…crony capitalism is currently wreaking havoc on the conservative Republican brand of free markets and limited government.
The most obvious example of crony capitalism came this weekend with the Wisconsin State Journal’s blockbuster story about another loan gone bad from the Wisconsin Economic Development Corporation (WEDC). The storyline is rather predictable: a politically connected company comes to WEDC and secures a taxpayer-funded loan, then goes belly up fleecing the taxpayers.
The conversion of the Commerce Department into the WEDC was a cornerstone of Governor Walker’s agenda for creating 250,000 new jobs by the end of his first term (actual count according to Quarterly Census of Employment and Wages, 129,131). 
Bloomberg has the entire story, which is emblematic of the last four years.
Update: And here is the Governor’s views on government mandated ultrasounds.
From the Wisconsin State Journal article:
“Last year, WEDC, the state’s flagship job-creation agency, took the unusual step of suing BCI in an attempt to get the money back.
“And before Democrats think I’m taking their side, the Doyle years were just as replete with bad loans and cronyism. Just look at the stories that hampered Mary Burke’s campaign for governor as she had to explain away bad loan after bad loan.”
Thanks Menzie. There are always con men in the world and It is important to expose crony capitalism. Perhaps even more important to sue the perpetrators to get the money back.
By the way, where are all those lawsuits to get the Democrats bad loans and cronyism back? Even more, how about those of the Obama administration?
I am certainly glad Menzie is unbiased in his articles. What do you mean there is a difference between a loan and a payment? Surely Gruber will payback the $400,000 back since he was uncovered as a Democrat operative-charlatan.
Please continue. I fail to understand why it is the Democrats fault that Governor Walker failed to invite him to present his findings.
Walker did not use the findings so it was a wasted investment. But it was Walker who failed to use it, not the democrats.
I may be a little slow, but I would like you to provide a little more explanation of your reasoning. Please.
spencer: It is a fool’s errand to try to reason with Ricardo. Logic is a stranger to him.
It is also a fool’s errand to try to persuade Menzie to keep the turds out of the punch bowl. It is his blog, so I won’t do more than to grumble now and then.
Do you know anything about Gruber. He was revealed as a Democrat hack and a socialized medicine propagandist quack. Doyle hired him for his propaganda ability not his his knowledge of proper health care policy. Gruber is the only one I know who has openly admitted that Obamacare was created as a confidence scheme.
The $400,000 paid to Gruber was simply crony capitalism hiring someone to justify growing government.
Tell me, since you seem to know about Gruber’s study, what was in it worth $400,000?
Ricardo: Gee, I wish I were at Gruber levels of “hackdom” as you put it, with those articles in the American Economic Review, Quarterly Journal of Economics, Journal of Public Economics, and Journal of Public Health (well, not so much the latter, but if I were a health economist, I would).
Are you familiar with the “argue from authority” logical fallacy?
A consultant’s fees are the same as a company going belly up? LOL. This is the same partisan hack who also worked for Romney when Romneycare was set up. If I recall I think Mitt ran for some important office as the GOP nominee.
You are absolutely correct and that is one of the reasons I did not support Romney. I did vote for him, holding my nose, but that is because I feared radical Islam would take over the Middle East in a second Obama term. Looks like I was right.
More improvements to communities tend to take place when government and business work together than when they don’t work together.
And, a bad loan can be blown out of proportion.
WEDC’s bold approach to economic development
May 16, 2015
“Since its inception, WEDC has worked with more than 1,000 companies.
There have been lessons learned along the way. WEDC’s first state audit — released in May 2013 — documented our need for better systems to track loans, oversee expenditures and monitor the performance of award recipients. After that audit, we implemented significant changes to rebuild accountability, transparency and public trust in its operations.
As a result of our efforts, our loan delinquency rate dropped from 2.7% in 2013 to 0.2% in 2014. The uncollectable loan balance declined from $5.5 million in 2013 to $1.3 million in 2014, and the percentage of performance reports that are late fell from 55% to 5.4% in two years.
The improvements we’ve made aren’t going unnoticed. In April 2014, WEDC received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association of the United States and Canada (GFOA), the highest form of recognition in governmental financial reporting.”
