One defining characteristic of cronyism is that politically connected businesses and industries get special favors from the government. Most people oppose it because of the inherent corruption, but economists also dislike it because it lowers living standards by hindering the efficient allocation of resources.
Unfortunately, the bailout craze in the United States is a worrisome sign cronyism is taking root. In the GM/Chrysler bailout, Washington intervened in the bankruptcy process and arbitrarily tilted the playing field to help politically powerful creditors at the expense of others. Not only did this put taxpayers on the hook for big losses, it also created a precedent for future interventions.
This precedent makes it more difficult to feel confident that the rule of law will be respected in the future when companies get in trouble. It also means investors will be less willing to put money into weak firms. That’s not good for workers, and not good for the economy.
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