Crony capitalism in the time of coronavirus

  • 20 April 2020
  • NormanL

State and local governments are clammoring for additional federal assistance as their budgets fall victim to the economic lockdown. While there's a case for helping governments provide emergency services to those who cannot help themselves, there's also a very strong case that state and local governments are poor stewards of the resources they already have. The case here: the millions of taxpayer dollars governments have poured into stadiums and hotels left them vulnerable to downturns...catastrophically so when the economy teeters on the brink of depression:

That's because targeted subsidies for things like stadiums and hotels don't make economic sense even in good times, says Michael Farren of George Mason University's Mercatus Center.

"Targeted economic development subsidies don't work. They don't actually raise the standard of living in the communities that use them..."

Farren says these kinds of incentives, at best, spend scarce public dollars on economic activity that would have happened regardless of the subsidies offered. That's a loss for local businesses and residents who have to pay these taxes but don't receive any of this largess, he says.

"You're subsidizing one provider of goods and services at the expense [of] other providers of goods and services. You can certainly see winners and losers," says Farren.

Often, targeted government subsidies can end up distorting markets by oversupplying a good or service, which then creates more demand for subsidies and incentives in order for said business to stay afloat.

Now that we're approaching the worst economic times most Americans have ever seen, these crony deals look even worse -- because the tapped-out taxpayer is still on the hook for the debt that built these white elephants.