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.
Dan Henninger authored a fascinating column in the Wall Street Journal a few days ago comparing people who became rich honestly to those who used government favoritism. He warns that Obama's policies will encourage the latter version - meaning that smart entrepreneurs will seek wealth by gaming the political system. At best, this is a zero-sum game for the overall economy, and it is quite likely that it will reduce prosperity since labor and capital will be allocated based on political power rather than market forces. But there are two other reasons to reject Obama's industrial policy. First, political control is necessarily unjust and corrupt since political insiders will have an advantage. This is something that also should upset honest left wingers. As my Cato colleague Will Wilkinson sagely noted, "…the more power the government has to pick winners and losers, the more power rich people will have relative to poor people." Second, this system undermines support for genuine free markets because the average person begins to associate wealth with corrupt government handouts. This insight (sent to me by an American who fled Greece many years ago) helps explain why average people sometimes support punitive tax rates in hopes of clawing back some of the unearned wealth in the hands of insiders. The downside of that approach, of course, is that the honest and productive entrepreneur also suffers from those policies, thus undermining the economy's ability to generate earned wealth:
...a small classic by Hillsdale College historian Burton W. Folsom called "The Myth of the Robber Barons: A New Look at the Rise of Big Business in America" (Young America's Foundation). Prof. Folsom's core insight is to divide the men of that age into market entrepreneurs and political entrepreneurs. Market entrepreneurs like Rockefeller, Vanderbilt and Hill built businesses on product and price. Hill was the railroad magnate who finished his transcontinental line without a public land grant. Rockefeller took on and beat the world's dominant oil power at the time, Russia. Rockefeller innovated his way to energy primacy for the U.S. Political entrepreneurs, by contrast, made money back then by gaming the political system. Steamship builder Robert Fulton acquired a 30-year monopoly on Hudson River steamship traffic from, no surprise, the New York legislature. Cornelius Vanderbilt, with the slogan "New Jersey must be free," broke Fulton's government-granted monopoly. If the Obama model takes hold, we will enter the Golden Age of the Political Entrepreneur. The green jobs industry that sits at the center of the Obama master plan for the American future depends on public subsidies for wind and solar technologies plus taxes on carbon to suppress it as a competitor. Politically connected entrepreneurs will spend their energies running a mad labyrinth of bureaucracies, congressional committees and Beltway door openers. Our best market entrepreneurs, instead of exhausting themselves on their new ideas, will run to ground gaming Barack Obama's ideas. ...Political entrepreneurs create fewer jobs than do market entrepreneurs. We need new mass markets, really big markets of the sort Ford, Rockefeller and Carnegie created. Great employment markets are discoverable only by people who create opportunities or see them in the cracks of what already exists—a Federal Express or Wal-Mart.
