Big Business Loves Big Government: Cronyism in American Politics
Timothy P. Carney joins us to talk about cronyism and the revolving door in Washington politics. Are big business and big government as opposed as they seem?
Timothy P. Carney joins us this week for a discussion on how the complex system of lobbying and regulating and subsidizing works in Washington D.C. He points out that big government and big business often scratch each others’ backs at the expense of the taxpayer, gives several examples of this behavior, and explains how it benefits both parties.
Show Notes and Further Reading
Timothy P. Carney, The Big Ripoff: How Big Business and Big Government Steal Your Money (book)
Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 (book)
New York Times, “Catfish Farmers, Seeking Regulation to Fight Foreign Competition, Face Higher Bills” (article)
Trevor Burrus: Welcome to Free Thoughts from Libertarianism.org and The Cato Institute. I’m Trevor Burrus, a research fellow at The Cato Institute’s Center for Constitutional Studies.
Aaron Ross Powell: I’m Aaron Ross Powell, editor of Libertarianism.org and research fellow here at The Cato Institute.
Trevor Burrus: Our guest today is Timothy P. Carney, Senior Political Columnist for the Washington Examiner and a visiting fellow at the American Enterprise Institute. He is also the author of The Big Ripoff: How Big Business and Big Government Steal Your Money and Obamanomics. Welcome to Free Thoughts, Tim.
Timothy Carney: Hey, thanks for having me.
Trevor Burrus: Your beat is corporate welfare and cronyism in general. You’re a never-ending source of stories that make me even believe in government less than I already do right now.
But it seems that most people believe that government and big business are enemies.
Timothy Carney: Yes.
Trevor Burrus: And you often point out that’s not the case. So why aren’t government and big business enemies?
Timothy Carney: Absolutely. I call it “the big myth,” that big business and big government are enemies and this is a frame you see when the media talks about it. They say, “Well, on the one side, there’s government. On the other side, there’s business.” One of the reasons that this myth is so useful to sort of the Washington insiders and harmful to the cause of liberty is that it creates this false appearance of unanimity and consensus. So you see this in the coverage of say the light bulb laws that effectively outlaw the traditional, cheap, incandescent bulb and requires bulbs have a higher efficiency.
They say, “Well, you got tea partiers against it.” But even the light bulb industry supports these regulations. Now of course the traditional light bulb was a very low profit margin. This was an ongoing problem for the people who made it and a testament to the free enterprise that the price was kept low.
The bigger – the more expensive light bulbs, they have higher margins, higher barriers to entry [0:02:00] and they benefited from – those companies benefited from regulations that made us buy those things. So that’s just one typical example of it, that often free enterprise doesn’t allow for giant profit margins and government can create barriers to entry.
So it’s – I like to sort of turn a lot of the argument for free enterprise on its head and say it’s not about this company is making profits. It’s about making it hard for these companies to make profits and government can come in and through regulation add barriers to entry.
Then a general way I put it is the big guys are going to be able to afford the better lobbyist. So once government gets involved, it becomes a home game for the biggest guys.
Trevor Burrus: That is interesting. When they say – we look at the tea party. We presume they’re pro-business and then we take even businesses like …
Timothy Carney: Yes.
Trevor Burrus: So you turn tea party people and people who are free market out of the same side as business, which is just constantly where the debate is sitting, on this false dichotomy.
Timothy Carney: Yes.
Aaron Ross Powell: How long has this sort of thing been going on, this – I mean how long has big business been benefiting from government? Because we’ve got this narrative that stretches back quite a long time that – of government is the enemy of the Great Depression and the programs that came out of that, that it was this attempt to kind of rain in free market capitalism.
Trevor Burrus: Don’t forget the Progressive Era, the muckraker …
Aaron Ross Powell: Yes, the big guys were running loose and we had to stop them when in fact they were often heavily involved in these sorts of things. So is this – how new is this?
Timothy Carney: Well, in my first book The Big Ripoff, I start at the Whiskey Rebellion where you’ve got Hamilton talking to George Washington, and to going out and shutting down the – the guys doing the moon shining in Western Pennsylvania and who is cheering on Hamilton. In this case, it was the bigger whiskey producers on the East Coast.
But one of the greatest places to focus is, Trevor as you said, the [0:04:00] Progressive Era and Gabriel Kolko’s The Triumph of Conservatism is a book that focuses on this where he says when Teddy Roosevelt and those guys were – and Wilson were increasing government, it was often at the bequest of – at the request of and to the benefit of big business.
So the most famous sort of muckraker progressive story is Upton Sinclair, going into the meat packing plants and then everybody reads a book and sees how gross his meat packing plants are.
It’s an interesting story as a journalist because Sinclair was trying to write a socialist thing about the plight of the worker and people maybe started thinking, “Oh, the worker has it rough,” and then they say, “They put what in my meat?” and they lost all concern …
Timothy Carney: Yeah, and the – he said, “I aimed for the country’s heart and I accidentally hit them in the gut.” That’s what Sinclair said and so there are letters that Teddy Roosevelt wrote that Gabriel Kolko who himself calls himself a socialist, he dug up these letters and he sees Roosevelt saying, “I find Sinclair like a completely despicable man, but he’s very useful here because it allows me to push for increased mandatory federal regulation of meat packing.”
You have the head of the big meat packer show up in congressional committees and say, “We are now and have always been in favor of federal regulation of meat packing.” Sinclair said, “No, this isn’t what I was aiming for. This is going to just give a government stamp of approval on the big guys. It’s going to create barriers to entry that keeps out the little guys.”
