Crony Capitalism and the 47 Percent

Thursday, 11 Oct 2012 11:13 AM

By Herbert London

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There has been much speculation about Mitt Romney’s private statement about the 47 percent of the electorate “who believe that they are entitled to healthcare, to food, to housing, to you name it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what.”
 
However infelicitous this statement may have been, Mr. Romney was correct to point out that government programs have created an ever larger class of dependents who believe government has a responsibility to care for them. Of course the entitlement psychology isn’t limited to the poor. Big business thrives on crony capitalism with special favors and government grants.
 
What has not been noted by either sympathizers or detractors of Governor Romney’s comment is the synergistic relationship between the beneficiaries of government largess and wealthy patrons of capitalism.
 
As the number of food stamp recipients escalated from 32 million to 46 million in the last four years under President Obama’s leadership, it should be noted that agro-business made unprecedented profits as well, profits that in no small part increased because of the food stamp program.
 
Let us cite yet another overlooked example. The student loan program almost doubled in magnitude during the last four years. Surely some students benefited from this government subsidy — which President Obama has pledged to forgive — but the most significant group of beneficiaries is the professoriate whose salaries increased in direct proportion to the increase in student loans.
 
Similarly, at the urging of indirect government pressure Fed Chairman Ben Bernanke has kept interest rates near zero. The justification for this action is to encourage economic activity and job creation as the unemployment rate intransigently remains above 8 percent for the last three and a half years with no sign of abating.
 
Who is the real beneficiary of this policy? While some public sector jobs have been retained due to this strategic plan, the real beneficiary has been the Wall Street firms that borrow at close to zero, invest in 30-year Treasurys at 3 percent and make 300 basis points without risk. This “carry trade” explains why Wall Street firms, in large measure, continue to support Mr. Obama, despite his repeatedly hostile oratory.
 
These policies are consistent with the orientation President Johnson employed during the so-called Great Society initiative. Consistent with the Obama years, Mr. Johnson’s programs rewarded the deliverers of programs far more than the target population. In the process, he created a class of Americans increasingly dependent on the retention of government jobs. This policy perspective was continued by Johnson’s successor Richard Nixon, who did not have the fortitude to undo programs reliant on government generosity.
 
By contrast, FDR argued for direct assistance to those who were impoverished by the Great Depression. While many of these programs did not achieve their goal, the intent was clear: Aid those who needed a helping hand without a bureaucratic middleman. It is ironic that President Ronald Reagan shared the same position. His stance was not to merely undo the Great Society programs, but to offer direct relief without enlarging bureaucratic channels.
 
If Mr. Romney stands with any prior presidents based on his recent comment, it is FDR and Ronald Reagan. It is illuminating that President Obama has as his ideological heirs LBJ and Richard Nixon. This contrast may seem odd to many, but the distinction not only makes sense, but is validated by empirical examination. History does indeed make for strange bedfellows — a point Mitt Romney should now confirm.
 
Herbert London is president emeritus of Hudson Institute and author of the books "The Transformational Decade" (University Press of America) and "Decline and Revival in Higher Education" (Transaction Books). Read more reports from Herbert London — Click Here Now.
 
 
 
 
 

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