entitled “If Tesla Would Stop Selling Cars, We’d All Save Some Money,” Forbes contributor Patrick Michaels details all the ways Tesla benefits from government handouts. Michaels concludes that taxpayers shell out $10,000 for every car Tesla sells.

Michaels starts with a claim that purchasers of Tesla vehicles receive a $7500 “taxback bonus that every buyer gets and every taxpayer pays.” Since the tax credit appears to be non-refundable, I would not count it as a cost to other taxpayers, as Michaels does.

But the federal tax credit is only the tip of the crony capitalist iceberg for Tesla.

There are also generous state subsidies paid by taxpayers to the wealthy people who buy Tesla’s expensive vehicles. Purchasers in Illinois, for example, can receive a $4,000 rebate from that state’s “Alternate Fuels Fund,” a $3,000 rebate to offset the cost of electric charging stations, and reduced registration fees. California likewise offers a long list of rebates and subsidies to buyers of electric vehicles.

One of the hidden costs to consumers comes in the form of the increased price tag on cars sold by manufacturers who do not qualify for California’s mandated emissions credits, which they instead have to buy from Tesla, allowing it to earn a profit despite selling cars at a massive loss. As Michaels explains:

Tesla didn’t generate a profit by selling sexy cars, but rather by selling sleazy emissions “credits,” mandated by the state of California’s electric vehicle requirements. The competition, like Honda, doesn’t have a mass market plug-in to meet the mandate and therefore must buy the credits from Tesla, the only company that does. The bill for last quarter was $68 million. Absent this shakedown of potential car buyers, Tesla would have lost $57 million, or $11,400 per car. As the company sold 5,000 cars in the quarter, though, $13,600 per car was paid by other manufacturers, who are going to pass at least some of that cost on to buyers of their products. Folks in the new car market are likely paying a bit more than simply the direct tax subsidy.

Slate’s Scott Woolley details another way in which Tesla has cost taxpayers money. In 2009, Tesla received a $465 million Department of Energy loan that allowed it to weather a financial maelstrom. Unlike Solyndra (and Abound Solar and Fisker Automotive and The Vehicle Production Group LLC), Tesla managed to repay the loan in 2013. According to Michaels, it did so by reporting its first ever quarterly profit (earned from the sale of the emissions credits), which sent its stock soaring and enabled it to borrow $150 million from Goldman Sachs, and then issuing a billion in new stock and long-term debt.

But Tesla paid the U.S. taxpayers back at a rate far below what venture capitalists would have earned on the same loan. As an example, Tesla’s CEO Elon Musk also made a loan to Tesla. Musk got a 10% interest rate and options to convert the debt to stock, which he did, resulting in a 3,500% rate of return on his investment.

In contrast, the U.S. taxpayer received a 2.6% rate of return.

In other words, in our crony capitalist system, taxpayers take the loss on bad loans like the one to Solyndra, but do not enjoy commensurate reward on good loans like the one to Tesla.

But there is still more. Tesla cannot keep earning emissions credits, which allow it to earn a profit despite selling its cars at a loss, unless it can keep selling those cars. Josh Harkinson, writing for Mother Jones, writes that:

Its first-quarter profit, a modest $11 million, hinged on the $68 million it earned selling clean-air credits under a California program that requires automakers to either produce a given number of zero-emission vehicles or satisfy the mandate in some other way. For the second quarter, Tesla announced a $26 million profit (based on one method of accounting), but again the profit hinged on $51 million in ZEV credits; by year’s end, these credit sales could net Tesla a whopping $250 million.

Tesla’s ability to continue selling the cars that earn the credits is in question. The market for $80,000 cars has a limited number of buyers. Tesla must expand its customer base with a more affordable product.

