Yesterday’s column explained that lobbyists are big winners when the size and scope of government increases.
For instance, a bigger budget means special interests hire lobbyists to obtain ever-larger slices of pork.
Moreover, added red tape means lobbyists get more clients seeking to manipulate the regulatory process.
And Biden’s grossly misnamed Inflation Reduction Act will make both of those problems worse, enabling more corruption.
But there’s a third problem to consider. Biden’s agenda also calls for a massive expansion of special tax privileges.
From a libertarian perspective, I like when the law allows people to keep more of their money.
As an economist, however, I don’t like when people are lured into make inefficient choices simply because of a convoluted tax system.
And, as a decent human being, I despise a process that enriches lobbyists, politicians, and other insiders. This corrupt process is succinctly captured in this flowchart put together by my former colleague Chris Edwards.
Since I went to the archives for a video yesterday, let’s do the same thing today. Here’s my 2009 video about the close link between the size of government and the level of corruption.
I’m recycling this video because President Biden and his allies in Congress are poised to enact a revised version of the “Build Back Better” plan to expand the burden of government.
But today’s column will focus on process rather than policy.
To be more specific, I want to emphasize the video’s message about bigger government leading to more corruption.
And I’m going to cite an unexpected source – a left-leaning news outlet – to make my point.
In an article for the Washington Post, Yeganeh Torbati and Jeff Stein share various examples of how Biden’s misnamed Inflation Reduction Act is fattening bank accounts of lobbyists.
As Democrats hurry to finalize$739 billion climate, health-care and tax legislation…, business lobbyists and issue advocates are…using television and newspaper ads and personal outreach to try to sway Democrats to their side before the Senate votes. Much of the fiercest lobbying has focused on the bill’s health-care provisions. …The bill also provides hundreds of billions…to fight climate change… The Zero Emission Transportation Association…is asking senators to consider extending the deadlines by a year or more… Small businesses successfully stripped higher taxes on pass-through entities, while bigger firms succeeded in keeping the corporate rate at 21 percent.
The story focuses on the battle over the legislation, so allow me to add two points.
First, fighting over what is in the package is just the tip of the iceberg. Assuming the bill becomes law, there will then be countless opportunities for lobbyists to get rich by manipulating the regulations that will define how the law is implemented, as well as yearly opportunities for lobbyists to cash in by influencing how money is spent.
Second, not all lobbyists are bad. If a group of people hire lobbyists to get money or favors from the government, that is obviously immoral. But if a group of people hire lobbyists in hopes of protecting themselves (i.e., they don’t want to be taxed or burdened with more red tape), that is completely legitimate.
Whether lobbyists are on the right side or wrong side, the ideal scenario is to shrink government. For instance, a simple and fair flat tax would radically reduce the incentive for influence-peddling.
I very much suspect Obama partisans and Trump partisans won’t like this column, but the sad reality is that both Obamacare and Trump’s protectionism have a lot in common.
In both cases, government is limiting the freedom of buyers and sellers to engage in unfettered exchange.
In both cases, the fiscal burden of government increases.
In both cases, politicians misuse statistics to expand the size and scope of government.
Today, let’s add another item to that list.
In both cases, the Washington swamp wins thanks to increased cronyism and corruption.
To see what I mean, let’s travel back in time to 2011. I wrote a column about Obamacare and cited some very persuasive arguments by Tim Carney that government-run healthcare (or, to be more accurate, expanded government control of healthcare) was creating a feeding frenzy for additional sleaze in Washington.
Congress imposes mandates on other entities, but gives bureaucrats the power to waive those mandates. To get such a waiver, you hire the people who used to administer or who helped craft the policies. So who’s the net winner? The politicians and bureaucrats who craft policies and wield power, because this combination of massive government power and wide bureaucratic discretion creates huge demand for revolving-door lobbyists.
I then pointed out that the sordid process of Obamacare waivers was eerily similar to a passage in Atlas Shrugged.
Wesley Mouch…issued another directive, which ruled that people could get their bonds “defrozen” upon a plea of “essential need”: the government would purchase the bonds, if it found proof of the need satisfactory. …One was not supposed to speak about the men who…possessed needs which, miraculously, made thirty-three frozen cents melt into a whole dollar, or about a new profession practiced by bright young boys just out of college, who called themselves “defreezers” and offered their services “to help you draft your application in the proper modern terms.” The boys had friends in Washington.
Well, the same thing is happening again. Only this time, as reported by the New York Times, protectionism is the policy that is creating opportunities for swamp creatures to line their pockets.
The Trump administration granted seven companies the first set of exclusions from its metal tariffs this week and rejected requests from 11 other companies, as the Commerce Department began slowly responding to the 20,000 applications that companies have filed for individual products. …several companies whose applications were denied faced objections from American steel makers. …companies that have applied for the exclusions criticized the exercise as both long and disorganized. “This is the most screwed-up process,” said Mark Mullen, president of Griggs Steel, a steel distributor in the Detroit area. “This is a disservice to our industry and the biggest insult to our intelligence that I have ever seen from the government.”
From an economic perspective, it certainly is true that this new system is “disorganized” and “a disservice” and an “insult to our intelligence.” Those same words could be used to describe the welfare state, the EEOC, farm subsidies, the tax code, and just about everything else the government does.
But there’s one group of people who are laughing all the way to the bank, The lobbyists, consultants, fixers, and other denizens of the swamp are getting rich. Whether they’re preparing the applications, lobbying for the applications, or lobbying against the applications, they are getting big paychecks.
And the longer this sordid protectionist process continues, we will see a repeat of what happened with Obamacare as senior-level people in government move through the revolving door so they can get lucrative contracts to help clients manipulate the system (yes, Republicans can be just as sleazy as Democrats).
Ordinary Americans have a low opinion of Washington, but they’re underestimating the extent of the problem.
The nation’s capital is basically a playpen for special interests. It’s now the richest region of the country, with lobbyists, bureaucrats, contractors, politicians, and other insiders and cronies getting fat and happy thanks to money that is taken from people in the productive sector of the economy.
Let’s take an up-close look at how this sordid game is played.
Here are some excerpts from a column by Catherine Rampell in today’s Washington Post.
The GOP is no longer the Party of Reagan. It’s the Party of Michael Cohen. …the Cohen blueprint for achieving the American Dream: Work minimally, if you can, and leverage government connections whenever possible. …following Donald Trump’s unexpected presidential victory, Cohen cashed in. …Cohen told companies that he could provide valuable “insights” into the new administration. Huge multinational corporations lined up to purchase these “insights,” dumping millions into Essential Consultants LLC… Cohen is hardly the only prominent Trumpster invoking White House connections… Cabinet members and other senior government officials, too, have enjoyed a sweetheart apartment deal, lobbyist-arranged vacations and private jet rides. These are not amenities secured through brains, honesty and hard work, the virtues that Republicans traditionally say are required for upward mobility and financial comfort. They are the fruits of luck, cronyism and a loose approach to ethical lines.
This is disgusting. Republicans often come to Washington claiming they’re going to “drain the swamp.” Many of them, however, quickly decide it’s a hot tub.
But don’t forget that sleaze is a bipartisan activity in Washington.
Here are excerpts from a Wall Street Journalreport about influence-peddling on the other side of the aisle.
Tony Podesta was in line to be king of K Street. His lobbying firm ended 2015 as the third largest in Washington, D.C., with nearly $30 million in revenue from more than 100 clients, spanning Alphabet Inc.’s Google to Wells Fargo & Co. With his longtime friend Hillary Clinton expected to win the White House, 2016 promised to be even better. Mr. Podesta…hosted lawmakers and power brokers at his flat in Venice during the Art Biennale. It was one of many homes around the globe, including the Washington mansion where he displayed a collection of museum-grade artwork. In early 2016, he was ready to buy a $7.4 million condo overlooking Madison Square Park in New York City. …At age 59, he married Heather Miller, a congressional staffer 26 years younger. …Mrs. Podesta started her own lobbying firm, Heather Podesta + Partners, and they emerged a Washington power couple. …Mr. Podesta drew an annual salary of more than $2 million and made millions more in commissions and bonuses. …The Podesta Group grew from the 20th largest lobbying firm to third in three years, in terms of domestic and foreign lobbying revenues, propelled by business during President Barack Obama’s first term.
But this story of graft and corruption has a happy ending.
Then he fell, a calamitous collapse… The Podesta Group lost its banker over news the firm did work for the U.S. subsidiary of a Russian bank under sanctions. …Mrs. Clinton’s…victory would go a long way to fixing many of his problems. She lost…and Mr. Podesta, like many who had banked on her victory, did too. Clients who had hired him for access to a new Clinton administration fell away. By the end of the year, the departures cost the firm more than $10 million in annual business… the Podesta Group did public relations work in 2015 for Raffaello Follieri, an Italian businessman who had pleaded guilty to swindling millions of dollars from an investment fund run partly by Mr. Clinton, one of Mr. Podesta’s early patrons. …Before closing the firm’s doors, Mr. Podesta gave himself an advance on his lobbying commissions.
The common theme, as explained by Karen Tumulty for the Washington Post, is that D.C. is an utterly corrupt place.
…the game in Washington never really changes. The only things that shift from election to election are the most sought-after players. …When Trump won, the traditional rosters of lobbyists — ex-congressmen, lawyers from white-shoe firms, former congressional staffers — were of little use in figuring out and gaining access to a band of outsiders who came to town vowing to demolish the old order. Cohen was not the only Trump insider to see a chance to cash in… The president’s former campaign manager, Corey Lewandowski, along with former Trump aide Barry Bennett, also opened a consulting firm, which quickly had more business than it could handle. “It was like shooting fish in the barrel,” Bennett told The Post. …Nor is Team Trump unique in seizing these opportunities. President Barack Obama had not been in office a month before his 2008 campaign manager, David Plouffe, was paid $50,000 to give a speech in Azerbaijan to a group with close ties to that repressive government. …Washington continues to have a most durable ecosystem: The swamp is never drained; it just gets taken over by different reptiles.
If a company hires a lobbyist or give cash to a politician because it wants handouts or government intervention that will produce unearned profit, that’s wrong. Sort of like being a co-conspirator to a crime.
However, if a company hires a lobbyist and donates money because it is fighting tax hikes or new regulatory burdens, that’s noble and just. Sort of like engaging in an act of self-defense.
But wouldn’t it be wonderful if there wasn’t a need for either the bad type of lobbying or the good type of lobbying?
Richard Ebeling, a professor at the Citadel, offers a very good solution in a column for the Foundation for Economic Education. He starts by explaining that government and corruption have always been connected.
The corruption of government officials seems to be as old as recorded history. …the ancient Roman senate passed laws against such political corruption in the first century, B.C. …Emperor Constantine issued one of the strongest decrees against corruption during this time in A.D. 331. …Today, high levels of political corruption remain one of the major problems people confront around the world. …Political corruption, clearly, is found everywhere around the world… Why?
Richard answers his own question, pointing out that big government is a major enabler of corruption.
Part of the answer certainly…can be found in the relationship between the level of corruption in society and the degree of government intervention in the marketplace. In a generally free market society, …government officials have few regulatory or redistributive responsibilities, and therefore they have few special favors, privileges, benefits, or dispensations to “sell”… The smaller the range of government activities, therefore, the less politicians or bureaucrats have to sell to voters and special interest groups. And the smaller the incentive or need for citizens to have to bribe government officials to allow them to peacefully go about their private business and personal affairs. …On the other hand, the…interventionist state…taxes the public and has huge sums of money to disburse to various programs and projects. It imposes licensing and regulatory restrictions on free and open competition. It transfers great amounts of income and wealth to different groups through sundry “redistributive” schemes. …Those in the government who wield these powers hold the fate of virtually everyone in their decision-making hands. It is inevitable that those drawn to employment in the political arena often will see the potential for personal gain… The business of the interventionist state, therefore, is the buying and selling of favors and privileges. It must lead to corruption because by necessity it uses political power to harm some for the benefit of others, and those expecting to be either harmed or benefited will inevitably try to influence what those holding power do with it.
So what’s the bottom line?
Ending global political corruption in its various “petty” and “grand” forms, therefore, will only come with the removal of government from social and economic life. When government is limited to protecting our lives and property, there will be little left to buy and sell politically.
Amen. That’s the message I also shared in this video from the Center for Freedom and Prosperity.
Sadly, Donald Trump’s promises to “drain the swamp” don’t seem to have been very sincere. Earlier this year, he meekly acquiesced to a budget deal that produced a feeding frenzy among the swamp creatures.
How is that any different from what would have happened if Hillary Clinton was in the White House? Big government doesn’t magically become less harmful and corrupt just because Republicans are in charge.
I now have another addition to that depressing list.
Just as the Minneapolis Federal Reserve has an interactive website that allows users to compare recoveries and recessions, which is very useful for comparing Reaganomics and Obamanomics, the St. Louis Federal Reserve has an interactive website that allows users to compare national and regional economic data.
And that’s the source of today’s depressing chart. It shows median inflation-adjusted household income for the entire nation and for the District of Columbia. As you can see, the nation’s capital used to be somewhat similar to the rest of the nation. But over the past 10 years, DC residents have become an economic elite, with a representative household “earning” almost $14,000 more than the national average.
