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Beware Coronavirus Cronyism

03/26/2020

The passage of Phase III of the COVID-19 stimulus package has reopened the floodgates of federal spending. The nearly $2 trillion package covers everything from essential immediate assistance for small businesses to a $50 billion bailout for the airline industry. All told, the package will more than double the deficit overnight, and the impact on the debt will be enormous. What’s worse is that many on Capitol Hill are already preparing for Phase IV.

It is important to recognize that extraordinary circumstances do require extraordinary measures. However, it is just as important to recognize that government bailouts inevitably result in a feeding frenzy of rent seeking and cronyism.

In The Time it Never Rained, author Elmer Kelton provides a novel look into these issues amidst the backdrop of “the longest and most severe drought in living memory” in the 1950s. The main character, Charlie Flagg, is an old school, West Texas rancher who is resistant to any change, especially the expansion of government farming programs and subsidies. After the federal government placed a support price on feed to help the drought stricken farmers and ranchers, Flagg is nearly the only one in the county to reject federal help, choosing to tough it out as he always has.

Shortly after the implementation of the support price on feed, a group of local ranchers approach Flagg, asking him to lead a “caravan to Washington.” Flagg’s hopes are quickly dashed when the men tell him that they don’t intend on asking Congress to butt out. Instead, they intend to ask the legislature to impose a support price on cattle as well. Access to cheaper feed has tanked the price of cattle, making many cattle operations insolvent. In the eyes of the ranchers, “When you’re out, you have to pay for the ones that are in. You’d just as well be in with the rest of them.” Flagg, seeing beyond the immediate, aptly describes the scenario as “like the dog’s chasing after his own tail.”

Later on, when being interviewed by a curious reporter, Flagg outlines the whole situation. “There was a time when we looked up to Uncle Sam; he was somethin’ to be proud of and respect. Now he’s turned into some kind of muddle-brained Sugar Daddy givin’ out goodies right and left in the hopes that everybody's goin’ to love him. And people are playin’ a selfish game with him, all tryin’ to grab more than the next man.”

It seems that every time the government attempts to correct economic problems through stimulus, right around the corner lay organizations seeking to exploit the situation. We’ve already seen this happen during the coronavirus pandemic. While many industries are experiencing damaging closures, lobbyists in Washington have capitalized on the uncertainty. In the immortal words of Rahm Emmanuel, never allow a good crisis to go to waste.

While most Americans have been more concerned about food supplies and public health, the Free Press -- the leading lobbying arm for American journalism -- have requested $5 billion to support local journalism, an already dying industry. The National Confectioners Association was unabashed in its request to Congress for $500 million in direct spending to protect candy makers. The American Alliance of Museums requested their own outrageous sum of $4 billion to insure local museums. None of these requests have anything to do with stopping the spread of COVID-19 or ensuring economic stability. Furthermore, most of the businesses for whom these groups are advocating extraneous spending are already covered under the small business provisions of the CARES Act.

Although Congress is unlikely to take any of these requests particularly seriously, they highlight the problem that Charlie Flagg identified. When the federal government opens up the floodgates, everyone emerges from the woodworks to see what they can get out of the current crisis. The urge to be “in with the rest of them” instead of on the outs is simply too strong for any industry to ignore. As such, it is important that our appropriators take great care in crafting stimulus legislation. If the CARES Act turns out not to be the end of the Coronavirus stimulus plan, then we should expect to see even more organizations clambering to be included.

Rent seeking is a natural part of appropriating, and so it is crucial that legislators think critically before directly supporting any particular industry. As COVID-19 runs its course and economic uncertainty persists, it is imperative that Congress remain vigilant regarding those special interests that are seeking to profit from crisis.