Posted by on February 12, 2014

Hopefully, everyone has seen the movie “American Hustle” by now. If you haven’t, then this is a must. The film deserves an Academy Award just for the scene where Jennifer Lawrence, whose mindlessly compulsive talking has nearly put her husband on a Mafia hit list, tells him that he should “thank her” for the scheme he has been forced to invent to escape peril. The look on Christian Bale’s face, playing her conman husband Irving Rosenfeld, is worth the price of admission.

For those who haven’t seen it, the movie is about the Abscam “sting” operation run by the FBI in the late 1970s and early 1980s. Abscam resulted in the conviction of various congressmen, mayors and immigration officials for promising to help phoney Saudi Arabian investors immigrate to America in return for bribes.

Now, almost everyone would agree that taking bribes is immoral and justifiably illegal. Most of these same people, however, have no problem with campaign contributions to politicians. The interesting thing is that, to the mind of an economist, the difference between these two payments is far from clear.

Beyond the basics necessary to live, everything that people consume is valued for the psychological benefits it provides: nice food for its pleasurable taste; fancy cars for the thrill of the ride and the status they convey; a vacation for the feeling of sun on your face and the beautiful vistas. So, if I give a politician a bribe and he uses it to buy a nice meal, a fancy car or a nice vacation, I am really giving him money so that he can enjoy these psychological pleasures.

But what happens if I make a campaign contribution to a politician? As I have argued before in this blog, a politician is a breed of person who is self-selected to derive pleasure from the exercise of power. To quote the economist Frank Knight again: “The probability of the people in power being individuals who would dislike the possession and exercise of power is on a level with the probability that an extremely tender-hearted person would get the job of whipping-master in a slave plantation.”

If I give a politician a campaign contribution, I help him obtain or retain power. But this means that I have made a cash payment so that he can enjoy the factor which, through his choice of employment, he has proclaimed is his greatest pleasure. If there is a difference between this and paying a bribe, then I certainly fail to see it.

Moreover, for those whose insist on seeing bribery only in the exchange of tangible items, there are numerous ways for politicians and bureaucrats to convert their period of “public service” (and this phrase should almost always have quotation marks around it) into private benefit: consulting contracts, lucrative board positions, high-ranking positions in previously regulated industries, memoirs that would be of no commercial value without the former possession of power, etc. If the politician does this, then he, in a delayed but nonetheless direct manner, is converting the campaign contributions that helped him get elected into personal monetary benefit.

And what is this purpose of these campaign contributions? Some, no doubt, are genuine attempts by public spirited individuals to promote their vision of good government. But let’s not delude ourselves that this is the primary purpose; we need only look at the legal system and the tax code to see the effects of most of this giving. Below I give some recent examples from Bloomberg of the efforts of special interests to influence policy, made effective primarily through their support for political campaigns.

(For those of a squeamish disposition, I suggest you avert your eyes now since, to use a quote often wrongly attributed to Chancellor Otto von Bismarck of Germany, “Laws are like sausages – it is best not to see them being made”.)

Elon Musk’s Tesla Motors is trying to revolutionize the automobile industry in many ways. In addition to building innovative electric cars, they are also trying to change the way that we buy them, selling directly over the internet or through company-owned stores. This means that Tesla has run into a wall of opposition from the car dealers. How have the dealers fought back? Have they worked harder to earn the loyalty of their customers? Of course not; this is too much like hard work for an industry that routinely receives some of the most complaints at the Better Business Bureau and has one of the worst records for resolving these.

Although their customers seem to hate them, the dealers are fortunate enough to have friends in high places, thanks to the $86.8 million and the $53.7 million they have donated in State and Federal elections, respectively, since Tesla was founded in 2003. Tesla has pathetically donated less than $500,000 over the same period. And their friends are coming through: Tesla’s form of distribution has been banned or severely restricted in Texas and Virginia, and is close to the same fate in North Carolina. The dealers will certainly try elsewhere.

Elon Musk has now realized the folly of assuming that his only job is to make cars that people actually want to buy and he has now staffed up in Washington and the state capitals. Soon he will be spending much more on lobbying, money that otherwise would have been wasted on, for example, developing better batteries. In the words of Howard Marlowe, a lobbyist for 35 years and the past president of the American League of Lobbyists, “For a situation like this, they really need to be staffed up in Washington. They need to be protecting their interests…by showing they’re doing everything they can in Washington to maintain goodwill with key people in Congress.”

A parasite has spoken.

Then there is the recent story of how yacht owners are fighting to preserve the tax-deductibility of interest for loans used to acquire their boats. If you didn’t know that you could deduct some of the cost of buying a boat, then you are to be forgiven. I certainly was amazed to discover that the mortgage interest deduction for buying a home extended this far. But while you and I may be ignorant of this tax benefit, you can guarantee that those in the industry and their 114 friends in the Congressional Boating Caucus – yes, such an absurd organization exists – aren’t.

Finally, there is the story with the unintentionally ironic title “Zuckerberg Joins Benioff in Innovating Political Giving Patterns”. “Innovating”? Well, I suppose that is one way to describe it. The article goes on to show how technology entrepreneurs have eschewed any pretense of ideological conviction and are now unabashedly and promiscuously using political donations to pursue their self-interest: “The bipartisan donations to sometimes feuding politicians show how technology officials are innovating as they enter the political arena by picking people they are convinced will pursue policies in sync with their own. It’s a practice that leaves both parties grateful as the industry presses an expanding legislative agenda on such issues as trade and patents.”

Among other things, the article goes on to describe Eric Schmidt, Chairman of Google, giving $32,300 to the umbrella organization of the Senate Democrats, six weeks after giving the same amount to the Republicans. Other senior Google employees made similar offsetting gifts, to the tune of about $90,000, while the Google PAC split its $252,000 in donations for the 2014 elections 52% to the Republicans and 48% to the Democrats. Someone’s head will doubtlessly roll for that bias.

I think you get the point. One of the central themes of this blog is a process that has long been observed by economists: the ability of special interests to exert a grossly disproportionate impact on government policy simply because they care a lot more than the general public, which is frequently and logically ignorant of their shadowy doings. We like to think that the great issues of state are decided by intellectual debate and the clash of ideas, and this is probably true for the great issues of state. But for the routine matters of government – the regulations, the details of the tax code, the last-minute “pork barrel” amendments — the battles are fought on a far different field. In this field, a sympathetic ear, bought and paid for, is what counts. Until we eliminate the major method through which special interests work, the legalized form of bribery called “campaign contributions”, then there is little hope of enjoying better policies.

Roger Barris, London

I wish that I had said that…

(This is new feature of your continuously innovating Economic Man blog. Periodically, I will give a quote (or two) that I wish I had said. Here are the first two.)

Government is the great fiction through which everybody endeavors to live at the expense of everybody else“, Frederic Bastiat, 19th Century French Economist

The problem with the French is that they don’t have a word for entrepreneur“, George W. Bush (falsely, but hilariously, attributed)

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Posted in: Economics, Policy, Politics

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