Texas investor Kyle Bass once said, "Capitalism without failure is like Christianity without hell." With less poetry but just as much wisdom, GOP presidential candidate Jon Huntsman announced his plan for financial reforms, saying, "Capitalism without failure is not capitalism. In order to ensure no future bailouts, we must end 'Too Big to Fail.'"
Any bank that is too big to fail is too big. If a private enterprise cannot, for national security reasons, be allowed to fail, then that enterprise itself becomes a national security threat. It must either be nationalized or broken up. Of course, our federal government has no constitutional power to provide nationwide banking services, and such power, even if it were constitutional, would open up wide opportunity for corruption. So nationalization is not an option. Clearly, the "too big" banks must be reformed and reduced.
But as long as big business has friends in big government, our masters in Washington will make sure that "too big to fail" is the business landscape from here to the horizon. In short, the problem with our economic system is not capitalism, but a hideous mutation called "crony capitalism." That is a system that is too dependent on government to be capitalism, but too heavy with private ownership to be socialism. It is a chummy and mutually supportive relationship between the captains of finance and industry and the mandarins of government. The politicians take care of their friends in business who in turn supply campaign cash to their friends in political office.
Understandably, this upsets principled free-marketers. For this reason, conservative former Louisiana Gov. Buddy Roemer, another GOP presidential contender (I bet you didn't know that), has aligned himself with the Occupy Wall Street concerns. Some Occupiers are socialists. Some are anarchists. But while some think they are against capitalism, what they're really against is crony capitalism.
On MSNBC's Morning Joe this week, Roemer spoke in defense of liberty when he said that "somewhere between Wall Street and K Street the system is corrupt. Here's why. A big check gets first in line; everybody else is out of sight. This country is not fair at the top." It's a populist message, but what Roemer has in view is a more genuinely free market and a more faithfully popular government:
"You know who the biggest corporate giver [to political campaigns] from the financial world was four years ago? A little firm called Goldman-Sachs. You know who the largest corporate giver in America is to politicians in Washington? General Electric. Have you seen their record? No one went to jail. GE made $5.4 billion and didn't pay one [expletive] penny in federal income tax."
Democrats who are concerned about the mutual involvement of money and politics have ample reason to be upset at the current administration. Joe Scarborough writes in Politico:
"The president has raised more money from Wall Street through the Democratic National Committee and his campaign account than any politician in American history. This year alone, he has raked in more cash from bank employees, hedge fund managers and financial services companies than all Republican candidates combined."
Crony capitalism corrupts both business and government, no matter who is in government. Aside from campaign finance reform, the way best to fight this is by reducing the size and reach of government in the economy beyond what is necessary for public safety.
Crony capitalism happens when government subsidizes business, becomes a source of venture capital, or becomes a significant customer for business. Some of this is unavoidable. There will always be military contractors. Someone has to build stuff for the government and supply it with paper and such.
But government should take the same approach to business as the Supreme Court required them to take toward religion in Lemon v. Kurtzman (1971): Be careful to avoid "excessive government entanglement."