Crony capitalism: Why the tea party and Occupy movements should be friends

Published: Monday, July 9 2012 7:40 a.m. MDT

So rather than use subsidies or regulations to hide taxes, Zingales wants to bind the government to intervene only by using taxes. "So it either does not intervene, or it intervenes through taxes," he says. "That changes the dynamics, because if you intervene with a subsidy you have a lot of people who are going to ask for the subsidy. If you intervene with a tax, not a lot of people are in line to get taxed, right? So there would be huge resistance. So the government would intervene less, which is good to begin with."

DeLong, however, isn't convinced taxes would get the job done in all cases. "It's not so easy to tax lobbyists or to tax polluters," he says. He pointed to the two-generation long struggle to tax cigarettes, "The public health and moral impact of taxing tobacco — especially for teens — have been clear for two generations. And yet it is still a very active and contested political issue."

Increasing competition

Zingales thinks part of the cause of inequality today is that we have too little competition, or competition that doesn't start from an equal place. He compares it to having a handicap when playing golf. "If you were not given a handicap, it would be very difficult and no fun to play with somebody who is better than you," he says. "Probably, you would give up and not play. The same is true, I think, in the economy overall."

Another thing to lessen the sense that the game of life is rigged is to look at education and healthcare. "If you look at part of the reason why the middle class feels so squeezed," Zingales says, "it is not just because wages have not gone up that much, it is also because the cost of healthcare and the cost of education have gone up so tremendously. And those are two sectors that are not exposed to foreign competition. They are not even exposed, in a lot of cases, to internal competition. And they are two sectors that are heavily subsidized by the government. So we need to generate more competition in those sectors in order to contain those costs and make people feel and enjoy a larger share of what they make."

But it is the lack of competition historically in healthcare and education (and the financial sector as well) that gives DeLong pause. "I find myself very worried about the healthcare, the education and the financial sectors of the economy," he says. "There seems to be something strange about finance, education and healthcare. Which means we need to move very cautiously in terms of getting rid of the regulations over them that we currently have."

Hope

When Zingales came to the United States 24 years ago, he left behind what he thought was an unfair and corrupt system that awarded the privileged, elite and connected. That contrast shaped his view of economics and made him sensitive to trends that seem similar in the United States. "I'm not a politician," he says. "I do not want to run for any office. I just want to try to push some ideas that I think are important and, hopefully, will stick."

DeLong isn't a politician either. Like Zingales he is an economist — sometimes agreeing with Zingales, sometimes not.

"I'm somewhat more hopeful about politics and our ability to make good political decisions than Luigi is," DeLong says. "Luigi's view of your average politician is either the incredibly corrupt Italian Christian Democratic Party or the absolutely criminal Italian Socialist Party or the kind of government … that Italy had under Silvio Berlusconi. Our politicians are not that bad. Or at least are not that bad yet."

EMAIL: mdegroote@desnews.com TWITTER: @degroote FACEBOOK: facebook.com/madegroote

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