By the way, I put quotation marks around “earning” in the previous sentence for a very specific reason.
There is nothing wrong with some people accumulating lots of wealth and income if their prosperity is the result of voluntary exchange.
In the case of Washington, DC, however, much of the capital’s prosperity is the result of coercive redistribution. The lavish compensation of federal bureaucrats is a direct transfer from taxpayers to a gilded class, while the various lobbyists, contractors, cronyists, politicians, and other insiders are fat and happy because of a combination of direct and indirect redistribution.
By the way, some people will be tempted to argue that rising income levels in DC are simply a result of gentrification as higher-income whites displace lower-income blacks. Yes, that is happening, but that begs the question of where the new residents are getting all their income and why the nation’s capital is an increasingly attractive place for those people to live.
The answer, in large part, is that government is a growth industry. Except it’s not an industry. It’s increasingly just a racket for insiders to get rich at the expense of everyone else.
P.S. To close on a semi-humorous note, some cartoons are funny even if the underlying message is depressing.
I’ve written many times that Washington is both a corrupt city and a corrupting city. My point is that decent people go into government and all too often wind up losing their ethical values as they learn to “play the game.”
I often joke that these are people who start out thinking Washington is a cesspool but eventually decide it’s a hot tub.
During the presidential campaign, Trump said he wanted to “drain the swamp,” which is similar to my cesspool example. My concern is that El Presidente may not understand (or perhaps not even care) that shrinking the size and scope of government is the only effective way to reduce Washington corruption.
In any event, we’re soon going to get a very strong sign about whether Trump was serious. With Republicans on Capitol Hill divided on how to deal with this cronyist institution, Trump basically has the tie-breaking vote on the issue.
According the Susan Ferrechio of the Washington Examiner, Trump may choose to wallow in the swamp rather than drain it.
President Trump now may be in favor of the Export-Import Bank, according to Republican lawmakers who met with him privately Thursday, even though Trump once condemned the bank as corporate welfare.
Veronique de Rugy of the Mercatus Center is one on the Ex-Im Bank’s most tenacious opponents, and she’s very worried.
…if the reports are true that Trump has decided to support the restoration of the crony Export-Import Bank’s full lending authority, it would be akin to the president deciding to instead happily bathe in the swamp and gargle the muck. …If true, the news is only “great” for Boeing, GE, and the other major recipients of Ex-Im’s corporate welfare. It is also at odds with his campaign promises since much of the way the program works is that it gives cheap loans — backed by Americans all over the country — to foreign companies in China, Russia, Saudi Arabia, and the UAE. Restoring Ex-Im’s full lending-authority powers is renewing the policy to give cheap loans backed by workers in the Rust Belt to companies like Ryanair ($4 billion in guarantee loans over ten years) and Emirates Airlines ($3.9 billion over ten years) so they can have a large competitive advantage over U.S. domestic airlines like Delta and United. It continued to subsidize the large and prosperous state-owned Mexican oil company PEMEX ($9.7 billion over ten years). Seriously? That’s president Trump’s vision of draining the swamp?
Ugh. It will be very disappointing if Trump chooses corporate welfare over taxpayers.
What presumably matters most, though, is whether a bad decision on the Ex-Im Bank is a deviation or a harbinger of four years of cronyism.
In other words, when the dust settles, will the net effect of Trump’s policies be a bigger swamp or smaller swamp?
The New York Timesopined that Trump is basically replacing one set of insiders with another set of insiders, which implies a bigger swamp.
Mr. Trump may be out to challenge one establishment — the liberal elite — but he is installing one of his own, filled with tycoons, Wall Street heavyweights, cronies and a new rank of shadowy wealthy “advisers” unaccountable to anyone but him. …Take first the Goldman Sachs crowd. The Trump campaign lambasted global financiers, led by Goldman, as having “robbed our working class,” but here come two of the alleged miscreants: Gary Cohn, Goldman’s president, named to lead the National Economic Council, and Steven Mnuchin, named as Treasury secretary. …Standing in the rain during Mr. Trump’s inaugural speech, farmers and factory workers, truckers, nurses and housekeepers greeted his anti-establishment words by cheering “Drain the Swamp!” even as the new president was standing knee-deep in a swamp of his own.
I’m skeptical of Trump, and I’m waiting to see whether Gary Cohn and Steven Mnuchin will be friends for taxpayers, so I’m far from a cheerleader for the current administration.
But I also think the New York Times is jumping the gun.
Maybe Trump will be a swamp-wallowing cronyist, but we don’t yet have enough evidence (though a bad decision on Ex-Im certainly would be a very bad omen).
Here’s another potential indicator of what may happen to the swamp under Trump’s reign.
Bloombergreports that two former Trump campaign officials, Corey Lewandowski and Barry Bennett have cashed in by setting up a lobbying firm to take advantage of their connections.
The arrival of a new president typically means a gold rush for Washington lobbyists as companies, foreign governments, and interest groups scramble for access and influence in the administration. Trump’s arrival promises to be different—at least according to Trump. Throughout the campaign, he lambasted the capital as a den of insider corruption and repeatedly vowed to “drain the swamp,” a phrase second only in the Trump lexicon to “make America great again.” …Trump’s well-advertised disdain for lobbying might seem to augur poorly for a firm seeking to peddle influence. …“Business,” Lewandowski says, “has been very, very good.”
This rubs me the wrong way. I don’t want lobbyists to get rich.
But, to be fair, not all lobbying is bad. Many industries hire “representation” because they want to protect themselves from taxes and regulation. And they have a constitutional right to “petition” the government and contribute money, so I definitely don’t want to criminalize lobbying.
But as I’ve said over and over again, I’d like a much smaller government so that interest groups don’t have an incentive to do either the right kind of lobbying (self-protection) or the wrong kind of lobbying (seeking to obtain unearned wealth via the coercive power of government).
Here’s one final story about the oleaginous nature of Washington.
Wells Fargo is giving a big payout to Elaine Chao, the new Secretary of Transportation.
Chao, who joined Wells Fargo as a board member in 2011, has collected deferred stock options — a compensation perk generally designed as a long-term retention strategy — that she would not be able to cash out if she left the firm to work for a competitor. Her financial disclosure notes that she will receive a “cash payout for my deferred stock compensation” upon confirmation as Secretary of Transportation. The document discloses that the payments will continue throughout her time in government, if she is confirmed. The payouts will begin in July 2017 and continue yearly through 2021. But Wells Fargo, like several banks and defense contractors, provides a special clause in its standard executive employment contract that offers flexibility for awarding compensation if executives leave the bank to enter “government service.” Such clauses, critics say, are structured to incentivize the so-called “reverse revolving door” of private sector officials burrowing into government. …Golden parachutes for executives leaving firms to enter government dogged several Obama administration officials. Jack Lew, upon leaving Citigroup to join the Obama administration in 2009, was given a cash payout as part of his incentive and retention awards that wouldn’t have been paid if he had left the firm to join a competitor or under ordinary circumstances. But Lew’s Citigroup contract stipulated that there was an exception for leaving to work in a “full time high level position with the U.S. government or regulatory body.” Goldman Sachs, Morgan Stanley, and Northrop Grumman are among the other firms that have offered special financial rewards to executives who leave to enter government.
This rubs me the wrong way, just as it rubbed me the wrong way when one of Obama’s cabinet appointees got a similar payout.
But the more I think about it, the real question isn’t whether government officials get to keep stock options and other forms of deferred compensation when they jump to government.
What bothers me much more is why companies feel that it’s in their interest to hire people closely connected to government. What value did Jacob Lew bring to Citigroup? What value did Chao bring to Wells Fargo?
I suspect that the answer has a lot to do with financial institutions wanting people who can can pick up the phone and extract favors and information from senior officials in government.
For what it’s worth, I’m not a fan of Lew because he pushed for statism while at Treasury. By contrast, I am a fan of Chao because she was one of the few bright spots during the generally statist Bush years.
But I don’t want a system where private companies feel like they should hire either one of them simply because they have connections in Washington.
I hope that Trump will change this perverse set of incentives by “draining the swamp.” But unless he reduces the size and scope of government, the problem will get worse rather than better.
To cite a truly horrifying statistic, the redistribution of money from America to Washington has made it the nation’s richest metropolitan region.
And it’s getting worse.
Let’s look at what Tim Carney just wrote in the Washington Examiner about Christmas on K Street.
It’s that magical season when Republicans and Democrats come together to look after the needs of corporate America, K Street lobbyists, and the U.S. Chamber of Commerce. …The highway measure is a huge win for industry while a loss for good governance. Far worse, however, is the…provision reviving the defunct Export-Import Bank, a corporate-welfare agency…K Street lobbied incessantly to revive Ex-Im, backed by President Obama, Hillary Clinton and nearly every Democratic lawmaker. …As a corporate cherry on top, the bill repeals a recent minor cut in federal crop insurance subsidies, a program that benefits financial firms… Congressional leaders are currently negotiating another year-end legislative package, the notorious annual tax extenders bill. …the bill will extend (at least for a short-time) green-energy subsidies: The Production Tax Credit for wind and the Investment Tax Credit for solar. …Almost all of them are crucial for some special interest and the revolving-door lobbyists they employ.
Tim points out that the feeding frenzy is bipartisan, which some people think is a measure of good policy.
Like me, though, Tim isn’t impressed when the Evil Party and the Stupid Party both conspire to produce bad policy.
As this legislation — the highway bill, the energy bill, the tax extenders, plus the omnibus spending bill—pass through both houses, expect hosannas to the “bipartisanship” and “compromise” involved. …there’s one common theme here: Corporate lobbyists win in almost every case.
But catering to the interests of K Street lobbyists is probably not a good strategy for Republicans.
Republican leaders are probably confused about why all their accomplishments and imminent accomplishments, including the highway bill, tax extenders and appropriations, haven’t dragged Congress’s approval out of the gutter—after all, everyonetheytalk to thinks Congress is doing a bang-up job.
Now let’s look at what Kevin Williamson recently wrote for National Review. His article is primarily about corruption in Chicago, but his observations apply just as well to how Washington operates.
Bill and Hillary Clinton, Barack Obama, Rahm Emanuel, Al Gore, and the rest of that sorry lot aren’t trying to get rich — they’re already rich, some of them wildly rich. They are building a patronage society. And building a patronage society costs a lot of money… The horrifying fact is that Barack Obama can make you a rich man — if you’re the right kind of man. If you operate a politically connected business, the government can direct the better part of $1 billion straight into your coffers… At the other end of the spectrum, a federal tormenter can be the end of your enterprise: Ask those Tea Party groups illegally targeted by Barack Obama’s IRS. Ask a voting-reform advocate who was targeted by the ATF in spite of not being in any business related to A, T, or F.
The Clintons’ game isn’t enjoying the $100 million in their checking account — it’s making use of the $44 trillion in American-owned assets as if they owned them themselves. Barack Obama doesn’t want a garage full of Rolls Royces — he wants a world in which Rolls Royce has to ask his permission before building a car or selling one.
In effect, a nation slowly but surely becomes Greece as more and more people either rely on benefits or have jobs in the bloated bureaucracies that dispense goodies.
…you cannot build a patronage society on patrons alone: You need clients. And that’s where the ever-growing public sector comes in. …There is effectively no one working at your local DMV, public school, police station, or IRS office who could earn even 80 percent of his government compensation in a private-sector job. …the really nefarious dependency agenda isn’t focused on the people who cash welfare checks, but on the people who write them, the vast bureaucracies of overpaid functionaries… Get enough of those and you have effective control over the entire economy — Chávez-style socialism without the nasty business of formal expropriation.
By the way, it’s not just libertarian types who worry about bloated government and cronyism.
Here’s an excerpt from a recent column by Robert Samuelson that succinctly captures an inherent problem with government. Writing about the reasons for diminishing productivity growth, he cites the work of Mancur Olson.
Olson revolutionized thinking about the political power of interest groups. …conventional wisdom held that large groups were more powerful than small groups in pursuing their self-interest — say, a government subsidy, tax preference or a protective tariff. …Just the opposite, Olson said in his 1965 book “The Logic of Collective Action.” With so many people in the large group, the benefits of collective action were often spread so thinly that no individual had much of an incentive to become politically active. The tendency was to “let George do it,” but George had no incentive either. By contrast, the members of smaller groups often could see the benefits of their collective action directly. They were motivated to organize and to pursue their self-interest aggressively.
Samuelson continues, elaborating on Olson’s insight about concentrated benefits and dispersed costs.
Here’s an example: A company and its workers lobby for import protection, which saves jobs and raises prices and profits. But consumers — who pay the higher prices — don’t create a counter-lobby, because it’s too much trouble and the higher prices are diluted among many individual consumers. Gains are concentrated, losses dispersed. This was Olson’s great insight, and it had broad implications, he said. In a 1982 book, “The Rise and Decline of Nations,” he argued that the proliferation of special-interest concessions could reduce a society’s economic growth. “An increase in the payoffs from lobbying . . . as compared with the payoffs from production, means more resources are devoted to politics and cartel activity and fewer resources are devoted to production,” he wrote.
