Safety Nets and Cronyism

A blog about business and economics.
April 1 2013 4:36 PM

The Safety Net vs Crony Capitalism

I spoke at an American Enterprise Institute panel on anti-competitive regulations last week, and wanted to try to persuade the conservatives in the audience that a robust social safety is a natural complement to a flexible dynamic economy. Ashwin Parameswaran turns out to have put the point quite well recently:

A common feature of most crony capitalist economies is the pervasive presence of subsidies targeted at themiddle class. Progressives often view middle-class subsidies as the unavoidable price required to secure widespread support for the welfare state. But in reality middle-class subsidies act as the carrot that aligns the interests of the middle class with parasitic crony capitalism. However, along with the carrot comes a very hefty stick – the absence of a safety net. The absence of a safety net that protects individuals against catastrophic outcomes breeds middle-class insecurity. The fear of falling through the cracks causes the middle class to support the very rent-infested programs and corporate bailouts that sustain the plutocracy. In the absence of a safety net, the middle class seeks safety in the safety of the incumbent firm that employs them.
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Health care is particularly relevant here. If a spell of unemployment can critically compromise a family's ability to access needed medical care, then naturally that family is going to fight like a hungry dog for the interests of its employer in the political arena. And to the extent that the conventional wisdom holds that this is how the health care system ought to work, then it's naturally going to follow that this kind cronyist behavior is natural and proper. After all, what else are people supposed to do?

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.