One way to achieve that would be to cut the vehicle’s range. But subsidies, credits and fuel savings notwithstanding, consumers have little taste for lower ranges—even at a much lower price. Another way for Tesla to lower the cost of its vehicles is to cut the cost of its batteries without sacrificing the range. As Harkinson observes:

That, however, may again depend on massive subsidies—in this case funding to battery researchers and manufacturers by the governments of Japan and China. Over the past five years, Japan’s New Energy and Industrial Technology Development Organization, a public-private partnership founded in 1980, has pumped roughly $400 million into developing advanced battery technologies. Tesla’s Panasonic cells also might be pricier if not for subsidies the company received to expand its battery plants in Kasai and Osaka.

When Republican Gov. Rick Snyder signed the bill reaffirming Michigan’s protectionist legislation for traditional automobile franchise dealers, auto blog Jalopnik reported GM’s position as follows:

“Competition is always healthy,” GM spokeswoman Heather Rosenker tells Jalopnik. “But it needs to be on a level playing field.”

In the context of the substantial aid Tesla receives from federal, state and foreign governments, it is easier to have some sympathy for the plight of traditional manufacturers—and their dealers.

Ultimately, that sympathy shines a spotlight on the problems created when government starts “tinkering” in the market. Inevitably, that initial, well-intentioned tinkering necessitates ever more intrusive secondary tinkering aimed at remediating the unintended side effects of its initial foray into the market.

Consider health care. Inflation in the cost of U.S. health care began to outpace the general rate of inflation when the government began subsidizing health care costs. Nobel laureate economist Milton Friedman has estimated that real per capita health spending is twice what it would be in the absence of third party payments, and that Medicare and Medicaid are responsible for 43% of that increase. The remaining portion can be blamed in large part on the third party payments from mandated employer health care coverage, further separating patients from the cost of their care and eliminating the market forces that would otherwise keep costs down. Add to the foregoing the government-enforced monopolies on health care education, leading to 22% fewer medical schools in the United States now than one hundred years ago, despite a 300% increase in population, and attendant provider shortage. All that well-intentioned tinkering created a whole host of ugly, unintended side effects, necessitating more tinkering. The federal government responded with the Affordable Care Act and its accompanying thousands of pages of new regulations.

Everywhere the pattern repeats. The cost of higher education outpaces general inflation precisely because the government wants to help people pay for it. The unintended side effect is increasing numbers of graduates with useless degrees and few job prospects, necessitating further tinkering in the form of loan relief, jobs programs and minimum wage hikes. The Federal Reserve suppresses interest rates to artificial lows in the well-intended effort to speed recovery from the bust of the dot-com bubble. The unintended (in this case, it may actually have been intended, at least by Paul Krugman) side effect is a new bubble in housing. When that bubble bursts, the government must step in to bail people and banks out of their bad investments, create new bureaucracies and new regulations making it harder for people to qualify for loans (in contrast to previous tinkering designed to make it easier).

Lather, rinse, repeat.

I am not a radical free-marketer because I dislike poor people or have a special love for corporations. I am a radical free marketer because I know no amount of tinkering ever produces results as beneficial as what the market produces, naturally and efficiently, all on its own.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.

Michigan Reaffirms Protectionist Legislation for State Auto Dealers

As Tom Knighton covered earlier this week, the Michigan state legislature let its crony capitalist flag fly when it passed a bill affirming Michigan’s protectionist legislation for traditional franchise auto dealers. Yesterday, Republican Michigan Gov. Rick Snyder signed the bill into law.

Under existing law, an auto manufacturer could not a sell new vehicle directly to retail customers other than through “its franchised dealers.” The new legislation signed by Gov. Snyder deletes the word “its.” It thus allows manufacturers to sell through other manufacturers’ dealers, so long as they do sell through someone’s franchised dealer. This legislation is intended to protect Michigan dealers from competition via direct-to-consumer models like that employed by Tesla Motors.

I love capitalism. But I hate crony capitalism.

Tesla wants to bypass traditional auto dealers, who operate via franchises licensed by manufacturers, and instead sell directly to consumers. This would benefit consumers—and manufacturers like Tesla—by eliminating the dealer middlemen.

Michigan does not want its consumers to enjoy those savings.

