Why Clinton’s Redistribution was Worse than Obama’s

Redistribution that is not actually felt by the losers at the time of its enactment is one of the most insidious features of the political order. Such legislation gives the illusion of a free lunch and disarms potential opponents who fail to recognize the costs that are coming. At least taxing Peter to pay Paul causes Paul immediate harm and prompts others to fear they may someday take Paul’s place. In contrast, silent redistributive legislation and regulation wreak havoc on democracy by undermining deliberation.

In this respect Bill Clinton was a much more dangerous politician than Barack Obama. To be sure, the current President never acknowledged that redistribution was one of the main purposes of Obamacare. Nor was he forthright about the policy’s redistributive effects. Misleading prospective losers, he promised, “If you like your plan, you can keep it.” But Obamacare’s costs have become clear relatively quickly, and the President’s party will pay a political price for them. Furthermore, Obamacare institutes new taxes to pay for some of its costs, even if these taxes were not transparent increases in the IRS tax rate schedules.

By contrast, one of Bill Clinton’s biggest redistributive scheme was almost completely hidden from the public eye. As Charles Calormis and Stephen Haber outline in their marvelous book about the relation of banks and the state, Fragile by Design, Clinton midwifed an agreement to lower the standards under which the government-backed agencies, Fannie Mae and Freddie Mac, guaranteed mortgages. As a result, poor individuals who previously would not have qualified for mortgages could buy houses. But the redistribution was not confined to the poor.  Reckless members of the middle class were encouraged to borrow excessively as well. When the housing bubble burst almost a decade after Clinton left office, taxpayers throughout the nation and indeed those laid off from the resulting recession felt the pain.

Clinton’s aim was consciously redistributive. Recognizing that Americans would not stand for the high taxes to support a massive European-style welfare state, Clinton supported “third way” policies that redistribute by government guarantees, aiding people to purchase housing they could otherwise not afford.  Of course, Clinton had many willing accomplices—big banks, activist groups like ACORN, and Fannie and Freddie Mae themselves. With their help, the slickest politician in many generations found a way to engage in the most silent redistribution.

In fact his redistributive action was so silent and so complex, that Bill Clinton remains very popular even after the taxpayer bailouts and job losses in a prolonged recession caused in no small measure by these very policies. It should remind us that opposing excessive spending and taxes is relatively easy. It is far more difficult to constrain silent redistribution, which clever politicians, like Bill Clinton, make their masterwork

John O. McGinnis

John O. McGinnis is the George C. Dix Professor in Constitutional Law at Northwestern University. His recent book, Accelerating Democracy was published by Princeton University Press in 2012. McGinnis is also the co-author with Mike Rappaport of Originalism and the Good Constitution published by Harvard University Press in 2013 . He is a graduate of Harvard College, Balliol College, Oxford, and Harvard Law School. He has published in leading law reviews, including the Harvard, Chicago, and Stanford Law Reviews and the Yale Law Journal, and in journals of opinion, including National Affairs and National Review.

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Comments

  1. nobody.really says

    In fact his redistributive action was so silent and so complex, that Bill Clinton remains very popular even after the taxpayer bailouts and job losses in a prolonged recession caused in no small measure by these very policies. It should remind us that opposing excessive spending and taxes is relatively easy. It is far more difficult to constrain silent redistribution, which clever politicians, like Bill Clinton, make their masterwork.

    Part of government’s role is to make encroachment onto private property explicit (e.g., via taxation), and to otherwise defend citizens from such encroachment. But risk is such an invisible way of encroaching, it’s always subject to manipulation. Plus, who can say precisely how much risk is optimal?

    Thus we have waves of deregulation, wherein government withdraws from its role defending the public (or the public purse) from encroachment. Fannie Mae and Freddie Mac are examples, but hardly the sole examples. Recall the savings & loan scandal? Enron? Consider the myriad environmental disasters that arguably reflect lax regulatory oversight: Oil tankers. Oil platforms. Oil pipelines. Depending on your views of second-hand tobacco smoke and global warming, known externalities continue to inflict harm on innocent bystanders daily — but only in a probabilistic way, so I guess that’s ok.

    • gabe says

      Nobody:

      If you look below to the post by a young Mr Aaron Gott, you may find an essay that may help to provide you with a more “nuanced” understanding of the Housing crisis as you have in the past made some claims that are countered by the research this young man has conducted and put together in a fine essay.

      take care, as always
      gabe

  2. says

    While I don’t disagree with your basic premise that this is problematic, it wasn’t just Clinton.

    First, Congress passed the Federal Housing Enterprises Financial Safety and Soundness Act in 1992, while Bush 41 was still president. This allowed HUD to set affordable housing goals. HUD initially set the rate for GSEs at 42%. Clinton’s HUD pushed this number upwards, but so did Bush 43. By 2007, the affordable housing target was 59%.

