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A First Look at a New Report on Crony Capitalism – Trillions in Corporate Welfare | A Lightning War for Liberty

A First Look at a New Report on Crony Capitalism – Trillions in Corporate Welfare | A Lightning War for Liberty.

Posted on March 26, 2014

One of the primary topics on this website since it was launched has been the extremely destructive and explosive rise of crony capitalism throughout the USA. It is crony capitalism, as opposed to free markets, that has led to the gross inequality in American society we have today. Cronyism for the super wealthy starts at the very top with the Federal Reserve System, which consists of topdown economic central planners who manipulate the money supply and hence interest rates for the benefit of the financial oligarch class. It then trickles down through lobbyist money into the halls of Washington D.C., and ultimately filters down to local governments and then the average person on the street gaming welfare or disability.

As such, we now live in a culture of corruption and theft that is pervasive throughout society. One thing that bothers me to no end is when fake Republicans focus their criticism on struggling people who need welfare or food stamps to survive. They have this absurd notion that the whole welfare system doesn’t start with the multinational corporations and Central Banks at the top. In reality, it is at the top where the cancer starts, and that’s where we should focus in order to achieve real change.

That’s where a new report from Open the Books on corporate welfare comes in. In a preview of the publication, the organization notes:

If Republicans are going to get truly serious about cutting government spending, they are going to have to snip the umbilical cord from the Treasury to corporate America.  You can’t reform welfare programs for the poor until you’ve gotten Daddy Warbucks off the dole. Voters will insist on that — as well they should.

So why hasn’t it happened? Why hasn’t the GOP pledged to end corporate welfare as we know it?

Part of the explanation is that too many have gotten confused about the difference between free-market capitalism and crony capitalism.

Federal_Contract_Spending_Spirals

And part of the problem is corporate welfare that is so well hidden from public view in the budget that no one has really measured how big this mountain of giveaway cash to the Fortune 500 really is. Finding out is like trying to break into the CIA.

Until now. Open the Books, an Illinois-based watchdog group, has been scrupulously monitoring all federal grants, loans, direct payments and insurance subsidies flowing to individuals and companies.

It’s an attempt to force federal agencies to release information on where the $4 trillion budget is really spent — and Open the Books will release a new report on corporate welfare payments to the Fortune 100 companies from 2000 to 2012.

Over that period, the 100 received $1.2 trillion in payments from the federal government.

That number does not include the hundreds of billions of dollars in housing, bank and auto company bailouts in 2008 and 2009, because those payments and where they went are kept mostly invisible in the federal agency books.

As suspected, the biggest welfare queens in the U.S. are the super wealthy themselves, but they’d rather you focus on some single mother on welfare simply trying to survive.

The full report can be downloaded here.

In Liberty,
Michael Krieger

Bombardier and Canada’s Corporate Welfare Trap | Mark Milke

Bombardier and Canada’s Corporate Welfare Trap | Mark Milke.

In the land of government plenty — that vast landscape populated with the tax dollars of Canadians — there is no shortage of politicians willing to hand out and defend subsidies to business and no dearth of corporations willing to take the cash.

Bombardier Inc., which recently announced it would lay off 1,700 people, has been one chronic seeker and a regular recipient of such taxpayer assistance. The Montreal-based aerospace company is thus a useful example of corporate welfare in action, the tax dollars at stake, and the regular, inflated claims about the beneficial effects of such subsidies.

Bombardier’s corporate welfare began, at least federally, in 1966 when it received its first disbursement of $35 million from the federal department, Industry Canada. In the decades since, various Bombardier iterations received over $1.1 billion (all figures adjusted for inflation) in 48 separate disbursements from just Industry Canada. That includes two 2009 cheques worth $233 million.

Most of the money, excepting $55-million in grants, came in the form of “conditionally repayable contributions” — conditional loans where repayment depends on the performance of a particular project.

That $1.1 billion does not include tax dollars received from any other federal department or other governments, including in Ontario, Quebec and even Great Britain ($298 million in the latter case). But if taxpayers wish to know how much money has been repaid out of just the amounts above, they’re mostly out of luck.

Publicly, Bombardier claims it has repaid $275 million on two government loans originally worth $187 million. That ignores the dozens of other disbursements and much larger amounts loaned to the company.

Some other scraps of information are available though. In 2008, Industry Canada’s department performance report noted a $108.4 million loan guarantee write-off. The department did not specify which company benefitted when taxpayers covered the loan, but media reports noted it was for government guarantees connected to Bombardier’s turboprop aircraft.

