Tag: crony capitalism

Crony Capitalism and Stifled Speech

Was it a typo or a Freudian slip? The Washington Post reports:

As president-elect, for instance, Trump took Boeing to task for cost overruns when he tweeted that the Air Force One program’s $4 billion expenditures were “out of control” and suggested the contract be canceled….

Trump was more complementary on Feb. 17, when he made appearance at a Boeing factory in South Carolina and concluded his remarks by saying, “May God bless you, may God bless the United States of America, and may God bless Boeing.”

The reporters meant “complimentary.” But indeed the point of the article is just how “complementary” big government and its big contractors are. Headlined “Why America’s biggest government contractors balked at criticizing Trump,” the article explores how CEOs started jumping off President Trump’s advisory councils after his disappointing remarks about white supremacists marching in Charlottesville – but not “the four government contractors on the president’s advisory councils — Lockheed Martin, Boeing, Harris Corp. and United Technologies.” After all, 

In many ways, contractors such as Boeing and Lockheed Martin are more dependent on government decision-making than other companies that took part in the councils.

Indeed, if a large part of your business comes from government contracts, you’d better be very careful about criticizing the president of the United States. Especially a president who has little sense of the proper limits of presidential authority:

Those negotiations [over a new fighter plane] were marked by unusually close interactions between Trump and the business executives involved. Bloomberg later reported that Trump allowed Boeing chief executive Dennis A. Muilenburg to listen in on a call with a key government manager for the F-35 program as Trump sought information on the two planes.

President Trump’s tweets, legal problems, chaotic White House management, and other high-profile troubles may have diverted attention from a problem that many of us pointed out before he was elected: his “economic nationalism” that seems to mean in practice protectionism, crony capitalism, and a promise that he’ll personally run the U.S. economy.

Government contractors understand this. Even before he was elected, Trump intervened to “persuade” Carrier to keep a plant open in Indiana. How? Was it the state tax credits? Or something less public? The CEO of Carrier’s parent company United Technologies, Greg Hayes – who was later on the president’s manufacturing council – acknowledged that the deal to keep the plant open probably wasn’t really economic. But:

I was born at night, but it wasn’t last night. I also know that about 10 percent of our revenue comes from the U.S. government.

When companies get in bed with government, that’s the bargain they make. And as we’ve just seen, that bargain not only leads to economic decisions that make us all poorer, it stifles the free speech of those dependent on government decisions. And that’s a problem when government is the biggest landlord, employer, arts patron, and purchaser of goods and services in society.

Solyndra: A Case Study in Green Energy, Cronyism, and the Failure of Central Planning

Back in 2011 I wrote several times about the failure of Solyndra, the solar panel company that was well connected to the Obama administration. Then, as with so many stories, the topic passed out of the headlines and I lost touch with it. Today, the Washington Post and other papers bring news of a newly released federal investigative report:

Top leaders of a troubled solar panel company that cost taxpayers a half-billion dollars repeatedly misled federal officials and omitted information about the firm’s financial prospects as they sought to win a major government loan, according to a newly-released federal investigative report.

Solyndra’s leaders engaged in a “pattern of false and misleading assertions” that drew a rosy picture of their company enjoying robust sales while they lobbied to win the first clean energy loan the new administration awarded in 2009, a lengthy investigation uncovered. The Silicon Valley start-up’s dramatic rise and then collapse into bankruptcy two years later became a rallying cry for critics of President Obama’s signature program to create jobs by injecting billions of dollars into clean energy firms.

And why would it become such a rallying cry for critics? Well, consider the hyperlink the Post inserted at that point in the article: “[Past coverage: Solyndra: Politics infused Obama energy programs]” And what did that article report?

Most U.S. Manufacturers Victimized by Ex-Im’s Hidden Costs

In an earlier post today, I described a reasonable methodology for estimating the hidden costs imposed on companies whose suppliers receive export subsidies from the Export-Import Bank. Ex-Im officials like to talk about how they “grow the economy” and create jobs by enticing foreign customers with low-rate financing to buy U.S. exports. As I described in that earlier post, when the cost to business of exporting is mitigated by subsidies, companies will likely export more. That may be good for them, but it’s not so good for their U.S. customers, whose foreign competition is now enjoying lower costs (courtesy of U.S. taxpayers). Delta Airlines’ complaint about subsidized Boeing sales to Air India having an adverse impact on Delta, who competes for passengers with Air India, is a fairly clear example of the problem.

