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Cronyism and Inequality

Here’s a letter to a high-school teacher in Ohio:

Dear Mr. Hawkins:

Thanks for e-mailing in response to my objection to Paul Krugman’s call for greater government efforts to reduce income inequality.

I agree that government enforces many policies that bestow undeserved riches on politically favored groups.  But I disagree that (1) these cronyist policies “were for decades the dominant force in our economy,” and (2) the problem with these policies is whatever increases in income inequality these policies might produce.

If cronyism had truly been the dominant force in our economy for decades, we would have stagnated long ago.  The economic booms of the 1980s and 1990s would not have happened.  Ordinary Americans today would have no smartphones, no GPS navigation, no digital photography, no e-books, no Amazon.com, no big-box retailers, no access to miracle drugs such as statins and PDE5 inhibitors….  This list can be extended much further.

Yet even if I here underestimate the extent of cronyism, the problem with cronyism isn’t that it makes incomes less equal.  The problem is that it stifles economic growth and, worse, violates the property and contract rights of ordinary people in order that government can transfer unearned treasure to politically powerful special interests.  Any resulting rise in income inequality is merely a symptom of cronyism’s evils.  Efforts aimed directly at making incomes more equal, therefore, miss the mark.  Such efforts not only penalize non-cronies, but by attacking merely a symptom of cronyism, these efforts divert attention from – and leave intact – the destructive cronyist policies themselves.

Were I a crony, that’s a situation that I’d find to be most convenient.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030