    • gabe says

      Good points:

      We can trace it back to Jimmy Carter and the Community Reinvestment Act in the late 70’s.

      It picked up steam when the clinton Justice Department started initiating law suits against the banks for “redlining” and also when they would hold up mergers umntil the banks agreed to meet certain “housing goals.
      Additionally, I forget when it was done but the government also authorized “community” groups to initiate legal actions against banks contemplating mergers if the groups believed that the effects of such merger would affect affordable housing. Boy that worked out well, didn’t it?

      • says

        That’s another example. In reality it goes all the way back to the New Deal. If you click on my name, it’ll take you to a paper I wrote in 2012 for a seminar class.

        Disclaimer: I don’t purport to be an expert on this topic; it’s way outside my area of scholarship.

        • gabe says

          Aaron:

          Unfortunately, it appears that the paper is not available for download at this time.
          If it is not excessively long, I would be interested in reading it.
          And don’t worry about not being an expert in this area.
          Over the course of my life, I have found that “expertise” is grossly, no make that maliciously, overrated and often masks bias and ignorance under the guise of scholarship.

          Over and out, buddy!

          • gabe says

            aaron:

            Very well done.

            Perhaps, a little more on the role of the Wall street houses and the “perverse incentives” which impelled them to act as they did would be of benefit.

            Otherwise, a solid piece with good research and one that some folks on this site would benefit from reading.

            Nobody.really is one i have in mind!!!

  3. gabe says

    ” wherein government withdraws from its role defending the public (or the public purse) from encroachment”

    Well, I guess it depends upon how one defines the public.
    We, meaning me, paid for this statist attempt to assure “fairness” in housing (however, one chooses to define fairness). so I would not go so far as to say that the government was “protecting” the public purse.

    Also with respect to second hand smoke and global “hot air”, Oops, I must mean climate change. Can one really argue that the government was protecting the public purse?
    1) Take second hand smoke: to begin with the “study” was not one study but rather a series of 24 separate studies, 22 of which failed to meet the then accepted standard of .05 degree of correlation. so what did our “studiers” do – well they simply changed the standard to .20. quite a difference, wouldn’t you say?
    Oh, and yes, there was the small matter of the ensuing tobacco settlement which was a means for the state(s) to impose an onerous tax (and regressive as most smokers are lower income) while employing the method of silent redistribution by having the tobacco companies collect the tax. Oh, I forgot, the states were to use this to fund smoking cessation efforts. right! In my state a one person phone line is all it takes. Nice gig, if you can get it.
    (Ever wonder why the big push on soft drinks and obesity – followed shortly thereafter with calls for increased taxes on soft drinks/)
    2) Global hot air: this really protects the purse of the public doesn’t it. From increased food / grain prices due to ethanol mandates, to higher utility rates, to “bankrupting” the coal industry that the Enlightened One assured his accolytes that he was determined to do, to hopelessly unattainable vehicle emission / MPG standards which result in reduced weight for automobiles resulting in increased traffic fatalities – one can readily see how this has helped the peoples purses.
    Methinks, one is attempting to make a silk purse out of the pig’s ear. I prefer the one without the hair and stink!!!

    I take my purse made out of the usual carbon / petroleum by-product – plastic!!!

    take care
    gabe

    I think I will go and drive my SUV for a little while, buy a couple of packs of cigarettes, and Big Gulps etc. The added gas and tobacco taxes may help fund the government for a millisecond.

  4. johnt says

    Clinton’s redistributive policy was silent due to the coverage that it received, obfuscation even today by our willfully ignorant press. You may pick up any paper today and read of the mismanagement and of course greed of the big banks. Never mind that Fannie and Freddie required the bundling and passing off of this worthless paper on those very banks. J P Morgan appears to be the target de jour at the moment. The irony is that this contributes to the sagging economy, never mind the foreclosures.
    I note some quite astute observations above, I defer to them.

  5. nobody.really says

    1. Aaron Gott: “I don’t purport to be an expert on this topic; it’s way outside my area of scholarship.”

    Dude, what is your area of scholarship? Did you also write Ticky Tacky Little Governments?

    Nice work, guy. If you’re willing, let us know where you land.

    2. Boiled down, Gott (and McGinnis) argue that market failures exist and that government can both remedy and exacerbate them. I share this view. The politician that gives away unsustainable subsidies to homebuyers may not act in the public interest – but nor does the politician that gives away unsustainable tax breaks. Corrupt motives may prompt government action — and inaction. There’s no conceptual basis to focus on the one rather than the other.

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