It’s not capitalism, it’s cronyism: Look what Congress just did to the federal budget

Lawmakers are once again adding pork to the federal budget. Congress passed a spending bill this month filled with benefits to favored groups. There is no need to discuss the economics of these government policies; it’s a question of justice.

Economics as an area of study was originally about the laws that govern us. When Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776, he and the scholars that followed were called political economists.

These first economists taught us how specialization and markets make us better off, and how free trade makes nations grow and improve the standard of living for all people. But they also taught us that such economic benefits depend largely on justice and the rule of law.

Some have read Adam Smith’s work and simply stopped with the economic analysis, concluding that he was a greedy capitalist. Such critics have not read the whole book. Smith knew the benefits of the free market are not fully realized unless all people are well governed and that the justice system works for everyone.

Smith was not a greedy capitalist who cared only for the rich. Smith was pro-poor.

He wrote, “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable,” and “Avarice and injustice are always short-sighted.”

In fact, much of the Wealth of Nations is devoted to how those in power used their powers to exploit the poor. Smith knew that such actions were not only detrimental to creating wealth but morally wrong.

In a later part of the book, he provided evidence for how often “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.”

Economists refer to this problem today as crony capitalism — when business people use the law to get benefits for themselves.

Tax incentives, subsidies, or any preferential treatment for certain industries keep inefficient firms afloat or encourage capital to flow where it is not needed. When the law sends capital flowing to only certain industries, economic growth slows. Such funds should be going to new, innovative industries and new employment.

But again, it’s not just bad economics, it’s unjust.

Adam Smith and the other early economists cared about justice for all. Anyone who cares about our government and economy should too.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa, Idaho. prcrabb@nnu.edu

This story was originally published March 17, 2022 at 4:00 AM.