Peak Trader, I’m seeing something different about the WEDC bad loans decreasing http://www.jsonline.com/news/statepolitics/audit-jobs-agency-makes-progress-on-bad-loans-by-writing-many-off-b99354976z1-275757251.html
Kurt, yes, you’re seeing something different.
According to your article:
“…audit found that the troubled loans held by WEDC dropped from 49 loans totaling $13.2 million as of June 2013 to 30 loans totaling $5.5 million as of December 2013.”
My article shows an annual comparison, rather than picking a month in 2013 and comparing it to the end of 2013.
Peak, the point is your article is a propaganda piece that is purposefully ignoring why the the delinquency of the loans went down. Reed Hall has a vested interest in painting a rosy picrure.
The facts are:
Of the $7.7 million decrease in troubled loans held by WEDC, the biggest chunk — $3.2 million — came from loans that were written off by WEDC because they were 90 days past due.
The next biggest chunk of past due loans, worth $2.1 million, had their contracts rewritten by WEDC to delay repayment by the borrowers and $1.3 million in loans were forgiven by WEDC in whole or in part.
Every organization who makes loans will make bad loans especially if they are operating near the venture capital space. WEDC is not being berated for making bad loans. They are being berated for trying to hide it and avoiding public accountability when they are using public dollars.
Kurt, you still don’t understand you’re using a different time period to contradict another time period.
And, you seem surprised what happens to bad loans.
You’re implying little or no improvement between 2013 and 2014 without any 2014 data!
Furthermore, you’re assuming the 2014 data are biased without any proof.
Peak, 2014 data. I’m no seeing satisfactory improvement in practice. I see accounting tricks.
All capitalism is crony and always has been. Commercial activity run amok and creating the market state.
Industrial capitalism has reduced male testosterone and made them much more wimpy and control freaks.
The term “crony capitalism” is an oxymoron. You can only have the crony part with a command economy where the government picks the winners and losers. In a real capitalist system the government cannot hand out favors that is essential to the crony part. More accurate would be crony Fascism.
It might be that Crony Capitalism is larger and more expensive at the city and county levels. It gets a lot less attention than at the state and national levels. In our little community if a developer does not get what he wants he runs for office or has a cat’s paw run.
Oh, so it’s not the function of, nor is government good at investing in businesses?
Governments are generally not good at investing money to create jobs.
Of course, we have the example of Solyndra.
From just this past week, a critical audit of “Start Up NY”:
“A new audit from Comptroller Thomas DiNapoli is critical of a $211 million state contract aimed at advertising and promoting programs including Start-Up NY. DiNapoli said the state’s efforts to measure the results of its ad campaign were weak, which leaves questions about whether the results justify the cost. The amount the state spent to promote Start-Up NY has been a target for critics. The $323 million program, announced two years ago by Gov. Andrew Cuomo, provides generous tax breaks to companies that promise to create jobs and invest in the state. Between October 2013 and October 2014, Empire State Development spent $45.1 million on Start-Up NY ads, according to the audit. That’s 40 percent of the total funding available under the contract in that period. The state spent more than $25,000 on advertising for each of the jobs promised by Start-Up NY companies between October 2013 and October 2014, according to DiNapoli’s audit. Start-Up created just 76 jobs last year. “
And here was the result of a duel diligence I conducted for the RI investment authority. I gave a negative report to the client on his proposed product (too big, too slow), and he just launched into me. (It happens.) And here’s what happened the next week:
There’s always a desire for governments to help, but the essence of helping is providing better than market conditions, which by construct, is in effect a kind of corruption. I have consulted on many such projects–I can’t say that I was ever impressed with the process or result.
Steven Kopits: Hmm, what about the interstate highway system, and the agricultural research stations, and the Internet, and the canals (in earlier times), and ….
You need to read Bastiat’s THAT WHICH IS SEEN AND THAT WHICH IS NOT SEEN.
OK. let’s go back to first principles with a three ideology model. Both conservative and egalitarian philosophies permit government intervention on behalf of specific individuals. Liberalism does not. However, liberalism itself breaks two ways: classical liberals, of which I am one, and libertarians, which I am not.
The difference between the two tends to circle around public goods and externalities. Adam Smith was not a libertarian; he was a classical liberal. For classical liberals, public goods and externalities are legitimate purposes of government. When we speak of roads, we are generally speaking of public goods. Agricultural research stations may or may not qualify, depending on whether the results are appropriable or not. In any event, when we speak of a public good, we cannot identify the beneficiary by name.
