Saturday, January 18, 2014

Malloy, Connecticut’s Crony Capitalist-In-Chief

When Governor Dannel Malloy first came into office, some commentators who had paid close attention to his campaign assumed he was ready to vigorously attack spending.

He had often enough during his campaign batted around the catch phrase “fair share.” It was generally understood that everyone in Connecticut would, under the Malloy dispensation, be expected to contribute his “fair share” in taxes and give-backs, and most people expected, after the new governor had imposed on taxpayers the largest tax increase in state history, that the consumption side of government would see proportional reductions in spending.

The tax increase was immediate and, some would argue, devastating to an economy in the grip of a prolonged recession: See President Jack Kennedy’s speech to the Economic Club of New York. Mr. Malloy’s prospective savings, as it turned out, would be distant and amorphous.

Who could have guessed, as the Malloy campaign rolled out, that the governor would soon become Connecticut’s Crony Capitalist-in-chief?

Mr. Malloy has since dumped millions of taxpayer dollars on the state’s economic roulette wheel; he calls this sort of thing “investing in the future.”

Any real investor in Connecticut – and there are some still huddled together in what used to be called Connecticut’s “Gold Coast,” many of whom have made successful investments and consequently have contributed their “fair share” to Connecticut’s economy – could have told Mr. Malloy that such business investments are iffy propositions. The venture capitalist terrain is littered with the dead bodies of venture capitalists who have gone broke investing private dollars in failing ventures.

How does the private market identify the right investment? Well, it consults the appropriate indicators and determines that, taken together, all the parts of the business under review have passed rather stringent tests that indicate its future will be a bright one. Mr. Malloy’s investments of state tax dollars in questionable businesses depend almost wholly on his vision of a future vibrant Connecticut economy – or, to put it in layman’s terms, wishful thinking.

Wishful thinking is the seed bed of Crony Capitalism, and Mr. Malloy’s thoughts concerning the future of his state certainly are grandiose. He wants Connecticut to be a leader in advanced medical research, and to this end he has showered favors upon – just to pick one of Mr. Malloy’s many investments – the UConn Health Center (UCHC). For many years UCHC was a tax sinkhole. But now that Mr. Malloy has attached Jackson Laboratories to the sink hole, it will… what? Non-profit research facilities such as Jackson Laboratories cannot turn a profit, which means such facilities cannot enlarge the state’s treasury. No matter: UCHC will become a more prestigious tax sinkhole, even if no water can be pressed out of that rock.

The winnowing process in the private economy that allows investors to determine profitable from non-profitable investment early on, before the investor loses his shirt and declares bankruptcy, is simply not present in government bankrolled crony capitalists ventures – where all bets are always for keeps.

Suppose Connecticut’s future prosperity does not lie in medical research? Then what?

There are two inescapable problems with crony capitalism. The first is that governors and presidents are not economic seers; they know far less than the private economy – which is driven by supply and demand – what the future portends. The second problem is every bit as serious. A dollar invested in venture A by Governor Know-It-All is a dollar taken from taxpayer B that, had it remained in the private marketplace, might have been more profitably invested in product C, thereby producing an invigorated economy that would have contributed more tax dollars to Governor-Know-It-All.

The private economy creates wealth; crony capitalism creates the illusion of wealth. If you have taken a bucket of water from the low end of the pool and dumped it into the deep end of the pool, have you raised the water level of the pool? Transfers of wealth do not create wealth.

Some commentators have caught on to the imposture. Noting that Mr. Malloy had favored Thompson International Speedway in Thompson, Connecticut  with a tax funded “loan of $800,000 at a sharply discounted interest rate for improvements at the auto racing track, $200,000 being forgivable if the track increases employment by 23 over two years,” Chris Powell of the Journal Inquirer writes in his column:

“But there are other auto racing tracks and mortgage companies in Connecticut, and helping just one of each disadvantages the others, and so what is created at one employer may be lost at another. This is a ‘command economy’ approach, with government picking winners and losers and defeating free markets. Because the ‘command economy’ approach transfers advantages more than it creates anything, it is unlikely to help the state's economy much.”

Well… not as much as it will help Mr. Malloy, who dispenses tax dollars to appreciative multibillion dollar companies, haul in campaign contributions to Connecticut’s crony capitalist Democratic Party.

It does not seem to matter much whether a carrot or a stick is used to pry campaign contributions from redundantly rich One-Percenters. If Obamacare ever gets off the ground, one may expect insurance giants to show their appreciation to the crony capitalists who had forced young people -- on pain of paying punishing fines – to purchase insurance they neither want nor need. For similar reasons, the multi-billion dollar companies upon which Mr. Malloy has showered millions in tax receipts or tax credits will show their gratitude when the campaign collector comes knocking on their doors. And that’s always good business for politicians.
Post a Comment