http://online.wsj.com/article/SB10000872396390443847404577629841476562610.html
So is corporate welfare by the government a problem that should be addressed?
As a general rule, I believe in free markets. However the political reality is that the government often feels obligated to step in when a significant number of jobs are at stake. Or if a particular industry has national security or infrastructure implications. And in many industries, foreign competitors are highly subsidized by their governments.
So it’s actually a fairly complex issue.
Hasn’t it been well-established at this point that free market capitalism is a failed experiment? Yes, corporate welfare should end. So should the lobbying system in the US. Government can’t regulate industry if it is being financed by the industries its supposed to be regulating.
Um, no, exactly the opposite has been well-established. Free market capitalism is a wildly successful thing.
Look around you; you live in a level of wealth and comfort that is insanely higher than was enjoyed by almost all the human beings in human history and it’s largely due to the free market. Even AFTER a significant economic downtturn the standard of living enjoyed in capitalist countries is enviously high. Seriously, did you just skip over 300 years of history and go straight from subsistence farming to the 2007/2008 economic crisis and conclude nothing had been accomplished in the interim?
The cliche “First World problems” is a cliche for a reason; it’s true. We’re ridiculously spoiled in terms of real wealth, and that real wealth is enabled, to a large extent, by the use of free markets. There’s other key factors too - peace, stable government, rule of law - that allow capitalism to function, but you still need capitalism or you get a shithole like Cuba that people build makeshift boats to try to escape.
An end to corporate welfare would be a fine thing, for the most part, but how does it show “free market capitalist” is a failure?
Corporate welfare is just like personal welfare. Mostly, we as a society don’t need it. But we need safety nets to give the unlucky a chance to be productive again.
Take the American car companies, for example. They had some problems, but nothing that would prevent them from being profitable again. So corporate welfare to save them was justified. Or, look at the oil industry. When oil was at record low prices, they were having serious problems. So some subsidies were useful.
The trouble is the welfare getting locked in. Oil companies don’t need subsidies now. Yet the government is still wasting taxpayer money on them and distorting the market. It’s lose-lose situation for everyone but the oil companies.
“Corporate Welfare” is a term that covers a lot of stuff. Take the US Ethanol Program-the government/taxpayers pay farmers to grow corn, and pay subsidies for distillers to make the corn into alcohol. Allegedly, this benefits farmers, and “lessens dependence upon imported oil”.
In reality, it causes higher oil imports, and causes higher food prices.
Or take General Electric-this firm has received tax breaks and subsidies, in order to stay in certain areas. What happens is that GE milks the subsidies, then leaves when it can get ab better deal. Eventually, all these welfare items result in the same thing-lobbying for MORE corporate welfare.
Yes. Corporate welfare is largely responsible for the abuses of the robber barons of the so-called “gilded age” of unbridled capitalism, and on up to the problems of our present day. Cat Whisperer thinks it proves free markets are a failure, when subsidies and corporate welfare are actually the opposite of a free market.
Corporations can come and go, they don’t need propped up, and there shouldn’t be such a thing as “too big to fail”. If there is a decent safety net such that individuals can weather economic troubles, it doesn’t matter if GM wastes away – they will be replaced by something better, cheaper and more efficient. Corporate welfare retards the sort of progress that free markets promote.
Somehow people have been fooled into believing that corporate welfare is important for free markets to exist, while safety nets for individuals are tantamount to communism. Whereas safety nets promote individual freedom and corporate welfare is not far from a command economy. The whole issue has been turned on its head by some quite effective corporate propaganda.
Yes it does matter if GM wastes away. The next company will not grow to GM’s size overnight. It will take decades. Until then what happens to the tens of thousands of jobs that GM supports. If we all of a sudden took away oil welfare gas prices would shoot up. The oil companies just arent going to eat that lost revenue stream. I don’t like the welfare but you have to decide if the result of taking it away would be positive. I think it might be a necessary evil.
It sort of matters as GM employs over 200,000 people and there are thousands more whose livelihood is indirectly tied to the success or failure of GM. Is it really better for that many people to suddenly become unemployed?
The real issue is moral hazard. When businesses can get bailed out, they tend to be run that way. They can become bloated an inefficient, often to the point where they are unsustainable without long term government funds. Consumers ultimately suffer because more efficient, cheaper alternatives don’t become available because they can’t compete with the subsidized competitors.
For someone with Koch’s reputation, his column seems oddly naive, as if “cronyism” is all that’s wrong and getting rid of it will set everything else right. It’s like he’s living in an economic fairy tale…
How he can say that after the financial meltdown, I don’t know. Koch’s business world seems to be all rainbows and frolicking unicorns.
If business doesn’t have the self-control to stop doing it, maybe Mr. Koch should call out the companies indulging in it–you know, acting lawfully and with integrity–instead of putting all the blame on government.
