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Cronyism

5 min read

Part of Markets and money.

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Every episode (3)

Who argued it

Veronique de Rugy · Mike Munger · Tom G. Palmer

Capitalism · Government Regulation · Economics · Public Choice Theory · Morality · Property Rights · Free Markets

Background

On The Bob Zadek Show, cronyism is treated as the use of government power to confer private advantage — and, repeatedly, as something government produces rather than markets. The term appears across episodes on the corporate income tax, antitrust, wealth inequality, and airline bailouts, with guests and host alike describing it as a hidden, self-perpetuating feature of the political system.

The corporate income tax as a home for cronyism

Bob Zadek, discussing an op-ed by economist Laurence Kotlikoff of Boston University, argued that the corporate income tax is inefficient and that its persistence is explained by cronyism. Corporations, he said, cannot pay taxes; they write checks and pass the cost to workers, suppliers, creditors, or owners. Because businesses go to Congress seeking special tax bills, the tax is “yet another home for cronyism,” a private deal between corporation and legislature that voters rarely learn about. Zadek also invoked concentrated benefits and dispersed costs: a corporation may realize a $10 million benefit from a tax break while the cost to each voter is four cents, so no one storms the Bastille over it. He added the principle that an old tax is a good tax, meaning inertia reduces the likelihood of change even when change would be beneficial How the Free Market Will Save the Planet (2014).

Antitrust as cronyism

Ryan Young told Zadek he would repeal the whole antitrust regime, arguing that objections to concentrated power are better handled otherwise. The AT&T monopoly, he said, was propped up by government: until the late ’60s, attaching a non-AT&T or non-Western Electric answering machine to a phone line could bring lawyers, which no market monopoly could get away with. Antitrust, Young said, is itself cronyism, because companies can game rules. He traced the Sherman Act to 1890 and to 19 states that passed their own antitrust laws in the preceding decade, after a maturing national railroad network and refrigeration let large farm producers emerge. Smaller farmers, hurt as consumers chose those producers, lobbied legislatures not to build up their own businesses but to tear down the new ones. The Sherman Act, he said, was essentially a national version of that — “cronyism all the way down” Why Trustbusting Big Tech is a Bad Idea (2020).

Wealth inequality and the source of wealth

Chris Edwards told Zadek that data on wealth is not very good, since government collects income data through tax returns but has no solid data on wealth. Wealth, he said, can be gained inappropriately through subsidies and cronyism; some countries with the highest wealth inequality, such as Russia, have much of that inequality driven by cronyism, which he called a bad thing. Cronyism arises, he said, when government is big and politicians have their tentacles in every part of the economy. By contrast, market wealth accumulates through entrepreneurs creating what consumers want, and the great majority of the Forbes 400 are entrepreneurs. Zadek agreed that wealth per se is a calculation and irrelevant so long as it was obtained through competition and serving consumers — but not if obtained through rent-seeking through government Debt & Taxes (2021).

Bailouts, moral hazard, and the threat to capitalism

Veronique de Rugy told Zadek that the $54 billion airline bailout was bad partly because the money was borrowed amid rising interest rates and $31 trillion in debt, but that the biggest problem is moral hazard. Airlines have learned the government will step in, and can tell shareholders to invest because they will never shoulder the cost during the next emergency; individuals and non-airline companies have learned similar lessons. This corrupts corporate behavior, she said, and is one reason people are upset about capitalism: when people dislike cronyism they blame companies for greed rather than the government, which is the source of the bailout. Corporate welfare and cronyism, she said, is the biggest threat Shining a Spotlight on the Stealth Airline Bailouts (2023). In a related episode, de Rugy described how government intervention distorts the price signal that tells people whether something is risky, safe, worth investing, consuming, building, or hiring, and how bailouts maintain bad systems in perpetuity Shining a Spotlight on the Stealth Airline Bailouts (2023).

Across episodes

The topic recurs from 2014 to 2023 with a consistent framing rather than a developing argument: Zadek supplies the corporate-income-tax case, Young the antitrust case, Edwards the wealth-inequality case, and de Rugy the bailout case, each describing cronyism as a government-produced distortion rather than a market failure.

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