You see it again and again throughout where a lot of the attempts at monopoly and say oil and steel that the market undercut those attempts in the ways that you know they very often do. Everybody raises their prices in a cartel and then one guy is just way too tempted by the idea of stealing all the sales by undercutting the cartel. They started to go get together and say, “We’re not going to have a successful cartel unless we bring the government into it.”
So [0:06:00] again, I track it back to Alexander Hamilton and George Washington but you can also – you can see it throughout all of history.
Aaron Ross Powell: Given that this has been going on for so long and that many cases sounds like it was rather obvious, what was going on, I mean was – there was no real attempt to hide the influence of big business on these regulations. Why does this narrative of the antagonism persist?
Timothy Carney: Why does the big myth persist? This is something I’ve tried to look into. For one, there are people who find it useful. If you’re a big business, you find it very useful to sort of have a docile kind of republican party that’s willing to do what you say, because they believe it’s in service of a higher cause.
For two, I think – I’m a journalist as you mentioned and what we’re always looking for is a good story. The worst is when you go and you do all your reporting and what you come out with is this is kind of complex and nuanced. You need to have two different sides and a clear lesson.
So that’s the easiest way to do it. You just think about the way a reporter does his craft where he calls two different sides and the easiest thing to do if you’re writing about say the environment, so you call Exxon and then you call Greenpeace. Well, the more telling thing to do might be to call Exxon and then call General Electric.
I actually think that would be a more interesting story but it’s a harder story to tell and a lot of the reporters don’t even grasp it. When they do grasp it, it’s this amazing exception. The New York Times just recently had a piece about catfishing companies and said that these companies would sell these catfish. They were having trouble and so they did the unthinkable. They asked for more federal regulation.
Of course that’s almost the same phrase the New York Times used when they said Philip Morris did the unthinkable and they asked for more federal regulation of cigarettes and then you’ve got the – all these other companies that go ahead and they did the unthinkable and they asked for more [0:08:00] government involvement.
So occasionally, they do tell the story and it’s always an interesting twist. I’m glad when they don’t tell the story because then I get to write the column and nobody else gets it.
Trevor Burrus: It’s interesting. The next question on my sheet is, “Why would big business prefer more regulations?” but I also think it’s interesting because sometimes they do. But sometimes when they’re smaller, they don’t. So at the beginning, they might not – how has that worked between the big business and the small business?
Timothy Carney: So in general – I mean first, let’s sort of list off the reasons why they might like more regulation. The simple one and in my second book Obamanomics, I call it the “overhead smash”. It’s that regulation adds to overhead. It makes it more expensive to do business.
You see Philip Morris doing this and supporting federal regulation of tobacco. It makes it much harder for smaller guys to come in. But the others, one thing I call the “inside game,” it becomes a home game for the big guys because they can hire the lobbyist. The lawyers working for the big tobacco companies are former FDA commissioners. The small tobacco guys can’t hire the former FDA commissioners and then …
Trevor Burrus: Are there even small tobacco companies? I mean like …
Timothy Carney: I don’t even know if there were.
Trevor Burrus: Are there startup tobacco companies? Can I start one tomorrow?
Timothy Carney: There have been in the past. I don’t know if there still is, yeah, artisanal tobacco. Probably it’s in Brooklyn if it exists. But the – so there are all these reasons to want to do it. Sometimes the regulations they want is a mandate.
The most obvious ones of these are not on the federal level. It’s on the local and city level, the restaurants trying to oppose food trucks, the taxi cabs trying to oppose Uber. You see it.
It’s not strictly big versus small though. You do see in a lot of places supermarkets aren’t allowed to sell alcohol and the smaller businesses are the liquor stores and they’re the incumbent businesses and they might have more sway because they’re actually locally-owned than the bigger guys.
But in general – and sorry, and so they will support state and local rules to prevent the [0:10:00] bigger guys from selling it. But in general, the bigger you get, I think the more likely you are to support these regulations in part because bigger guys gain the advantage of economies of scale and they can deal with the higher cost. They can hire the former federal regulators or congressmen as their lobbyists and also they sometimes become a little less nimble.
You see it happening with any company in America. Even Apple, you feel them sort of slowing down and getting sluggish and that sort of thing. So they – the bigger guys are less able to adapt to a changing environment. So the more that you can freeze the environment in place, the better it is for the bigger guys.
Trevor Burrus: Yeah, we were talking before we started recording about I was meeting at one point with certain representatives of a tobacco company, who shall remain nameless, who are being outcompeted on e-cigarettes right now and the problem they face is trying to shift – if e-cigarettes get big and that becomes a growing market, they have to take their entire production line which is like a huge behemoth moving in one direction and trying to shift it all over to one other thing.
Imagine what Blockbuster Video thought when Netflix came out and how much they had invested in physical stores and physical video and videotapes and whether or not it was easier for them to – maybe if they could get a law passed that made Netflix illegal or localized or high cost versus trying to switch their entire business over. So it does seem like a generally consistent idea.
Aaron Ross Powell: Do larger companies use regulations against each other? Because most of the examples you have given of either like the big guys against the small guys are possibly like big guys in one category versus big guys in another. But when you – earlier on, you said – you know, talk to Exxon and Greenpeace. But it would be more interesting if they talked to Exxon and GE.
Timothy Carney: So you do see a lot of times, you will see these battles of the titans going after one another. Net neutrality is a great example of that where the networks don’t want the regulation but the content providers do. That can be considered Netflix versus AT&T.