If you’re not already sufficiently depressed, my colleague Chris Edwards has a very good description of the lawmaking process. You should read the whole thing, but here are a few excerpts as a teaser.
In a romantic view of democracy, legislators act with the interests of the general public in mind. They grapple with policy issues, work toward a broad consensus, and pass legislation that has strong support. To ensure that funds are spent wisely, they frequently reevaluate existing programs and prune the low-value and harmful ones. They put citizens first and carefully limit their actions to those allowable under the U.S. Constitution. The problem with this “public interest theory of government” is that it has little real-world explanatory power. …we can better understand congressional actions by looking at incentives.
And when you look at how the process really works, you learn it is dominated by “rent seeking,” which is academic jargon for interest groups obtaining undeserved benefits via government coercion.
Members…seek federal benefits for their states because most of the costs will fall on other states. This is a major factor causing federal failure. The structure of Congress leads members to support programs that benefit their states but that are losers for the nation as a whole. …There is no built-in check—no invisible hand, as in markets—to guide members to make value-added decisions… Special-interest groups dominate policy discussions. Most witnesses to congressional hearings favor the programs being examined, and they focus on program benefits, not the costs. Most visitors to member offices on Capitol Hill are there to plead for special benefits. …Washington is teaming with lobbyists seeking special benefits—subsidies, regulations, trade protections—that come at the expense of the general public. …rent seeking is a two-way street. Jonathan Rauch of Brookings noted, “In the public’s mind, the standard model of lobbying in Washington involves special interests buying influence, in a sort of legalized bribery. In fact, the process more often involves politicians shaking down special interests.”
If you’ve read this far, you probably want to go take a shower and wash away the stench of Washington corruption.
But there’s one tiny glimmer of hope. If we can somehow figure out how to shrink the size and scope of government, we can reduce the problem. That’s the message of this video.
While we know the solution, our real challenge is that we can only shrink government by convincing politicians to change policy. Yet asking politicians to reduce government is like asking burglars to be in favor of armed homeowners.
And based on everything I wrote above, we know politicians generally have bad incentives.
But it’s not hopeless. While I certainly enjoy mocking politicians, they’re not totally immoral or even amoral people. Many of them do understand there’s a problem. Indeed, I would argue that recent votes for entitlement reform are an example of genuine patriotism – i.e., doing the right thing for the country.
So is there a potential solution?
Maybe. Let’s use an analogy from Greek mythology. Many politicians generally can’t resist the siren song of a go-along-to-get-along approach. But like Ulysses facing temptation from sirens, they recognize that this is a recipe for a bad outcome. So they realize that some sort of self-imposed constraint is desirable. And that’s why I’m somewhat hopeful that we can get them to impose binding spending caps.
We know there are successful reforms by looking at the evidence. And we know there is growing support from fiscal experts. And we even see that normally left-leaning international bureaucracies such as the OECD and IMF acknowledge that spending caps are the only effective fiscal rule.
So if Ulysses can bind himself to the mast and resist the sirens, perhaps we can convince politicians to tie their own hands with a Swiss-style spending cap.
Or perhaps is this some sort of biblical-type punishment for evil behavior, sort of like a plague of frogs in Egypt?
Alas, none of those reasons apply for the simple reason that the headline is an absurd exaggeration.
I hate to burst anyone’s bubble, but Washington isn’t really going away. Here’s what’s actually in the story.
…new research from theU.S. Geological Surveyand theUniversity of Vermont shows that the land in the district — where the Lincoln Memorialwas built on silt dredged from the Potomac River — is expected to fall 6 inches or more during the next 100 years.
Sigh, how disappointing.
In other words, we’re going to have to rely on old-fashioned methods if we really want to cut Washington down to size. Since it’s not going to disappear on its own, we’ll need tax reform, deregulation, and program terminations if we want to solve the problem.
And one fringe benefit of this approach, as pointed out by the Wall Street Journal, is that a smaller government means fewer lobbyists and special interest groups.
Businesses have no choice but to lobby a government that can cripple them with a single new regulation. …The real problem is the opportunities for corruption and special dealing that a too-large government provides. Every new regulation or twist of the tax code is an opening for some powerful Member to assist the powerful. But the solution is to reduce the size and scope of the regulatory state and to reform the tax code.
A few days ago, I had some fun by writing a tongue-in-cheek column about the world’s most misleading headlines.
Today, I want to share a strong contestant for the world’s most depressing headline.
It’s from The Hill, and it’s the lead to a story about giddy times for Washington’s lobbying community.
So why are lobbyists rolling in cash? What accounts for all the dollars flowing to the influence-peddling community?
The answer, as noted in the article, is that there’s been an end to gridlock.
Nearly all of Washington’s top lobby shops saw gains in revenue in the first half of 2015 as an uptick in activity within both Congress and the Obama administration translated to a boon for K Street. Following a period of relative stagnation in the two-year span preceding the 2014 elections, the Beltway’s biggest lobbying firms have broken through the malaise… “Corporations are a lot more optimistic about whether to invest in Washington,” said Marc Lampkin, a former aide to Speaker John Boehner (R-Ohio)… K Street’s top firm — Akin Gump Strauss Hauer & Feld — continued to bolster its advocacy revenue, earning $10.23 million in the second quarter. …“I think our success during the first half of 2015 reflects the…high degree of activity in Congress,” said Don Pongrace, head of the firm’s public law and policy practice.
In other words, an “uptick in activity” in what gives special interests an incentive to “invest in Washington.”
So the obvious lesson is that if you want to reduce lobbying in Washington, the best option is for Washington to do nothing. My personal preference is to make Congress a part-time legislature. That’s worked out quite well for Texas, so why not try it in the nation’s capital?
But if that option isn’t available, then I’m a big fan of gridlock. Simply stated, if my choices are for politicians to do nothing or to have politicians make government bigger, the answer is obvious.
Which is why I was initially very worried when I saw this headline from another story published by The Hill.
That’s sort of like having productive pickpockets.
But if you read the story, Governor Bush says he wants a lot of activity as part of an effort to shrink “the federal footprint.”
…the GOP presidential candidate said he’d announce tax and regulatory reform proposals over the “coming months,” as well as changes to entitlement programs and a replacement for ObamaCare. …”The overspending, the overreaching, the arrogance and the sheer incompetence in that city — these problems have been with us so long that they are sometimes accepted as facts of life…” Bush criticized Washington for operating on autopilot, ticking off a slew of pitches meant to push back against what he characterized as a needless expansion of the federal footprint.
And it’s true. Fixing all these problem will require lots of legislation.
So while I’m generally very uneasy with the notion of a “productive” Congress, I also realize that lots of reforms will be needed to restore economic vitality.
Now let’s consider one final headline. This one is from a report in the New York Times, and it also revolves around Jeb Bush and his campaign.
And here’s some of what’s in the article.
Jeb Bush…outlined a wide-ranging plan on Monday to rein in the size of the federal government and curb the influence of lobbyists who live off it. …His proposals, modeled on his record as a budget-cutting governor, amounted to…an assault on the culture of Congress
By and large, this sounds good.
But here’s the catch. You don’t need specific anti-lobbying reforms (such as Bush’s proposed six-year ban on lobbying when Senators and Representatives leave office) if you actually are serious about reducing the size and scope of the federal government.
Reducing the power of Washington is the best way of starving DC’s special-interest community.
Indeed, it’s the only genuinely effective way. I explain in this video that laws to control corruption in Washington don’t work because they don’t address the real problem of politicians having far too much influence over the economy.
By the way, I don’t want to imply that all lobbying is bad. It all depends on whether lobbyists are engaged in self-defense or extortion. Here’s some of what I wrote last year.
…lobbying is not necessarily bad. If a handful of business owners want to join forces to fight against higher taxes or more regulation, I’m all in favor of that kind of lobbying. They’re fighting to be left alone. But a big chunk of the lobbying in Washington is not about being left alone. It’s about seeking undeserved benefits by using the coercive power of government.
Moreover, I also pointed out two years ago that we need to respect what the Founding Fathers envisioned.
…the First Amendment protects our rights to petition the government and to engage in political speech.
The Internet has made all of our lives better, in part because there’s been an accidental policy of benign neglect from Washington.
But that’s about to change.
Even though our economy already is burdened by record amounts of regulation and red tape, the FCC is pushing forward with a plan to turn the Internet into a moss-covered public utility.
This almost leaves me at a loss for words. It’s truly remarkable – in a bad way – that the bureaucrats at the Federal Communications Commission think that the Internet can be improved by a big dose of 1930s-era regulation and control.
My Cato colleague, Jim Harper, summarized the issue last month.
Do you want your Internet service provider to operate like the water company or the electric company?… the FCC has sought for years now to regulate broadband Internet service providers…like it used to regulate AT&T, with government mandated terms of service if not tariffs and price controls. This doesn’t fit the technical environment of the Internet, which allows for diverse business models. Companies that experiment with network management, pricing, internal subsidy, and so on can find the configurations that serve widely varying consumers and their differing Internet needs the best.
But the FCC apparently doesn’t like innovation, diversity, and experimentation and instead wants to impose centralized rules. And to justify its power grab, FCC regulators are reclassifying the Internet as “telecommunications carriers” rather than an “information service.”
Title II, which applies to “telecommunications carriers,” allows common carrier regulation of the type the FCC is trying to impose….This is so it can have more control over the business decisions made by Internet service providers. …”Net neutrality” is a good engineering principle, but it shouldn’t be a legal mandate. Technology and markets surpassed any need for command-and-control regulation in this area long ago. But regulators don’t give up power without a fight.
But maybe mockery is the best way to win this issue.
Here’s a new video from the folks at Protect Internet Freedom (the some people who put together the second video in this post).
If you’ve ever been at hold at the Department of Motor Vehicles or some other bureaucracy, this may cause uncomfortable and painful flashbacks.
And here’s another video, put together by Senator Cruz’s office.
And speaking of humor, here are some new cartoons on the topic.
Though this next cartoon is my favorite because it so effectively captures my feelings.
The Internet has been a huge success, so why on earth would anybody think it will be better if a bunch of regulators can second-guess the free market?!?
If you want more cartoons on Internet regulation, here’s a collection that I shared last year.
P.S. Shifting to another topic, here’s a story that belongs in the category of “great moments in lobbying.”
Here are some excerpts from a story published by the Raleigh News and Observer.
Sex between lobbyists and government officials who are covered under North Carolina’s ethics laws does not constitute a gift that must be listed in disclosure reports, the State Ethics Commission said Friday. …The opinion was in a response to an inquiry from the Secretary of State’s lobbying compliance director, Joal H. Broun, in a letter on Dec. 15. …Broun’s request also wanted to know if that activity falls within the definition of “goodwill lobbying,” which is an indirect attempt to influence legislation or executive action, such as the building of relationships, according to state law, and is also considered lobbying.
I’m sure there are some serious points to be made, but I confess that my immediate reaction was to think about this cartoon.
Whether any “goodwill” is being created is a topic for another day.
That being said, you’ll be happy to know that actually procuring hookers is against the rules.
However, providing a prostitute to a legislator or other covered official would constitute a gift or item of value and would have to be reported on disclosure forms – which, of course, would also be evidence of a crime, the opinion says.
The good news is that this rule, if properly enforced, will protect a vulnerable group people from being morally corrupted.
But enough about the need to protect prostitutes from being contaminated by close proximity to politicians.
I want to close on a serious point. As I wrote the other day, the best way to reduce lobbying is to reduce the size and scope of government.
Writing for the Wall Street Journal, James Freeman points out that a growing number of Americans think the system is rigged against them and he links this disillusionment to an ever-expanding federal government.
According to the latest Wall Street Journal/NBC News poll, a full 56% of Americans agree with this statement: “The economic and political systems in the country are stacked against people like me.” This disillusionment index has been rising for more than a decade and coincides with an explosion in the size of the federal government. …The last time Americans had this little faith in the country’s political and economic systems was for a brief period in 1992, in the aftermath of President George H.W. Bush’s breaking of his no-new-taxes pledge in a deal with Congressional Democrats that enabled more spending. …more government enables people to get rich through political favoritism. In the era of the Beltway boom, no wonder so many people feel the deck is stacked against them.
So is this just empty anti-government rhetoric?
I don’t think so.
Consider the way a select handful of big companies use the Export-Import Bank to obtain undeserved profits.
After looking at that list, I’m surprised that 100 percent of Americans haven’t concluded that the system is rigged for corrupt insiders.
But just in case you think that list is inadequate, let’s look at some new examples.
But first, allow me to reiterate my view on markets.
Simply stated, I believe in genuine unfettered capitalism within a system that protects life, liberty, and property (in other words, “unfettered capitalism” obviously doesn’t include the right to hire a hit man to kill your mother-in-law).
Within those boundaries, I have no objection to people taking risks, accumulating wealth, or losing all their money. Heck, it’s not just that I have “no objection.” I welcome such a system since it means the maximum freedom and prosperity for people, particularly the less fortunate.
But I don’t want people to get rich(er) because they have political allies who will adopt cronyist policies that tilt the playing field in favor of well-connected insiders.
And that’s exactly what’s happening in my two new examples.
