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 Limited Government
 
Crony Capitalism Is NOT Capitalism
The Independent Institute, United States Monday, May 10, 2010

Dominick T Armentano
A genuine capitalist economy assumes that each adult individual and business is free to buy and sell anything that they own and then keep the rewards (or suffer the losses) of enterprise. The only legitimate role for government (the political system) is to protect property rights, that is, to enforce contracts and prohibit theft and fraud, writes Dominick T Armentano in The Independent Institute Newsroom .

It’s all the current fashion to dump on “capitalism.”

It was the greedy free market, supposedly, that created both the housing bubble and the housing bust and led, inevitably, to the “great recession.” Capitalism, according to most liberal pundits (and even Alan Greenspan in a bad mood), is an inherently risky and unstable system that requires government regulation to correct its flaws and moderate its excesses.

...

A genuine capitalist economy assumes that each adult individual and business is free to buy and sell anything that they own and then keep the rewards (or suffer the losses) of enterprise. The only legitimate role for government (the political system) is to protect property rights, that is, to enforce contracts and prohibit theft and fraud.

...

Crony capitalism, by contrast, assumes a far, far larger role for government in the economy. In this system, government employs various regulations, taxes, and subsidies to encourage or discourage specific economic activity that the political system considers desirable.

...

And most importantly, in crony capitalism private firms that are considered “too big to fail” could be bailed out by government; and a central bank (the Federal Reserve) would exist to “print money” (unrelated to any gold reserve) and regulate the supply of credit in the economy.

It is hard to argue that the current economic malaise was in any way produced by anything resembling pure capitalism. But it is fairly easy to conclude that interventionism, i.e., private markets that were propped up with fraud and funny money was, in fact, the culprit.

First, the Federal Reserve kept interest rates too low for too long (2001–2006) and pumped excess money and credit into the economy. Second, numerous quasi-governmental agencies (Freddie and Fanny) encouraged excessive mortgage lending and home ownership out of all relationship to sound financial practices.

Third, much of the under-capitalized and over-leveraged banking industry collapsed when (federal) credit dried up and housing prices turned downward. And fourth, the federal government taxpayer and international lenders (mostly China) funded the trillion-dollar government “stimulus” plan and the bailout of inefficient business organizations (Chrysler, GM, AIG, etc.) that should have been allowed to go belly-up.

This is free market capitalism? Hardly.

...

Before we spend and regulate further, we require an informed media and an enlightened public that can distinguish real capitalism from phony, crony capitalism.

 

 

This article was published in the The Independent Institute on Monday, May 10, 2010. Please read the original article here.
Author : Dominick T. Armentano is professor emeritus in economics at the University of Hartford (Connecticut) and a research fellow at The Independent Institute in Oakland, Calif. He is author of Antitrust & Monopoly (Independent Institute, 1998).
Tags- Find more articles on - bailout | capitalism | crony capitalism | federal government | federal reserve | financial crisis | greenspan

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