As an approximation of the cost imposed on Downstream Industry A, (let’s call it the Delta Effect), I used the subsidies received by every industry whose output is used in Downstream Industry A’s production process, adjusted those subsidies by the importance of the input relative to the total of all intermediate goods inputs, and summed up the values.  I did this for every 6-digit NAICS manufacturing code and presented tables of results in descending order from biggest victim to biggest beneficiary.  There were 236 industries – perhaps too much information, particularly for a blog post.

So for greater clarity, this table compiles the data at the broader, 3-digit NAIC industry level.  

As you can see, most aggregated 3-digit industries are victims of Ex-Im subsidies.  And most of the 6-digit industries within each broader 3-digit industry are victims, too. U.S. manufacturers of electrical equipment, appliances, furniture, food products, non-metallic metals, chemicals, computers, plastics, rubber, paper, primary metals, and many other goods should give Delta a call and get really busy during Congress’s August recess.

Topics:

The Export-Import Bank and Its Victims: Which Industries Bear the Brunt

The Export-Import Bank of the United States is a government-run export credit agency, which provides access to favorable financing for the foreign customers of some U.S. companies.  For several months, Washington has been embroiled in a debate over whether to reauthorize the Bank’s charter, which will otherwise expire on September 30.  While Republican House leadership remains publicly committed to shutting down the Bank, a bipartisan group of eight senators introduced reauthorization legislation last night, setting the stage for a post-August recess showdown.

Reauthorization buffs contend that Ex-Im fills a void left by private sector lenders unwilling to provide financing for certain transactions and, by doing so, contributes importantly to U.S. export and job growth.  Rather than burdening taxpayers, the Bank generates profits for the U.S. Treasury, helps small businesses succeed abroad, encourages exports of green goods, contributes to development in sub-Saharan Africa, and helps “level the playing field” for U.S. companies competing in export markets with foreign companies benefitting from their own governments’ generous export financing programs.  Accordingly, failure to reauthorize the Bank’s charter would be akin to unilateral disarmament.

But those justifications – two rationalizations, really, and a few token appeals to liberal sensibilities intended to create the illusion of a bipartisan imperative for reauthorization – are unpersuasive or non-responsive to Ex-Im’s critics.  By effectively superseding the risk-based decision-making processes of legions of private-sector, profit-maximizing financial firms with the choices of a handful of bureaucrats using non-market benchmarks and pursuing often opaque, political objectives, Ex-Im risks taxpayer dollars.  That Ex-Im is currently self-sustaining and generating revenues is entirely beside the point and is no more reassuring than a drunk driver rationalizing that he made it home safely last night so there’s no danger in drunk driving tonight.

Frank Underwood Wants a Subsidy

House of Cards is a Netflix television series about a powerful, manipulative politician who gets what he wants with little regard for the public good. Here’s an example:

“House of Cards” star Kevin Spacey is booked to appear in Annapolis on Friday night as the fate of a tax credit that has benefited the production of his Netflix series hangs in the balance.

Gerard E. Evans, an Annapolis-based lobbyist for the show, has invited the entire Maryland General Assembly to a local wine bar to meet the two-time Academy Award winner who plays the scheming Vice President Frank Underwood in the series. An invitation describes the event as “an evening of Annapolis, D.C. and Hollywood.”…

The visit is scheduled just a few days after the Senate voted to increase the amount the state can spend next year, to $18.5 million, on a tax credit that rewards movie and television production companies that choose to film in Maryland. “House of Cards” has been the biggest beneficiary in recent years.

The House of Delegates has yet to act on the bill, with about two and a half weeks remaining in this year’s 90-day legislative session in Maryland. Evans said he has been encouraged by recent meetings with House Speaker Michael E. Busch (D-Anne Arundel) and other key delegates.

A few weeks before the second season of “House of Cards” debuted online, the show’s production company sent letters to Busch and Gov. Martin O’Malley (D) making clear they could film elsewhere if the debate over the tax credit didn’t end well.

It’s hard to imagine a better example of rent-seeking, crony capitalism, and conspiracy between the rich, the famous, and the powerful against the unorganized taxpayers. A perfect House of Cards story.

The Tax Foundation has been covering film tax credits in general and the House of Cards saga in particular. The Mackinac Center has been campaigning against Michigan’s film tax credits, and Gov. Rick Snyder has tried to rein in the program. But it’s hard to beat Frank Underwood.

 

Will Republicans Make a Principled Stand Against Ex-Im Reauthorization in 2014?

Jobs are good. Exports create jobs. We create exports. Renew our charter.

