Winners and losers in the marketplace should be determined, well, by the marketplace. Not politicians. Though Trump has made some headway and has indicated his desire to make more headway on taxes and regulations, his personal intervention into the marketplace is of very serious concern. Businesses should be allowed to do business without fear that the President might just blow up a company with a tweet.
Of course many of these companies, particularly the largest ones, have benefited greatly from the system of crony capitalism that has built up over decades. As such these companies probably deserve scrutiny, perhaps even from the president on occasion. But we caution Mr. Trump on getting into the mix as he has because over the medium/long term this could be damaging to the economy.
We just got rid of one very crony president Mr. Trump. You’ve put everyone on notice. But now, as a friend of mine said, Mr. President, be cool.
If Trump isn’t cool he may play into the hands of his opponents.
The stage is already set for a great deal of cronyism because so many firms rely on government contracts. So Trump’s exercise of his coming power over government contracts will inevitably lead to crony capitalism. Once firms recognize, as they probably already have, that the Trump administration can decide whatever narrow outcome it wants and then find the discretionary levers to pull to get that outcome, they will look for ways to kiss the emperor’s ring. Then those firms that do so might well be rewarded with subsidies, tariffs, regulations that hobble their competitors, and so on.
Unlike Pearlstein, I see this as awful news. One of the basics of a free society is that if you obey the law, you are not in trouble. We have already gone far beyond that, with asset forfeiture, for example. But Trump’s action with Carrier takes us one step further down that road. And if Trump follows Pearlstein’s suggestion—sending in tax auditors and Occupational Safety and Health Administration (OSHA) inspectors, not as part of a regular tax audit or OSHA inspection but as part of a threat by a government that wants to get its way on something else—that would take us several steps more.
In his 1944 classic, The Road to Serfdom, economist Friedrich Hayek wrote eloquently about the danger to people of accumulations of government power: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.” Larry Summers, drawing on his inner Hayek, actually said it well also. “Reliance on rules and law has enormous advantages,” he writes. “It greatly increases predictability and reduces uncertainty. It reduces expenditures on both guarding property and seeking to appropriate property. It promotes freedom because most of the people most of the time do not take political positions with a view to gaining commercial advantage. The advantages of the rule of law are so great that I would claim that there is no country more than 2/3 as rich as the United States that does not have a strong tradition of the rule of law based capitalism. And I know of no country where the people are free where the rule of law does not largely govern market interactions.”