Indiana Blue Laws Exemplify Crony Capitalism

The set-up and continuation of the current economic crisis in America has numerous sources. A particularly aggravating one is best described as crony capitalism, in which a supposedly free-market system is actually undermined by blatant political favoritism. The government picks winners and losers in the economy at the expense of the market and what benefits consumers. High-profile and massively expensive examples of this type of cronyism can be seen in the Too Big To Fail bank bailouts and the federal intervention to prevent GM from floundering. Another can be seen in Obamacare, a.k.a the Patient Protection and Affordable Care Act, in which individuals are forced to purchase health care coverage from large insurance companies and face penalties if they don’t.

This type of economic intervention can also be found in smaller, though no less maddening doses. My home state of Indiana has some of the most onerous “blue laws” in the nation. While a dozen states prohibit the sale of distilled spirits on Sundays, the Hoosier State is the only one that also bans the sale of beer and wine as well. In addition, it’s the only state to regulate the sale of alcohol based on temperature—although grocery stores can sell beer, only liquor stores can sell it refrigerated.

This NPR piece details the current struggle in Indiana between convenience stores and liquor stores. Predictably, the dispute is about money and market share, a battle too often fought through cronyism. Convenience stores and gas stations, represented by the Indiana Petroleum Marketers & Convenience Store Association, have filed a federal lawsuit for the right to sell cold beer. Liquor stores are lobbying to preserve the blue laws in order to maintain their monopoly.

Dave Bridgers, vice president of Thorntons, an Indiana chain of gas stations and convenience stores, says that the laws reduce choice for customers and eliminates competition, leading to changes in how his company will do business. Bridgers states:

Not having the ability to sell what our customers want impacts our bottom line. We will continue to invest in other states, where laws are more business friendly to our company, and where it makes the most economic sense.

Following through on his promise, Thorntons hasn’t opened a new store in Indiana since 2006. The company has instead decided to expand into Ohio and Kentucky, with many stores located near the border in or around Louisville. Many Hoosiers, and I happily include myself as one of their number, frequently cross state lines to circumvent Indiana’s blue laws.

John Livengood, president of the Indiana Association for Beverage Retailers, argues that eliminating the blue laws would be ruinous for the liquor store industry. He estimates between 25-50% of stores would be shuttered were it not for their existence. He argues that since Sunday is a popular day to go grocery shopping, allowing consumers to purchase groceries and alcohol in one stop would render the liquor stores obsolete. By lobbying the government to preserve the blue laws, he thinks he can keep these stores in business.

This is the crux and curse of crony capitalism: Rather than competing for customers by providing superior products and services, two rival industries are instead lobbying to curry government favor—one to repeal a law and the other to maintain it.

Both sides feel a very real need to divert valuable resources into politics. They are both aware of the government’s formidable power to pick winners and losers in the market. With Washington’s blessing and intervention, even shoddy business models can—perhaps briefly—be successful in the market. For examples of this in one industry alone, look at Solyndra and at least 18 other green companies that went bust despite receiving substantial financial assistance from the Fed.

As tempting as it is to blame businesses and K Street for the problems of political favoritism, the blame truly lies with the government itself. Lobbyists ask Washington for special treatment that would help their industries because they know the government has the power to grant those favors. If the government were truly restricted in its power, say—if they actually followed the Constitution,  businesses would cease to lobby because they would know that it would be unprofitable to continue to do so.

Ginning up government favor with promises of both votes and money, lobbyists can be viewed as a teenage kid with a heroin problem. The kid goes to his parents—Washington in this analogy—and asks them for cash to help him out, with the promise that he’ll go to rehab and clean up next week. The kid doesn’t ask his neighbors because he knows that they have no reason to give it to him and that it would almost assuredly be a waste of time. The parents end up forking the money over. They are encouraging their kid’s behavior and will likely see him again with his hand held out wearing a fake-sorry frown.

