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subsidies, political connections displace economic productivity
as the way to profitability. Government management
of an economy means political connections matter,
which means that cronyism will displace liberalism.
In 2011, the Occupy movement developed as a backlash
against crony capitalism. Its first big protest went under
the Occupy Wall Street banner, and one of the complaints
people in the movement voiced was that after the housing
bubble burst in 2008, the federal government moved
to bail out big banks and other financial firms—AIG was
notable for its $162 billion bailout 3 —while many homeowners
lost their homes to foreclosure. Many of those
in the Occupy movement called for greater government
regulation and oversight of financial and other firms to
control crony capitalism. But, as our analysis has shown
in case after case, more government is not the cure for
cronyism; it is the cause.
Economist John Taylor, analyzing the bailouts of
banks and auto companies in 2008 and 2009, notes,
Both the principles of economic freedom and
the empirical evidence of what actually has gone
wrong in the economy suggest quite clearly that
the government did not need more power or
more discretion to regulate more markets or
more firms in the wake of the crisis. It already
had plenty of power before then. Indeed, it was
this very power and discretion that led inexorably
to the favoritism, to the bending of the
rules, to the reckless risk-taking, and, yes, to
the bailouts. . . . This is textbook crony capitalism:
the power of government and the rule of
CRONY CAPITALISM AND DEMOCRACY 91