First, we have the case of a big Democratic donor who invested a lot of money in a short sell position on Herbalife, which means he will profit if the stock falls in value.
Nothing wrong with that, at least in theory. Short selling can be a very economically beneficial way of correcting markets when something is over-valued. Heck, we would all be much better off today if there had been some short selling to pop the housing bubble before it got so big.
But as Tim Carney explains in a column for the Washington Examiner, this short-selling insider isn’t relying on market forces. Instead, he is asking his buddies in the Obama Administration to use coercive government to hurt the company and lower its value.
Here are some excerpts.
Politically connected hedge-funder Bill Ackman…shorted the nutritional supplement company Herbalife in late 2012… After Ackman’s announcement, Herbalife shares fell from $46 to $27. Ackman kept hammering away, taking his compelling slide show on the road to convince the investing public that Herbalife was a house of cards. But after the initial drop, Herbalife stock rebounded… But Ackman had another weapon in his arsenal. Namely: Big Government. Ackman lobbied congresswoman Linda Sánchez, D-Calif., to sic the Federal Trade Commission on Herbalife.Sanchez complied. Ackman also…“paid civil rights organizations at least $130,000 to join his effort by helping him collect the names of people who claimed they were victimized by Herbalife in order to send the leads to regulators…” Ackman’s firm, Pershing Square Capital Management, hired an army of K Street lobbyists — paying a combined $14,000 a month to three firms that disclose lobbying for him — to turn the government against Herbalife.
What reprehensible behavior on the part of Ackman.
I have no idea whether Herbalife is a good company or a bad company. And I have no idea whether its stock is over-valued or under-valued.
But I do know that Ackman shouldn’t be getting his political buddies to intervene. As Tim points out, this is a recipe for rampant cronyism.
This is different from ordinary lobbying. Typically, companies lobby to protect or subsidize their business. When hedge funds play Ackman’s game, helping or hurting some other company is theentiretyof that business — and so lobbying can become the core of their business plan. We’ve seen it before. Investor Steve Eisman took a short position on for-profit colleges and lobbied Congress and the Department of Education to crack down on them. The Obama administration this monthannounced new proposed regulationson these colleges.
Now let’s look at another example.
Only this time it involves a big-donor Republican who wants favors from big government.
As the Washington Post reports, Sheldon Adelson doesn’t want his casinos to face competition from the Internet.
Given the more than $100 million that Sheldon Adelson has donated lately to Republican causes, the billionaire casino tycoon is well-positioned to get what he wants from a GOP-dominated Congress. But it turns out that the item on top of Adelson’s wish list — a ban on Internet gambling — is encountering resistance. And it’s not Democrats who stand in his way but a small group of fellow conservatives. …Online betting has been embraced by a number of Adelson’s industry rivals and several states eager for the additional tax revenue it provides….Yet the move to the Internet has also been seen as a threat that could deplete the customer base for Adelson’s brick-and-mortar casino resorts. …Half of the 22 Republican members of the House Judiciary Committee have co-sponsored the Adelson-backed legislation.
So what’s the status of the battle?
…conservative opposition began to emerge. …leaders of the other groups, including the American Conservative Union, did not mention Adelson by name. But their letter follows the publication this week of a fiery online column by former congressman Ron Paul (R-Tex.), the libertarian hero and father of potential presidential candidate Sen. Rand Paul (R-Ky.). He called the bill an example of “crony capitalism” written “for the benefit of one powerful billionaire.” …Adelson called the 2011 Justice Department legal opinion a mistake and has taken steps to rein in online gambling,fighting state-level proposalsto authorize it and pushing for the federal ban. A company lawyer penned an initial draft of theRestoration of America’s Wire Act— later refined and introduced last year by Sen. Lindsey O. Graham (R-S.C.) and Rep. Jason Chaffetz (R-Utah) — which would effectively prevent states from authorizing online betting.
Ugh, how nauseating.
Though I’m glad to see that there is opposition inside the GOP to Adelson’s self-serving proposal.
I realize we can’t say for sure whether opponents are motivated solely by good principles of non-intervention and federalism. Perhaps they’ve received money from interest groups on the other side, but at least there is resistance and presumably some of that opposition is for the right reasons.
By contrast, I’m not aware of any Democrats who are opposed to Ackman’s cronyist attack on Herbalife.
The moral of the story is that big government enables insider corruption. Which is the message of this video from the Center for Freedom and Prosperity.
But if you don’t want to watch the video, just remember the simple lesson of today’s column, which is that all the examples of sleazy cronyism we discussed (both the new ones and the old ones) were only possible because government had the power to trump free markets.
Or will it be business as usual, with GOP cronyists replacing Democrat cronyists?
Even worse, will statists latch onto the issue and say the solution is to impose higher tax rates? That presumably would take some money from rich insiders, but it also would penalize folks who earn money honestly.
And it means the money that consumers lose because of cronyism winds up in the pockets of politicians.
Wouldn’t it be better to simply get rid of the bad subsidies and handouts and solve the real problem?
P.S. Since today’s column looks at capitalism vs cronyism, here’s the famous example of how you can explain various economic systems using two cows.
Nonetheless, I understand that there are well-meaning people who support these programs. Their motives are pure in that they simply want to alleviate perceived suffering. And since they’ve never learned about the adverse indirect effects of government intervention and presumably haven’t given any thought to the ethics of government coercion, I don’t think of these people as being bad or immoral. Just uninformed.
But there are some forms of redistribution and intervention that are so self-evidently odious and corrupt that you can’t give supporters the benefit of the doubt. Simply stated, there’s no justifiable argument for using government coercion to hurt poor people in order to benefit rich people.
Let’s look at two examples.
First, the Export-Import Bank is a quintessential example of corporate welfare. The program forces taxpayers to guarantee the contracts of big corporations and foreign buyers, and there’s now a fight over whether it should be extended.
Needless to say, ordinary voters don’t want their money being used enrich big companies.
So if you were one of the beltway insiders who benefited from this corrupt institution, how would you try to get the program extended? Would you be upfront and argue that big companies like Boeing deserve tax dollars? Would you argue that politicians are really smart and wise and that they should interfere with the free market?
That would be the honest way of supporting the Ex-Im Bank. But you won’t be surprised to learn that advocates instead have resorted to lies. Here are some excerpts from a Reutersstory.
The U.S. Export-Import Bank has mischaracterized potentially hundreds of large companies and units of multinational conglomerates as small businesses, a flaw in its record keeping that could undermine the export lender’s survival strategy. …A comparison of some 6,000 businesses characterized by Ex-Im as “small” with information supplied by corporate data collector Dun & Bradstreet, which Ex-Im also uses to vet applicants, and other sources turns up some 200 companies that appear to be mislabeled and many more whose classification is uncertain.
Um… I would say they lied rather than characterize it as a “flaw in its record keeping.” But let’s set that aside and look at some of the “small businesses” that had their snouts in the Ex-Im trough.
…analysis showed companies owned by billionaires such as Warren Buffet and Mexico’s Carlos Slim, as well by Japanese and European conglomerates, were listed as small businesses and Ex-Im acknowledged errors in its data in response to those findings. …A division of Austria’s Swarovski jewelers shows up, as does North Carolina’s Global Nuclear Fuels, which is owned by General Electric and Japan’s Toshiba and Hitachi. …The list of small businesses in Texas, for example, includes engineering and construction company Bechtel, which has 53,000 employees.
Gee, Warren Buffet and foreign conglomerates don’t exactly sound like my idea of small businesses.
Hopefully this will provide more ammunition of those fighting to wean big companies from the public teat.
Bank officials and supporters have used the Ex-Im’s support for American small business as a first line of defense against a campaign by conservatives to shut it down as an exponent of “crony capitalism.” …“Rarely does Ex-Im miss a (public relations) opportunity to claim that it primarily helps small business, but Ex-Im is again playing fast and loose with the facts,” said Representative Jeb Hensarling, a Texas Republican who chairs the House Financial Services Committee. “The bulk of Ex-Im’s help indisputably goes to large corporations that can finance their own operations without putting it on the taxpayer balance sheet.”
For our second example, we have the absolutely horrifying spectacle of the Obama Administration trying to shut down Wisconsin’s school choice system.
Why? Well, because currying favor with union bosses is more important than improving educational opportunities for students from disadvantaged communities.
George Will explains what’s happening in his Washington Postcolumn.
It is as remarkable as it is repulsive… Eager to sacrifice low-income children to please teachers unions, theJustice Department wantsto destroyWisconsin’s school choice program. Feigning concern about access for disabled children, the department aims to handicap all disadvantaged children by denying their parents access to school choices of the sort affluent government lawyers enjoy. …Wisconsin’s school choice program was pioneered by an American hero, Mississippi-bornAnnette Polly Williams, who died Nov. 9 at age 77. During her three decades in Wisconsin’s legislature, she overcame the opposition of fellow Democrats to offering education choices to low-income parents. At the end of her life, however, she saw an African American attorney general, serving an African American president, employing tortured legal reasoning in an attempt to bankrupt private schools that enlarge the education options of disadvantaged children. …Closing the voucher program is the obvious objective of the teachers unions and hence of the Obama administration. Herding children from the choice schools back into government schools would swell the ranks of unionized teachers, whose union dues fund the Democratic Party as it professes devotion to “diversity” and the downtrodden.
By the way, you probably won’t be surprised (given the White House’s cavalier approach to the rule of law) to learn that the Obama Administration is using is utterly nonsensical legal theory.
…federal lawyers argue that because public funds, in the form of tuition vouchers empowering parents to make choices, flow to private schools, the schools become “public entities.” …this is like arguing that when food stamps are used for purchases at Wal-Mart, America’s largest private employer ceases to be private — it becomes an extension of the government. Inconveniently for the Justice Department, theU.S. Supreme Court has saidthe fact that a “private entity performs a function which serves the public does not make its acts state action.”
The preposterous legal reasoning is a farce, but that doesn’t get me overly upset.
What does bother me is the way the White House is acting like the modern-day equivalent of George Wallace, standing in the schoolhouse door to prevent low-income (and largely minority) students from getting an opportunity for better education.
I guess that a black President (who sends his own kids to private school) consigning black children to the back of the proverbial bus shouldn’t surprise me too much. After all, some divisions of the NAACP also have decided that being politically allied with union bosses is more important that educational opportunity for minority kids.
But that doesn’t make it morally acceptable. Put yourself in the shoes of a low-income parent. Wisconsin’s school choice programs gives you some hope that your kids can break free of poverty. Imagine what it feels like, then, when some of the politicians who claim to be on your side then decide that your children are expendable pawns. How disgusting.
Since we’re talking about things that are disgusting, let’s shift back to the Ex-Im Bank. I’ve actually had some Republican types tell me that corporate welfare is okay because it “helps to offset” some of the redistribution from rich to poor.
I confess that I’m dumbstruck by such arguments. It’s sort of like hearing someone say it’s okay to murder, rape, and steal because other people are doing it.
This is why it’s not easy being a libertarian. Yes, we believe in small government for utilitarian reasons such as faster growth, higher living standards, and more jobs. But we’re also motivated by morality, by the belief that there’s right and wrong and that good people should strive to uphold the former and fight the latter.
That’s not a popular view in Washington, which is best characterized as an incestuous racket for the benefit of interest groups, politicians, cronyists, lobbyists, bureaucrats, contractors, and other insiders.
P.S. On a completely separate (and non-political) issue, I can’t resist seeking some sympathy after what happened to me this morning. I took two of my cats to the vet for their spay and neuter appointments. Some of you pet owners already know that most cats don’t like car rides, so you might have some inkling of what I’m about to report.
In happier times
About five minutes into the drive, one of the cats vomits in the little cat carrier. That obviously wasn’t a happy development, particularly since it left me with an unpleasant choice of enduring a very unpleasant smell or having the window open and enduring a very bitter chill. But then, a few minutes later, the other cat…um, how should I phrase this…loses control of her bowels.
Which means that the next 20 minutes was almost as unbearable as watching a state-of-the-union address. I was running late for the appointment, so I couldn’t stop someplace and try to deal with the mess. And the two cats kept moving around in their carrier, making things worse. Trying to breathe through my mouth, even with the window down, was at best a pitiful attempt to mitigate my suffering.
An utterly miserable situation. Almost 1/10th as bad as an IRS audit.
I’ve been banging the drum for years about Washington being a racket for the benefit of politicians, cronyists, bureaucrats, contractors, lobbyists, interest groups, and other insiders.
I’ve written about horrific examples of bloated spending that line the pockets of the well connected.
I’ve exposed rampant corruption with insiders getting rich at our expense.
I’ve pontificated about fat-cat bureaucrats who get paid more and do less.
But I’ve never figured out an effective way of combining all these issues.
So I’m very happy that Scott Beyer of the American Enterprise Institute combines these themes in a very good article about our self-serving political class.
Here’s some of what he wrote.
…the nation’s capital today is wealthy and growing. Metro Washington now has six of the nation’s ten wealthiest counties. In 2012, Falls Church became the nation’s richest city… The region’s median household income is $88,233, second in the nation… But while in other cities this might be a success story, in Washington it comes with a catch. Rather than resulting from private industry, it merely underlies the growth of the city’s leading employer, the federal government. The city’s flourishing has seemed especially perverse in recent years, as the rest of America has lagged economically. Every tax dollar spent represents less money in the private sector to create jobs.
