Last November, Barack Obama stood before an audience and said government needs to be “responsive to the needs of people, not the needs of special interests.” He added, “That is probably the biggest piece of business that remains unfinished.”
He made those remarks, the New York Times reports, before a $17,900-a-plate fundraising dinner at the home of Dwight and Antoinette C. Bush, two heavy contributors to his reelection. But according to the Times, that wasn’t Antoinette Bush’s only contact with Obama. Six months earlier, she had visited the White House, bringing with her a “top entertainment industry lobbyist.” That was when a big brouhaha was erupting between that industry and Internet companies over online piracy.
The visit of a big political contributor and an industry lobbyist to the White House may not normally raise eyebrows, but this is the Obama White House. The Times notes,
Although Mr. Obama has made a point of not accepting contributions from registered lobbyists, a review of campaign donations and White House visitor logs shows that special interests have had little trouble making themselves heard. Many of the president’s biggest donors, while not lobbyists, took lobbyists with them to the White House, while others performed essentially the same function on their visits….
[The] regular appearance of big donors inside the White House underscores how political contributions continue to lubricate many of the interactions between officials and their guests, if for no other reason than that donors view the money as useful for getting a foot in the door.
Welcome to Obama’s new world. It looks a lot like the old.
And that is not the only way it resembles politics as usual.
Like his predecessors, Obama has been a good friend to big companies, especially banks. Take Bank of America. BoA is what you’d expect of a financial institution coddled by government subsidies and privilege: inefficient, corrupt (unjustly foreclosing on homeowners), and a frequent corporate-welfare recipient. Rolling Stone contributing editor Matt Taibbi reports that when BoA needs help, Obama is there. Taibbi writes that BoA is
a de facto ward of the state that depends heavily upon public support to stay in business. In fact, without the continued generosity of us taxpayers, and the extraordinary indulgence of our regulators and elected officials, this company long ago would have been swallowed up by scandal, mismanagement, prosecution and litigation, and gone out of business. It would have been liquidated and its component parts sold off, perhaps into a series of smaller regional businesses that would have more respect for the law, and be more responsive to their customers.
But Bank of America hasn’t gone out of business, for the simple reason that our government has decided to make it the poster child for the “Too Big to Fail” concept.
Whom can we thank? In part, Barack Obama, who’s planning to run a populist reelection campaign pitting the wealthy and well-connected against the rest of us. Hypocrisy lives — even in Obama’s supposedly postpolitical world.
According to Taibbi, “Bank of America … is perhaps the biggest welfare dependent in American history, with the $45 billion in bailout money and the $118 billion in state guarantees it’s received since 2008 representing just the crest of a veritable mountain of federal bailout support, most of it doled out by the Obama administration.” (Emphasis added.)
In a revealing move, BoA soothed nervous creditors last year by shifting $73 trillion in derivatives to the part of the bank recovered by federal deposit insurance — a/k/a the taxpayers.
Writes Taibbi, “This move, encouraged by the Obama administration, put the American taxpayer on the hook for an entire generation of irresponsible gambles made by another failed investment firm that should have gone out of business, but was instead acquired by Bank of America with $25 billion in taxpayer help — Merrill Lynch.” (Emphasis added.)
That is just one of the many ways in which Obama reveals himself as a friend of big, well-connected business interests — that is, as an advocate of the corporate state. His occasional criticism of oil companies and big banks masks an essentially corporatist program in which government assists business.
Obama has no shortage of the corporate elite among his advisors, such as Jeffrey Immelt of GE, who chairs his Council on Jobs and Competitiveness, and Jim McNerney of Boeing (and formerly of GE), who chairs the President’s Export Council. Both are recipients of largess from the Export-Import Bank, a government agency that exists to help American firms sell products abroad.
So on the Democratic side of the upcoming election, we find a staunch corporatist, a friend of big business, and big banks. And what of Obama’s presumptive opponent, Mitt Romney?