When we speak of jobs or investment programs, the benefit is generally appropriated. Thus, if I create a job in NY, I can earn a tax credit or investment or some other benefit. That benefit accrues to me or my company by name. But on what basis? NY would have us believe that a new job is better than retaining an existing job. Or that a new job this year is better than a new job when the program didn’t exist. So how do I discriminate between ‘deserving’ and ‘undeserving’ job creation, and between the value of an existing job and one to be created?
Generally, this comes down to a very cumbersome set of rules. For example, for every job I create over the next three years, let’s say I get a tax credit of $5,000. But what’s a “job”? If I hire someone who is already employed, I haven’t created any jobs. So maybe I need to hire only the unemployed. But how long do they have to be unemployed? A day? A month? A year? What if I hire an unemployed person from out of state (which could easily happen in New Jersey)? Is that a new job? And what if people who are unemployed are lousy labor? Then do I have to re-work my systems to work with the dregs, or do I maybe try to game the system to appear to hire the unemployed, when in fact they are only theoretically unemployed. And how do we enforce those terms? How does the state know if someone was unemployed when I hired them? Is it someone who collected unemployment benefits from the state? Are those reporting systems actually in place? What about the long term unemployed?
If you’ve ever tried to apply for state development funds, you know it can really be a hassle, and it can easily start distorting your entire business model. So a lot of good businesses won’t even look at that source of funding. On the other hand, you will develop a subset of businesses who begin to specialize in this sort of government financing. They often have friends in government and work actively to tailor legislation to their own interests. Classic rent-seeking, really. This sort of thing very easily devolves into corruption of one sort or another, particularly as the managers in development authorities are often political appointees and elected officials often have political debts to repay. It is a type of activity prone to abuse by its very nature.
So that’s the distinction. Public goods, for which individual beneficiaries cannot be identified, are OK, as long as they meet ordinary (social) ROR requirements. On the other hand, subsidizing individual companies is generally hard to do, expensive, and prone to corruption under governments both left and right.
I believe you are distinguishing between directed wealth redistribution and indirect benefits to all. In the case of the National Defense Highway System, President Eisenhower established this to enable military mobility in case of national security emergencies. The roads were to be wide enough to land military aircraft or to move heavy weapons which our two-lane roads could not. So, I agree that national defense is a legitimate use of taxpayers’ money. Likewise, the “internet” began as research and then expanded as a Department of Defense effort:
“The history of the Internet begins with the development of electronic computers in the 1950s. Initial concepts of packet networking originated in several computer science laboratories in the United States, Great Britain, and France. The US Department of Defense awarded contracts as early as the 1960s for packet network systems, including the development of the ARPANET (which would become the first network to use the Internet Protocol.) The first message was sent over the ARPANET from computer science Professor Leonard Kleinrock’s laboratory at University of California, Los Angeles (UCLA) to the second network node at Stanford Research Institute (SRI).”
So, once again, I agree with you that national defense projects are a valid use of taxpayer money benefiting most of us.
Canals, of course, were part of the expansion process for the nation, allowing passage of both commercial and military ships. Once again, I agree with you that national defense projects are a valid use of taxpayer money benefiting most of us.
Food safety is considered a general benefit regardless of economic status. So, yes, I agree that the USDA serves a purpose in its inspection and research efforts… although not always done in an exemplary fashion.
Bruce Hall: The bright lines that you draw between infrastructure/national defense and implicit subsidies might be as bright as you think. For instance, as you are probably familiar with, the airframe for many military aircraft served as the basis for commercial aircraft. In other words military procurement was a means of providing implicit subsidies. (Shouldn’t we have charged the private firms for access to internet technology, in order not to provide a subsidy…?)
I guess I am not surprised by your view that externalities do not exist. My guess is that it will turn out that (a) burning coal has negative implications for those not involved in coal extraction, and (b) the benefits of solar cell technologies are not entirely captured by solar cell producers and consumers.