[0:12:00] Then sometimes you do see the guys selling the renewable energy versus the guys selling the fossil fuel energy. They’re doing the battle and those are often very fun.
Some of my favorites though are when it’s more the mid size industries where you have the credit unions going after the community banks. The credit unions are kind of non-profit, so they get some benefits. So the community banks went after them a couple of years ago to try to take away their benefits.
This so upset the community banks that they started lobbying against a special subsidy that most people didn’t know about, created during the financial crisis called the “transaction account guarantee,” which was basically like FDIC insurance but it went up to infinity. So it was a subsidy the really rich people who kept their money at banks and it was more important to the community banks. So the credit union as far as I could tell just said, “Well, they can’t go after our special benefit. We’re going after theirs,” and they won.
I was thinking, “How did this subsidy get killed?” and part of it was just out of spite down there on K Street. So sometimes these fights are really to our advantage.
Aaron Ross Powell: I want to ask about motives, which is something that I have asked variants of this question on quite a lot of episodes of Free Thoughts. But when I hear stories like this, I wonder – so the congressmen who are enacting these laws or the regulators who are writing them and getting them onto the books, are they – how aware are they of what’s going on?
When these companies approach them, are they like, “Oh, yes. It would be good to pass this thing that will hurt these guys at the expense of these guys,” or prop up profits for a given industry or are they being duped and thinking they’re doing a good thing?
Timothy Carney: So there’s – I always paint a spectrum of kind of how corrupt is something happening in Washington. On one end – and this is a story a lot of people tell is [0:14:00] basically bribery. We know this happens. Guys are in jail for bribery where he says if you support – will you support my policy? The congressman says, “All right. Give me a $100,000 check and I will,” and he cuts it and he does it.
Trevor Burrus: I think that usually comes as a bag of money with a dollar sign on it, that they give straight to him and …
Timothy Carney: Well, with one congressman, it came wrapped in tin foil and he put it in his freezer.
Trevor Burrus: Yes, yeah.
Timothy Carney: And so then the other end of the spectrum is that if you – how is the money and politics connected to this? Well, you’re only going to get a meeting with the congressman if he really decides that you’re worth his time. If I called my congressman and I said, “By the way, I have some thoughts on the Export-Import Bank of the United States,” I’m not going to get a seat at that table. But if I’ve been to his fundraisers and contributed, I’m going to get a seat at the table.
Most congressmen often end up hearing for both sides and you posit perfectly innocent motives and you could say, well, the guys who are getting the seat at the table are the guys who can afford to cut the check. When your problem is a problem of concentrated benefits and diffused costs, then the people paying the cost are much less likely to have a seat at the table than the people getting the benefits.
So the most innocent explanation is that the congressman only gets one side of the explanation and that’s why he does it. I think that’s largely true. That’s truer than most cases being bribery. But what we can’t rule out is you think about the role of senior staff on Capitol Hill play.
The congressmen obviously are outsourcing a lot of their meetings, their decision-makings to their legislative director or their chief of staff or their deputy chief of staff.
The congressmen himself, they face pressures from the revolving door, from the fact that the guy they’re talking to is their former boss or their former committee chairman. That’s who the lobbyist is and they know that if they play ball, they’re going to be able to afford a suit as nice as that guy’s instead of wearing the Men’s Wearhouse suit that they’re wearing as Capitol Hill staffers.
So that’s [0:16:00] the other thing I think you need to sprinkle in or that does point in the direction of corruption.
Trevor Burrus: You mentioned getting into the staff, the great points. We had talked about the revolving door and you love revolving door stories about that kind of corruption. But you also mentioned a little bit earlier about the knowledge of the transaction fee that you had mentioned for the community banks.
It also seems like one of the elements of this is there’s so much hidden nuances to the law that only the people who pay attention to it actually know about.
Timothy Carney: Yes.
Trevor Burrus: How many things and which paid to the code of federal regulations and only the specific – applies to the specific bank in this area. So they are the only ones paying attention to it and no one else.
Timothy Carney: Complexity is a subsidy to the big guys. Tax code complexity. There was a story of General Electric in 2011 paying near zero federal income tax and New York Times ran this. The scandal was supposed to be that they paid near zero federal income tax. I think every corporation should pay zero federal income tax and I think everybody else, all your listeners, should do what they can to minimize the taxes that they legally owe.
Trevor Burrus: Within the bounds of the law.
Timothy Carney: Yeah. Of course you pay all the taxes that they legally owe. But the – for me, the scandal was that there were over 900 people in the tax division at General Electric. Not that it was nefarious for them to hire them, but it’s scandalous that it’s profitable for them to spend all these guys – hire all these guys to spend their time doing that instead of making their refrigerators work better, anything like that.
The problem is on a couple of levels. The lower level problem is that these guys, unlike a smaller business, can just spend all their time going ahead and moving money around on pieces of paper to minimize their taxes and to maximize their profit. That’s unfair and that tilts the playing field in the direction of the bigger guys.
The worst problem is that these guys can call up the heads of the actual business department and say, “By the way, if you do your business a little differently in another [0:18:00] country or at a different time of month or in a different order, then you minimize the taxes.” Well then they’re actually encouraging business activity that’s less efficient and less optimal for the economy, but is more profitable. So that for me is a scandal. It both tilts the playing field in the direction of the big guy and reduces economic prosperity.
Trevor Burrus: You mentioned the – I will throw you some examples now because you’ve got so many. The Big Ripoff I think is one of the best books for getting a really negative view of government – and you wrote about this. The first time I think I ever heard about the Ex-Im Bank was when I read The Big Ripoff, which I think around 2006.