The Romney “alternative”
The former Massachusetts governor and private-equity capitalist speaks often about free enterprise and the need for government to let entrepreneurship pull the economy out of its current doldrums. That sort of rhetoric is common for Republicans, who then proceed to violate what libertarians understand as true economic freedom. George W. Bush, in a weird Orwellian manner, took this contradiction to its final stage of absurdity when he said during the 2008 financial debacle, “I’ve abandoned free-market principles to save the free-market system.” (How reminiscent of the way Vietnamese villages were spoken of in the 1960s.) In other words, the free-market system is not constituted by free-market principles. But if that’s the case, what is the system constituted by? Non-free-market principles? To be sure, no one expects intellectual rigor from politicians, but isn’t that ridiculous?
Republicans may not typically speak so bluntly, but in his statement Bush captured something important about his party’s “philosophy” — if its collection of op-opportunistic attitudes deserves that noble label. To (most) Republicans, “the free-market system” isn’t a set of principles (obviously); rather it is an emotional slogan to be spoken, especially as an election approaches. It’s a way of saying, “Vote for us because the other guys aren’t good Americans like we are. Their commitment to free enterprise is suspect. Heck, they may even be Marxists.”
That attitude shows up in odd ways with Romney. He says, “We are only inches away from ceasing to be a free-market economy.” But that must mean we now have — and have had — a free-market economy. Does he really mean that? If so, would he agree with Bush that free-market principles were “abandoned” with the bank bailouts such as TARP and the GM/Chrysler rescues?
Another implication of his attitude is that the free market was responsible for the housing and financial debacle. We’re not likely to hear Romney say that — it would concede too much to Obama — but it’s logically implied by his remarks: If we’re within “inches” of losing the free market, then we must have it now, and if we have it now, we presumably had it during the Bush years, 2001–2009, or else Obama would have had to restore it. Hence, the free market created the housing bubble, its collapse, and the accompanying financial troubles.
That position diverges markedly from what free-market advocates think happened. Aside from differences in some details, the essential story is this: Low-interest-rate money from the Federal Reserve, aggressive government policies to increase home ownership — even among people with bad credit histories or low incomes — and additional forms of government intervention combined to create an unsustainable bubble in the housing industry, which in turn helped increase the fragility of the financial sector. (Dubious mortgages became the foundation of widely held securities and derivatives, facilitated by government-sponsored enterprises — Fannie Mae and Freddie Mac — and a government-licensed rating cartel.) When the artificially induced boom collapsed — as was inevitable — a colossal cluster of investment errors came to light; hence the recession, which is the revelation that government policy led to a gross misalignment of resources (labor and capital) and consumer demand. That is what Ludwig von Mises called “malinvestment.” Given that an economy consists of a time-oriented, interest-rate-sensitive “structure of production” created according to people’s plans and expectations about the future, the misleading signals generated by government (including Fed) policies put the economy out of whack. The quickest way to a sustainable recovery is for the government to radically retrench so that the errors can be corrected and the economy can align itself with consumer preferences, including their saving predilections.
Does Romney give even a hint that he understands that? If he did, he wouldn’t be talking as though the free market exists (even after three years of Obama rule) and that we still have it to lose.
Beyond that, Romney expresses his orientation toward political economy when he says, “Washington has to become an ally of business, not the opposition of business.”
A free-market advocate would know that doesn’t exhaust the alternatives. Government should be neither an ally nor an opponent of business because each alternative implies interference with private property and free exchange. That may be harder to see in the case of a business-government alliance. One needs to remember only that we live in a world of scarcity. If government helps one industry or firm, it must do so by channeling scarce resources away from other uses. That disables the process by which entrepreneurs attempt to devote resources to purposes most favored by consumers. It’s a form of government privilege, which many businessmen are all too happy to receive — at the expense of others.
Obama himself could honestly say he agrees with Romney’s statement. He too believes government should be business’s ally. Their differences over the precise mix of government and business decision-making power should not fool anyone into thinking that they have a fundamental disagreement. Unfortunately, we must look forward to an election between two variations on this corporatist theme.