Of course I recognize the secondary effects associated with extraordinarily large government projects. However, one could use a reductio absurdum argument that if the National Defense Highway System, the FDA agricultural research programs, and supporting the start of what became the internet are proof the the benefits of some large government programs… then why stop there? Let the government take over everything and everyone will benefit. Some would agree with that proposition. I’m not of that camp. I agree with b><Steven Kopits that there are legitimate functions of government, but picking winners and losers is not one of them. I also agree with his contention that real economic gains are not because government shifts wealth or jobs or mandates the marketplace through some mysterious third eye. The government has become a candy jar for manipulators… both individual and collective. Perhaps there is a “common sense” alternative? But as Voltaire said, “Common sense is not so common.”
I think it was all the way back in 1956 that Samuelson made the distinction between rivalrous, excludable goods and those that weren’t.
Patrick R. Sullivan: I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
Come on all of you. Just use the correct term: wealth redistribution. It is the principle of taking from someone or some population to give to some others or some organizations (corporations, etc.) based on the ideology that such wealth redistribution is more beneficial than harmful. When we do it for individuals, we call it a “safety net” or “protecting their rights.” When we do it for corporations, we call it “investing in jobs”. The problem with attempting to implement this principle is that to do it correctly and obtain the positive results, those doing the taking and redistributing have to know with certainty who are the recipients that will result in positive outcomes from the recipients that will result in negative outcomes. Politicians and bureaucrats are least likely to have the insight or the inclination to achieve impartial and effective discerning. Consequently, we get what is common referred to as waste.
Consequently any government money not spent on me and mine is waste. Money spent on me and mine is a grand investment that benefits the nation.
When said with the intended irony… absolutely spot on.
As if the greedy are better distributors of the commonwealth. It is socialism when the few don’t get to retain all the wealth!
Then just look at the history of socialist governments’ economic growth. Is your solution that more share less?
Professor Hamilton, is it time to dust off the Dating Business Cycle Turning Points calculation given the recent data?
Bruce Hall: “In the case of the National Defense Highway System, President Eisenhower established this to enable military mobility in case of national security emergencies. The roads were to be wide enough to land military aircraft or to move heavy weapons which our two-lane roads could not.”
This all wingnut BS as you can see from the Dept. of Transportation itself:
The interstate highway system was conceived and designed strictly for civilian use. The Dept. of Defense was encouraged to jump on board later, but what better way to secure funding for civilians than to say that the highways would protect us from Commie invasions. The DOD had little to no input regarding the design.
It is not called the “National Defense Highway System.” It is officially called the Federal Highway Aid Act of 1956. It was popularly dubbed the National Interstate Highways Act, with “and Defense” tacked on later for political expediency. There is and never has been a “National Defense Highway System.”
And the stuff about landing aircraft on interstates is so stupid as to be laughable. There are over 20,000 real airports and landing strips throughout the country so that using highways is superfluous for any defense purpose.
And it wasn’t even conceived by Eisenhower. The initial planning was done in 1939 by FDR who later passed the Federal-Aid Highway Act of 1944, which Eisenhower eventually backed.
Bruce Hall, thank you for posting your link that directly refutes all of your wingnut claims about the interstate highway system.
From your own link:
1. The interstate highway system was first proposed by FDR in 1938.
2. FDR passed legislation to fund the start of a 40,000 mile interstate highway system in 1944.
3. It was officially called in 1944 a “National System of Interstate Highways” — nothing about defense.
4. By the time Eisenhower took office, 6500 miles had already been completed.
5. In Eisenhower’s 1954 State of the Union Address he said “To protect the vital interest of every citizen in a safe and adequate highway system, the Federal Government is continuing its central role in the Federal Aid Highway Program.” It was for civilian use. Not one word about defense.
6. Eisenhower signed the Federal-Aid Highway Act of 1956. Nothing about defense.
7. No nonsense about airplanes.
Once again, thank you for refuting your own wingnut argument.
Yes, the point was that Eisenhower was convinced of the need for the system because of his experiences in Germany where he saw first-hand how the Autobahn system provided a logistical advantage for the military and championed the floundering highway program (as you noted, only 6,500 miles of the proposed 40,000 had been worked on). I’ll concede the aircraft landing point:
“Richard F. Weingroff, U.S. DOT, June 2000 wrote:
I have no idea where the one-out-of-five claim originated. Perhaps it is giving too much credit to whoever originated this “fact” to suggest that it began with a misreading of history. Under a provision of the Defense Highway Act of 1941, the Army Air Force and the Public Roads Administration (PRA), now the Federal Highway Administration, operated a flight strip program. In a 1943 presentation to the American Association of State Highway Officials, Commissioner of Public Roads Thomas H. MacDonald explained how it worked.
