Archive for crony capitalism

Sports Stadiums: Temples to Crony Capitalism

stadium in lightsMises Daily Friday by Salmaan Khan:

Although it’s clear that they offer no economic net benefit, American cities are building taxpayer-funded sports stadiums every chance they get. Billionaire team owners and politicians benefit greatly while ordinary taxpayers do less well.


War is Good for the Economy: Defense Stocks Soar

1280px-US_Navy_020712-N-5471P-010_EOD_teams_detonate_expired_ordnance_in_the_Kuwaiti_desertWell, war is good for certain sectors of the economy. For example: weapons manufacturing. Taxpayers and holders of US dollars won’t fare quite as well.

Writes Bloomberg:

Led by Lockheed Martin Corp. (LMT), the biggest U.S. defense companies are trading at record prices as shareholders reap rewards from escalating military conflicts around the world.

Investors see rising sales for makers of missiles, drones and other weapons as the U.S. hits Islamic State fighters in Syria and Iraq, said Jack Ablin, chief investment officer at Chicago-based BMO Private Bank. President Barack Obama approved open-ended airstrikes this month while ruling out ground combat.

“As we ramp up our military muscle in the Mideast, there’s a sense that demand for military equipment and weaponry will likely rise,” said Ablin, who oversees $66 billion including Northrop Grumman Corp. (NOC) and Boeing Co. (BA) shares. “To the extent we can shift away from relying on troops and rely more heavily on equipment — that could present an opportunity.”

Basically, it’s party time at places like Lockheed Martin where highly paid engineers live off the sweat of the taxpayers to develop more efficient ways to kill people 10,000 miles away. The idea of a war with few American casualties, but with incredibly expensive weaponry, is a crony capitalist’s dream come true. Politically, there’s no down side, from their perspective. Voters don’t care about dead Arabs, and with so few American personnel likely to be killed, there’s virtually limitless potential for the defense industry in this open-ended conflict. Thousands of bombs, each costing $250,000 will be dropped, with thousands more rolling off the production lines.

Thanks to the central bank and American enthusiasm for limitless spending on wars, there’s no better business than the war business. In fact, with election season right around the corner, watch for conservatives to be claiming that the administration isn’t spending enough on war.


The Space-Junk “Crisis”

Debris-GEO1280Whenever you see the words “Lockheed Martin” you should think “taxpayer-funded cronyism,” so when I saw the recent Drudge headline that read “LOCKHEED seeks to clean up space…” I mentally added the clause “with money stolen from taxpayers.”

The space junk crisis is apparently the latest looming global disaster that requires a government solution. Drudge links to a Financial Times article that only gets to the financial heart of the matter six paragraphs down:

[The joint venture to track space junk between Lockheed and Electro Optic System Holdings] follows the award in June of a US$915m contract by the US Air Force to Lockheed to build a “space fence” project – a powerful radar system to track and catalogue space debris. This radar will monitor 200,000 of the largest pieces of junk in orbit.

Ah, so this latest “private sector” effort is really an adjunct to a grant of nearly a billion dollars from the US Treasury to Lockheed.

Lockheed knew how to strike when the iron was hot, of course, since the recent movie Gravity make space junk an issue in the popular imagination:

The 2013 Hollywood movie Gravity, which starred Sandra Bullock and George Clooney, focused public attention on the space junk problem, which Nasa [sic] has been grappling with for years.

It’s not hard to imagine the Powerpoint presentation delivered by Lockheed salesmen to USAF bureaucrats featuring a clip of the space-junk-caused disaster at the beginning of Gravity as an illustration of just how important it is that Lockheed get $900 million ASAP.

This isn’t to say that space junk isn’t a real issue. Space junk is causing real damage to actual property in orbit as noted in the article:

Awareness of the dangers posed by man-made space debris has grown since the first hypervelocity collision between satellites in 2009, which took place 800km above Siberia. Iridium 33, which was part of a network of satellites providing phone services, was destroyed when it collided with a deactivated Russia satellite Cosmos-2251.