Such is the essence of the marketing pitch of the U.S. Export-Import Bank, whose officials have begun ramping up their lobbying efforts ahead of a 2014 vote concerning reauthorization of the Bank’s charter, which expires in September.  Last go around, in 2012, Ex-Im ran into some unexpected turbulence when free-market think tanks, government watchdog groups, and limited government Republicans in Congress raised some compelling – but ultimately ignored – objections to reauthorization.

The ostensible purpose of the Ex-Im Bank is to assist in financing the export of U.S. goods and services to international markets. Even if that were a legitimate role of government, the public must keep a watchful eye on how much and to whom loans are made – especially given the current administration’s tendency to bet big on particular industries and specific firms, and in light of its commitment to seeing U.S. exports reach $3.14 trillion in 2014.

From the U.S. Export-Import Bank’s 2013 Annual Report:

The Ex-Im Bank’s mission is to support American jobs by facilitating the export of U.S. goods and services. The Bank provides competitive export financing and ensures a level playing field for U.S. exporters competing for sales in the global marketplace. Ex-Im Bank does not compete with private-sector lenders but provides export financing that fill gaps in trade financing. The Bank assumes credit and country risks that the private sector is unable or unwilling to accept. It also helps to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters. The Bank’s charter requires that the transactions it authorizes demonstrate reasonable assurance of repayment.

The defensive tone of this mission statement anticipates Ex-Im critics’ objections, but it certainly doesn’t answer them. The objectives of filling gaps in trade financing passed over by the private sector and expecting a reasonable assurance of repayment are mutually exclusive – unless the threshold for “reasonable assurance” is more risk-permissive than the private-sector’s most risk-permissive financing entities.  Therefore, Ex-Im is either putting taxpayer resources at risk or it is competing directly with private-sector lenders for customers in need of finance. And if the latter, then as it seeks to create the proverbial “level playing field” for the U.S. companies whose customers it finances, Ex-Im is un-leveling the playing field for the finance industry, as well as for the U.S. firms in industries that compete globally with these U.S-taxpayer financed foreign companies.

Big Business Gets Yet Another Obamacare Delay That Individuals Don’t

“I didn’t simply choose to delay this on my own,” President Obama reassured the nation about his unilateral decision to delay Obamacare’s employer mandate. “This was in consultation with businesses all across the country,” he said, as if that made the situation better instead of worse. Obama threw his “consultants” another bone when he decided to delay the reporting requirements the law imposes on employers, also until 2015. The president’s generosity toward large corporations will be financed by the American taxpayer. The Congressional Budget Office projects these delays will cost taxpayers another $3 billion in new government spending and reduce federal revenues by $9 billion, for a total increase in the federal debt of $12 billion. Yet the president fails to show the same concern for individual taxpayers. When the House of Representatives, including dozens of Democrats, voted to extend the same break to individuals by delaying Obamacare’s individual mandate by one year, President Obama threatened to veto that bill. Bizarrely, he also threatened to veto another bill (approved by an even broader bipartisan majority) that would make legal his illegal delay of the employer mandate.

So perhaps we should not be too surprised now that the New York Times reveals yet another delay the president approved at the behest of big business:

In another setback for President Obama’s health care initiative, the administration has delayed until 2015 a significant consumer protection in the law that limits how much people may have to spend on their own health care.

The limit on out-of-pocket costs, including deductibles and co-payments, was not supposed to exceed $6,350 for an individual and $12,700 for a family. But under a little-noticed ruling, federal officials have granted a one-year grace period to some insurers, allowing them to set higher limits, or no limit at all on some costs, in 2014…

[F]ederal officials said that many insurers and employers needed more time to comply because they used separate companies to help administer major medical coverage and drug benefits, with separate limits on out-of-pocket costs…

A senior administration official, speaking on condition of anonymity to discuss internal deliberations, said: “We knew this was an important issue. We had to balance the interests of consumers with the concerns of health plan sponsors and carriers, which told us that their computer systems were not set up to aggregate all of a person’s out-of-pocket costs. They asked for more time to comply.”…

Theodore M. Thompson, a vice president of the National Multiple Sclerosis Society, said: “The promise of out-of-pocket limits was one of the main reasons we supported health care reform. So we are disappointed that some plans will be allowed to have multiple out-of-pocket limits in 2014.”

It is a sign of Obamacare’s complexity that the Obama administration felt it needed to issue this delay. It is a further sign of the law’s complexity that this delay was announced in February, yet is only coming to light now.