Crony Capitalism

Hillary Clinton’s Alinskyite Attacks on Pharma Companies

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“Pick the target, freeze it, personalize it, and polarize it.” (Saul Alinsky)

Hillary is clever to go after individual companies. If she attacked the pharma industry as a whole, it could unite politically in response and perhaps gain political support from other industries that would reasonably see themselves as similarly vulnerable. But individual companies have no defenses against this kind of attack. By singling out one victim she discourages other industry players from doing anything in response, because any company or industry group that responds risks being targeted in the future.

She has done this kind of thing before. She will probably keep doing it because it’s politically effective. Her attack on Mylan destroyed a large amount of wealth, and probably not just for Mylan’s shareholders. Today Mylan’s CEO is groveling in the media. As with past political attacks by Hillary and others on vaccine manufacturers, yesterday’s attack on Mylan will discourage pharma companies from introducing valuable new products and will reduce the availability of current products. We will probably see more of this kind of extortionate behavior by the federal govt if she is elected, because that’s how the Clintons operate and because a Hillary administration would appoint more lefty judges and DOJ and regulatory officials who would go along with it.

Quote of the Day

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Dale Franks, Vote Properly, You Virulent Racist!:

But let’s go even further. Even if you could prove that, on balance, free trade is an unquestionable economic benefit, people might still prefer to be measurably poorer if that’s the price that must be paid to maintain their traditional social and political cultures. (This has even more relevance in the case of the EU, because the EU actually has power. Imagine if NAFTA had an unelected Commission in Ottowa or Mexico City that could impose laws on the United States.) Perhaps people don’t regard their economic interests as important as their national or cultural interests. It doesn’t matter what elite opinion thinks the people’s most important interests are. In a democratic society, ultimately, it only matters what the people think they are. People get to determine their own priorities, and not have them dictated by elites. The people get to answer for themselves the question, “In what kind of country do I want to live?”
 
Of course, I would argue that we don’t have truly free trade or, increasingly, a free economy in the United States. The Progressives always look at the rising income inequality and maintain that it’s the inevitable result of capitalism. That’s hogwash, of course, and Proggies believe it because they’re dolts. But the problem in this country isn’t free trade—we have precious little of it—or unrestricted capitalism, since we have precious little of that as well. The issue behind rising income inequality isn’t capitalism, it’s cronyism. Income isn’t being redirected to the 1% because capitalism has failed, it’s happening because we abandoned capitalism in favor of the regulatory crony state and its de facto collusion between big business/banking interests and a government that directs capital to favored political clients, who become “too big to fail”. It doesn’t matter, for instance, whether the president is a Democrat or Republican, because we know the Treasury Secretary will be a former—and future—Goldman Sachs executive.

Franks’s post is very well thought through and ties together the main themes that appear to be driving US, British and European politics. It’s worth reading in full if you haven’t yet done so.

Who’s More Fascist: Presidential Candidate Donald Trump or Former Federal Reserve Chairman Ben Bernanke?

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How Economists Facilitated the Transition of Erstwhile “Market” Economies to Fascism

The Left calls Donald Trump a fascist invoking the memory of Hitler and Mussolini, to which Trump might reply: “they were losers; I’m no loser.” Fascism is in essence the political control of the private economy, historically justified by democratically elected leaders to defend against perceived or orchestrated external threats. Progressive war politicians from Presidents Wilson and FDR to Johnson and Obama and now candidate Clinton have pursued this same goal in the US as has the social democratic European Union.

At the recent meeting of the G20 leaders and central bankers political responsibility for and control over their respective economies was assumed, but their Alfred E. Newman “what, me worry” smiling faces belie the fragility of the current global economy. The political distortions to both the financial and real economy have arguably never been greater, to which politicians and their economist enablers prescribe more of the same mostly wasteful public spending financed by money printing, a cure reminiscent of medieval bloodletting.