But if space junk is a real problem for private parties, then it would appear that they have a large stake in solving the problem either through clean-up or by constructing space crafts differently. In other words, there’s an incentive to put private money into solving the problem. But why use voluntary and peaceful means when it’s easier for Lockheed to just go back to the well of taxpayer funds? When you’re a lobbyist-heavy corporatist outfit like Lockheed, it’s always easier to just employ the violence of taxation than the more costly work of market transactions. The financial benefits of such a strategy can be immense. The FT article notes:

…shares in Electro Optic Systems Holdings have risen: up by 49 per cent over the past seven days, closing Tuesday at 67 cents.

“There is a commercial opportunity when you consider investment in space is worth about US$900m,” says Ba-Ngu Vo, professor at Curtin University.

I wonder how many high-ranking DOD employees and members of Congress just happened to buy stock in EOS right before the new agreement was announced. We may never know.


Feudalism and Cronyism in Machiavelli’s Italy

6751Jo Ann Cavallo writes in today’s Mises Daily: 

I would contend, moreover, that Machiavelli goes beyond the specific issues related to taxation and private property to dissuade the prince from intervening in civil society (il vivere civile) more generally as well. During this period, it was not uncommon to find collusion between political and economic forces in society. Renaissance princes “pledged mining and trade monopolies”while privileged families were “concerned about controlling the political situation in order to profit from the monti (public funds), to be able to obtain reductions on taxes and forced loans, to establish international relationships of privilege, or even to set up monopolies via official missions and with the backing of popes and kings.” The Medici family was particularly notorious for using political power for economic advantage (and vice versa) …


Feudalism and Cronyism in Machiavelli’s Italy

6751Jo Ann Cavallo writes in today’s Mises Daily: 

In fact, in [Machiavelli's] political writing, he makes a point to assert that civil society can best flourish in the absence of government intrusion. In The Discourseshe states that the common utility (commune utilità) of a free state (vivere libero) is “the possibility of enjoying what one has, freely and without incurring suspicion …, the assurance that one’s wife and children will be respected, [and] the absence of fear for oneself.”

Ben Bernanke Gets His Reward

6700Christopher Westley writes in today’s Mises Daily: 

“Bernanke Enjoys the ‘Fruits of the Free Market,’” or so we’re told in a Reuters headlinefrom March 4 about the former Fed chairman’s 40-minute speech in Abu Dhabi for which he received, ahem, $250,000. In the Reuters author’s defense, he was only quoting a DC lobbyist who was defending the amount, and added, Bernanke “will personally experience supply and demand.”

Well, yes, it’s just supply and demand and all that. No big deal and if you don’t like it, you must have something against markets. Still, it would be nice (and a bigger deal) if these reporters would quote someone outside of the accepted intellectual class of the Boswash corridor so compromised by being among the primary beneficiaries of all the new money Chairman Ben and his comrades created, ex nihilo, when he wasn’t shooting baskets in the Marriner Eccles building. If they did, they might hear some healthy skepticism about these events in which top officials cash in on their “public service” via contacts with the very industries they benefited while in office.

Crony Capitalism and the Transcontinental Railroads

historic steam train passes through the fieldsRyan McMaken writes in today’s Mises Daily: 

In spite of massive subsidies and free lands equal in size to New England, the lack of overland trade made it difficult for the railroads to turn a profit, and after a series of bankruptcies, bailouts, and other schemes, railroad owners like Leland Stanford, Thomas Durant, and Jay Gould managed to make a lot of money manipulating federal largesse, but many others, including families and ranchers who followed the flood of money and capital west during the boom, but who found themselves as paupers on the western plains after the bust, were ruined by the railroad’s bubble economy.

With the signing of the first bill to create the transcontinentals in 1862, it was already known that there was no economic justification for the railroads, which is why they were, according to White, “justified on the grounds of military necessity.” Lacking any privately funded-entrepreneurs willing to build a road through more than a thousand miles of territory uninhabited by whites, the 1862 Railroad Act created the Union Pacific, making it the first federally-created corporation since the Bank of the United States. Legal and economic shenanigans ensued, and it would not be until the 1890s that anyone built a privately-funded railroad, the Great Northern Railway.

DiLorenzo Reviews Stockman’s ‘The Great Deformation’

books (1)From the Summer 2013 issue of the Quarterly Journal of Austrian Economics.

[The GreaDeformation: The Corruption of Capitalism in America by David A. Stockman,  New York: Public Affairs Books, 2013, 742 pp.]