That’s all good material, but this pictograph is absolutely superb. It’s a very compelling summary of how Washington has become a fat and happy imperial city.
Very well done.
It should be clear to everyone that Washington is booming, and hopefully they make the obvious connection that D.C.’s wealth comes at the expense of America’s productive sector.
While the pictograph is excellent, Beyer has some other observations that are worth sharing.
For instance, there’s been an explosion in the amount of money diverted to lobbying by firms, as well as a huge jump in the number of politicians who cash in on their contacts.
One growth industry, due to the vast expansion of the federal government’s tax and regulatory rules, is lobbying. Businesses spent $3.24 billion last year on lobbying, up from $1.45 billion in 1998 and $200 million in 1983. Two-thirds of US senators and representatives joined the lobbying industry after leaving office in 2012, up from a small fraction in the 1960s.
Because I support the Constitution, I don’t object to the concept of companies exercising their 1st Amendment rights to petition the government.
But I do wish government was much smaller so that companies didn’t have so much interest in what happens in Washington. Particularly since companies oftentimes get seduced into treating Washington like a profit center.
Simply stated, as I explain inthis video, big government is inherently corrupting.
Beyer also makes some important observations about the overpaid government workforce.
…the region houses about 14 percent of America’s 2.1 million civilian federal workforce, one in five of whom earns an annual salary of more than $100,000. In 2012, federal civilian employees’ median salary was $81,704, compared to $54,995 for the private-sector employees; after accounting for fringe benefits, those figures go to $114,976 versus $65,917, respectively.
Amen.
As a taxpayer, I don’t like overpaid bureaucrats. But as an economist, I’m even more upset that human capital is being misallocated to unproductive purposes.
For more information, here’s my video explaining that the bureaucracy is far too big and paid far too much.
Though if you prefer specific examples, this post contains the charter members of the Bureaucrat Hall of Fame. And if you’re not already sufficiently nauseated, you can click here and here to learn more about how you are subsidizing fun and games in Washington.
P.S. But I don’t want folks to get overly depressed, so I also encourage you to enjoy these examples of bureaucrat humor and these examples of politician humor.
I sometimes think that working at the Cato Institute and trying to change Washington must be akin to working at a church in the middle of Amsterdam’s red light district.
In both cases, you’re wildly outnumbered by people with a different outlook on life. And it’s not that easy to save misguided souls.
But maybe all these examples are too indirect. So today’s column will give specific examples of people who get undeserved wealth thanks to influence peddling in Washington.
Here are some passages from a brutal expose written by Michelle Malkin for the Washington Examiner. She starts by looking at how Vice President Biden’s son got special treatment, first when he was handed a plum spot as a public relations hack in the Navy Reserve and then after he got tossed out after failing a drug test.
Everything you need to know about Beltway nepotism, corporate cronyism and corruption can be found in the biography of Robert Hunter Biden. …The youngest son of Vice President Joe Biden made news last week after the Wall Street Journal revealed he had been booted from the Navy Reserve for cocaine use. …Papa Biden loves to tout his middle-class, “Average Joe” credentials. But rest assured, if his son had been “Hunter Smith” or “Hunter Jones” or “Hunter Brown,” the Navy’s extraordinary dispensations would be all but unattainable. …Despite the disgraceful ejection from our military, Hunter’s Connecticut law license won’t be subject to automatic review. Because, well, Biden.
But special treatment apparently is nothing new for Biden’s son. And a lifetime of insider deals has been greased by the favor factory of big government.
Skating by, flouting rules and extracting favors are the story of Hunter’s life. Hunter’s first job, acquired after Joe Biden won his 1996 Senate re-election bid in Delaware, was with MBNA. …Hunter zoomed up to senior vice president by early 1998 and then scored a plum position in the Clinton administration’s Commerce Department, specializing in “electronic commerce” before returning to MBNA three years later as a high-priced “consultant.” While he collected those “consulting” (translation: nepotistic access-trading) fees, Hunter became a “founding partner” in the lobbying firm of Oldaker, Biden and Belair in 2002. …Hunter lobbied for drug companies, universities and other deep-pocketed clients to the tune of nearly $4 million billed to the company by 2007. …Continually failing upward, Hunter snagged a seat on the board of directors of taxpayer-subsidized, stimulus-inflated Amtrak, where he pretended not to be a lobbyist, but rather an “effective advocate” for the government railroad system serving the 1 percenters’ D.C.-NYC corridor. …Hunter joined Ukrainian natural gas company Burisma Holdings — owned by a powerful Russian government sympathizer who fled to Russia in February — this spring. The hypocritical lobbyist-bashers at the White House deny he will be lobbying and deny any conflict of interest.
At this point, some readers may be thinking that Democrats are the party of big-government corruption.
I’ll agree, but then I’ll add a very important caveat. It’s possible that this description applies to more than one political party.
Let’s look at the sordid details of a story about GOP lobbyists and political hacks taking dirty money to push for big government.
First, some background. For those of you who haven’t heard about “Obamaphones,” you’ll be delighted to learn that our bloated federal government has an entitlement program for cell phones.
The Federal Communications Commission program…charges a dollar or two per line on every American’s phone bill. The revenue generated by the “Universal Service Fund fee” is then used to pay select phone companies $9.25 per month for each poor person they sign up for a free phone. …its cost doubled in five years to $1.75 billion in 2011, and in some states, the number of phones given out exceeded the total eligible population. …The company that has received the most income from the Lifeline program is TracFone, whose CEO, F.J. Pollak, was an Obama campaign fundraiser. The company spent nearly $1 million on lobbying last year.
While an Obama donor is making big bucks off this federal handout, there also are a number of Republicans who are willing to agitate for wasteful spending so long as they get their pieces of silver as well.
Mary Cheney and prominent Republican consultants linked to Karl Rove, Mitt Romney and the Republican National Committee are working to expand or protect the Obamaphone entitlement program, apparently on behalf of the telecom companies that make millions on it. …The strategy is aimed at convincing congressional Republicans…to back off of their opposition to the Obamaphone program, which has no connection to veteran status and is more commonly associated with welfare. …The FCC paperwork also lists the names Patti Heck, who is president of Crossroads Media, and Main Street Media Group, a Crossroads affiliate. Crossroads Media has ties to Rove’s American Crossroads…and shared an office used by several political shops employed by Romney’s 2012 presidential campaign.
And you won’t be surprised to learn that these Republican influence peddlers are willing to engage in loathsome demagoguery.
The ad’s voiceover says “some in Congress want to take away his phone,” implying that not having it would endanger him because of his cancer. …Bennett unabashedly defended the Obamaphone and other entitlement programs. “Of course I support these programs, because I don’t hate poor people,” he told the Examiner.
Yup, if you don’t support a federal cell-phone entitlement program, you want veterans to die of cancer and you hate poor people. How do these people sleep at night?!?
Fortunately, the article does quote some other people who are disturbed by this philosophical corruption.
Bill Allison, a lobbying expert at the Sunlight Foundation, said the fact that major Republican consultants are promoting an entitlement program shows that “in Washington’s mercenary culture, there are few principles that stand in the way of a payday.” …“Wow. Just wow. Big government money ensnares a lot of people,” said David Williams, president of the taxpayers group, when told of Jansen’s new client.
By the way, this doesn’t mean everybody in Washington is sleazy. And even the ones that are corrupt on some issues may be principled on others.
But the incentives to “play the game” are enormous. As I explain in this video, big government is inherently corrupting.
P.S. Folks are emailing me to ask me predictions for the 2014 mid-term elections.
That being said, I’m happy to oblige. We’re 10 days from the election, so I’ll make a set of predictions today, then another set of predictions with five days to go, then a final set of predictions the day before the election.
For the House of Representatives, I can say with near-100 percent certainty that Republicans will maintain control. Indeed, I suspect they’ll pick up some seats and have a bigger majority.
How big? Let’s go with 246-189, the biggest GOP margin since the late 1940s.
But what about the Senate? The race for partisan control on the upper chamber is getting all the attention.
In the for-what-it’s-worth department, I think Republicans will take control by a 52-48 margin, meaning a net gain of seven seats. Here’s a map showing the seats that will change hands, though I confess Iowa, Colorado, and Georgia could go either way.
It’s also possible that Republicans could lose Kansas, while the Democrats could lose North Carolina and New Hampshire.
In other words, the final results could be anywhere between 55-45 Republican control or 52-48 Democratic control.
P.P.S. If Republicans take control, don’t hold your breath waiting for big changes in policy. Even if they don’t get corrupted (like the Obamaphone-loving GOPers described above), the White House will still be controlled by Democrats.
I periodically comment about government corruption, often in the context of trying to make the general point that shrinking the size and scope of the public sector is the most effective way of reducing sleaze in Washington.
Now let’s get specific. I’ve already cited Obamacare, the tax code, and the Export-Import Bank as facilitators of corruption. Let’s augment that list by looking at government intervention in the financial sector.
We’ll start with some findings on the effectiveness of lobbying. In some new research, two professors at George Mason University’s Mercatus Center found that being active in Washington is beneficial for top executives, but it doesn’t help a company’s bottom line.
Here’s how the Washington Examiner summarized the study.
What is the return on investment in lobbying? Does a PAC contribution actually pay for itself? There are so many cases of a lobbyist winning an earmark, or a PAC contribution immediately preceding a subsidy, that it’s hard not to see politics as a good investment. …But for every company that hits the jackpot after lobbying campaign, scores of others end up throwing away money on lobbyists — and scores of executives whose PAC contributions don’t help the company a bit. Business professors Russell Sobel and Rachel Graefe-Anderson of the Mercatus Center at George Mason University collected the data and dug into the bigger question: Do lobbying expenditures and PAC contributions increase corporate profits, on average? Their answer: No… When Sobel and Graefe-Anderson crunched numbers, conducted regressions, and controlled for firm size, industry and other factors, they arrived at data “suggesting that any benefits gained from corporate political activity are largely captured by firm executives.” In short, when a CEO and a lobbyist decide to get their company more involved in politics, the CEO and the lobbyist benefit, while not helping the company.
These findings at first struck me as counterintuitive. After all, there are plenty of companies, such as General Electric and Archer Daniels Midland, that seem to obtain lots of unearned profits thanks to their lobbying activities.
But don’t forget that government – at best – is a zero-sum game. So for every company, industry, or sector that “wins,” there will be lots of companies, industries, and sectors that suffer.
And speaking of industries that benefit, there was one exception to the Mercatus Center findings.
The only exception was the banking and financial sectors, where they found “positive and significant correlations between firm lobbying activity and three measures of firm financial performance,” including return on investment and return on equity.
At this stage, let’s be careful to specify that lobbying is not necessarily bad. If a handful of business owners want to join forces to fight against higher taxes or more regulation, I’m all in favor of that kind of lobbying. They’re fighting to be left alone.
But a big chunk of the lobbying in Washington is not about being left alone. It’s about seeking undeserved benefits by using the coercive power of government.
And this latter definition is a good description of what the financial industry has been doing in Washington. That’s bad for taxpayers, but it’s also bad for the financial sector and the overall economy. Here are some of the conclusions from a recent study published by the New York Federal Reserve Bank.
…there have been many concerns with banks deemed “too big to fail.” These concerns derive from the belief that the too-big-to-fail status gives large banks a competitive edge and incentives to take on additional risk. If investors believe the largest banks are too big to fail, they will be willing to offer them funding at a discount. Together with expectations of rescues, this discount gives the too-big-to-fail banks incentives to engage in riskier activities. …The debate around too-big-to-fail banks has given rise to a large literature. … we study whether banks that rating agencies classify as likely to receive government support increase their risk-taking. …The results of our investigation show that a greater likelihood of government support leads to a rise in bank risk-taking. Following an increase in government support, we see a larger volume of bank lending becoming impaired. Further, and in line with this finding, our results show that stronger government support translates into an increase in net charge-offs. Additionally, we find that the effect of government support on impaired loans is stronger for riskier banks than safer ones, as measured by their issuer default ratings. …the level of impaired loans in a bank loan portfolio increases directly with the level of government support. …riskier banks are more likely to take advantage of potential sovereign support.
Isn’t that wonderful. Our tax dollars have been used to increase systemic risk and undermine economic growth. Though none of us should be surprised.
Since this has been a depressing column, let’s enjoy some morbid TARP humor.
Here’s a cartoon from Robert Ariail about the cronies who got rich from the Bush-Obama bailouts.
Good to see Hank Paulson getting ripped. At the end of the Bush Administration, I attempted to convince the White House that “FDIC resolution” was a much better way of recapitalizing the banking system. I was repeatedly told, though, that Paulson was in charge and there was no way of stopping him from bailing out his former cronies on Wall Street.
Oh well, at least I tried.
Here’s another cartoon about the real victims of TARP. Like the first cartoon, it’s an oldie but goodie and it’s a good illustration of how government is a zero-sum scam.
But let me re-emphasize a point I made above. Taxpayers aren’t the only ones to lose. The entire economy suffers from bailouts and subsidies. Such policies distort the allocation of capital and lead to slower long-run growth.