Having never been of much use to business, economists mostly followed “Say’s Law” that supply creates its own demand (for academic economists). They got their first pervasive shot at political power when President Wilson – an academic who chafed at constitutional constraints – created the Federal Reserve which helped US bankers fund the Allies until he could mobilize a war economy, making the first WW “Great.” The unprecedented death and destruction of the Great War knocked the global economy off kilter and the massive international war debts made stabilization politically difficult. As the creditor and least damaged victor, the US economy boomed in the roaring ’20s, followed by a bust.

Purveyors of the “dismal science” had previously counseled that politicians had to own up to the cost of war until the private economy recovered. While the “arts” of manipulating the value of currency and public spending financed by coercive taxes and often uncollectable debt as well as coercive regulation were as old as politics and war itself, post WW I economists became noticeably less “dismal” and purportedly more “scientific,” believing that such “macroeconomic” interventions could be calibrated to “tame business cycles” in part by transferring or defaulting on war debts. This was complemented by “microeconomic science,” the recent objective of which has been to prove that individuals aren’t always perfectly rational (and by inference in need of paternalistic political protection and direction). Macroeconomists contend that this psychological defect is contagious, conjuring irrational mobs running on banks (or attending Trump rallies).

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Quote of the Day 2

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Nassim Nicholas Taleb on Facebook:

What we are seeing worldwide, from India to the UK to the US, is the rebellion against the inner circle of no-skin-in-the-game policymaking “clerks” and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy league, Oxford-Cambridge, or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think… and 5) who to vote for.
 
With psychology papers replicating less than 40%, dietary advice reversing after 30y of fatphobia, macroeconomic analysis working worse than astrology, microeconomic papers wrong 40% of the time, the appointment of Bernanke who was less than clueless of the risks, and pharmaceutical trials replicating only 1/5th of the time, people are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers with a better track record than these policymaking goons.
 
Indeed one can see that these academico-bureaucrats wanting to run our lives aren’t even rigorous, whether in medical statistics or policymaking. I have shown that most of what Cass-Sunstein-Richard Thaler types call “rational” or “irrational” comes from misunderstanding of probability theory.

(Via Richard Fernandez.)

“Washington’s war against short-term stock traders”

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From an excellent column by J.W. Verret:

The government policy of promoting long-term profits is bad economics, and even worse, it is engineered to favor incumbent firms and stifle innovation. When the government gets to decide the proper term of your investments, it constitutes the same form of cronyism as when campaign donors are directly given sacks of cash by the government officials they donated to when they were candidates.
 
A guiding principle in our economy is Joseph Schumpeter’s theory of “creative destruction.” Just as some forests need to burn in order to clear away brush and make way for more robust growth, economic innovation also requires that old and outdated companies be broken up for new replacements to take root. Recently, Americans have received an education in this principle by watching Uber’s challenge to the taxi cab incumbents.
 
The American capitalist economic system is at its best when guided by the principle that no firm is too big or special to fail. While corporate executives may feel such a jungle atmosphere is harsh and unforgiving, don’t forget that customers who buy products and investors of capital are at the top of the food chain in this jungle. Wall Street banks and corporate executives are the prey! Protecting failing companies and subsidizing politically powerful incumbent firms, under the false guise of promoting long-term value, is simply un-American.

A couple of other points:

-Short-term trading adds market liquidity, which reduces bid/offer spreads. Because of short-term trading, long-term investors pay less to buy and receive more when they sell.

-Liquidity buffers volatility. Wild market swings happen when liquidity dries up. Any trading restriction that reduces market liquidity will increase market volatility.

This stuff is basic. It’s a shame that many people never learn it and are credulous about fairy tales involving evil speculators and high-speed traders in dark alleys. When someone in a position of authority tells you that a particular type of free exchange is bad, it’s usually safe to assume that he has a stake in some crony enterprise that benefits by restricting your choices.

(Via Instapundit.)