“A flight strip consists of one runway, laid down in the direction of the prevailing wind, and a shelter with telephone for the custodians at the site and for itinerant flyers in an emergency. Fuel storage facilities are not provided unless airplanes are based there permanently. Instead, oil companies will keep stocks of aviation gasoline at gas stations along the highway and truck it to the flight strip as it is needed.”
The flight strips were designed for easy access to public highways and to provide unmistakable landmarks that could be followed easily by a pilot. Flight strips varied in size. The smallest — 150 feet (46 meters) wide and 4,000 feet (1,220 meters) long with the length increased by 500 feet (152 meters) for each 1,000 feet (305 meters) of elevation — were designed for tactical aircraft such as medium bombers. A larger flight strip could accommodate heavy bombers such as the B-17 and B-24, while still larger strips were designed for heavier classes of aircraft.
The benefits weren’t expected to be entirely military. As MacDonald explained, “The close coordination of our highways and airways is becoming a vital necessity to assist the economic growth of this country.”
In that spirit, Congress considered including a flight strip program in the Federal-Aid Highway Act of 1944 — the law that authorized designation of a “National System of Interstate Highways.” However, the 1944 act did not include the flight strip program.
Some references to the one-out-of-five “law” attribute it to the Federal-Aid Highway Act of 1956. The 1956 act launched the Interstate Highway Program by creating the Highway Trust Fund as a funding mechanism and by committing the federal government to build what became the 42,800-mile (68,880-kilometer) Eisenhower Interstate Highway System (now essentially complete). President Dwight D. Eisenhower fully supported the Interstate Highway System as vital to our economy, safety, relief of congestion, and defense. However, he didn’t propose a one-out-of-five-mile rule, and Congress didn’t include such a requirement in the 1956 Act. The one-out-of-five rule was not part of any later legislation either.”
So, the airstrip aspect was not entirely without basis.
Regardless, the overall point I was making was that government programs that provided a common benefit without regard to economic status was legitimate if private alternatives were not feasible (don’t you find it ironic that FDR’s program was based on his notion of a toll road system?). The notion of directed benefits toward individuals or corporate entity based on unique rather than commonly shared benefit is where the wealth redistribution becomes corrupted.
Bruce Hall: “So, the airstrip aspect was not entirely without basis.”
Yes, in the same sense that the idea that the U.S. military is planning to invade Texas is not entirely without basis. Which is to say — false. There was never any plan to land airplanes on interstate highways. What is it with conservatives and conspiracy theories?
Your original point was that government spending for the interstate highways system was acceptable because its purpose was defense — airplanes and all. This is not true. The interstate highway system was a civilian infrastructure project — the largest and most economically valuable infrastructure project in U.S. history. The idea that it was a defense project is wingnut nonsense.
Your failure to read linked documents and comments in their entirety is your problem (commonly referred to as “cherry picking”). The fact is that without Eisenhower’s connecting the military advantages of the Autobahn to the U.S. national highway system (which is why he through his support behind it), the progress would have continued to falter. But pick and choose what you will. And since you’re such a staunch supporter of FDR, I have to extrapolate that you wholeheartedly approve of his idea of a national system of toll highways… which is not a bad idea for the users to pay the piper. Here in Michigan, the toll bridge between Detroit and Windsor, Canada is privately owned. There is an alternative crossing tunnel for light vehicles, but the private toll bridge was built with private funds and private risk. Is that somehow worse than forcing all taxpayers to pay for something that only some benefit by? http://www.bloomberg.com/bw/articles/2012-05-03/matty-moroun-detroits-border-baron
The argument you seem to take umbridge with is that the government should not pick and choose winners whether individuals, groups, or corporations. Why is that? Why do you seem to be so against the concept of the government providing for our national defense which benefits all, but (apparently) would enthusiastically support various targeted social programs with limited benefit distribution, but maximum taxpayer participation. I’m for food safety programs which benefits all (although the quality of such programs is often suspect). I’m against gender/racial programs which all pay for, but targets specific groups; I’ll presume you are for them. Why? Is one ethnic group more deserving than others? Is one gender more deserving than the other? Targeted benefits are the source of government corruption.