Reviewed by Thomas DiLorenzo

The Great Transformation is a Human Action-sized treatise about how the Fed over the past several decades has generated economic instability in far more ways than even the Austrian Business Cycle theory contends, primarily for the benefit of Wall Street One-Percenters at the expense of the rest of society. It has cemented into place neo-mercantilism as the American economic system. In many ways the book can be thought of as “Human Action for Financial Markets” (which is not to suggest that Mises would agree with everything in the book). It is a treasure trove of ideas for future research on financial markets and regulation from an Austrian perspective. David Stockman not only cites Mises and Hazlitt, among other Austrians, but is also a severe critic of the supposedly free-market ChicagoSchool of monetarism and its patron saint, Milton Friedman. In fact, he pins a large share of the blame for the corruption of American capitalism on Friedman as a preeminent defender of the Fed with his utopian and cultish “monetary rule.” (If anything defined twentieth-century monetarism, it was Friedman’s “monetary rule” of 3 percent monetary growth per year, administered presumably by what Stockman calls monetary “eunuchs”).

The main theme of The Great Deformation is stated clearly on the first page of the introduction, where Stockman explains how “fiscal cliffs as far as the eye can see” are “the result of the capture of the state, especially its central bank, the Federal Reserve, by crony capitalist forces deeply inimical to free markets and democracy.” This statement suggests a great irony in that it was the “Chicago School” economists who championed the “capture theory of regu­lation” with regard to such industries as interstate trucking and airlines, but ignored the biggest and most important regulatory capture of all—the creation of the Fed.

Stockman’s unique background and experience have allowed him to write authoritatively and with great knowledge the mountain of lies—about “too big to fail,” Reaganomics, the New Deal, and the antics of the Fed—that have been employed by Washington’s central planners who have succeeded in essentially destroying much of American capitalism and replacing it with putrid political cronyism. This is a man who was once a member of Congress and the director of the U.S. Office of Management and Budget during the first four years of the Reagan administration. Since then, he has been a consummate Wall Street insider, first with Salomon Brothers and then as a private equity investor with The Blackstone Group. He is also very well read in economics and economic history. It is doubtful that any other human being has a comparable combination of talents. Only David Stockman could have written this book, in other words.


Part I debunks the lies perpetrated by Washington to justify the bailouts of Wall Street (and other industries) in the wake of the “Great Recession” that was created by the Greenspan Fed with the “help” of myriad other federal government policies. For example, there was never any reason for the government to bail out Goldman Sachs. After being handed $10 billion the company “swiveled on a dime and generated a $29 billion financial surplus” which included $16 billion in salary and bonuses just three months after the bailout to supposedly “save it from extinction.”

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David Brooks, The Whigs, and Corporate Welfare

TycoonThomas DiLorenzo writes in today’s Mises Daily

Either Brooks knows nothing at all, whatsoever, about the Whig Party tradition in American history, or he is lying through his teeth about it. For he describes it as having been devoted to “using the power of government to give marginalized Americans the tools to compete in a capitalist economy.” The Whigs, says Brooks, “fought against the divisive populist Jacksonians” who supposedly sought to “pit classes against each other.” Every bit of this is exactly the opposite of the truth. The Whigs were the party of crony capitalism, of government of plutocracy, by the plutocracy, for the plutocracy. That is why so many historians have marveled over how a man like Abe Lincoln, who grew up so poor, would become the political water carrier for the Northeastern moneyed elite in American politics.

The most divisive economic issue in American politics during the heyday of the Whig Party (1832–1852) was the battle over free trade versus protectionism. If the Whigs stood for anything, they stood for corporate welfare in the form of high protectionist tariffs that would plunder the masses for the benefit of the few. This meant, for the most part, plundering Southern farmers more than anyone for the benefit of Northern manufacturers who would be protected from international competition by the high tariffs. As John C. Calhoun once said, what “protectionism” protects the public from is low prices. Next to slavery, protectionism was the biggest assault on property rights in America during the first half of the nineteenth century. The Whigs did not believe in “sacred” property rights, as Brooks foolishly writes. Their entire political agenda was based on the government-enforced attenuation of property rights for the benefit of the wealthy and politically-connected.

