Crony capitalism or not crony capitalism? 6

President-elect Trump’s “wildly popular” deal with Carrier has elicited sharp criticism from some conservatives, notably from Ben Shapiro (who has consistently displayed antipathy to Trump), and more surprisingly from Sarah Palin.

They accuse the president-elect of “crony capitalism”.

We quote the Investor’s Business Daily editorial opinion of the deal:

President-elect Trump’s deal with Carrier isn’t important because it saved 1,000 jobs. It’s important because of the message it sends to businesses everywhere: Help is on the way.

The reaction to Carrier’s decision to retain some of its employees after meeting with Trump has been amusing. On the one hand, Trump’s critics say the deal was a mere trifle, since there are still so many people out there hurting. On the other hand, they claim that Trump is acting like a third-world despot.

A few headlines paint the picture:

“Trump’s Carrier Victory Is the Economy’s Loss”

“Trump’s Carrier deal is right out of Putin’s playbook”

Is Trump’s Deal With Carrier A Form Of Crony Capitalism?

“Trump Cheered for Carrier Deal Even as Other Jobs Are Trimmed”

“Bernie Sanders: Donald Trump ‘Has Endangered’ U.S. Jobs With Carrier Deal”

The White House, meanwhile, sniffed that saving 1,000 jobs was a mere fraction of all the manufacturing jobs supposedly created on Obama’s watch. (Earth to White House: Trump isn’t even president yet. Plus, there are 300,000  fewer  manufacturing jobs today than when Obama took office in January 2009, according to the Bureau of Labor Statistics.)

To be sure, we are not thrilled with the fact that Indiana agreed to cough up $7 million in special tax breaks for Carrier to keep some of its jobs in the state. It’s a misallocation of resources that only encourages companies to hold states for ransom. But this is, unfortunately, a routine practice among state governments these days. And Democrats can hardly complain about it, since their only recipe for growth is to hand out special tax breaks to companies that do their bidding.

Nor are we fans of Trump’s threats to impose tariffs on companies for making products abroad — since the only people hurt by such tariffs will be the very working class families Trump is claiming to champion.

But listen to what Carrier said after meeting with Trump. It said its decision was made possible “because the incoming Trump-Pence administration has emphasized to us its commitment to support the business community and create an improved, more competitive U.S. business climate.”

If that’s the message Trump is delivering to business leaders, we should all be cheering

It means an end to eight years in which President Obama, instead of supporting U.S. companies, arrogantly scolded business leaders and treated businesses as either piggy banks to be raided or as enemies to be brought to heel through regulations and mandates. We’ve seen the effects of Obama’s approach — eight years of dismally slow growth, stagnant wages, and a surging population of labor-force dropouts.

What’s more, if Trump succeeds in cutting business taxes, allowing companies to repatriate money parked overseas, and easing the regulatory burden on job creators — as he’s promised — he won’t have to browbeat companies into keeping jobs here, because they will already be doing that, and creating millions more.

We can hardly wait to see how Trump’s critics try to put a negative spin on that.

And we have canvassed opinions on this issue among those of our like-thinking Trump supporters who are also free-market economists, and here is a summary of them:

This is not “crony” capitalism. This is all about reducing Government Tyranny to keep business in this country.

It is basic economics. Pro-business tax and regulatory reforms are now certain to be a part of the first 100 days of Trump’s administration. Carrier has to make a clear business decision not just about building furnaces but in all of their business dealings. If you want government contracts you need to not only be competitive with those contracts but you have to qualify even to bid. If a new administration gives preference to American-made, or to companies that keep jobs in America, that is just good policy, not crony capitalism.

If you do the math on it, this deal is win/win and quite compelling (even without including the supposed threat of 6.7 billion in other business). If you take 7 million dollars and divide it by the number of jobs saved (1100) it would cost the state of Indiana $6,363.63 for each job saved. The tax savings is spread over 10 years so that cost is $636.36 per year for 10 years. This cost is easily offset with the potential savings to unemployment insurance, state agency relief for families, health care costs, food stamps etc. This also does not consider that instead of 1100 people drawing from the system they will continue to pay into it. Not to mention the fact that the Carrier plant will continue to be a consumer of goods and services from the local community and continue to pay taxes in excess of their credit. And instead of all those dollars going to Mexico for producing these products, they’ll stay in the US. That has an exponential effect, a clear benefit that is difficult to quantify.

Then there are all the businesses in the area of the Carrier plant that support the 1100 families who will continue to work and spend money in their local communities. Those businesses will not see a dramatic drop in their business as those 1100 families no longer will need to scrimp and save just to get by. Plus Carrier has pledged to spend 16 million on facility improvements which will no doubt help the local economy. This will help everyone in those communities which in turn benefits the state of Indiana directly in the form of taxes.

This deal was also very good for Carrier as it turned a PR nightmare into a huge positive for them. They will likely see an increase in sales when they might have been expecting a decrease (as a backlash to their action). It may even help them to get more government contracts for being willing to work to save American jobs.

So in truth it likely cost Indiana nothing and might even be a windfall. It is the kind of “outside Washington” thinking that will likely turn this country around.

Posted under Economics, United States by Jillian Becker on Tuesday, December 6, 2016

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This post has 6 comments.

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  • A.Alexander

    The Jews and Trump both ready(try) to repair the world(capitalism). I strongly sympathize to all of them, but in a doubt of the success of the attempts.

  • Cogito

    I confess that I’m with Sara Palin here.
    I do not argue the economic benefits to the Carrier workers or the long term
    befits to the treasuries of the US federal government or the State of
    Indiana. Lower taxes and fewer regulations are always good for an
    economy.

    But that misses the point completely.
    The issue here is not economic but constitutional.
    Neither the President nor the Vice-President has authority to threaten private businesses with tariffs or taxes if they choose to do business outside
    the US. In a free society, governments should not dictate to private enterprises where to do business.
    The Executive branch has no authority to make tax laws. This is a
    Congressional matter. This is executive over reach which has good
    economic consequences here, but will, if accepted, have possible
    dangerous constitutional consequences later.

    It smells of Peronism and crony capitalism, and is decidedly un-American in my view.
    As to the economic side of the question, I urge all to read :Henry Hazlitt’s “Economics in One Lesson” for straight thinking on these issues.

    • liz

      I understand your point, but I think this deal is intended to signal that instead of continuing Obama’s economy killing treatment of businesses “as piggy banks to be raided or as enemies to be brought to heel with regulations or mandates”, he intends to reverse that direction, followed by the cutting of regulations and business taxes, which will benefit business and economic growth.
      I could be wrong, but I don’t think he’s going to get into cronyism like Obama and the Clintons. He can only make the country ‘great again’ economically by removing government regulation, not imposing it.

      • Cogito

        Despite my reservations, I am extremely optimistic about Mr. Trump. His cabinet choices thus far are remarkably good.
        We, in Canada, are endlessly amazed at the vibrant American political scene.

        • liz

          It’s been extremely dismal for the past 8 years, but we are definitely experiencing a huge, exhilarating revival of vibrant optimism now!

  • liz

    I love how Trump is doing things like this before he even enters the office!
    He is a ‘go getter’, who is already getting things done! I think he will continue, once in office, like a train going full speed ahead, unstoppable, in a positive direction, in contrast to the cliff Obama was steering us off of, or the stagnant swamp the RINOS kept us mired in. At this rate, even with occasional disappointments, good things are bound to happen, resulting in an overwhelmingly positive picture.