Guest Column: Dan Gaeddert on Crony Capitalism
Crony Capitalism and Lemonade
In today’s world of over-regulation and licensing, finding an example of pure, unadulterated capitalism can be difficult to do. However, one of the last bastions of true freedom can be found in something incredibly simple: the lemonade stand. Often used by children to make a little extra spending cash, most people recognize that the rules and regulations that apply in a typical marketplace are unnecessary when it comes to lemonade stands, making them a great example of how a free market operates. Another benefit of this, is that we can also draw parallels of how lemonade stands would work in a crony capitalist economy, much like we have now. To start off, imagine you are a kid again. At 10 years old, your biggest problem in life is trying to figure out how to afford that brand new video game you have had your eye on. You have heard from a few of your friends that selling lemonade by the roadside can be a great way to make some extra cash, so you decide to give it a shot. After doing a bit of research, you discover that you can sell lemonade at a price of 50 cents per glass, while it only costs you 25 cents per glass to make it. At this rate, it will not be long at all before you have enough money to get that video game! You buy all your supplies, hang up some flyers, fine tune your recipe, and before long you are rolling in disposable income. Until one day, disaster strikes!You get to your usual spot at your usual time, but something is wrong. Just across the street is another lemonade stand, operated by no one other than your 8-year-old sibling! Upon closer inspection you see his sign: “Lemonade: 40 cents a glass.” That day you are forced to sit at your once-thriving lemonade stand while a constant stream of customers patronize your competition. Having made no money that day, you have several options. Your sibling was able to provide the same product at a lower price, by taking a smaller profit. Of course, you could always lower your price and get your customers back, but that would mean you make less money. Alternatively, you could increase the quality or the service at your lemonade stand, but again, that would eat into your bottom line. Suddenly, you come up with a brilliant plan. All you need to do is find a way to get rid of your competition, and everything would go back to normal! You stay up all night drafting a proposal you call “The health and safety for all Americans and anti-puppy slaughterhouse act.” The next morning, you introduce this proposal to your parents. You carefully explain to them that the average consumer simply is not smart enough to choose a safe lemonade stand on their own, and that anybody under the age of 10 is not capable of running a quality, safe lemonade stand. Without this good piece of legislation in place, there is absolutely nothing that prevents masses of people from dying in the streets due to unsafe lemonade! As a bonus, this proposal also enacts very stiff penalties for anybody caught running a puppy slaughterhouse. After all, no parent wants to be labeled a puppy-murderer! As expected, your bill passed with flying colors. The next day your competition is eliminated, and you are again free to charge whatever you please, due to your new monopoly on lemonade. While this seems like a rather absurd hyperbole, the reality is situations like these are incredibly prevalent in our “free market.” In fact, it is almost entirely big business lobbyists that push for tougher regulations, more restrictive licensing, and even more government oversight. These large, billion-dollar corporations have no problem at all paying the exorbitant fees and hiring the personnel needed to navigate the maze of regulatory agencies. Small business, however, simply can’t make it work. Obviously, this stifles competition and centralizes money and power in the hands of an elite few. It’s unnecessary regulations such as these that promote monopolies and give us the all of the problems associated with the economic system of crony capitalism.
To contact Dan directly, email dan.gaeddert@lpks.org or firstdistrict@lpks.org.