In this ignominious regard, it joins New Jersey, Maryland, Texas and Arizona. In addition to those, Georgia’s dealers are currently, in the words of Reason’s Brian Doherty, trying “to use the violent force of the state to stop Tesla Motors from innovating and competing against them.”

Auto blog Jalopnik reports that:

The dealer’s case—and GM’s—is that dealers provide a valuable service to consumers and by continuing to employ the traditional dealership model, they’re protecting car owners.

If it were a valuable service, it would not require protectionist legislation. It requires protectionist legislation precisely because it would have trouble competing in a market where consumers were given a choice. Jalopnik further reported GM’s position as follows:

“Competition is always healthy,” GM spokeswoman Heather Rosenker tells Jalopnik. “But it needs to be on a level playing field.”

In other words, GM thinks a level playing field is what is created when one of the world’s largest automobile manufacturers uses the strong arm of government to force other manufacturers to follow its chosen sales model, instead of allowing each to experiment with its own methods and models.

As more than 70 law professors and economists complained when Republican New Jersey Gov. Chris Christie signed similar protectionist legislation:

There is no justification on any rational economic or public policy grounds for such a restraint of commerce. Rather, the upshot of the regulation is to reduce compe- tition in New Jersey’s automobile market for the benefit of its auto dealers and to the detriment of its consumers. It is protectionism for auto dealers, pure and simple.

*     *     *

[W]e have not heard a single argument for a direct distribution ban that makes any sense. To the contrary, these arguments simply bolster our belief that the regulations in question are motivated by economic protectionism that favors dealers at the expense of consumers and innovative technologies.

If our Republican elected officials actually practiced capitalism—instead of its crony capitalist impersonator—they might fare better at the polls. Without a doubt, consumers would be better off.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.

Michigan lets its crony capitalism flag fly

Michigan lawmakers are looking out for auto dealers. Sounds nice, right? Well, it does if you’re a new car dealer who doesn’t like the fact that that upstart auto maker Tesla hasn’t followed the herd when it comes to selling their new cars.

The state’s legislature recently passed a bill that bans direct sales of new cars to customers, requiring a dealer to broker the sale. The bill is awaiting signing by governor Rick Snyder.

From Bloomberg:

The National Automobile Dealers Association, which represents almost 16,000 new-car dealers, favors the franchised-dealer network.

“States are fully within their rights to protect consumers by choosing the way cars are sold and serviced,” Charles Cyrill, a spokesman, said in an e-mailed statement. “Fierce competition between local dealers in any given market drives down prices both in and across brands. While if a factory owned all of its stores, it could set prices and buyers would lose virtually all bargaining power.”

Are states “fully within their rights” to block consumers purchasing a legal product directly rather than going through an approved agent? I’m going to say that they’re not. At all. Sure, there may be no laws that expressly forbid them from doing it (though this seems more a case for the Federal government under the Interstate Commerce Clause), but just because you can do something doesn’t mean you should. This is a big old “don’t”. » Read more

First, I’d like to take a moment to mention how great it is to be posting something to The Liberty Papers. In 2009, I joined with a friend in a project he had started where we blogged about area politics. I’d blogged a little bit here and there before about whatever random things, but my libertarian streak had never really gotten a chance to fly.

Suddenly, I had a platform. To say it changed my life was…well, a significant understatement. It lead to me getting to know some pretty cool people, many of whom are here at The Liberty Papers. It gave me the opportunity to first write for a local newspaper, and then eventually buy it. While that didn’t necessarily work out, it was yet another example of me being able to write a lot of words in a fairly short amount of time. So, I did like a lot of people and decided to write a book. Bloody Eden came out in August and is available at Amazon (or your favorite book website for that matter).

Now that we’ve gotten the history out of the way, a bit about the politics. First, I’m probably best described as a classical liberal. At least, that’s what every “What kind of libertarian are you?” quiz has told me, and they’re probably right. I’m a constitutional libertarian, for the most part. If the Constitution says they can do it, it doesn’t mean they should, but if the Constitution says they can’t, then they can’t. It just doesn’t get any simpler than that.

I look forward to contributing here at The Liberty Papers.