This “Gimme! Gimme!” behavior needs to be punished if we are to see less of it, however, it is unfair to punish the special interests groups, as they are only asking for favors. Politicians are the ones actually granting them in return for campaign donations and loyal votes. Just like the kid with the smack problem, why shouldn’t lobbyists ask for special favors? The gravy train is certainly flowing, as Congress spent $16.5 billion on special pork projects in 2010 alone. For this behavior to stop, the politicians need to be punished for doling out unconstitutional favors.

Blue laws are written by state and local legislatures (famously, Jack Daniel’s is distilled in dry-as-a-bone Moore County, TN) and they operate under a different set of rules than policies dictated by Washington. However, the current struggle in Indiana is indicative of the larger problem of crony capitalism in the nation. More and more industries are fighting for market share and favorable treatment by lobbying legislatures rather than competing for customers by lowering prices, increasing quality or providing additional services.

However, when the government gives out billions of dollars of special favors each year, it’s awfully hard not to put your hand out, with a wink and a smile, and shout “Gimme!”






Failure of Central Planning and the Venezuelan Toilet Paper Shortage

Venezuelan officials continue to undermine individual freedom by further demonstrating the deleterious effects of economic central planning. The nation is experiencing shortages of dozens of staple items including rice, milk, butter and toilet paper. These shortages have been exacerbated by a new pilot program designed to limit the amount of goods each person can purchase. However, innovation and decentralization have provided a way for savvy shoppers to once again beat the government’s vain attempts to control the market.

In an attempt to curb the crisis, the western state of Zulia is embarking on a digital endeavor that will track the goods individuals purchase and will block them from buying staple products from different stores on the same day. Blagdimir Labrador, a state official, explains:

Considering the average size of a family, one person should only buy 20 staple products during the period that we establish, which we think will be one week.

The initiative’s pilot will be run in 65 supermarkets in Maracaibo, the capital of Zulia.

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The shortages were in part caused by price controls set into law during the Hugo Chavez administration, which keep goods like rice and flour below their market price. Steve Hanke, an economist at Johns Hopkins University, describes the flawed policy:

State-controlled prices – prices that are set below market-clearing price – always result in shortages. The shortage problem will only get worse, as it did over the years in the Soviet Union.

Although the intention of these policies was to ensure that the poor would have access to these necessities, their actual (and predictable) effect has been to dramatically reduce the supply of staple items.

Recognizing the shortage, many people are stocking up on supplies and some are reselling them at greatly inflated prices to needy Venezuelans. Zulia borders Colombia, where prices are several times the subsidized costs in Venezuela, and there has also been an increase in trade across the border.

Related Article: Income Inequality in America: Red Herrings and Wealth Envy

The result of this market mangling is an eminently foreseeable feedback loop: Economic controls and central planning distort the actual prices of staple products. This imbalance between cost and actual value leads to shortages which create incentives for people to hoard goods. This further diminishes supply, and by rationing the remaining goods the government further induces people to stockpile and the shortage is exacerbated.

In short, the Venezuelan government dug itself into an economic hole and is trying to dig its way out.

The national shortage of toilet paper has struck a nerve with many Venezuelans. In order to quell their frustration, the government says that it is going to import an additional 50 million rolls along with 760,000 tons of food.

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Amazingly, Commerce Minister Alejandro Fleming blamed the shortage of staple goods on “excessive demand.” To a dyed-in-the-wool statist, the inherent friction involved in managing a society is always to be blamed on the proletariat, never on the Top Men attempting to organize the nation.

However, people are already ingeniously subverting the statists’ attempts to model society. On May 29 Jose Augusto Montiel launched an app called Abasteceme, which translates to “Supply Me,” which helps people get around government-caused scarcity. The app utilizes crowd-sourcing technology that alerts users to supermarkets that still have desired goods in stock. According to Montiel, toilet paper and flour are the items most sought after by shoppers. When users find a store that has these items on the shelves, they flock to the market and whip out their checkbooks. More than 12,000 people have already downloaded Abasteceme, mostly in Caracas, but its popularity is spreading.