Timothy Carney: Yeah.
Trevor Burrus: And now we’re still talking about it. A little bit more now …
Timothy Carney: Finally talking about it.
Trevor Burrus: Yeah, finally talked about it. So what is the Ex-Im Bank and isn’t it the greatest thing ever?
Timothy Carney: It is the greatest thing ever as far as making work for me.
Trevor Burrus: Yeah.
Timothy Carney: But as you’ve suggested though, if we got rid of it, there’s plenty else I could write about.
Trevor Burrus: So Boeing paid you to say that.
Timothy Carney: The Export-Import Bank is not a bank. It’s a government agency and it actually has nothing to do with imports oddly enough. It is a federal agency that subsidizes US exporters. It does it by financing, by giving taxpayer financing to foreign buyers of the US goods.
So typically, for the most part, this means a loan guarantee to a foreign airline which is buying a Boeing. So JP Morgan lends money to Air China because you don’t just buy airplanes straight up. You borrow like you would for a house. But instead of JP Morgan bearing the risk for that loan, Export-Import Bank does, meaning the taxpayer does.
So JP Morgan charges a lower interest rate. Maybe Air China is more likely to buy a Boeing than they are to buy an Airbus in this situation. So a lot of their financing happens with direct loans. So a satellite company in Belgium wants to buy US satellites, so US taxpayers through Ex-Im loan the money directly to them.
So if Air China decides it’s not going to pay back the loan, US taxpayers [0:20:00] help out JP Morgan. If the Belgian satellite company goes bankrupt, US taxpayers just eat the cost of the loan.
For the most part, Ex-Im hasn’t lost money in recent years. It basically breaks even but its costs are – first of all Fannie Mae didn’t cost taxpayers money for years. But its costs are spread throughout the economy in distortions. I write about that on all my articles and my books.
Trevor Burrus: The distortions being – they can always say it would not cost the taxpayer anything but they’re restricting the economy around themselves and also as Boeing, giving themselves an – it is called the Boeing bank …
Trevor Burrus: Yeah.
Timothy Carney: Forty percent of their finance dollars go to subsidize one company, which is Boeing and again most – the most egregious forms of corporate welfare [Indiscernible] don’t actually end up costing taxpayers money. I think that would make it too obvious and harder for them to survive politically. Sometimes you have to look at these programs in terms of like Darwinian evolution. Why are they surviving? One of the – one survival trait is not being a direct outlet. So Ex-Im’s costs are again the risk that taxpayers carry, just like Fannie and Freddy. But also the people who lose business.
The most obvious one is the guy who doesn’t get the loan. Two guys show up at Boeing. One is Sullivan’s Bar and the other is Air China and Air China is carrying an Export-Import Bank guarantee. Sullivan’s Bar loses the loan. Another is the domestic competitors of the foreign subsidized company.
Delta Airlines has tried to sue Export-Import Bank saying, “We used to fly from Atlanta to Mumbai. But then you guys came in and subsidized Air India to buy planes for this flight, for this route, and they under-price us because they got subsidized planes. So now we had to do that and we had to lay people off.”
So those are definitely victims of [0:22:00] Export-Import Bank subsidies. Then even more. Ex-Im likes to subsidize American farm equipment. So John Deere gets to sell more tractors to Europe. That’s great for John Deere. But if you drive up the foreign demand for US-made tractors, you’re going to drive up the price that American farmers are paying for their tractors.
So they’re another victim. Now maybe it means that they’re each paying a hundred extra dollars for a tractor and they don’t even know that Ex-Im is involved in it. So you can see why these costs are so hidden and so diffused. Dan Ikenson here at Cato is one of the best guys at documenting those hidden costs of Ex-Im.
Aaron Ross Powell: But if Boeing and John Deere are getting more money for their tractors or I guess their planes and their tractors, how – I mean sure, so maybe other guys are losing out. But more money is flowing to them and they’re not sitting on that money. They’re reinvesting it. They’re using it to hire more hardworking Americans. So doesn’t it help in some ways too?
Timothy Carney: So it helps some people, yes, and it hurts other people. So maybe that’s a waft or – but the argument for it existing is that it’s a gain and that argument is based on the idea that these bureaucrats on Vermont Avenue know better than the market how to allocate resources.
That’s an argument that I don’t blame democrats for holding. I mean I do blame republicans and people who espouse the idea of free enterprise for believing that the government agency is better at deciding where the money goes than the market is.
Trevor Burrus: So for example Elizabeth Warren and how she apparently – according to all sources, she hates big business and Wall Street and she wants to bring everything back to the American worker. But she is not against the Ex-Im Bank.
Timothy Carney: No, she is for the Export-Import Bank which is …
Trevor Burrus: Does she explain that?
Timothy Carney: It’s a Wall Street subsidy. The most basic level – I go to the Export-Import Bank conference every year and …
Trevor Burrus: Wait, wait. Who holds – do they hold it?
Timothy Carney: They hold it, yes. The government …
Trevor Burrus: So do you hold a sign outside …
Timothy Carney: No, I just sign up as press and I was drinking at the hotel [0:24:00] late one night with a US-based banker and he said, “Well, why wouldn’t we do it? It’s free money.” It is. They make a loan and almost all of the risk is shouldered off to the taxpayer. But the interest payments come back to the loan. It is a Wall Street subsidy and Elizabeth Warren supports it.
Trevor Burrus: It seems like you could really just infer how much it’s worth to them by how much they spend on lobbyists to try and keep it that way.
