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Special Favors For Businesses Don’t Benefit Taxpayers

shutterstock_439358455Interesting story here.

This election cycle has stunned even the most seasoned political prognosticators. Voters are clearly fed up with the “Washington Way,” lashing out like never before. If voters truly want to shake up the political landscape, they should start by demanding separation between big government and big business.

Corporate favoritism is when government takes taxpayer money and gives it to big businesses in the form of handouts, a practice that is rampant in America. Almost every day of the year, you can find a story about government at some level—be it federal, state, or local—doling out hardworking taxpayers’ money to a big corporation. The aim is to convince that company to relocate to, expand, or simply stay in their area. Some have coined this “press release economics,” where politicians cut ribbons and deliver statements about the jobs they are creating with these handouts.

But the consequences of corporate favoritism are dire. Since 2005, Tennessee taxpayers have handed over $1.75 billion to big businesses via handouts. All too often, corporate favoritism lines the pockets of millionaires with the tax dollars of the middle class. But most Americans would agree a company’s success should rely on what good or service it provides, not who its executives know.

These corporate handouts also mean we have less money for true government services. Every dollar forked over to a massive company is one less dollar that can be invested in maintaining our roads, educating our children, or keeping the public safe. It’s not the role of government to prop up large businesses with taxpayer money, yet more and more dollars are being redirected from other government services to do just that.

Every dollar forked over to a massive company is one less dollar that can be invested in maintaining our roads, educating our children, or keeping the public safe.

As if that wasn’t bad enough, sometimes those big businesses even take the money and run. We all remember Solyndra, a name that has become synonymous with failed corporate bailouts. In 2009 the solar company misled the federal government to obtain more than half-a-billion in federal stimulus grants, only to go belly-up two years later.

via Special Favors For Businesses Don’t Benefit Taxpayers

All true, and indeed it’s always been true to some extent, at least as long as there has been big business. Not that it is entirely their fault, as someone said during the Credit Mobliér scandal in the nineteenth century, we paid the bribes but we aren’t the ones that accepted them.

But just how widespread is this bad, antithetical, and anticompetitive practice? Well, James Bessen has some information on that, and a chart.

Profits are up. …is it good news for society?

…the rise in profits might represent a decline in…economic dynamism. …Firms engage in political “rent seeking”—lobbying for regulations that provide them sheltered markets—rather than competing on innovation. If so, then high profits portend diminished productivity growth. …In a new research paper, I tease apart the factors associated with the growth in corporate valuations.

I find that investments in conventional capital assets like machinery and spending on R&D together account for a substantial part of the rise in valuations and profits, especially during the 1990s. However, since 2000, political activity and regulation account for a surprisingly large share of the increase.

I find that investments in conventional capital assets like machinery and spending on R&D together account for a substantial part of the rise in valuations and profits, especially during the 1990s. However, since 2000, political activity and regulation account for a surprisingly large share of the increase.

[And the chart]

w1056

via: A Very Depressing Chart on Creeping Cronyism in the American Economy

How’s that for depressing, corporate America is making nearly as much money, playing the regulatory system, as they are from using their own money. And this is nearly part of the damage. A lot of what they do in the regulatory system is to use the government to stifle competition. We’ve said many times, and if you have any sense, you know it as well, that a large elephantine corporation can’t change direction quickly enough to respond to a dynamic market. But if they can use the government (and their guns) to suppress competition, it no longer matters. But the lost profits to the suppressed companies, and whatever they might have done with the profits (which we simply can’t quantify) are completely lost to us.

And so we have a triple loser here, from the standpoint of the individual taxpayer.

  1. We have the wasted tax dollars (like Solyndra)
  2. We have unresponsive, too big to fail corporations (yes, banks as well)
  3. We lose whatever products and payroll those other competitors (who were suppressed) might have provided.

Hard to see how we taxpayers could get a worse deal, it would literally be better for us, if they burned $100 bill to heat the capitol.

Authored By nebraskaenergyobserver

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