Beyond such glimpses, my Access to Information requests to Industry Canada are regularly returned with the repayment records of most companies (not just Bombardier) blacked out. Under the federal Access to Information Act, the department must, legally, withhold such information if a company might suffer financial loss or have its competitive position undermined. In addition, Bombardier has also filed in Federal Court to prevent access to such numbers.

There are even larger corporate welfare recipients than Bombardier — for example, Pratt & Whitney has garnered $3.3 billion from Industry Canada since 1970. But if subsidies are so commercially sensitive, it should be obvious that governments potentially harm competitors when they interfere in an open market and at taxpayers’ expense. Then there is the fact that the money governments hand over is first taken from someone else, either a private citizen or another Canadian business. Corporate welfare is not a costless activity.

More generally, despite the multiple claims for subsidizing businesses with tax dollars — higher economic growth, more jobs and extra tax revenues — the justifications wilt when examined closely.

For instance, one of the world’s foremost experts on business subsidies, Professor Terry Buss, has noted how the various claims often result from correlation-causation errors. (That the rooster crows and the sun rises, does not mean the former caused the latter.)

Also, the government and industry studies that promulgate such myths fail to account for how “gains” to one region are necessarily offset by losses elsewhere.

The simplest example of this substitution effect occurred back in 1986 when Industry Canada helped pay for the construction of a new fish processing facility in Quebec at a cost of $2.2 million. The justification was that an additional 250 jobs would be created when the new plant opened its doors. However, as the Auditor General noted in 1995, the nearby existing fish-processing facility (which also received federal subsidies) soon closed with job losses equivalent to those created by the new market entrant. Net employment gains were zero because jobs were transferred — not created — at the cost of taxpayer subsidies.

Corporate welfare is not inevitable as policy. Back in the 1990s in Alberta, after a plethora of loans and loan guarantees signed during the Peter Lougheed years went south, leaving taxpayers with a $2.2 billion loss, the then government of Ralph Klein decided it was out of the business of being in business. It was a pledge and a legislature-approved policy to which the Klein government mostly stuck.

There is nothing contradictory about wanting Bombardier, Pratt & Whitney, or other businesses to thrive and yet opposing taxpayer subsidies based on the empirical evidence. Corporate welfare is costly and taxpayers don’t need to be continually dragged into corporate battles for market share.

Chris Martenson: “Endless Growth” Is the Plan & There Is No Plan B | Peak Prosperity

Chris Martenson: “Endless Growth” Is the Plan & There Is No Plan B | Peak Prosperity.

After five years of aggressive Federal Reserve and government intervention in our monetary and financial systems, it’s time to ask: Where are we? 

The “plan,” such as it has been, is to let future growth sweep everything under the rug. To print some money, close their eyes, cross their fingers, and hope for the best.

On that, I give them an “A” for wishful thinking – and an “F” for actual results.

For the big banks, the plan has involved giving them free money so that they can be “healthy.” This has been conducted via direct (TARP, etc.) and semi-direct bailouts (such as offering them money at zero percent and then paying them 0.25% for stashing that same money back at the Fed), and indirectly via telegraphing future market interventions so that the big banks could ‘front run’ those moves to make virtually risk-free money.

This has been fabulously lucrative for the big banks that are in the inner circle. As we’ve noted somewhat monotonously, the big banks enjoy “win ratios” on their trading activities that are, well, implausible at best.

Here’s a chart of J.P. Morgan’s trading revenues for the first three quarters of 2013, showing how many days the bank made or lost money:

(Source)

Do you see the number of days the bank lost money? No? Oh, that’s right. There weren’t any.

Now, for you or me, trading involves losses, or risk. Sometimes you win, and sometimes you lose. There appears to be zero risk at all to JP Morgan’s trading activities. They won virtually all of the time over this 9-month period.

That’s like living at a casino poker table for months and never losing.

Of course, Bank of America/Merrill Lynch, Goldman Sachs, and a few other U.S.-based banks were able to turn in roughly similar results. Pretty sweet deal being a bank these days, huh?

So one might think, Well, that’s just how banks are now. Bernanke’s flood of liquidity is allowing them to simply ‘win’ at trading. If true (which it appears to be), we can’t call this trading. The act of “trading” implies risk. And it’s clear that what the big banks are doing carries no risk; otherwise they would be posting at least some degree of losses. We should call it sanctioned theft, corporate welfare, cronyism  the list goes on. And it is most grossly unfair, as well as corrosive to the long-term health of our markets.