Timothy Carney: Yeah. So the Financial Services Roundtable, which represents these banks, they’re absolutely supporting it. I haven’t noticed whether American Bankers Association is. But you see these guys all sign on to the letters to keep it in place. But for the most part, it’s the US Chamber of Commerce and it’s Boeing that have a real interest in keeping this agency in place.
Aaron Ross Powell: Has Warren given reasons for why she supports it?
Timothy Carney: She says she thinks it creates jobs. Again that fits into her economic view that a government can create jobs. But it certainly cut against the entirety of her rhetoric that the government – that the banks are stealing from us because this is one way in which they are literally offloading their risk on to us. So I say Ex-Im is consistent with the democrats’ economic beliefs and inconsistent with their populous rhetoric.
Trevor Burrus: Now what about lobbyists? We keep talking about lobbyists and that word is rarely not said with derision anymore or with absolute disgust even. Should we just ban lobbying?
Timothy Carney: I mean lobbying obviously is a First Amendment protected right and ought to be. The government needs input. Congressmen need experts to talk to them. Everybody has a right to petition the government for the redress of grievances.
I have a couple of thoughts on lobbyists. The first is that the revolving door really is a problem. If you just think about it, if you’re a republican congressional staffer and you’re one who says. “No Ex-Im. No earmarks. No ethanol subsidies.”
You’re narrowing down your job opportunities afterwards. If you just – and [0:26:00] then even if you’re a democratic staffer and you get something like Dodd-Frank or Obamacare coming up. Are you going to try to sort of push this sort of socialist agenda or for a republican staffer or free enterprise agenda? No.
The optimal thing to do is to increase government involvement but not take the private sector out of it. That’s exactly what Obamacare and Dodd-Frank were. I’m not saying that this was any motive, but I think systematically, it’s a reason – if you had said, “I want to make a bill that maximizes the post passage value of every staffer who wrote this,” you would have written Obamacare and you would have written Dodd-Frank and those incentives are bad on the democratic side and they drive republicans towards more subsidies and towards stuff like the post Enron Sarbanes-Oxley Bill where Michael Oxley became a lobbyist for the financial sector and a lot of the staffers did too.
So those bad incentives are created by the revolving door and that’s something that I do think we could regulate more because it’s about regulating politicians more than about regulating the private sector.
Aaron Ross Powell: How would we regulate that? I mean we just say like you’re not allowed to work for these guys after you leave the hill.
Timothy Carney: So currently there’s a cooling off period. It’s one to two years depending on – for members and for former hill staffers. There’s a limit on your ability to contact your former boss and I would dramatically expand that.
Barney Frank actually had a good rule after I wrote a few articles about his former staffers becoming Wall Street lobbyists. He said, “Well, you know what? Those guys haven’t spoken to me since the day they left.” He said, chairing the Financial Services Committee, if you go and work for one of the companies that we regulate and subsidize frankly, if you go and work for one of these companies, you are not allowed to talk to me or anyone in my staff for the – as long as I’m the committee chairman.
Republicans could institute that as their own rule. I think that would be a great thing to do. The congress could pass that as a rule [0:28:00] and again this is a restriction on government employees what they do when they leave. You got lots of lawyers here who would argue about whether this is too much of a restriction on the First Amendment right. I don’t think it is. The cooling off period for senators at two years, there have been bills that make it a lifetime.
There’s a legal definition of a lobbying contact and if you said you’re not allowed to make a paid lobbying contact on behalf of somebody else forever, that’s the sort of bill that I’m open to. Again, I’m not a lawyer but I do think that this is – it’s regulating senators and congressmen in how they live their lives.
It’s not about their ability to petition the government for the redress of their own grievances. It’s about – well first, it’s about General Electric’s right to hire Tom Daschle to petition the government. It’s about Tom Daschle to get paid by General Electric to petition the government.
So I do think that restriction on the revolving door is something that conservatives, libertarians ought to consider.
Aaron Ross Powell: It strikes me though as something that would be potentially impossible to pass, right? Because you’re asking – I mean the people who would have to pass it would be the very people who want those high-paying jobs as soon as they leave.
Timothy Carney: You’re not thinking cynically. What you do is –
Trevor Burrus: That’s a rare thing for Aaron.
Timothy Carney: You grandfather in the current members. So then you address the problem in the future and you create a barrier to entry. So for the short term, they’re making themselves worth even more just like they did – the democrats did when they grandfathered in the current spouses who were lobbyists, which was Tom Daschle, Byron Dorgan, Kent Conrad, Dick Durbin’s wife, Liddy Dole’s husband. They grandfathered in all those people, which made them the last few women who were – you could ever hire to lobby – or men to hire their spouse – to lobby their spouse.
Trevor Burrus: That is a really interesting thing I’ve noticed in this town in the five years I’ve been here is that oftentimes your pay – this is not true of most Cato people, especially not me because I’ve never worked on the hill. But your pay is just sort of directly proportional to how many people you know, right?
Timothy Carney: Yes.
Trevor Burrus: You wrote an article recently about [0:30:00] [Indiscernible]. Thirty-four people that Harry Reid’s retirement is really going to mess up their life because it’s their connection to Harry Reid that actually made them valuable, correct?
Timothy Carney: Yeah, and it is an interesting thing to watch the lobbyists who adapt and realize that their former boss is at some point going to retire and so pick up other areas of expertise.
But yes, it’s – when you create – you’re creating a special class of people either who wrote the bill so they know the ins and outs and they’re really policy people and then door openers are sort of another class of people. Those are what our economy is rewarding and that’s what people are getting rich off of.