Common Ground

800px-Farming_near_Klingerstown,_PennsylvaniaI often find myself disagreeing with Cynthia Tucker, the Progressive journalist and professor, so I was happy to read a recent column of hers, on the farm bill that just passed the House, and find that she and I share some common ground on our views toward government.

She considers the bill an example of congressional priorities that “…protect the rich and punish the poor, comfort the comfortable while brutalizing the afflicted.” Indeed, it is an example of the cronyism that always accompanies political power, in which those who hold power use it to aid the rich and powerful. Should we expect anything else?

She says about Republicans, “…if they really want to rein in government, if they believe people ought to stand on their own two feet and refuse the ‘welfare state,’ why are they preserving welfare for those who need it least? Do they not see the glaring hypocrisy in their insistence on farm subsidies?” Of course they see the hypocrisy. That’s how cronyism works. You help your cronies, not those who actually might need help.

Tucker offers a great example. “One case of mind-boggling hypocrisy is that of U.S. Rep. Stephen Fincher, a Republican and a farmer from Frog Jump, Tenn., who collected nearly $3.5 million in subsidies from 1999 to 2012, according to the Environmental Working Group. In 2012, he received $70,000 in direct payments alone…”

She goes on to note, “Fraud, by the way, is rampant in farm subsidies, although you’re unlikely to hear anything about it. … You have to burrow into reports from the Government Accountability Office for that.” Of course the cronies don’t want you to know what they are doing.

I recently noted that politicians can gain more political support if they campaign against the status quo rather than in favor of some specific policy to replace it.  Tucker’s column is a good illustration.  Though she calls herself a Progressive, her recognition of the rampant cronyism that characterizes politics is shared by observers from one end of the political spectrum to the other.

Tucker doesn’t suggest any solutions to this cronyism, and we might have less in common there. Meanwhile, it is nice to see that people coming from conservative, libertarian, and Progressive points of view all share common ground in recognizing that government policy favors the politically connected at the expense of the general public.

Another Way to Reduce Access to Health Care

Outlaw emergency rooms that aren’t owned by politically well-connected hospitals.

Politicians in Colorado have introduced a bill 

which would force the closure of already existing freestanding emergency rooms unless they are owned by a hospital. SB 016 provides an exemption for emergency rooms more than 25 miles from a licensed hospital…. the practical effect of the bill would be to give hospitals monopoly control of all emergency facilities.

Freestanding emergency rooms — some owned by hospitals and some not — already serve patients in metro Denver. They locate in areas that are underserved by the emergency rooms attached to hospitals. Different from urgent care centers, they charge more because they can do more. They typically have board-certified physicians on duty 24 hours a day, every day, and are equipped to diagnose and stabilize cardiac arrest, stroke symptoms and trauma.

Like other special interest groups, Colorado’s existing hospitals have developed a loyal group of state legislators who are willing to vote for them without regard for the harm that protecting hospital cashflows inflicts on ordinary citizens in need of health care.

Mark Thornton wrote last fall about some other ways that the state restricsts access to health care:

The mainstream perspective is that experts and technocrats should establish what the best medical practices are and then bureaucrats should enforce those practices on everyone. Practices deemed suboptimal, unproven, or potentially dangerous should be prohibited by politicians and the prohibition enforced by bureaucrats. This is a one-size-fits-all system with the state determining what fits and what does not.

Never shy about intervention, the government has provided monopoly privileges for doctors through licensing, for drug companies through patents and trade restrictions, and for hospitals, who can prevent competitors from entering their market through “certificate of need” requirements. The combination of monopoly suppliers and subsidized consumers is the primary reason for this era of rising medical costs and falling health care outcomes.

Taxpayer-Funded Mercenaries Are Not the ‘Private Sector’

prince-198x300Austrian economics has finally reached that point where people who aren’t Austrian at all claim to be Austrians. A case in point is the fact that Erik Prince, founder of Blackwater (aka Xe Services, aka Academi) counts among his main influences Austrian economics and libertarianism. In a recent column at Forbes, the author writes:

Prince got his entrepreneurial insights from his father and the classroom. He had the wisdom to choose a college, Hillsdale, where the economics department recognizes that creative role of the entrepreneur. As he writes, “The thing that truly appealed to me about Hillsdale was its focus on libertarian, free-market economics.” It was there that, as an economics and political science minor, Prince learned the economics of the Austrian School which, in his words, “lionizes long-term laissez-faire policies without government intervention.” Hillsdale, like Grove City College, which also teaches Austrian economics, is one of the few colleges which does not accept government money.

