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ADAM SMITH, CORPORATE WELFARE AND GENERAL WELFARE (PART II)

August 10, 2014

ADAM SMITH, CORPORATE WELFARE AND GENERAL WELFARE (PART II)
We saw in Part I of this essay that corporate America extracts from the wisdom of Adam Smith what suits their purposes and ignores what does not. This part will cover how America’s corporations do it.
Though neither Las Vegas nor Miami Beach existed at the time, conventions of corporate executives in the same or similar trades are what Smith had in mind when railing against such meetings as nothing more than an opportunity to engage in conspiracies or contrive to raise prices. He was right. I have no doubt that such a meeting of bankers, for instance, involves discussions of common problems, and I have no doubt that most such conversations have to do with either statutory or regulatory problems with government, especially with the possibility of the return of the Glass-Steagall Act (which would put an end to their Wild West global investment plans and esoteric paper shuffling – the same games they played that caused a near world-wide depression and brought bailouts and chaos to our credit market a few years ago). Such antics, however, are not the subject of this part. How they do it is the subject.
As we shall see with quotes from David Cay Johnston’s book, Free Lunch, and Elizabeth Warren’s book, A Fighting Chance, bankers don’t show up in the halls of Congress to lobby for or against bills or regulations. Nor do their lawyers or accountants, at least in the first wave in attempting to influence Congress. That honor belongs to lobbyists for the individual bank or the industry (“industry”suggesting a certain collusion between banks in their attempts to influence legislation or regulation, i.e., common interests = common front, which Smith would have rightly cited as proof of conspiracy and contrivance).
So who are lobbyists other than hired guns? What right do they have to parade through the halls of Congress in search of favor for their clients (at our expense) from the (supposedly) peoples’ representatives? It is based on the First Amendment right to petition government for a redress of grievances, and how do petitioning banks get their “grievances” heard? Easy – they make campaign contributions; they hire relatives of lawmakers; they provide jobs for those departing Capitol Hill and executive branch agencies, among other things. Some of their lobbyists provide free meals, golf junkets and various other inducements to Congress people and staff in order to have their “grievances” heard.
Some get caught (Abramoff and Congressmen from Ohio and California) and go to prison. Many walk, or better said, leave the Congress as regulators to executive positions with those they regulated in a “revolving door” process that is beyond suspicious. Former Representative Tauzin, a Republican of Louisiana and a strong backer of Bush’s drug bill which cost America 720 billion dollars over 10 years, for instance, left his congressional seat (post vote) for a job as chief lobbyist for a trade association called Pharmaceutical Research and Manufacturers of America at a reported salary of $2.5 million per year and with a budget of more than $100 million a year to lobby Congress on behalf of the drug companies. I am certain that Adam Smith would have condemned such a transparent payoff, and I would agree with him.
So as Johnston poses the issue in his book, what happens to the petitions of those who just want a responsive government, petitioners who are not seeking personal gain or offering donations? Good luck! Only rarely are the petitions of those who do not pay to play the basis for official action, beyond dropping them in the round file. Show me the money – or votes – or get lost. I’m busy.
Lobbyists for bankers are not bankers. They are shills for bankers. Bankers do not go on television to argue with the likes of Elizabeth Warren; they send their “industry spokesmen” to take the heat and make the bankers’ points. Except for occasional calls to appear before congressional committees, they sit back at the end of their yellow brick roads as some impenetrable Wizard in the Land of Oz, surrounded by legions of lobbyists, lawyers and accountants, all ready to defend the system that “has brought so much prosperity to America” (and other such fables). The following is illustrative.
Warren in her book earlier cited tells of an experience she had when a producer of a national TV news show called and asked her to appear on the show to debate a pending bankruptcy bill with someone from the banking industry. She asked the producer: “Who will the banker be?” He said he didn’t know but would find out and call her back. A few days later he called and said that the debate was all set, naming the other person they would invite. She asked what bank he worked for. The producer checked his notes and said that the other guest would be an “industry representative.” She told the producer that she would not debate a lobbyist and that if he could find a REAL banker who was willing to go on television and explain his company’s lending practices and their positions on this pending law on bankruptcy that she would be happy to debate him all night long – but not with a lobbyist.
Several days later he called back and said he had called bank after bank, and none of them would allow a representative to participate in the debate. She pointed out in her book that the giant banks employed countless executives, but not a single one would appear on television to defend their lending practices or explain all their lobbying in Washington. Not one. This unmasked the industry’s strategy, and it is this: Take no responsibility, don’t show your face, just keep spending millions of dollars behind the scenes. Let the “industry representatives” working at trade associations all over Washington talk to the media. Don’t put the bank’s name on the line in trying to explain your admitted bribes to Chinese officials in return for lucrative banking contracts, your crapshoots with credit derivatives and mortgage securities that brought the world’s economy to its knees. Just stay in Oz – where it’s safe.
Lobbying fees, like advertising, are tax deductible to the banks who utilize their services. That means that you and I are paying in part for what the banks are deducting from income subject to taxation, or as can otherwise be stated, we are paying for our own brainwashing. It is not bad enough that we have lobbyists roaming the halls of Congress to increase the taxes of ordinary people like you and me; we are even helping pay for the privilege to be taxed! As usual, the banks get the breaks and we get the bills.
One of my readers has asked me what we can do about lobbying. Beyond denying a tax deduction for lobbying expenses and a requirement that no legislator may take a job with any regulated activity that he or she has been involved in regulating, I fear there is little to be done. The main reason for this is that the Constitution provides that the House and Senate can make their own self-governing rules. It is a power zealously guarded, and it is thus unlikely that either chamber will vote to limit its members’ post-congressional employment opportunities. I would also expect a First Amendment Freedom of Speech defense to any attempt to deny deductions for lobbying expenses on grounds that it is designed to stifle or limit speech, though I think this has a better chance of passing constitutional muster than the area explicitly and constitutionally covered by the grant of (self) rule-making power to both bodies.
Public pressure demanding transparency might help, but don’t look for the lobbying industry to die. It is, after all, a success story. Our task is to pin responsibility on those in Oz that lobbyists front. GERALD E

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