Phil Hauck's TEC Blog

Thursday, January 31, 2013

Zingales on Capitalism

I recently read a book by an Italian-born economist about Capitalism.  He says he escaped the brand of "crony capitalism" practiced in Italy by coming to the U.S.; he's now a professor at the U. of Chicago business school.  He says that the requirements of Capitalism are not only the normal ones of individual property rights and a judicial system to protect them, but also competition.  To the degree that competition is compromised (by taxes and regulations), capitalism fails to provide its rewards.  Of course, some taxes and regulations are necessary ... to pay for government services and to provide guidelines for how society wants it to operate.  But, he says, many taxes and regulations go further than that, effectively rewarding those pushing for the changes because they will benefit them at the cost of others.  That, he says, is the beginning of "crony capitalism" ... and the U.S. now has it in spades, he says.  The result is a distorted economic system that benefits too many people disproportionately to the rest, causing people to lose faith in it and choose not to engage.  He says that's what we're seeing now ... in both our complex tax system, and the amount of complex regulations that we have.  Every time there is a tax or regulation change, somebody wins and somebody loses.  Watch for it.  You will also see it shortly as pressure builds to change tax systems and regulations.  You can see who benefits from them now, because they will be arguing for the status quo through their lobbyists.
Oh, yes.  The book, written in 2012, is:  A Capitalism for the People, by Prof. Luigi Zingales.  I have a three-page summary of it, if you ask.

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