Therefore, sadly, I have to give Bernanke an A++ on his objective of handing the banks a truly massive amount of risk-free money. He’s done fabulously well there.

But will this be sufficient to carry the day? Will this be enough to set us back on the path of high growth?

And even if we do magically return to the sort of high-octane growth that we used to enjoy back in the day, will that really solve anything?

Endless Growth Is Plan A Through Plan Z

The problem I see with the current rescue plans is that they are piling on massive amounts of new debts.

These debts represent obligations taken on today that will have to be repaid in the future. And the only way repayment can possibly happen is if the future consists of a LOT of uninterrupted growth upwards from here.

It’s always easiest to make a case when you go to silly extremes, so let’s examine Japan. It’s no secret that Japan is piling on sovereign debt and just going nuts in an attempt to get its economy working again. At least that’s the publicly stated reason. The real reason is to keep its banking system from imploding.

After all, exponential debt-based financial systems function especially poorly in reverse. So Japan keeps piling on the debt in rather stunning amounts:

(Source)

That’s up nearly 40% in three years (!).

It’s the people of Japan who are on the hook for all that borrowing, now standing well over 200% of GDP. So here’s the kicker: In 2010, Japan had a population of 128 million. In 2100, the ‘best case’ projected outcome for Japan is that its population will stand at 65 million. The worst case? 38 million.

So…who, exactly, is going to be paying all of that debt back?

The answer: Japan’s steadily shrinking pool of citizens.

This is simple math, and the trends are very, very clear. Japan has a swiftly rising debt load and a falling population. Whoever it is that is buying 30-year Japanese debt at 1.69% today either cannot perform simple math, or, more likely, is merely playing along for the moment but plans on getting out ahead of everybody else.

But the fact remains that Japan’s long-term economic prospects are pretty terrible. And they will remain so as long as the Japanese government, slave to the concept of debt-based money, cannot think of any other response to the current economic condition besides trying to shock the patient back to vigorous life by borrowing and spending like crazy.

If, instead, Japan had used its glory days of manufacturing export surpluses to build up real stores of actual wealth that would persist into the future, then the prognosis could be entirely different. But it didn’t.

The U.S. Is No Different

Except for some timing differences, the U.S. is largely in the same place as Japan twenty years ago and following a nearly identical trajectory.  Currently, it’s an economic powerhouse, folks are generally optimistic on the domestic economic front (relatively speaking), and its politicians are making exceptionally short-sighted decisions. But the long-term math is the same.

There’s too much debt representing too many promises. The only possible way those can be met is if rapid and persistent economic growth returns.

However, even under the very best of circumstances, where the economy rises from here without a hitch  say, at historically usual rates of around 3.5% in real terms (6% or more, nominally)  we know that various pension and entitlement programs will still be in big trouble.

Worse, we know that the environment is screaming for attention based on our poor stewardship. Addressing issues such as over-farming, water wastage, and oceanic fishery depletion  to say nothing of carbon levels in the atmosphere – will be hugely expensive.

Likewise, a complete focus on consumer borrowing and spending at the exclusion of everything else (except bailing out big banks, of course), along with a dab of excessive state security spending, has left the U.S. with an enormous infrastructure bill that also must be paid, one way or the other. That is, short-term decisions have left us with long-term challenges.

But what happens if that expected (required?) high rate of growth does not appear?

What if there are hitches and glitches along the way in the form of recessions, as is certain to be the case?  There always have been moments of economic retreat, despite the Fed’s heroic recent attempts to end them. Then what happens?

Well, that’s when an already implausible story of ‘recovery’ becomes ludicrous.

If we take a closer look at the projections, the idea that we’re going to grow – even remotely – into a gigantic future that will consume all entitlement shortfalls within its cornucopian maw becomes all but laughable.

Of course, the purpose of this exercise is not to make fun of anyone, nor to mock any particular beliefs, but to create an actionable understanding of the true nature of where we really are and what you should be doing about it.

In Part II: Why Your Own Plan Better Be Different, we examine more deeply the unsustainability of our current economic system and why it is folly to assume “things will get better from here.”

Given the unforgiving math at the macro altitudes, the need for adopting a saner, more prudent plan at the individual level is the best option available to us now.

Click here to access Part II of this report (free executive summary; enrollment required for full access).

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