Crony capitalism is not capitalism.
Russ Roberts’ testimony to Congress (pdf) is magnificent. Early on, he says this:
We are what we do. Not what we wish to be. Not what we say we are. But what we do. And what we do here in Washington is rescue big companies and rich people from the,consequences of their mistakes. When mistakes don’t cost you anything, you do more of them.
When your teenager drives drunk and wrecks the car, and you keep giving him a do-over—repairing the car and handing him back the keys—he’s going to keep driving drunk. Washington keeps giving the bad banks and Wall Street firms a do-over. Here are the keys. Keep driving. The story always ends with a crash.
Capitalism is a profit and loss system. The profits encourage risk-taking. The losses encourage prudence. Is it a surprise that when the government takes the losses, instead of the investors, that investing gets less prudent? If you always bail out lenders, is it surprising that firms can borrow enormous amounts of money living on the edge of insolvency?
I’m mad at Wall Street. But I’m a lot madder at the people who gave them the keys to drive our economy off the cliff. I’m mad at the people who have taken hundreds of billions of taxpayer money and given it to some of the richest people in human history. I’m mad at Bush and Obama and Paulson and Geithner and Bernanake. And I’m mad at Congress. You made sure that risk-takers continue to expect that the rules that apply to the rest of us don’t apply to people with the right connections.
And then he gets wound up! Roberts is right: it’s time to take the “crony” out of crony capitalism.