Prince seems to be under the impression that he is some kind of market entrepreneur. In reality he is just a political entrepreneur. That is, his business model is based on getting the government to steal money from the taxpayers and then hand it over to his company. It’s ironic that Hillsdale College, which takes no government money, is mentioned, since Prince and Blackwater survive almost totally on government money.

Blackwater is a “security firm” that provides soldiers, firepower, surveillance, and a variety of other military services to governments. Among their biggest clients are the US military and the CIA, although Blackwater appears to work with local governments as well. Blackwater is privately owned, of course, but its revenues do not come through markets. They come from government institutions.

Whether or not Blackwater receives revenue is based on whether they can effectively lobby important people in the government to continue paying Blackwater for services. The money that goes to Blackwater, however, is not the money of the people Blackwater seeks to please. The money belongs to the taxpayers, who have no power to withdraw their financial support from Blackwater if a politician decides otherwise.

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booksI’ve recently read Peter Schweizer’s book, Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets.  The book offers a solid account of the way politicians use their political power to extract money from interest groups for the benefit of the Permanent Political Class.

Interest group activity is often viewed as bribery: interests offering campaign contributions and other benefits to legislators to get legislators to pass legislation those groups favor.  Schweizer argues that the reality is the opposite: legislators hold out on putting legislation up to a vote unless interest groups who support it pay up; or worse, legislators threatening to pass legislation that will harm those interests, unless they pay the legislators to kill the legislation.

Payment typically comes in the form of “contributions” to campaign coffers, and Schweizer explains in detail how legislators are able to convert funds for their personal benefit, using lots of real-world examples.  In addition to personal consumption, legislators can hire friends and relatives, and can extort firms to hire their friends and relatives.

The book explains how the legislative process really works.  It is the antidote to what is typically taught in public school civics classes.  The book offers numerous examples, and is well-documented and footnoted.  Every American should read this book.

A Portrait of Local ‘Pro-Business’ Politics

As I noted in this Mises Daily article from 2012:

[C]hambers of commerce across America, and other lobbying arms of the so-called business community are in the business of lobbying ceaselessly for more government spending, for more subsidies, and for more state power in the name of “business-friendly” policies that often amount to little more than subsidy programs.

At the local level as well, chambers have become major advocates of tax increases and more government spending.

In other words, business leaders have little interest in actually protecting private property. Here’s recent news coming out of Ellisville, Missouri:

For years, city officials have been planning to lure Wal-Mart to Ellisville, about a half-hour away from St. Louis. Their most recent plan involved building a 150,000-square-foot Supercenter, which would have cost $50 million. A private developer could have received up to $15 million in tax incentives. Even more outrageously, Ellisville could have also authorized eminent domain to acquire property.

But in October, after intense pressure from both grassroots activists and a new mayor, Wal-Mart announced it had “decided not to proceed” with the Ellisville store.

In an earlier story, it was reported that Ellisville’s city council had approved tax incentives for the developer. Upon hearing that the taxpayers would foot the bill for a private developer, at least one local business “leader” was jubilant:

Tom DiCarlo, president of commercial real estate firm Pangean Properties, said the project would be a “shining example of what can be accomplished for Ellisville’s economic recovery.”

There are two parts to this controversy. The town planned to lure Wal-Mart to town by providing tax incentives, and the city council also planned to steal land and hand it over to private developers to sweeten the deal. Clearly, the more insidious part of this deal is the eminent domain part, which is nothing more than expropriation for the benefit of a favored special interest. I’m sensitive to the fact that that “tax incentives” could potentially be defined as “tax cuts,” but it’s worth noting that the advocates of such incentives rarely have any interest in opposing taxes. They simply view tax incentives as a policy tool for governments to choose winners and losers. In practice, the tax incentives are designed to benefit the favored firms while government spending and taxation continues unabated for everyone else. (The Boston Tea Party was a reaction to a “tax incentive” program for the East India Company.)