That may not be easy to measure, but it matters a lot.
This is a good time to recycle the famous poster about supposed government solutions.
P.S. Not all financial institutions are corrupted by government. The nation’s 10th-largest bank, BB&T, did not want and did not need a bailout. But as the bank’s former CEO (and, I’m proud to say, current Cato Institute president) explained in his book, thugs from Washington threatened to use regulatory coercion if BB&T didn’t participate.
It’s even gotten to the point where children and other family members also put their hands in the cookie jar.
I guess we can call this a system of hereditary corruption. Heck, maybe we can even create hereditary titles for this new elite. The Duke of Pork. The Earl of Sleaze. The Marquise de Cronyism.
Just in case you think I’m exaggerating, check out these blurbs from a Daily Beast article.
Connected children of political families catching a break is something we Americans are plenty used to—there would be no Kennedy or Bush dynasties without the public’s acceptance… But it might be that Americans are less aware of political family power plays when they’re not accompanied by gripping and grinning and kissing our babies for cameras and votes. …“Members of Congress basically are profit centers for their entire families,” says Melanie Sloan, Executive Director of Citizens for Responsibility and Ethics in Washington.
The article cites examples of this unseemly process.
Nathan Daschle, son of former Senate majority leader Tom Daschle, …did a stint at a D.C. firm before heading to the Democratic Governor’s Association (where he eventually served as Executive Director), and now works for Clear Channel Media as its Executive Vice President for Political Strategy. …then there are the lobbyists—that professional amalgam of business and politics—the litany of which reads something like an Old Testament family tree. There’s Andy Blunt, son of Senator Roy Blunt and brother of former governor Matt Blunt; Andrew Coats, son of Senator Dan Coats; Scott Hatch, son of Senator Orrin Hatch; David Roberts, son of Senator Pat Roberts; Shantrel Brown Fields, daughter of Rep. Corinne Brown; Giliane Carter, daughter of Representative John Carter; Sean King, son of Rep. Peter King; Clark Mica, son of Rep. John Mica.
As you might expect, this incestuous system produces spectacular examples of wasteful and counterproductive spending.
…sometimes there is trouble in the paradise where business and politics and family meet. There’s the case of Brad Enzi, son of Mike, Senator from Wyoming. Enzi the younger has been overseeing the building of the Two Elk Power Plant in Wyoming for North American Power Group. …Senator Enzi pushed for Department of Energy funds to go towards clean coal research projects in his state and Brad Enzi’s company benefitted from them; it received nearly $10 million in funding to drill a well to study the site surrounding the plant, and Enzi himself earned $128,000 in compensation from the federal money. …Chaka Fattah Jr., son of Pennsylvania Congressman Chaka Fattah, has similarly felt the double-edged blade of intertwining family, business, and political ties. The management consulting company he founded was paid $450,000 by an education firm with lucrative contracts with the Philadelphia City School District—turns out Chaka’s father requested a $375,000 earmark for the firm from a 2009 transportation bill. Both father and son are currently under federal investigation.
Keep in mind, by the way, that these examples are just the tip of the iceberg.
For every bit of scandal and pork that gets publicized, you can be confident that there are hundreds of equally sordid deals that haven’t been exposed.
For all intents and purposes, big government in Washington has created a niche market for insiders who learn the specialized skill of transferring money from those who earned it to those with political pull.
And these insiders pass along this “skill” to their children.
…a hereditary specialized group of people who perform certain necessary social functions and because they have families, they’re going to gradually monopolize the functions they perform.” And in 2014, the place that’s increasingly being chosen as a place to call home by American “elites” happens to be Washington, D.C. The city’s greater metropolitan area boasts the largest number of “Super Zips”—those areas with the highest combined wealth and level of education—in the country.
They get the “super zips” while the rest of the country is treated as “super chumps.”
If that sounds like we’re becoming Argentina or some other cesspool of cronyism, then you understand the problem.
By the way, none of this should be interpreted to suggest that parents shouldn’t try to help their kids. Or even to give them some help joining the family business. That’s a normal part of life.
The problem exist when the “family business” is big government and income is obtained by facilitating the coercion and oppression of other people.
In a genuinely free market, by contrast, you get rich by serving other people.
P.S. Some people argue that the solution is to ban family members from lobbying or to otherwise impose restrictions on the political process. But until you deal with the underlying problem of Washington being a favor factory, all of these efforts will be akin to playing whack-a-mole.
Local resident Todd Fox has been detained for “reckless endangerment” and “illegal use of high-powered fire-breathing weaponry” for attacking snow with his flamethrower. …Fox stated that he was simply “fed up with battling the elements” and that he did not possess the willpower necessary to move “four billion tons of white bull [expletive deleted].” Police say that Fox surrendered his efforts immediately upon their arrival and that his front yard “looked like a hydrogen bomb had gone off.” They think he was just happy to be done with snow removal, even if it did mean a trip to jail.
I have two reactions to this story.
First, does Fargo really have a local ordinance governing the use of “high-powered fire-breathing weaponry”? I’m skeptical.
Second, isn’t this a great country? There probably aren’t many places in the world where citizens are allowed to own flamethrowers. Makes me proud to be American.
The Bible says that “the wages of sin is death,” but the same can’t be said of Washington, DC.
The bureaucrats, lobbyists, politicians, contractors, insiders, cronyists, and influence peddlers have rigged the system so that they get rich by diverting money from people in the productive sector of the economy.
How bad is the disconnect between Washington and real America?
But there is one outpost of giddy prosperity, and that’s the District of Columbia, where residents have a 20-point gap compared to the most optimistic (or, to be more accurate, least pessimistic) state and a whopping 35-point gap with the average American.
If you’re a glass-half-full person, there is a tiny sliver of good news in the new Gallup report.
The District of Columbia (+19) is the clear outlier in economic confidence, having the only positive reading for 2013 and well above the readings for even the most optimistic states. Its confidence has taken a hit, however, since 2012, when its index was +29. Likely factors in the 10-point drop include October’s federal government shutdown as well as the sequestration spending cuts that occurred earlier in the year.
This explains, of course, why lobbyists were so bitterly opposed to the sequester. It reduced the money flow to Washington, and that meant less of our money to be shared by looter class that dominates the DC establishment.
And the most depressing sign that this already is happening to the United States is that so many of America’s richest communities are now part of the Washington metropolitan area.
But that doesn’t mean its government isn’t capable of squandering money in stupendous fashion. Check out this blurb from an Australian news report.
A refrigerator lightbulb retailing for about $3 at a hardware store ended up costing a far north Queensland state school almost $500 after Queensland’s Public Works Department sent an electrician to install it in a teacher’s government-owned home. Doomadgee State School, on the Gulf of Carpentaria, was billed $200 for labour alone after the teacher was told workplace health and safety regulations prevented any staff member from buying and replacing the bulb themselves
And since I’m in the uncharacteristic position of beating up on Australia, you may as well click here and here to see other examples of government stupidity Down Under.
Though, to be fair, at least the Aussies manage to involve sex when trying to bilk the workplace compensation system.
It might not be as pithy as Mitchell’s Law, and it doesn’t contain an important policy prescription like Mitchell’s Golden Rule, but it could be the motto of the federal government.
Simply stated, government is a racket that benefits the DC political elite by taking money from average people in America
I realize this is an unhappy topic to be discussing during the Christmas season, but the American people need to realize that they are being raped and pillaged by the corrupt insiders that control Washington and live fat and easy lives at our expense.
If you don’t believe me, check out this map showing that 10 of the 15 richest counties in America are the ones surrounding our nation’s imperial capital.
Who would have guessed that the wages of sin are so high?
But even though the District of Columbia isn’t on the list, that doesn’t mean the people actually living in the capital are suffering.
D.C. residents are enjoying a personal income boom. The District’s total personal income in 2012 was $47.28 billion, or $74,733 for each of its 632,323 residents, according to the Office of the Chief Financial Officer’s Economic and Revenue Trends report for November. The U.S. average per capita personal income was $43,725.
Why is income so much higher? Well, the lobbyists, politicians, bureaucrats, interest groups, contractors, and other insiders who dominate DC get much higher wages than people elsewhere in the country.
And they get far higher fringe benefits.
In terms of pure wages, D.C., on a per capita basis, was 79 percent higher than the national average in 2012 — $36,974 to $20,656. …Employee benefits were 102 percent higher in D.C. than the U.S. average in 2012, $7,514 to $3,710. Proprietor’s income, 137 percent higher — $9,275 to $3,906. …The numbers suggest D.C. residents are living the high life.
Now let’s share a chart from Zero Hedge. It uses median household income rather than total personal income, so the numbers don’t match up, but what’s noteworthy is how DC income grew faster than the rest of the nation during the Bush years and then even more dramatically diverged from the rest of the country during the Obama years.
In other words, policies like TARP, the fake stimulus, and Obamacare have been very good for Washington’s ruling class.
Want some other concrete examples of profitable Washington sleaze? Well, here are some excerpts from Rich Tucker’s column for Real Clear Policy.
The real place to park your money is in Washington, D.C. That’s because the way to get ahead isn’t to work hard or make things; it’s to lobby Washington for special privileges. Look no further than the sweet deal the sugar industry gets. It’s spent about $50 million on federal campaign donations over the last five years. So that would average out to $10 million per year. Last year alone, the federal government spent $278 million on direct expenditures to sugar companies. That’s a great return on investment.
Big Corn may get an even better deal than Big Sugar.
Then there’s ethanol policy. Until 2012, the federal government provided generous tax credits to refiners that blended ethanol into gasoline. In 2011 alone, Washington spent $6 billion on this credit. The federal government also maintains tariffs (54 cents per gallon) to keep out foreign ethanol,and it mandates that tens of billions of gallons of ethanol be blended into the American gasoline supply. Nothing like a federal mandate to create demand for your product. How much would you pay for billions of dollars worth of largesse? Well, the ethanol industry got a steep discount. In 2012, opensecrets.org says, the American Coalition for Ethanol spent $212,216 on lobbying.
Rich warns that the United States is sliding in the wrong direction.
What makes Washington especially profitable is that its only products are the laws, rules, and regulations that it has the power to force everyone else to follow. …we seem to be sliding toward what the authors term “extractive” institutions. That means government using its power to benefit a handful of influential individuals at the expense of everyone else.
And let’s not forget that some people are getting very rich from Obamacare while the rest of us lose our insurance or pay higher prices.
I particularly like his common sense explanation that Washington’s wealth comes at the expense of everyone else. The politicians seize our money at the point of a gun (or simply print more of it) to finance an opulent imperial city.
So if you’re having a hard time making ends meet, remember that you should blame the parasite class in Washington.
Regular readers know I complain about the army of overpaid bureaucrats in Washington, but that’s just the tip of the iceberg.
The larger problem is that Washington also is filled with hundreds of thousands of other people who get rich thanks to big government. And these politicians, lobbyists, crony capitalists, interest groups, contractors, and influence peddlers almost surely are a bigger net drain on the economy’s productive sector.
When you combine the official bureaucracy with these other over-compensated beneficiaries of big government, it’s easy to understand why Washington, DC, is now the richest region of America, with 10 of the nation’s 15 richest counties.
And that’s exactly what is happening. The Washington Post reports on how coerced access to other people’s money has meant boom times for the beltway elite. Here are some excerpts on how your money is creating unearned riches for DC insiders.
The avalanche of cash that made Washington rich in the last decade has transformed the culture of a once staid capital and created a new wave of well-heeled insiders. The winners in the new Washington are not just the former senators, party consiglieri and four-star generals who have always profited from their connections. Now they are also the former bureaucrats, accountants and staff officers for whom unimagined riches are suddenly possible. …They are the lawyers, lobbyists and executives who work for companies that barely had a presence in Washington before the boom.
Here are some depressing stats from the story.
During the past decade, the region added 21,000 households in the nation’s top 1 percent. No other metro area came close. …in 2010, companies based in Rep. James P. Moran’s congressional district in Northern Virginia reaped $43 billion in federal contracts — roughly as much as the state of Texas. At the same time, big companies realized that a few million spent shaping legislation could produce windfall profits. They nearly doubled the cash they poured into the capital. …Essentially, Washington has been the beneficiary of a decade-long, taxpayer-funded stimulus package.
Unfortunately, all this federal largesse is corrupting the business community, with many companies deciding that lobbying for tax dollars is more lucrative than competing for consumer dollars.
The federal government wasn’t the only one pouring buckets of new money into Washington in the 2000s. Big business did it, too. At a time when promising investments were hard to find, corporate America learned that lobbying was one of the most surefire ways of bolstering its bottom line. …Companies spent about $3.5 billion annually on lobbying at the end of the last decade, a nearly 90 percent increase from 1999 after adjusting for inflation… Legal services also boomed, fueled by the growing complexities of federal business regulations. The number of lawyers in the D.C. metro area increased by a third from 2000 to 2012, nearly twice as fast as the growth rate nationwide. And those lawyers have the highest mean salaries in the country, according to George Mason University’s Center for Regional Analysis.
Lobbying isn’t automatically a bad thing, by the way. Sometimes a company needs representation so that the political vultures in Washington don’t descend upon them.
