3 Ways the Trump Administration Could Stop Crony Capitalism

Ms. de Rugy is someone our readers should seek out and read

(From Reason)

Before I start detailing how, let me say that abolishing all corporate welfare programs is the right thing to do. Corporate welfare, a practice in which government officials provide preferential treatment (such as loans, subsidies or regulatory preferences) to hand-picked firms or industries, is unfair. It picks winners and losers for no other reason than that they’re politically connected or not politically connected. The winners are usually big and able to invest in lobbying on Capitol Hill. The victims are often unseen and usually don’t have a press office. Favoritism also slows the economy because entrepreneurs and businesses misdirect their resources. They spend time lobbying for those privileges instead of finding new ways to create value for customers.

Short of terminating programs, the first thing Congress could do is adopt fair-value accounting. Under the government’s current accounting scheme, most direct and guaranteed loans look as if they cost taxpayers nothing and even create the illusion of returning money to the Treasury. Moving to a fair-value accounting system would actually capture the direct and opportunity costs of these lending programs.

That was the finding of a 2014 Congressional Budget Office report that looked at the real cost of three lending mechanisms—the Department of Education’s four largest student loan programs, the Ex-Im Bank’s six largest export credit programs and the Federal Housing Administration’s single-family mortgage guarantee program. In our new Mercatus Center paper, “Curbing Favoritism in Government,” Tad DeHaven and I explain that when the CBO switched to a fair-value accounting method like the one employed by the private sector, it found that rather than save or make money, these programs combined will cost taxpayers—excluding administrative expenses—roughly $120 billion over the next 10 years. A fair-value accounting system would make these programs’ costs more transparent.

Second, Congress could create a Base Realignment and Closure-like commission to eliminate favoritism.

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