I think Koch’s point is that the financial meltdown is precisely an example of what business isn’t supposed to do.
First we would have to define corporate welfare.
For example, I got tax credits for installing solar. Those credits made it possible for Solar City to get me as a customer, because it brought the price down to a point where the ROI was worth it to me.
Pure corporate welfare. It benefitted someone with enough income to cough up the rest of the cost (I paid 15k, you taxpayers paid another 13k or so). The company also made money.
BUT - one could argue this was good for the environment, took little administration, and helped a strategically needed industry.
That’s the case because unless economic freedom extends as far, and beyond, the right of big money to dominate the public sphere as fully as it does the private, then there is no economic freedom.
Those are the terms of the debate, regrettable as they are. We are long past the time when the interests of the few and the interests of the many were things to be reconciled and negotiated across, around and between. The interests of the few are the interests of the many now - and if it should turn out that they are not, then fuck the many.
I would say that the purest form of corporate welfare benefits no one who couldn’t get along just as well without it. It doesn’t help anyone who really needs help, and it doesn’t profit anyone who’s not already profitable. To do so would introduce the moral hazard of a handout. Real corporate welfare would be strictly a bonus to those who are already doing well.
I guess you’re referring to this paragraph:
Even if those government mandates were part of the problem (I’m not saying they were or weren’t), he can’t absolve business of any responsibility. Banks invented credit default swaps on their own without any nudging from the government, nor did government encourage banks to trade them like they were on a drunken orgy without any thought of the risk they were accumulating. Koch is blaming the beer for getting someone drunk. If he can imagine a world without greed, then he is living in a fantasy.
About “cronyism” or corporate welfare, Koch seems to think it’s automatically wrong, that there’s no good reason for any of it. No doubt there have been abuses, but he wants to throw the baby out with the bath water. Like Algher pointed out, sometimes there’s a need for strategic manipulation of the economy. If the free market doesn’t care about climate change, for example, then something needs to be done to make it care.
And finally, when Koch ends his column by saying, “And when President Obama tells an entrepreneur ‘You didn’t build that,’ everyone will know better”, it’s hard to take him seriously.
Bankruptcy would have served them better. Bankruptcy does not mean dissolution. Instead the federal government stepped in (illegally) and screwed those who held secured interests. Good luck trying to get new secured interests in the auto industry! Because now we know that they’re basically unsecured: the President can step in and sweep away the securities, and give them to the unions, by fiat.
Do you really think that a bankruptcy would have caused all of GM’s assets to be scattered to the winds? Not likely. The brand still had value, and GM’s creditors (who would have been the new stockholders) would have made sure to make the most of it.
Farm subsidies get (and deserve) a lot of grief, but federal subsidies of various crop insurance programs make the difference between success and failure for a lot of agricultural industry. I do wonder how well ag would work in the US without these subsidies. My guess is that few small farms would remain, and it would all be huge agribusiness.
Dealing with pollution is fine. That’s a market failure, an externality, and therefore a logical place for government to act. But how is that “corporate welfare” in any sense that has ever been meant by anyone? You start dealing with pollution by taxing the living bejeezus out of it, not by giving zillion dollar handouts.
Indeed, that’s a rather perfect example, since the single biggest U.S. initiative with regards to replacement of fossil fuels was the ethanol subsidy industry - a gigantic corporate welfare program that by any rational analysis was an economic and humanitarian catastrophe. But it rolled onI]because rich people made money off it*. What conceivable justification could thre be for this fiasco? The basic subsidy’s over, thank God.
Indeed, of all the accomplishments of Barack Obama’s adninistration, signing the death certificate for the ethanol subsidy is arguably the most important, but he won’t earn six votes i nthe entire country for it.
The primary difference between the government bailout/takeover of GM and bankruptcy is that the government invested a huge sum in the corporation. Bankruptcy would have wiped out creditors’ investments just as surely as the government takeover. Plus, there was some value in avoiding the term “bankruptcy”.
I just want to point out that the free market is NOT a cure-all.
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It’s not always the most efficient. Just because it matches supply to demand as well as allocation of resources doesn’t mean it’s the wise thing to do. Tragedy of the commons is a good example. What works in rational self-interest creates macro-level trends that may wind up with very sub-optimal consequences.
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It doesn’t always take into account distribution. So the market might work, but who’s actually in that market? If you look at an industry and it’s mainly run by wealthy people FOR other people who have enough wealth to participate, the numbers can be misleading. This was why there was government effort made to make it easier for people to be homeowners, since it tends to help correlate to other positive factors in terms of overall cost reduction and helps expand the base so the market wasn’t so prohibitively costly.
Of course, the problem with this arises when plans are implemented poorly and have perverse incentive structures like we saw with the banking crisis.
Do we blame the person who made the wings, the person who used the wings and flew too close to the sun, or those who can’t clean up the resulting mess effectively?