I mean if you were to just bring in like an old communist and show him the Washington DC economy, he would say, “Yes!” See, this is what I was saying about the corruption. The people who are rich don’t actually provide any value.
Trevor Burrus: Would you be in favor of – one of the interesting series too about lobbying and you kind of mentioned it is that the hill staffs are not that big. They don’t get paid that much. They’re very young and the government and what it does is so big and so broad that lobbyists are just ultimately partially a legislative subsidy.
Timothy Carney: Yeah.
Trevor Burrus: In the sense that they know about this one little area. So they help to maybe better inform lawmaking. So maybe increasing staff and increasing salary could be …
Timothy Carney: Yeah. It’s one of the things when we point out that – what? It’s the six or seven out of the ten richest counties in the country are within commuting distance of Washington DC.
Trevor Burrus: I just really …
Trevor Burrus: Is that the fact that this is everything about what we’re talking about today?
Timothy Carney: A lot of conservatives assume that this is about the two government bureaucrats who each make $150,000 and that’s a small portion of it. A big part of it is the contractors or evolving door lobbyists and that sort of thing. But I would rather pay the congressmen and their staffers more to have more of that expertise be announced. You are going to [0:32:00] necessarily need the expertise from the outside. That is always going to create a potential possibility for corruption.
But I really do think though addressing the revolving door is a way to take away because the problem with the revolving door is not that these guys are getting rich. It’s that they have bad incentives when they’re on Capitol Hill.
Aaron Ross Powell: I want to get back to some of these fun and juicy examples of awful stuff that’s being done. You’ve talked about what you call the “unholy trinity” and we’ve got the Ex-Im Bank and the next one is the ethanol mandate.
Timothy Carney: So yeah, we got rid of a lot of the federal actual ethanol subsidies.
Trevor Burrus: Did that blow your mind? Was that very surprising to you?
Timothy Carney: No. Again, once you think of it cynically enough, you realize that …
Trevor Burrus: I just got to hang out with you more because I’m not cynical enough here.
Timothy Carney: So you had a tax credit where a refiner who bough ethanol got a special tax credit and of course it wasn’t really a tax credit because there were some people for whatever reason who didn’t actually owe the excise tax but could still get a tax credit. So it was literally a check from the federal government, from the treasury for buying ethanol.
Then after that, in 2005, in 2007 in those energy bills, we got the ethanol mandate which basically requires a complex mechanism I don’t totally understand. But requires ethanol – requires refiners basically to buy it. So once the mandate was no – once the subsidy was no longer driving demand and was entirely driven by the mandate, it just ended up being a subsidy to the refiners.
If you think about how that works, that ended up being a subsidy to the oil companies and to drivers. So the ethanol subsidy was subsidizing Exxon and people who own SUVs. So that’s why congress was willing to let that expire.
But the real subsidy now is the mandate and by requiring refiners, gas stations to buy the ethanol, it is obviously [0:34:00] driving up demand for ethanol, often driving up the price of gasoline, always applying upward pressure to food prices. You had tortilla riots in Mexico. I think that was in 2007 or 2008 that that happened and that was partly driven by the fact that agricultural land is going over towards corn ethanol.
Corn used to be mostly for feeding cows, secondarily for feeding humans. Now it’s mostly for ethanol, secondarily for feeding cows and thirdly for feeding humans. So this obviously has a distorting effect on the market.
It also probably is pretty bad for the environment, using up water, creating lots of runoff and that sort of thing. Then when they try to do advanced ethanol, there are a lot of people who worry about the effects on rainforest, of some of the advanced bio fuels and that sort of thing.
So it really is just a clear special interest boondoggle. I mean the benefit to the farmer, the corn farmers completely offset by the cost to the rancher.
Trevor Burrus: Is this entirely because of the presidential election going through Iowa? Is that overplayed?
Timothy Carney: So I used to think that was overplayed until I saw Scott Walker basically do a 180-degree flip flop when he went to Iowa and that it’s a big part of it. Another part is that you – there are so many different constituencies for it. They constantly shift the argument. There are the national security people. A lot of people say, “Oh, well, it’s a way to reduce our dependence on foreign oil.”
I mean nowadays, unless you count North Dakota as a foreign country, that argument doesn’t hold as much sway. Oh well, it’s for the family farmers. It’s one of the arguments that is made. Oh well, it’s good for the environment. I don’t think anybody believes that anymore.
So they’re really running out of excuses but it gets bundled in with other legislation and that sort of thing. Now it’s a permanent piece of legislation. It would actually take a bill to go ahead and [0:36:00] repeal it, for us to get rid of this.
Trevor Burrus: Now, the third of the holy trinity is something that maybe our listeners have heard before, the sugar subsidies, which is maybe the most well-known – the subsidy that’s out there.
Timothy Carney: Yes.
Trevor Burrus: How does that work? What is the origin of that?
Timothy Carney: So this one is very complicated in some ways. But it starts with the federal government keeps out foreign sugar. It has a quota. Each country is only allowed to sell us a little bit of sugar. So it is the – as far as I know, the most protectionist policy that we have.
Then the second step of it is that all this – every sugar grower can borrow against their own sugar, either the growers or the people who are holding on to it at something like 19, 20 cents a pound of sugar. It’s a non-recourse loan, meaning that if the price of sugar drops too low, then they just walk away. The federal government has the sugar which then they of course turn into ethanol. They tell ethanol makers to turn it to ethanol.
