Crony Capitalism Breeds Inequality

That is a main theme in a tremendous essay by Sam Gregg appearing in the American Spectator. As Gregg notes, income inequality seems to be the theme for 2014. In fact, increased income inequality is no mystery once we understand the continuing transformation of our economy from a free market to an interventionist play ground for cronies. As Gregg explains, Cronyism promotes economic inequality because:

Crony capitalist arrangements create distinct groups of insiders and outsiders that have nothing to do with classic criteria of justice such as need, merit, and willingness to take on risk and responsibility. All that matters in a crony capitalist world is closeness to state power. . .

There is a price to be paid for all this collusion. By injecting extra-regulatory costs into the economy, undermining the workings of free prices, and shifting economic incentives towards cultivating politicians and regulators, the process of wealth-creation is severely compromised. The result is the type of slow-motion decline that characterizes countries like Italy, Greece, Portugal, and France.

That’s bad news for everyone, but especially the poor. The wealthy and the powerful — especially those who rotate between the political, lobbying, and business worlds — can always take care of themselves in a crony capitalist economy. They are crony capitalism’s nomenklatura. But those without power and money are at a distinct disadvantage.