“You know that if a company stopped lobbying, it would get creamed,” Drutman said. “That’s why companies don’t stop lobbying.”
The real moral of the story is that small government and genuinely free markets are the only effective ways to reduce sordid lobbying and political corruption.
The challenge, needless to say, is convincing the Washington establishment to adopt those policies. That’s not an easy task, particularly when it violates my First Theorem of Government.
So would it make sense to outlaw lobbying or to restrict campaign contributions? Setting aside constitutional issues (the First Amendment protects our rights to petition the government and to engage in political speech), the answer is no.
Why? Because lobbying and campaign contributions are a function of government being too big and being involved in too many areas.
If we shrink the size and scope of the state, we reduce incentives to manipulate the system. But if we leave big government in place, laws to restrict lobbying and campaign contributions will simply lead to different forms of “rent seeking.”
…the Supreme Court…has created a campaign-finance system that is directly responsible for the rise of uncompromising leaders on both sides of the Capitol. …Political money was again before the Supreme Court on Tuesday morning, and, judging from their questions, the conservative justices are poised to make things even worse. Now they are prepared to expand on their 2010 decision that caused an explosion of independent spending by allowing the wealthy to give about $3.5 million apiece to candidates and parties in each election cycle. …The 1976 decision in Buckley v. Valeo made government for sale and created the arms race in campaign financing by equating unlimited spending with free speech. The John Roberts court in 2010 made the system dramatically worse in its Citizens United decision, loosening restrictions and spurring wealthy donors to make hundreds of millions of dollars in independent expenditures. …Justice Elena Kagan said those who give $3.5 million should expect “special treatment” from Congress — and Burchfield didn’t disagree. Under the Citizens United decision, he said, “gratitude and influence are not considered to be quid-pro-quo corruption.”
Milbank puts the cart before the horse. Big donors aren’t the problem. We should worry about big government.
If we had the type of limited central government envisioned by the Founding Fathers, there would be very little reason for billionaires (or the rest of us) to spend time or energy worrying about what happens in Washington.
I elaborate in this video on the real causes of political corruption in Washington.
P.S. In the title, I wrote that campaign contributions are a “possible” symptom. That’s because campaign contributions (like lobbying) don’t necessarily imply corruption. If John Doe gives money to someone like Rand Paul, he’s probably not looking for a government handout. But if the realtors cut a big check to someone like Chuck Schumer, it’s quite likely that they’re looking to obtain or preserve some undeserved goodie from Washington.
ObamaCare has become big business for an elite network of Washington lobbyists and consultants who helped shape the law from the inside. More than 30 former administration officials, lawmakers and congressional staffers who worked on the healthcare law have set up shop on K Street since 2010. Major lobbying firms such as Fierce, Isakowitz & Blalock, The Glover Park Group, Alston & Bird, BGR Group and Akin Gump can all boast an ObamaCare insider on their lobbying roster — putting them in a prime position to land coveted clients. …The voracious need for lobbying help in dealing with ObamaCare has created a price premium for lobbyists who had first-hand experience in crafting or debating the law. Experts say that those able to fetch the highest salaries have come from the Department of Health and Human Services (HHS) or committees with oversight power over healthcare. Demand for ObamaCare insiders is even higher now that major pieces of the law — including the healthcare exchanges and individual insurance mandate — are being set up through a slew of complicated federal regulations.
You’ll also be happy to know that beltway insiders can expect years and years of undeserved loot thanks to rules, regulation, and red tape that will be unveiled for another seven years.
…the healthcare law has generated steady work — a trend that is likely to continue for years to come. That’s because ObamaCare runs on a long timeline, well into the next administration. Unless the law is severely crippled, the reform’s rules and requirements will be rolling out through at least 2020. That’s good news for lobbyists who want to sign up clients for the long haul.
This is the social science equivalent of a kick-in-the-you-know-what. A bunch of political hacks pass legislation that increases both the fiscal burden and the regulatory burden on the rest of us, but they make it very convoluted so that they can cash in and make big bucks navigating the law for deep-pocket clients.
This is a win-win for the political elite and a lose-lose for America’s productive sector.
And it’s a perfect example of what I was trying to get across in this video I narrated about the link between big government and corruption.
There are lots of specific examples of Obamacare’s corruption.
But don’t forget Obamacare is just one example of the sleaze that defines Washington. Maybe the best way of understanding the game is to watch Andrew Ferguson explain DC’s parasite economy.
I believe in the First Amendment, so I would never support legislation to restrict political speech or curtail the ability of people to petition the government.
That being said, I despise the corrupt Washington game of obtaining unearned wealth thanks to the sleazy interaction of lobbyists, politicians, bureaucrats, and interest groups.
So you can imagine my unfettered joy when reading about how this odious process is being curtailed by sequestration. Here are some cheerful details from story in Roll Call.
…sequester cuts…reflect not only Washington’s political paralysis but a bitter lobbying failure for K Street interests across the board. From university professors and scientists to cancer victims, defense contractors and federal workers, hundreds of advocacy, trade and labor groups have lobbied aggressively for months to head off the cuts. They’ve run ads, testified on Capitol Hill, staged demonstrations and hounded lawmakers, all to no avail. …the path forward could be a lobbying nightmare.
Reading the story, I recalled a Charles Addams cartoon from my childhood. Thanks to the magic of Al Gore’s Internet, I found it.
Slightly modified to capture my spirit of elation, here it is for you to enjoy.
Except I like to think I’m a bit more prepossessing than the Uncle Fester character, but let’s not get hung up on details.
To be sure, all that we’ve achieved is a tiny reduction in the growth of federal spending (the budget will be $2.4 trillion bigger in 10 years rather than $2.5 trillion bigger). But a journey of many trillions of dollars begins with a first step.
Here are some of the highlights of a remarkable Reuters expose about the fat cats of big government, starting with the huge gap between the insider elite and the poor.
In the town that launched the War on Poverty 48 years ago, the poor are getting poorer despite the government’s help. And the rich are getting richer because of it. The top 5 percent of households in Washington, D.C., made more than $500,000 on average last year, while the bottom 20 percent earned less than $9,500 – a ratio of 54 to 1. That gap is up from 39 to 1 two decades ago. It’s wider than in any of the 50 states and all but two major cities.
One small but important correction in the previous excerpt. As I have noted many times, the “poor are getting poorer” because of “the government’s help.”
The article then explains that a lot of the redistribution in Washington is from taxpayers to a pampered elite.
…in the years since President Lyndon Johnson took aim at poverty in his first State of the Union address, there has been an increasingly strong crosscurrent: The government is redistributing wealth up, too – especially in the nation’s capital. …Two decades of record federal spending and expanding regulation have fostered a growing upper class of federal contractors, lobbyists and lawyers in the District of Columbia area. …Direct spending by the federal government accounts for 40 percent of the area’s $425 billion-a-year economy. …Roughly 15 cents of every dollar from the entire federal procurement budget stays in or around the government’s hometown, said Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University. Last year, that was about $80 billion out of $536 billion in procurement spending, he said. The 15 percent share is far greater than the region’s 2 percent portion of the U.S. population. “We’re seeing an enormous transfer of wealth from taxpayers to the Washington economy,” said Fuller.
And all this spending leads to an elitist class of cronyists, politicians, contractors, bureaucrats, and lobbyists. No wonder the DC area is home to some of the richest counties in America.
But unlike other well-to-do areas, the wealth in DC is rarely accumulated by honest means.
Instead, it’s the result of perverse form of redistribution to big-government insiders. Check out these horrifying details.
Washington-area workers with incomes above $100,000 rose to 22 percent of the workforce, up from 14 percent in 1990, adjusted for inflation, a Reuters analysis of Census data found. …there are 320,000 federal jobs in the Washington area. Within the District of Columbia, 55 percent pay $100,000 or more. …Nearly 13,000 lobbyists registered with the government last year and reported $3.3 billion in fees, or about $260,000 per lobbyist. That’s 22 percent more lobbyists and 37 percent more inflation-adjusted revenue per lobbyist than in 1998… Times are flush for Washington lawyers as well. The number of attorneys in the area has risen 44 percent, twice the national rate, to 41,000 since 1999. Their average income, adjusted for inflation, rose 35 percent to $156,000.
I guess we know who’s having a merry Christmas.
All these rich bureaucrats, lobbyists, politicians, cronyists, and contractors certainly are living the good life, as revealed in a Washington Post story on the “Region’s Rising Wealth.” Here are some sordid excerpts.
…the D.C. region already has a reputation as one of the most affluent in the country. But the area is fast emerging as a home to the truly rich as well. High-end luxury retailers are responding. Brands such as Aston Martin are expanding their operations into the area — betting, for instance, that there will be plenty of customers who can afford the $280,000 sports car James Bond drives in the movies. …Already there are 500 Aston Martin owners in the area with the potential for more.
I’ve already shared an interview with Andrew Ferguson by Reason TV that should make all taxpayers upset. Why should ordinary taxpayers be coerced to subsidize Washington’s high-flying parasite economy?
Redistribution is a bad thing in most circumstances. But when you redistribute from poor to rich, that’s utterly perverse.
The region’s top one percent of households make more than a half million dollars yearly — far more than the national average for the one percent, according to a study of Census data by Sentier Research, an Annapolis-based data analysis firm. And these top earners — many of whom are from dual-income households and benefit from federal contracting — weathered the recession better than their counterparts in some other metropolitan areas and the nation. More are moving beyond comfortable affluence to a much higher standard of living. “What is unique to D.C. is that there has been a change in the complexion of wealth here. There didn’t used to be much of this ultra-high-net-worth business here and now there is,” said Susan Traver, the regional president of BNY Mellon Wealth Management.
But everyone in the rest of America at least can go to sleep tonight with a warm and fuzzy feeling of joy, knowing that our money has created such comfortable lives for the political elite.
Milton Pedraza, the CEO of the Luxury Institute, a research and consulting firm, said that purveyors of luxury goods are drawn to the area because it has…a stable economy bolstered by the federal government. Government contracting, where some local entrepreneurs and business owners amassed their fortunes, has been a key driver of the region’s economy for three decades. A third of the region’s gross regional product still comes from federal spending… “Let’s face it . . . the only place with money during the recession was Washington, D.C.,” Pedraza said.
Perhaps we should make a slight correction in the previous excerpt. After all, shouldn’t it read “America suffered a recession because the only place with money was Washington, DC.”
But I now realize my mini-documentary only scratches the surface. Yes, there are too many paper-pushers on the government payroll, and of course they get far too much compensation.
The Solyndra scandal cost at least a half-billion public dollars. It is plaguing PresidentBarack Obama. And it’s being billed as a Washington story. But back in Obama’s political hometown, those of us familiar with the Chicago Way can see something else in Solyndra — something that the Washington crowd calls “optics.” In fact, it’s not just a Washington saga — it has all the elements of a Chicago City Hall story, except with more zeros. …did you really believe it when the White House mouthpieces — who are also Chicago City Hall mouthpieces — promised they were bringing a new kind of politics to Washington? This is not a new kind of politics. It’s the old kind. The Chicago kind. And now the Tribune Washington Bureau has reported that the U.S. Department of Energyemployee who helped monitor the Solyndra loan guarantee was one of Obama’s top fundraisers. Fundraising? Contracts? Imagine that. …it’s the same old politics, the same kind practiced in Washington and Chicago and anywhere else where appetites are satisfied by politicians. When the government picks winners and losers, who’s the loser? Just look in the mirror, hold that thought, and tell me later.
Kass does a great job of describing how these legal forms of corruption take place.
In Solyndra, like any proper City Hall political scandal, there are similar archetypes. There are the guys who count. The guys who bring the cash. They count because they do the counting. They have leverage. They’re always there at the fundraisers. And so they’re the ones who are allowed to gorge at the public trough. The bureaucrats are the fulcrum so the guys with the leverage can lift great weight without too much effort. And while they might whine privately among themselves, they don’t hold news conferences to blow the whistle. They keep their mouths shut until the deal is done. If anyone gets caught and the problem becomes public, at least they’ve got email to cover their behinds. And they’re doing a good job covering. But there’s one group that doesn’t get their behinds covered. Instead, their behinds are right out there, suspended foolishly, and waiting to get kicked. We’re the taxpayers — in Illinois we call ourselves chumbolones because we’re the ones who stupidly end up covering all the losses. As in the Solyndra mess.
His last point is most important. Taxpayers always wind up with the short end of the stick. Meanwhile, all the politicians, bureaucrats, lobbyists, and interest groups simply shrug their shoulders and move on to the next scam.
If you want to know why Washington is a cesspool of corruption and graft, you should read this story from the Washington Post about how Capitol Hill staffers use their positions as stepping stones to jobs in the lobbying community.
Nearly 5,400 former congressional staffers have left Capitol Hill to become federal lobbyists in the past 10 years, according to a new study that documents the extent of the revolving door between Congress and K Street. The data published by the online disclosure site LegiStorm found close to 400 former U.S. lawmakers also have made the jump to lobbying. The report…underscores the symbiotic relationship: Thousands of lobbyists are able to exploit experience and connections gleaned from working inside the legislative process, and lawmakers find in lobbyists a ready pool of experienced talent. …The study also documents the reverse movement, finding 605 former lobbyists who have taken jobs working for lawmakers in the past decade. …About 14,000 people work on the Hill, and about 11,700 people are registered to lobby this year, according to the Center for Responsive Politics.