Trevor Burrus: Just like a …
Timothy Carney: So the – if the price drops too low, then the US taxpayers buy it. But the price rarely drops too low even though the world sugar price is often half that, 10, 12 cents. I mean it fluctuates quite a bit. But the – but it often doesn’t drop that low, the price in the US, because of the protectionist policies. Then there are other things. The silos for storing the sugar get taxpayer-backed loan guarantees. The entire sugar ecosystem in Florida is because of sort of the – us kind of draining the everglades into a bunch of channels so that you could actually grow the sugar there and it not be flooded and that sort of thing.
Again it used to be just [0:38:00] [Indiscernible] program but then the government went ahead and they imported the jobs. It wasn’t a question of open borders. It was government boats, getting people from the British West Indies, bringing them here, saying, “You can work here unless your boss gets dissatisfied and we send you back.” There are these great propaganda videos where they would be like, “Oh, to watch someone from the West Indies work the cane fields is to watch generations of mastery.”
Now these people weren’t doing these horrible backbreaking jobs until we imported them to do it. So there are all these subsidies and again in The Big Ripoff, I spend about half a chapter on it with one of my favorite details being how Bill Clinton’s Starr report – you know, the report of the special investigator and how during Bill Clinton’s inappropriate relationship with Monica Lewinsky.
At one point, while they were in appropriately relating, he got a phone call from a congressman and she stayed there. But at another point, while they were inappropriately relating, he got a phone call from one of the Fanjul brothers, the sugar farmers down in Florida. At that point, that was too important. So he dismissed his friend Monica from the oval office.
Trevor Burrus: I can’t decide which part of that story is dirtier. That’s the difficulty there. So it is campaign contribution? That’s I mean a big part of this. How does campaign contribution – how do they figure into it? We need to heavily regulate campaign contributions …
Timothy Carney: No. The – some of the campaign contribution regulations have had the exact opposite effect. So for instance, right now, you can only give a couple of grand. I think maybe now it’s $2700 to a candidate in the primary and then another $2700 …
Trevor Burrus: Twenty-six hundred I think. It goes up with inflation.
Timothy Carney: So what you – what that has an effect of doing because you can’t go to somebody and say, “Can I have a $10,000 check?” You need to go to somebody and say, “Can you get me 40 guys who can cut this $2600 check?” Well, who’s going to do that? Who’s going to volunteer their own free time to do that? Somebody who wants to earn your favor and has a connection to lots of businessmen. That’s going to be a lobbyist.
So it’s the lobbyist bundler. It was the creature made [0:40:00] by that and that seems the most corrupting thing as possible. If you want to win reelection, you need to be able to get these lobbyists and all their clients in there in the room with you.
So A, you have to make them happy and B, you’re going to be listening to them at the fundraiser. So a lot of times, the campaign finance regulations have the opposite effect and if you look at what has happened since we’ve liberalized campaign finance law with the Citizens United ruling, you see kind of the birth of an anti-corporate welfare lobby.
I mean you see that – these groups like the Club for Growth or Americans for Prosperity or some other groups that get started up by people in the Koch network.
They start lobbying its corporate welfare. Why? Because there’s a bunch of rich ideologs and half of them are on the Liberty side and they’re able to get together.
So you think, “What’s your financial interest in killing Ex-Im or the sugar subsidy?” None, except they actually want free enterprise while it used to be the only people who would get together and spend money for lobbying or electing politicians were the people who had a concentrated benefit from it.
So I think that the liberalizing of campaign finance in recent years has done something to create an anti-corporate welfare lobby which is something that a lot of public choice people didn’t think was going to happen.
Aaron Ross Powell: I’m curious how green energy subsidies fit into this story because on the one hand, so they seem like an obvious – there are these companies and they’re getting loans or loan guarantees and there’s lobbying for it and all that. But on the other hand, there’s the argument that this is an industry that doesn’t really exist in a robust way and we need it to – in order to get off the foreign oil and global warming or whatever, compete with China.
So the government is – it’s hard to get these sorts of industries off the ground. The government is the one that has got the money to do it because private investors aren’t.
Timothy Carney: Yeah. I mean the – you hear all these arguments. It used to be my favorite thing to talk about was green energy because so many [0:42:00] of these were technologies or industries that couldn’t survive in free markets. So they were dependent on this and you see so much stuff.
But then it got to be that that was the only thing that republicans identified with crony capitals. They would simultaneously attack Solyndra’s loan guarantees and defend loan guarantees for nuclear power plants.
Trevor Burrus: So did you step off there, that corner?
Timothy Carney: So I said these – the republicans have the Solyndra thing handled. I might back off that one a little bit. So what I always say when I’m – you look at how Obama and the democrats talk about the green energy subsidies and they always say, “We are going to be left behind economically if we don’t spend money on it.” It’s a nonsensical argument but it’s an economic one.
They’re afraid apparently to make the environmental argument which would be to say we should subsidize solar panels because they produce fewer emissions and less pollution and one reason is that people don’t – people like the environment but they’re not willing to spend a lot more on their energy bills to help the environment and two, there would be a lot more direct ways to address these things.
I mean the obvious answer a lot of people give is if you want to reduce carbon dioxide emissions, you tax carbon dioxide emissions instead of some jerry-rigged thing.
I love telling stories about the indirect efforts to do this. There are the corporate average fuel economy standards and a lot of these things or cars have to give off less emissions. So Alcoa is a company that supports these standards and they say, “And by the way, if you use aluminum instead of steel in making cars, they’re lighter weight. That reduces emissions. That’s great.”