The economic problems in Venezuela are intrinsic to the state-controlled political legacy Chavez helped create. Venezuela ranks 174th out of 177 in the 2013 Heritage Foundation report on economic freedom, nestled neatly between Eritrea and Zimbabwe. Chavez’ authoritarianism echoes elsewhere in Venezuelan society, as Chavez repeatedly attacked and censored the media for criticizing his regime and held human rights in disregard.

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Central planners believe in Top Men who have the knowledge and ability to maximize the productivity of a country and its people. They fail, however, to have the humility to realize that this is an absurd task for any leader or politburo, as it’s inherently impossible for a group of few to effectively run a nation of many. History has borne this out repeatedly and this further elucidates the mindset of Top Men. Every problem or inefficiency can be blamed on the Little People who audaciously have an “excessive demand” for anything, be it toilet paper, a free press or even liberty itself. For them, the problem isn’t that their political and economic ideology is fundamentally flawed, logically destined to devolve into the same illiberal hell that every socialist government has thus descended.

It’s that the proletariat didn’t comply or simply that the “right” Top Men weren’t in charge.

Modern technology has made controlling human activity gloriously challenging. This is a decided advantage of living in the 21st century, where people can wirelessly transmit knowledge and innovate myriad wrenches to throw into the machinery of tyranny. However, to statists this development makes their ultimate goals more difficult to achieve. To them it is something to be stymied and snuffed out, perhaps most dramatically seen during the 2011 uprising in Egypt when the Mubarak regime literally turned off the Internet to make it more difficult for the protesters to organize.

This authoritarian impulse can also be seen in America, as news of secret NSA surveillance has been leaked. Also reminiscent of Chavez’ regime, the Associated Press was specifically targeted and the phone records for 20 reporters were seized by the Department of Justice.

The statist playbook is outdated; their only remaining tool is the administration of further force onto an increasingly unwilling populace. This gambit continues to work in many regimes around the world, but its expiration date is nearing. People have begun to realize that the decentralization of power and the abandonment of Top Men leads to freedom and peace.

By innovating to strip Top Men of their iron authority, the Little People—too numerous and evasive to be stomped out—can hopefully reject unwanted and unwarranted authority in illiberal governments around the world.

Sic semper tyrannis.


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Income Inequality in America: Red Herrings and Wealth Envy


The issue of income inequality in the United States has again crept into the blogosphere through a viral video created by user politizane using data from Michael I. Norton and Daniel Ariely. It attempts to illustrate how far off the actual levels of inequality are compared to what people think is the reality and what they believe is the ideal distribution of wealth. Its creator then implicitly implores the viewer to think of ways to end this injustice by flattening out the perceived malapportionment.

My first response to the largely non-issue of inequality is a very blunt “So what?” As income inequality has increased, the standard of living has also surged to the point where it’s almost meaningless to talk about “the poor” in America these days. However, more important than the message of the video itself is its tacit endorsement of leveling the distribution of wealth in America, a proposition that is largely impossible without forcefully taking it away from the Haves.

Income inequality in the United States simply isn’t scary or even an undesirable condition. In fact, it has been one of the drivers of innovation in this country, a phenomenon that helped everyone become wealthier as technological advances eventually trickled down to even the poorest in our society. The US during the Gilded Age in the late 19th and early 20th centuries had large amounts of inequality, personified by mega-rich barons of the day like Vanderbilt, Carnegie, Ford and Rockefeller. Despite this, the quality of life improved dramatically for everyone regardless of social standing. In 1850 the average life expectancy in the US was 39.5. By the end of the century it had risen to around 49 and was nearly 60 by 1930.