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In Trusting Politics and Politicians, It Is the Pope Who Is Naïve

6618Gary Galles writes in today’s Mises Daily:

When the rich get richer by rigging the political process, that is objectionable, but it is not amarket failure. It is a government failure, imposed by undermining the benefits competitive markets provide for all participants. And the solution is to get the government out of the theft business (as capitalism would require), not to first enable favorites to garner ill-gotten gains from restricting competition, then use government’s abuses as an excuse to more heavily tax (and thus discourage) those who actually benefit others.

It is true that the crony capitalism we see all around us, which is far closer to fascism than capitalism, is unjust. Pope Francis is right to criticize such injustice. But private property, the basis of capitalism, prevents rather than enables the “dog eat dog” “survival of the fittest” competition that capitalism’s attackers accuse it of.

In contrast, private property prevents the physical invasion of a person’s life, their liberty, or their property without their consent. By preventing such invasions, private property is an irreplaceable defense against aggression by the strong against the weak. No one is allowed to be a predator by violating others’ rights. Property rights negate the rule of “might makes right,” which prevails in the absence of such rights. In Herbert Spencer’s words, “far from being, as some have alleged, an advocacy of the claims of the strong against the weak, [it] is much more an insistence that the weak shall be guarded against the strong.”

The 240th Anniversary of the Boston Tea Party

800px-Boston_Tea_Party-1973_issue-3cToday is the 240th anniversary of the act of civil disobedience against taxation, corporatism, and colonialism known as the Boston Tea Party.

The economics of the situation that precipitated the event were quite complex, however, and about more than a simple tax increase on tea. As noted here by Edmond Bradley, a monopoly over the tea trade had been granted to favored corporate interests by the British Crown, which made the price of tea artificially high to begin with.

Charles Adams explains how a British corporate welfare scheme to undercut smuggled Dutch tea is what led to the Tea Party:

The Boston Tea Party was a turning point in colonial reaction to British rule. By 1773 the tax issue was becoming obscure. Both parties were moving toward war.

Recently American postage stamps have depicted the Boston Tea Party as a glorious act of defying British colonialism. Most people believe it was a protest against British taxes on tea, but this is not true. American tea merchants had been boycotting British tea for five years. Smuggled Dutch tea was used throughout the colonies. In response, the British government decided to remove the duties on East Indies tea when it arrived in Britain so it could be sold in America at a price cheaper than smuggled Dutch tea. In addition, a monopoly on this cheap tea was given to loyal British merchants in the colonies. American tea smugglers would be put out of business. The Crown’s plan was based on the assumption that American consumers would not boycott low-priced English tea, but would purchase it rather than the higher-priced, smuggled Dutch product.

The implication of this to American merchants was frightening. If a monopoly could be granted for tea, it could be granted for other products as well. Economic sanctions of this kind could destroy American merchants. In protest, Bostonian merchants disguised themselves as Indians, boarded merchant ships loaded with tea, and threw the tea into the harbor.

Lew Rockwell explains how, fundamentally, the Boston Tea Party was about free trade and against taxes and special privileges:

The Declaration of Independence accuses the King of “cutting off our Trade with all parts of the world” and “imposing Taxes on us without our Consent”-with the second directly following the first. It is impossible to understand the meaning of this without understanding that the Boston Tea Party was a protest against the use of trade by the state to benefit some at the expense of others.

Our agenda today ought to be exactly that of the Sons of Liberty in Boston: the right to economic enterprise should be unimpeded by taxes or special privileges. This is all that true free traders, in the tradition of the American revolutionaries, have ever demanded.

Mark Thornton Reviews ‘Dallas Buyers Club’

6607In today’s Mises Daily:

The Dallas Buyers Club is based on a true story about Ron Woodruff (McConaughey), a redneck, heterosexual Texan who contracts the HIV virus in the 1980s. There is lots of sex, drugs, drinking, homosexuals, and even transsexuals, in addition to great acting, so be warned, this movie is not for everyone. However, it teaches us many lessons about how the state and its agents work.

This is an anti-government movie that exposes the true relationship between the American Medical Association and Big Pharma, and reveals it as a crony capitalist network that exploits Americans, and especially their health. The hero is just an ordinary guy and the heroine is just an ordinary doctor who comes to realize the widespread fraud within the American medical establishment, and stands up against it.

Read it all.