They support these standards and then back in Australia, they oppose regulations on greenhouse gas emissions because that’s where they make the aluminum and make the parts, a process which is incredibly intensive not just in energy but also just chemical processes that give off greenhouse gases that are much more [0:44:00] potent than carbon dioxide.
So if you actually measure the – what we call the dust to dust ecological footprint of an Alcoa car versus a Seal car, it’s about to break even. But they find these other ways to measure it and they try to say the – that just allows for corporate gaining of it and no improvement to the environment.
Trevor Burrus: So we mentioned there’s a couple but I know you got a bunch of these. So we can just talk about a few as we close out here. Your favorite revolving door stories, because there are just so many good ones.
Timothy Carney: Oh, yeah, there are and after I tell you a couple of favorite, I will probably think of others that I wish I had told. One that I often tell involves Chuck Schumer right after the democrats went and controlled the senate in 2007.
He goes ahead and he gives a talk to a bunch of hedge fund guys in New York in January and he says, “You guys need to grow up politically. You’re all scattered. You’re not working together. You’re working against each other. You’re immature.” Basically they weren’t spending enough on lobbying.
So he has that dinner. Then a few months later, he at the beginning of a hearing of the banking committee or subcommittee says, “Oh, I just want to say farewell to a longtime staffer I’ve had, my banking person.” Her name was Carmencita Whonder and he said, “Oh, I just want to say farewell to her. She’s my go-to banking person,” and of course she’s going to a K Street firm Brownstein Hyatt that has hedge fund and banking clients.
Within a few weeks of her hire shockingly, they picked up seven more hedge fund clients including the people who were sitting at that dinner with Chuck Schumer.
That election there spending on politics and lobbying went up many fold, five, six, ten times, with two-thirds of the contributions going to Chuck Schumer’s democrats.
A lot of that money going to Carmencita Whonder and who then became a bundler for Chuck Schumer and other democratic senators. [0:46:00] So what I like about this story is that it shows that often the revolving door is not business – sort of plucking people off the hill and then using them to infiltrate congress. But it’s the political class deploying their people out to business to extract money and cooperation from the private sector.
Trevor Burrus: So I guess the question people would be thinking is, “Who’s worse? Democrats or republicans?” Maybe we can tie that in with I think the last question which would be, “What do we do?” and maybe they’re both tied together their own way.
Timothy Carney: So who’s worse? This reminds me of one of my favorite games to play with any libertarian because libertarians often say, “Oh, well, I’m neither left nor right.” But for the most part, they’re on one or the other side and the way you find out is when a republican does something stupid. Are they angry or are they embarrassed and disappointed?
When a democrat does something stupid, are they angry or are they embarrassed and – and so, I – by that test, I come down on the – I call myself both a conservative and a libertarian and so I feel more upset at the republicans when they do it in part because again the democrats are just basically going against their rhetoric and they’re politicians.
Sure, as a journalist it’s my job to show how the rhetoric is false. But we don’t really hold them to it. The republicans are going against the rhetoric and sort of their stated principles as well.
So that I think makes it worse when they do it. Who does it more? Historically, I wouldn’t want to judge it. But right now, I would say you look at something like the Export-Import Bank vote, you have half of the republicans supporting Ex-Im which is shameful. You have unanimity in favor of Ex-Im on the democratic side, which is even more telling.
It’s similar with ethanol. It’s similar with sugar. It was the same with the bailouts where more and more – I think democrats just say that government’s [0:48:00] growth in and of itself is good for them. So the easiest way to grow a government is not to go and battle big business and grow government in the way they oppose, but to team up with big business and to grow government in the way that business wants.
So especially since the tea party, I would say the republicans are a party that’s just mostly corporatists and cronies and the democrats are a party that’s almost entirely corporatists and cronies.
Trevor Burrus: So is there any hope whatsoever? Can we do anything except to tear the whole thing down and …
Timothy Carney: Yeah. I mean as I said, I think there’s an anti-corporate welfare lobby growing up that most people, if they find out that they are bearing the risk for a Boeing export to a state-owned airline, that they don’t like that. Most people don’t know about it though because again, it doesn’t directly cost the taxpayers money. It’s one of a million federal programs and that the more that – a lot of it is technology.
Mike Needham of Heritage Action said like it used to be impossible or he put it this way. The cost of informing the public about Export-Import Bank has gone way down. The cost of organizing people against it has gone way down and thus Boeing’s cost of organizing people for it hasn’t gone way down. They’ve always been able to just get – Ex-Im, give me the list of everybody who got a loan guarantee and we will get them here to lobby for it.
So that hasn’t really gone down. So it’s tipping the scales a little bit. So the – I mean in the Export-Import bank fight, the agency’s charter expires June 30th. Again, if you were to pull congress right now, I think it would pass. You got a Financial Services Committee Chairman Jeb Hensarling who wants to kill it. You got a House Majority Leader Kevin McCarthy who said he wants to kill it and you’ve got a Senate Majority Leader Mitch McConnell who has voted to kill it.
So there is a chance that you could win on that and then you’ve got a republican presidential field that – on Ex-Im, on corporate welfare in general, on sugar, on these things are generally good. So I’m not saying that I think we’re going to win on all these fights. I’m saying [0:50:00] that the odds are better today than they were when I started writing about this 10, 20 years ago.
Trevor Burrus: Thank you for listening. If you have any questions, you can find us on Twitter at FreeThoughtsPod. Free Thoughts is produced by Evan Banks and Mark McDaniel. To learn more, find us on the web at www.Libertarianism.org.