Getting Crony Capitalism Half Right: The solution to government interference isn't more of it.

Author:Chartier, Gary
Position:BOOKS - Brink Lindsey and Steven Teles' "The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality" - Book review

AMERICANS ARE PRONE to assuming the government redistributes wealth downward, to the poor and vulnerable. In The Captured Economy, libertarian Brink Lindsey and modern liberal Steven Teles emphasize the ways governments persistently redistribute wealth upward, from ordinary people to elites. Their accessibly written book highlights several sectors of the economy that have been dramatically misshaped by state-secured privilege--in economic jargon, by "rent-seeking." This, they show, has both reduced productivity and increased inequality.

Lindsey, a vice president at the Niskanen Center, and Teles, a political scientist at Johns Hopkins, don't try to identify every industry that has been seriously distorted in this way. But they explore important examples that reflect a much larger problem.

They consider a range of subsidies and implicit guarantees offered to firms in the financial sector, for instance, noting the ways these interventions--including mortgage subsidies and the creation of mortgage-backed securities--promote bubbles and encourage risky behavior. Similarly, they highlight ways in which land use regulations concentrate wealth and reduce the possibility of both geographic and socioeconomic mobility. These restrictions have dramatically increased housing prices, an effect very much in line with the regulations' underlying purpose. As Lindsey and Teles note, these laws exist "to protect homeowners' property values at the expense of access to housing for everybody else."

Elsewhere, they ponder the effects of intellectual property rules. By outlawing copycat competition, Lindsey and Teles point out, current copyright and patent laws allow "industry leaders to take fuller advantage of the potential scale economies that the nature of their industries permits. The result is even higher levels of inter-firm inequality than would otherwise be possible, with industries dominated by a few highly profitable giants." While copyright protections are good for companies that own a lot of copyrights, "hostility to unauthorized copying... stands in direct opposition to the logic of the Internet, the greatest technology ever devised for reproducing and disseminating information," they say, by restricting creativity, innovation, and the sharing of information.

The book emphasizes the ways occupational licensing creates government-enforced cartels as well. The beneficiaries range from cosmetologists to lawyers; the most privileged tend to be the sorts...

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