Bootleggers and Baptists Revisited

Regulatory economist Bruce Yandle invented the catch-phrase “Bootleggers and Baptists” to describe how regulations are supported by seemingly opposing groups when both profit from the regulation.  The theory is that Bootleggers like laws against alcohol consumption because it keeps them in business and limits competition, and Baptists like alcohol laws because it gives them the moral high ground.  A similar situation is unfolding with the Dodd-Frank banking regulations and the political ascension of Elizabeth Warren.  She reaps huge political capital from railing against the big banks and their greedy executives and proposing ever increasing legislation to control the banks, while at the same time, Lloyd Blankfein, the CEO of Goldman Sachs, stated publicly that “More intense regulatory and technology requirements have raised the barriers to entry higher than at any other time in modern history,” and “only a handful of players” will be able to compete on a global scale.  So, Ms. Warren makes political hay by limiting the competition that Goldman has to face.  Isn’t it wonderful to see the cooperation between the public and private sectors?

The Root of Crony Capitalism…Human Nature.

The Root of Crony Capitalism…Human Nature.

The basic unit of the human species is the individual.  All groups, organizations and societies are made up of individuals.  Political groups and business groups are made up of individuals, and these individuals are all guided by basic human nature, the most basic of which is self-interest.  The individuals who control the Democratic Party, the Republican Party, Walmart, Exxon, the House of Representatives, the Sierra Club, the Interstate Commerce Commission, the Small Business Administration, Monsanto, the EPA, GlaxoSmithKline, the Federal Executive Branch, your local barber shop, and any other group or organization you can name, are all motivated by the same basic human urge…self-interest.  If all these groups are made up of individuals acting in their own self-interest, is there any difference between the groups and organizations listed?  The most obvious difference is this.  In the case of the governmental agencies listed, they have the power, using force, to impose their will on all the individuals under their power.  The private companies and private groups, on the other hand, can only offer goods and services to individuals, and the individuals can voluntarily choose to use or not use those goods or services.  Individuals in private entities, when given the opportunity, will purchase the influence from the individuals who control the power of government, to force the individuals under the control of the government to utilize the goods or services they offer, and this is called crony capitalism.  It is rampant in our political system today, and it cannot be stopped no matter how many laws are written to prevent it.  The only way to limit crony capitalism is to limit the power of government to those essential tasks which only government can provide and limit the areas where they will have power and influence to sell. If we continue to allow government power in all areas of our lives with the power to sell favors and to pick winners and losers, the individuals in government will use that power for their own self-interest…that is human nature at work.  It seems so simple to understand.  Those who wrote and ratified the Constitution knew this.  It would behoove us to rediscover this truth.