This boost in the standard and quality of life was accompanied with a transformational technological boom that dramatically altered the way people lived. Even completely ignoring the end of slavery and the obvious progress blacks made towards racial equality, is there anyone who really thinks that 1850 was a better time to be born than in 1900? And to think, all of the cultural, financial and industrial advancement occurred in spite of—or perhaps because of—wealth inequality. The video gives another example: the narrator states that in 1976 the top 1% had 9% of the nation’s wealth, compared to 24% today. Considering how much “fairer” the country was back then, how many of you would rather be living in 1976? Hands? Anyone?

Another problem with the video lies in its fallacious depiction of poverty in America. When illustrating the actual distribution of wealth, the narrator describes the poorest Americans as being “down to pocket change.” While there is poverty in the US and I do not intend to denigrate the people living through tough times, the fact of the matter is that poverty in America looks dramatically different than actual poverty.

Poverty is when meeting the basic needs of food, shelter and clothing is a constant struggle. People living in war-torn Afghanistan are impoverished, as are those that live in the favelas of Rio de Janeiro or the slums of Jakarta. Most poor people in the US are only poor in relation to rich people, because thankfully this type of extreme poverty is exceptionally rare in America.

The Heritage Foundation produced a very illuminating study of the realities of the more than 30 million Americans who are defined as “in poverty” by the Census Bureau. Using figures from 2005, they listed household amenities and documented what percentage of poor households separately owned each item. Over 60% owned a cordless phone, clothes dryer, at least one DVD player, more than one television AND cable/satellite service, at least one VCR, air-conditioning, microwave, stove, oven and refrigerator. Of these poor households, 38.2% had a personal computer, about 30% had Internet access and over half had a cell phone, all astonishing numbers.

Is it really appropriate to call someone poor if they can sit in their air-conditioned house and sip a cold, refrigerated beverage as they surf the net? Honestly, if 17.9% of “poor households” own a big-screen TV, then perhaps it’s time to redefine what being poor actually means.

The implications of the video and the sentiment behind it are also disturbing. Over somber music, the narrator details the actual distribution of wealth in the nation and makes pleas “to find something that is fair for hardworking Americans.” Clearly, politizane thinks wealth inequality is unfair and harmful, a societal ill that needs rectifying.

The really scary part is how some people plan on “fixing” the fiscal unbalance. France has already created a 75% upper tax rate on income over one million euros that has led some to flee the country in order to keep their money. Switzerland has also recently made it illegal to pay a CEO too much, with a penalty of up to three years in jail.

Raising taxes on the rich and penalizing “excessive” compensation smacks of petty wealth envy, punishment for the crime of having more money than someone else. The top 1% already pays 37% of federal income taxes, and the top 5% pay 59% of the total. Just how much more should they have to pay in pursuit of “fairness?”

Politizane’s video does mention the “Dreaded Socialism” and how it’s unnecessary to fully implement that failed philosophy. However, any attempts to redistribute wealth from Washington must, at their core, be socialistic. Confiscating wealth in order to be more equitable is inherently immoral, especially when Washington spends so recklessly and inefficiently that they give drunken sailors a bad name. After all, trillion dollar deficits are the new norm and Congress has failed to pass an actual budget three years in a row, with Obama’s last attempt being voted down 99-0 in the Senate.

Trying to reallocate wealth through higher tax rates, salary caps, or any other conceivable method is hazardous, unethical and largely pointless. Rather than reflexively freaking about income inequality, politizane and others who share his concerns should take a deep breath and realize that it simply isn’t the great boogeyman that they fear it is. In fact, it actually helps drive the standard of living up for everyone, because as the rich buy products that only they can afford (e.g. cellphones in the ’80s), soon enough the technology is cheap enough to positively influence all of us.

Income inequality is nothing more than a red herring meant to inflame wealth envy into hatred of the rich. By ignoring this myopic view of society and realizing that other people’s wealth is no one else’s business, hopefully we can continue to enjoy the unprecedented advances in technology that make the Internet Age such a marvelous and truly progressive time to be alive.