If this sounds like sleaze, that’s because it is. It’s a story about how the political class has created a system that loots the American public and enables the well-connected to skim a good share of the booty.
I explained in a previous post that some of the most despicable people in Washington are Republicans, but this story gives me an opportunity to elaborate.
What happens is that idealistic people come to Washington to work for Congress (also, because they get elected to Congress). They earn good salaries, considerably above the average for the U.S. economy.
But if they want to make big money – and if they have weak morals and an absence of character, they are drawn to the lobbying community.
I have known dozens of good people over the years who have been corrupted by this process. They came to Washington to do good, and they wound up doing well instead.
They began their careers thinking Washington is a cesspool, and they eventually decided it’s a hot tub.
The only solution to this problem is to shrink the size and scope of government, as I explain in this video.
I don’t have strong feelings about Sarah Palin, but I like her anti-establishment attitude.
And, in a case of strange bedfellows, so does the New York Times. Or at least one columnist is honest enough to admit when she makes a compelling argument.
Along with her familiar and predictable swipes at President Barack Obama and the “far left,” she delivered a devastating indictment of the entire U.S. political establishment — left, right and center — and pointed toward a way of transcending the presently unbridgeable political divide. …She made three interlocking points. First, that the United States is now governed by a “permanent political class,” drawn from both parties, that is increasingly cut off from the concerns of regular people. Second, that these Republicans and Democrats have allied with big business to mutual advantage to create what she called “corporate crony capitalism.” Third, that the real political divide in the United States may no longer be between friends and foes of Big Government, but between friends and foes of vast, remote, unaccountable institutions (both public and private). In supporting her first point, about the permanent political class, she attacked both parties’ tendency to talk of spending cuts while spending more and more; to stoke public anxiety about a credit downgrade, but take a vacation anyway; to arrive in Washington of modest means and then somehow ride the gravy train to fabulous wealth. She observed that 7 of the 10 wealthiest counties in the United States happen to be suburbs of the nation’s capital. …Ms. Palin’s third point was more striking still: in contrast to the sweeping paeans to capitalism and the free market delivered by the Republican presidential candidates whose ranks she has yet to join, she sought to make a distinction between good capitalists and bad ones. The good ones, in her telling, are those small businesses that take risks and sink and swim in the churning market; the bad ones are well-connected megacorporations that live off bailouts, dodge taxes and profit terrifically while creating no jobs. …“This is not the capitalism of free men and free markets, of innovation and hard work and ethics, of sacrifice and of risk,” she said of the crony variety. She added: “It’s the collusion of big government and big business and big finance to the detriment of all the rest — to the little guys. It’s a slap in the face to our small business owners — the true entrepreneurs, the job creators accounting for 70 percent of the jobs in America.”
Think about the recent controversy about Solyndra, the “green” company that got lots of handouts from the Obama Administration and recently filed for bankruptcy (and got raided by the FBI).
Let’s be blunt about what happened. They bribed the White House (not in a way that violates the law, we must assume, but does anybody doubt that’s what was happening?). In exchange, the Obama Administration used the coercive power of government to steer undeserved money to the corrupt company.
And we’re not talking about a couple of million dollars. We’re talking about more than one-half of one billion dollars. That’s $535,000,000.00.
And this is presumably just one example of what probably happens dozens of times every day in Washington.
But let me make one thing clear. I don’t think the Obama Administration is an outlier. The same thing happened every day, in all likelihood, during the Bush Administration. And in previous administrations.
Heck, this is almost certainly what happens in state capitals and city governments, and I doubt that it makes much difference what party is in charge.
In a column about the revolving door between big government and the lobbying world, here’s what the irreplaceable Tim Carney wrote about the waiver process for folks trying to escape the burden of government-run healthcare.
Congress imposes mandates on other entities, but gives bureaucrats the power to waive those mandates. To get such a waiver, you hire the people who used to administer or who helped craft the policies. So who’s the net winner? The politicians and bureaucrats who craft policies and wield power, because this combination of massive government power and wide bureaucratic discretion creates huge demand for revolving-door lobbyists. It’s another reason Obama’s legislative agenda, including bailouts, stimulus, ObamaCare, Dodd-Frank, tobacco regulation, and more, necessarily fosters more corruption and cronyism.
This seemed so familiar that I wondered whether Tim was guilty of plagiarism. But he’s one of the best journalists in DC, so I knew that couldn’t be the case.
Then I realized that there was plagiarism, but the politicians in Washington were the guilty parties. As can be seen in this passage from Atlas Shrugged, the Obama Administration is copying from what Ayn Rand wrote – as dystopian parody – in the 1950s.
Nobody professed to understand the question of the frozen railroad bonds, perhaps, because everybody understood it too well. At first, there had been signs of a panic among the bondholders and of a dangerous indignation among the public. Then, Wesley Mouch had issued another directive, which ruled that people could get their bonds “defrozen” upon a plea of “essential need”: the government would purchase the bonds, if it found proof of the need satisfactory. there were three questions that no one answered or asked: “What constituted proof?” “What constituted need?” “Essential-to whom?” …One was not supposed to speak about the men who, having been refused, sold their bonds for one-third of the value to other men who possessed needs which, miraculously, made thirty-three frozen cents melt into a whole dollar, or about a new profession practiced by bright young boys just out of college, who called themselves “defreezers” and offered their services “to help you draft your application in the proper modern terms.” The boys had friends in Washington.
This isn’t the first time the Obama Administration has inadvertently brought Atlas Shrugged to life. The Administration’s top lawyer already semi-endorsed “going Galt” when he said people could choose to earn less money to avoid certain Obamacare impositions.
So if you want a glimpse at America’s future, I encourage you to read (or re-read) the book. Or at least watch the movie.
General Electric has received a lot of unwelcome attention for paying zero federal income tax in 2010, even though it reported $5.1 billion in U.S. profits. This is a good news-bad news situation.
The good news is that GE’s clever tax planning deprived the government of revenue. And I’m in favor of just about anything that reduces the amount of money that winds up in the hands of the most corrupt and least competent people in America (a.k.a., the political class in Washington).
The bad news, though, is that politicians can engage in borrow-and-spend vote-buying behavior, so depriving them of revenue doesn’t seem to have much impact on the overall burden of government spending.
Ideally, we should junk the corrupt internal revenue code (and the corporate side of the tax code makes the personal tax code seem simple by comparison) and replace it with a simple and transparent system such as the flat tax.
That way, all income would be taxed since loopholes would be abolished, but there would be a very low tax rate and no double taxation.
Tim Carney of the Washington Examiner is one of the best economic and policy journalists on the scene today, and this excerpt from his column explains what is right and wrong about GE’s tax bill.
GE allocates hundreds of talented minds to attempts at lowering taxes. I don’t blame GE for that. It’s probably worth it — which is exactly the problem. In a world with a simpler tax code — or better yet, with no corporate income tax — GE would spend those resources creating something of value. Again, this is a case where government creates a chasm between what’s profitable (gaming tax law) and what’s valuable for society. Also, this story demonstrates once again how Big Government hurts small business much more than it affects Big Business, which can afford to figure out a way around taxes.
The internal revenue code is nightmarishly complex, as illustrated by this video. Americans spend more than 7 billion hours each year in a hopeless effort to figure out how to deal with more than 7 million words of tax law and regulation.
Why does this mess exist? The simple answer is that politicians benefit from the current mess, using their power over tax laws to raise campaign cash, reward friends, punish enemies, and play politics. This argument certainly has merit, and it definitely helps explain why the political class is so hostile to a simple and fair flat tax.
But a big part of the problem is that tax lawyers dominate the tax-lawmaking process. Almost all the decision-making professionals at the tax-writing committees (Ways & Means Committee in the House and Finance Committee in the Senate) are lawyers, as are the vast majority of tax policy people at the Treasury Department and the Internal Revenue Service.
This has always rubbed me the wrong way. Yes, some lawyers are needed if for no other reason than to figure out how new loopholes, deductions, credits, and other provisions can be integrated into Rube-Goldberg monstrosity of existing law.
But part of me has always wondered whether lawyers deliberately or subconsciously make the system complex because it serves their interests. I know many tax lawyers who are now getting rich in private practice by helping their clients navigate the complicated laws and regulations that they helped implement. For these people, the time they spent on Capitol Hill, in the Treasury, or at the IRS was an investment that enables today’s lucrative fees.
I freely admit that this is a sour perspective on how Washington operates, but it certainly is consistent with the “public choice” theory that people in government behave in ways that maximize their self interest.
There’s now an interesting book that takes a broader look at this issue, analyzing the extent to which the legal profession looks out for its own self interest. Written by Benjamin H. Barton, a law professor at the University of Tennessee, The Lawyer-Judge Bias in the American Legal System explains that the legal profession has self-serving tendencies.
Glenn Reynolds, of Instapundit fame, interviews Professor Barton about his new book.
I freely confess that I’m looking at this issue solely through my narrow prism of tax policy. But since Barton’s thesis meshes with my observations that tax lawyers benefit from a corrupt tax system, I’m sympathetic to the notion that the problem is much broader.
One of the most quoted lines from Shakespeare’s Henry VI is, “let’s kill all the lawyers.” But rather than making lawyer jokes, it would be a better idea to figure out how to limit the negative impact of self-serving behavior – whether by lawyers or any other profession that might misuse the coercive power of government.
This is one of many reasons why decentralization is a good idea. If people and businesses have the freedom to choose the legal system with the best features, that restrains the ability of an interest group – including lawyers – to manipulate any one system for their private advantage. This new study by Professors Henry Butler and Larry Ribstein is a good explanation of why allowing “choice of law” yields superior results.
The “appearance of impropriety” is often considered the Washington standard for corruption and misbehavior. With that in mind, alarm bells began ringing in my head when I read this Washington Times report about Jacob Lew, Obama’s nominee to head the Office of Management and Budget. Why did Citigroup decide to hire a career DC political operator for $1.1 million? As a former political aide, lobbyist, lawyer, and political appointee, what particular talents did he have to justify that salary to manage an investment division? Did the presence of Lew (as well as other Washington insiders such as Robert Rubin) help Citigroup get a big bucket of money from taxpayers as part of the TARP bailout? Did Lew’s big $900K in 2009 have anything to do with the money the bank got from taxpayers? Is it a bit suspicious that he received his big windfall bonus four days after filing a financial disclosure? Read this blurb from the Washington Times and see if you can draw any conclusion other than this was a typical example of the sleazy relationship of big government and big business.
President Obama’s choice to be the government’s chief budget officer received a bonus of more than $900,000 from Citigroup Inc. last year — after the Wall Street firm for which he worked received a massive taxpayer bailout. The money was paid to Jacob Lew in January 2009, about two weeks before he joined the State Department as deputy secretary of state, according to a newly filed ethics form. The payout came on top of the already hefty $1.1 million Citigroup compensation package for 2008 that he reported last year. Administration officials and members of Congress last year expressed outrage that executives at other bailed-out firms, such as American International Group Inc., awarded bonuses to top executives. State Department officials at the time steadfastly refused to say if Mr. Lew received a post-bailout bonus from Citigroup in response to inquiries from The Washington Times. But Mr. Lew’s latest financial disclosure report, provided by the State Department on Wednesday, makes clear that he did receive a significant windfall. …The records show that Mr. Lew received the $944,578 payment four days after he filed his 2008 ethics disclosure.
Lest anyone think I’m being partisan, let’s now look at another story featuring Senator Richard Shelby. The Alabama Republican and his former aides have a nice incestuous relationship that means more campaign cash for him, lucrative fees for them, and lots of our tax dollars being diverted to moochers such as the state’s university system. Here are some of the sordid details.
Since 2008, Alabama Sen. Richard Shelby has steered more than $250 million in earmarks to beneficiaries whose lobbyists used to work in his Senate office — including millions for Alabama universities represented by a former top staffer. In a mix of revolving-door and campaign finance politics, the same organizations that have enjoyed Shelby’s earmarks have seen their lobbyists and employees contribute nearly $1 million to Shelby’s campaign and political action committee since 1999, according to federal records. …Shelby’s earmarking doesn’t appear to run afoul of Senate rules or federal ethics laws. But critics said his tactics are part of a Washington culture in which lawmakers direct money back home to narrow interests, which, in turn, hire well-connected lobbyists — often former congressional aides — who enjoy special access on Capitol Hill.
Some people think the answer to these stories is more ethics laws, corruption laws, and campaign-finance laws, but that’s like putting a band-aid on a compound fracture. Besides, it is quite likely that no laws were broken, either by Lew, Citigroup, Shelby, or his former aides. This is just the way Washington works, and the beneficiaries are the insiders who know how to milk the system. The only way to actually reduce both legal and illegal corruption in Washington is to shrink the size of government. The sleaze will not go away until politicians have less ability to steer our money to special interests – whether they are Wall Street Banks or Alabama universities. This video elaborates.
International Liberty 